SWITZERLAND. AM056e-X 1 EB

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1 SWITZERLAND AM056e-X 1 EB

2 WRITTEN STATEMENT BY MS BEATRICE MASER-MALLOR AMBASSADOR ALTERNATE GOVERNOR FOR SWITZERLAND ON BEHALF OF SWITZERLAND I would like to thank the Polish government for hosting the 23 rd Annual Meeting of the EBRD here in Warsaw. Poland is a showcase of the positive outcome resulting from a highly successful transition process. It is a role model for other countries in terms of demonstrating how outside support - be it from the EBRD, EU cohesion funds, or bilateral donors - can help accelerate transition in an environment of sound domestic macroeconomic and structural reform policies. General remarks The recovery in EBRD s region is generally fragile: credit growth remains weak, and debt and nonperforming loans stand at alarming levels. In addition, downside risks prevail in light of the events in Ukraine and their possible sizable impact on the wider region. This fragile environment calls for deep and substantial structural reforms, creating an opportunity for the Bank to play a major role in fostering transition towards market economies and deepening the role of the private sector whilst applying the principles of pluralism and democracy as enshrined in its mandate. Medium-Term Directions Since its establishment more than 20 years ago, the EBRD has financed an impressive number of successful projects. Many of these projects have brought a substantial positive change not only for the entity receiving the investment, but also for others benefitting from positive spill over effects. The Bank has successfully created a strong portfolio in a generally volatile and fragile environment, whilst managing its risk to maintain its AAA rating: in this respect, the Bank is indeed a success story. Whilst the performance of individual projects tells a good story, the picture is more complex when we consider the level of transition progress of countries of operations. Some countries made impressive strides forward over the last two decades. However, in other countries there is still much to be done to advance transition in both the economic and political aspects of the Bank s mandate. Thus, the question is how the Bank can re-energize transition and help to improve the chances of success at the individual country level. The medium-term directions presented to the Board of Governors provide, in my view, a good approach to help the Bank to become more active and deeply engaged in achieving this goal. Out of the many strategic orientations put in this paper, I want to highlight the following: AM056e-X 2 EB

3 As regards the geographic focus, we continue to take the view that the Bank should be moving more East and South into its region. The incremental value of the resources provided by the shareholders is greatest in places where the transitions gaps are high. This is in particular the case in the Western Balkans, in Eastern Europe and the Caucasus, and in Central Asia. The Bank should use all its available tools and take a flexible approach to allow it to optimise its impact. In particular, policy dialogue and technical cooperation should be intensively applied in difficult environments. Obviously, this approach has opportunity cost: deploying substantial staff resources in such a way could result in a reduced profit for the Bank. However, we see the Bank as an instrument to encourage economic development and democratic values: whilst profit is important for the bank to enable it to maintain its vitality and sustainability, it should not become the main driver of activity. I am encouraged by the wording on graduation and interpret the time notion as a 2020 horizon. With EBRD support, some countries have made huge progress over the last 20 years based on the implementation of sound domestic policies. The consequence of this success is that these countries are strong enough to be on their own and no longer in need of the support by a publicly funded institution, like the EBRD. To smooth out the process of graduation from ERBD support, the Post-Graduation Fund has been created; we welcome the creation of this mechanism to facilitate the process. I find the move towards a better and more systematic measurement of performance across various levels, including the country strategies, the strategic initiatives, as well as the Bank as a whole will over time contribute to strengthening the effectiveness of the Bank. In addition, such a move will enhance the accountability of the Bank towards its shareholders and the wider public. Only with a well formulated performance framework will the Bank be able to constantly adapt its approach to better suit the needs of the beneficiary countries and to optimise its impact in the face of changing circumstances. We thus encourage the Bank to further progress in this direction and look forward to seeing concrete results of these efforts in the near future. We support to review the Bank s risk profile. Many improvements have already been made to help the Bank to better manage risk. However, more needs to be done to optimise the risk profile of the Bank and allow it to take greater risks whilst safeguarding its AAA rating. The Bank has grown much over the last two decades and has, over time, taken on a number of new tasks and responsibilities at the request of shareholders. As the Bank starts to consider the direction it should take over the coming years, it is good time to look systematically into its activities and work out where perhaps it no longer needs to intervene or could do less, thus freeing up resources for the strategically most important tasks. If this exercise is undertaken rigorously, the result will be a better focused and stronger Bank. Southern and Eastern Mediterranean (SEMED) region The Bank has had some initial success in recent months as it has started to establish itself in the SEMED region. Governors are being asked now to grant membership to Libya, a request to which we can agree. Recently, the level of operations has been substantially scaled up in the countries in which the Bank is already active. This is a positive development. However, the first experience also shows the challenges faced by the Bank in operating in such fragile political and economic environments. It is our view that the Bank should continue to value transition impact higher than AM056e-X 3 EB

