* Effects of Ukraine crisis to dominate EBRD meeting
* Growth forecasts for region to be cut, Russia's to be
* Cyprus aid to be agreed, Libya to take first step to aid
By Marc Jones and Christian Lowe
LONDON/WARSAW, May 12 A quarter century after
the Cold War ended, the European Bank for Reconstruction and
Development will cut its growth forecasts this week as a new
East-West standoff over Ukraine hurts many post-communist
The EBRD, created in 1991 originally to invest in the former
Soviet bloc countries of eastern Europe, opens its annual
meeting on Wednesday as shockwaves rock even economies far from
the centre of the crisis in Crimea and eastern Ukraine.
The confrontation is nowhere as serious as the Cold War,
when East and West targeted each other with nuclear missiles,
but the EBRD is still worried about the consequences.
"We all talk about the impact on Ukraine and eastern Europe
but it is also very serious for Central Asia," EBRD head Suma
Chakrabarti said before the three-day meeting in Warsaw. "Some
of these countries are very fragile."
In recent years, the EBRD has expanded its reach beyond
eastern Europe and ex-Soviet central Asia to include Mongolia,
Turkey and the economies affected directly or indirectly by the
Arab Spring such as Morocco, Egypt, Tunisia and Jordan.
But Russia remains its biggest market by far and economic
problems were growing there well before Moscow annexed Crimea
from Ukraine in March, drawing retaliatory sanctions from the
United States and European Union.
EBRD funding in Russia slumped last year to 1.8 billion
euros from 2.6 billion in 2012 due to what the development bank
termed "difficult investment conditions".
Western sanctions have targeted a limited number of Russian
individuals and companies, and Chakrabarti has said there has
been no pressure so far from the EBRD's main shareholders - G7
governments - to reduce its investments in Russia.
NEW FORECASTS, NEW COUNTRIES
However, the Russian economy is slowing sharply with capital
flowing out partly due to fears the West will tighten sanctions.
At the start of 2014, the EBRD projected Russian growth at
2.5 percent. But two weeks ago the International Monetary Fund
cut its forecast to 0.2 percent and the EBRD's revised estimate,
to be announced at the meeting, is likely to be similar.
Financial markets have given central and eastern Europe a
turbulent time over the last six months, with currencies, stocks
and bonds all flung around by the uncertainty.
Despite a recent emerging markets rebound, Russian stocks
are down 20 percent since November and even those in
Poland and Hungary have slipped 7-8 percent. All
are badly underperforming the MSCI's main emerging market index
which is down just 1 percent.
Projections for Turkey, the other big economy in the EBRD's
fold, are also likely to be cut, while the slow pace of recovery
in euro zone countries - big investors in central and eastern
Europe and consumers of its goods - will cut into the
region-wide forecast which was already an unspectacular 2.7
percent in January.
While EBRD leaders are highlighting the wider effects of the
crisis, analysts say they need to encourage governments in the
region to keep reforming and investors to keep putting their
"The issue that the EBRD is really facing is that they have
been pushing this line that convergence may have been radically
altered by the events in periphery Europe," said Nomura emerging
market economist Peter Attard Montalto. "They need to define a
new argument that is going to keep countries on the reform path
and investors interested in these economies."
At the meeting the EBRD will outline a new, tougher approach
for dealing with countries which renege on reform promises,
while taking in two new countries, Cyprus and Libya.
EBRD signalled what could be in store on Monday when it
signed a new anti-corruption agreement with Ukraine under which
it and the Organisation for Economic Cooperation and Development
will install monitors in the country.
"We at the EBRD have come to the conclusion that we need to
be at the forefront in our relationship with governments in our
region to push the cause of structural reform more strongly than
(has) perhaps been done in the past ten years," Chakrabarti said
at a recent event.
Central and eastern Europe have problems beyond the effects
of the Ukraine crisis.
Lending by the local subsidiaries of Austrian, Italian,
German and Greek banks is slowing in parts of the region as
their parents retrench following the euro zone crisis. Levels of
bad loans are also high, notably in the ex-Yugoslav states,
Bulgaria and Romania.
Political strains are also widespread, including the risk
that Poland will relax fiscal discipline before elections next
year's election. Hungary's policies remain under scrutiny while
the collapse of Slovenia's government last month has triggered a
Cyprus will become the first of the euro zone bailout
countries to get EBRD aid, with up to 700 million euros of
funding over the next six years expected to be agreed. Libya
will also take its first step towards similar assistance.
($1 = 0.7269 Euros)
(Reporting by Marc Jones; editing by David Stamp)