(Adds quotes from Ukraine and Kazakhstan officials)
By Natsuko Waki and Sujata Rao
LONDON May 15 Central and eastern Europe faces
at least another year of economic pain even if the worst of the
crisis has passed, regional policymakers and bankers said on
Friday, urging western European institutions to do more to help.
Speaking at the annual meeting of the European Bank for
Reconstruction and Development, many delegates said the European
Central Bank and the European Commission could do more in
efforts to overcome a financial shock that has forced many to
seek rescue packages from the International Monetary Fund.
Ukraine's deputy prime minister told Reuters the country
needs more funds on top of its existing $16.4 billion IMF
bailout, which is proving to be insufficient to stabilise an
economy it now expects to contract 4-6 percent this year.
"The IMF funds are not enough," Hryhory Nemyria said in an
interview, bemoaning greater access to cash for European Union
members like Hungary.
"The question is why, for such countries like our neighbour
Hungary, the approach seems to be working -- the IMF plus the EU
-- (and it) is not possible for Ukraine," he added. "We have the
IMF, the EBRD, the European Investment Bank, and World Bank but
the EU is not on the horizon. That's a major contradiction by
definition and we are seeking answers for that."
Even EU members within the 30 countries in which the EBRD is
active and EBRD officials themselves, said more support from
western Europe was needed to ease the financial and economic
shock experienced during the credit crunch.
EBRD chief economist Erik Berglof said that while the region
was adjusting it was important to help reduce the large foreign
exchange exposure in both household and corporate sectors.
"Banks can also be supported by the provision of swap lines
from international financial institutions," he told the meeting.
"The extensions of such lines from the European Central Bank
could help central banks in a few countries to improve the
liquidity of foreign exchange markets."
Czech central bank head Zdenek Tuma said existing support
systems were not enough and bemoaned the reluctance of the ECB
to do more than its existing swap lines with Poland and Hungary.
"The European institutions can be more active," Zdenek Tuma
told Reuters. "The ECB doesn't want to do that... It's a
question for the ECB and the European Commission in which they
can be more active," Tuma added.
Tuma's comments came a day after the ECB rejected several
Central European central banks' request to accept non-euro zone,
local currency bonds as collateral, meaning banks cannot use
bonds issued by the region's governments in short-term repo
deals to borrow euros from the ECB.
STABILISATION, NOT RECOVERY
The EBRD, who says its 2.3 billion euros of loans and
investments to the region so far this year is up more than 50
percent on the year, held out some hope for a recovery in 2010.
"We are now predicting a slow 'bottoming out' of the
recession this year followed by the beginnings of recovery in
2010," EBRD President Thomas Mirow said.
But the development bank, set up in 1991 to help the
region's transition from communism to market economies, also
came in for some criticism for its role in a region that was
seen to be highly vulnerable to the global credit squeeze.
Kazakhstan's central bank governor Grigory Marchenko told
Reuters he felt the EBRD was "asleep at the switch" as a
shareholder when stricken Kazakh bank BTA BTAS.KZ went on a
borrowing spree in recent years.
"EBRD was a shareholder in BTA they could have intervened
and done something earlier," Marchenko told Reuters in an
interview at the EBRD's annual meeting.
"They were, how do you say, asleep at the switch. The
problems became more evident in the late fall 2008, it was
evident to market participants."
Kazakhstan's largest bank was nationalised earlier this
year. It defaulted on $550 million in bilateral loans and
stopped paying the principal on its wholesale borrowings and is
currently in talks with creditors on restructuring that debt.
Apart from the financial sector, however, Marchenko said the
EBRD had done a reasonable job.
The EBRD said earlier this year that it is contributing 6
billion euros to a 24.5 billion euro two-year package led by the
World Bank and the European Investment Bank for central and
OUTLOOK STAYS GLOOMY
Hopes for a regional recovery were thin on ground, however.
Data released on Friday showed regional economies shrank
faster than expected in the first quarter after imploding demand
in key export markets hit industries, while weak GDP data from
key export market Germany leaves a grim near-term outlook.
Both the EBRD and IMF see some of the region's biggest
economies -- notably Poland and the Czech Republic -- returning
to minimal growth next year. But that remains a poor result
compared to years of booming expansion and private sector
bankers attending the conference were much gloomier.
"I am very far from saying we are seeing a turnaround," said
Herbert Stepic, chief executive at Austrian bank Raiffeisen
International, which has extensive business in eastern Europe.
"The real downturn is starting now. We are coming to the
real deep crisis in the real economy," he said.
Burdened by high external deficits and with trouble
borrowing in the global credit crunch, the eastern Europeans
have mostly steered clear of the fiscal stimulus used by major
western economies. Most have actually cut spending.
Georgy Suranyi, regional chief for Italian bank Intesa
Sanpaolo and a former Hungary central bank chief, said he was
worried that fiscal and monetary policies being adopted across
the region could exaggerate the downturn.
He said: "Most of them, except perhaps the Czechs, responded
pro-cyclically, which will cause an even deeper recession."
The EBRD currently forecasts a 5.2 percent contraction this
year for the entire region it operates in -- which includes
non-EU countries further east.
(Additional reporting by Sebastian Tong, Michael Winfrey,
David Milliken, Olesya Dmitracova; writing by Mike Dolan;
editing by Patrick Graham)