4 business volume, and firmly maintain its position with respect to its political conditionality. In this respect, we assume that the granting of recipient country status to members will be carefully scrutinised and decisions will be made with due respect to the requirements of the Articles of the Agreement Establishing the Bank, in particular the political conditionality enshrined in Article 1. EBRD Planning Process In our view, the planning process of the past has served the Bank well. However, we accept the argument that, in an increasingly volatile environment and in the context of a larger group of recipient countries, the traditional five-year planning cycle may prove too rigid. Therefore, we agree with the proposal to move to a two-tier approach, distinguishing between longer-term issues laid out in a five-year plan essentially containing the medium-term directions, the capital review and some control parameters and medium-term, more detailed, planning issues to be discussed on a three-year basis. While this gives room for some additional flexibility, and while deviations of the planning documents might occur, we nevertheless believe that this flexibility should only go along clear lines that have been discussed and agreed to by shareholders. Recipient Country Status of Cyprus Whilst we advocate that the Bank should focus its engagement in countries with the biggest transition needs, we acknowledge the particularly difficult situation faced by Cyprus at the current time and agree that many of the major challenges the country is facing are in fields where the EBRD has high competency. We welcome the proposal to engage in Cyprus on a strictly time bound and highly focused basis whilst recognising that EBRD s success will depend on a very strong reform commitment by the authorities. However, we believe that Cyprus is an exceptional case and do not see this as a precedent for other advanced transition countries in the future. Composition of the Board of Directors The Bank s current system of governance has allowed the Bank to prosper; however, we recognise the need to give stronger voice to the increased number of the recipient countries. We hope that a sound solution can be found to increasing the representation of recipient countries in the Board of Directors without losing the overall integrity of the current structure which has served the Bank so well. In this respect, we encourage the Bank to explore avenues to strengthen the objective and role of Advisors. Given that we do not want this exercise to be too time consuming and resource intensive and thus overburden Shareholders and the Bank, Switzerland would certainly look favourably at possibilities to come to a quick solution of the issue over the coming months. Donor Architecture Over the years, the Bank has increasingly appreciated the strategic value of donor contributions, allowing it to test new products, or more deeply explore areas of activities that cannot be adequately funded from the Bank s own resources. The issue is now how such donor resources can most effectively and efficiently be used. With Switzerland being one of the main donors to the EBRD, we have a strong interest in optimizing the funding architecture and the related governance structures of donor funds. Thus, Switzerland initiated a discussion last year on exploring ways to better improve the donor architecture. AM056e-X 4 EB

5 In our view, multilateral funds allow donors to achieve more than they could do on their own. Such funds with strong alignment with the Bank s priorities or with strong institutional support in the Bank tend to perform better. While we understand and appreciate the iterative process and progress to date, we see room for further improvements of the Bank s communication with donors. We believe that a more strategic approach and a more co-ordinated use of scarce donor-funds at the EBRD will strengthen partnerships between donors and the EBRD, making such contributions more attractive for donors and better manageable for the Bank. Switzerland invites the Bank to be bold in its decisions on this matter and to link reform steps to best practice of other international financial institutions. AM056e-X 5 EB