The European Bank for Reconstruction and Development was founded following the collapse of communism, and has turned out to be a resounding success. Jean Lemierre, who is stepping down after eighty years as its president, urges the EBRD’s shareholders to be true to its founding principles

Since its creation in 1991, following the fall of the Berlin Wall, the European Bank for Reconstruction and Development has joined the pantheon of international financial institutions dedicated to creating prosperity and driving economic change. Yet it has been, perhaps, an unlikely success story. Launched into a sea of paradox(es), the EBRD has gone from strength to strength while gaining momentum from precisely those inherent contradictions: it is a public sector institution that deals mainly with the private sector, a “development” bank that costs more than the commercial market and it is a European bank that is not only active in countries outside Europe, but is also partly owned by them.

The feature that has singled out the EBRD has been its ability to adapt to changes in the regions where it operates, adjusting its approach to meet local needs while remaining true to its founding principles. That said, the bank I have had led for eight years is in many ways a very different institution from the one I joined in 2000.

Its focus has moved away from those countries it was created to support. The Bank is proud of the contribution it made to help eight former communist states join the EU in 2004. But the real achievement was made by the people of those countries. After the collapse of the old system they endured drastic economic reform – perhaps not even benefiting from it themselves, but in the belief that they were working towards a better life for their children and future generations. When I visit those countries now I see the fruits of those sacrifices, even if there is still more to do.

The EBRD has moved further east and south. The challenges that Poland and the Czech Republic grappled with in the 1990s are still present across great swathes of the EBRD region. The conflict that ripped through Yugoslavia in the 1990s meant there was no opportunity then even to contemplate economic reform. The countries of the western Balkans are now ripe for that change and the EBRD is ready to make its contribution..

A changed Russia in the 1990s, following the break-up of the Soviet Union, was seen by many in the West as a haven of burgeoning democracy. The Cold War had been won and the country was “enjoying” the victor’s regime of a free market economy. But for millions of Russians the 1990s were a period of economic disaster and personal tragedy. That situation is now changing. And even though questions remain about some basic democratic freedoms a new generation is emerging in Russia that is perhaps less burdened with the oppression of history and more interested in a decent standard of living, the ability to travel, good access to health and education for their families.

The challenge for the West, and the EBRD remains a key part of this process, is to develop an economic partnership with Russia that is mature and balanced. But the broader economic issues persist. In the resource-rich countries of the former Soviet Union, there is the need for diversification to create a sustainable domestic manufacturing industry that will provide for prosperity even when the price of oil is well below $100 a barrel.

In many of the countries where we in the EBRD work there has been an understandable desire to have access to consumer goods. But consumer-driven economic growth is unbalanced and hides the seeds of future economic problems. As important as it is to have a thriving demand side of an economy, it is equally crucial to build up the supply side, supporting a domestic industry that will impose less of a strain on a country’s balance of payments. A stable financial sector is the life blood of any mature economy, and the creation of an infrastructure that allows the economy to function.

To pluck just one figure out of a hat, Russia’s infrastructural investment programme up to 2020 calls for investments of $1 trillion, a sombre rejoinder to critics who say Russia is awash with liquidity and needs no external financial support. Over the past 16 years the EBRD has invested more than €30bn across its countries of operations, and garnered third party support for total investments well in excess of €100bn. But the special contribution that the Bank has made − and which it will continue to make − is not the amount of public sector funding it has provided. The actual numbers are a drop in the ocean. But the investments support and are a catalyst for change; they are conditional, driving the process of economic transformation, whether by insisting on good corporate governance, being targeted at building up competition in one particular industry or by strengthening the development of a socially sustainable private sector.

Initiatives by the EBRD throughout the region have always had a practical purpose. The bank’s Sustainable Energy Initiative, launched in 2006 in response to concerns about climate change, made an immediate impact on companies and economies by providing finance to promote energy efficiency in homes, industry and local utilities. The bank has helped to develop domestic capital markets so that they can provide local currency funding to industries for which an accumulation of foreign currency debt could prove fatal.

The bank has been agile. In 2004 it created facilities for what it calls Early Transition Countries – those with less advanced economies − providing small scale funding for thousands of micro enterprises, so helping to create a bedrock of entrepreneurship.

For me, though, the special strength of the EBRD is in its ownership and geographical structure. The bank is present in all the countries in which it invests, and in some countries in several key cities. And not by just a letterbox address but with resident offices teamed with dedicated bankers and sector experts.

The countries where the EBRD operates are also its shareholders, so there is a genuine sense of regional ownership. The EBRD office in Tbilisi is not an outpost of some remote western economic power group. It is a local bank, working with local clients and helping to build up a local economy.

The bank is also truly multilateral, truly international. It is American, it is Japanese, it is Turkish. Crucially, it is also Russian, it is Hungarian, it is Georgian, Serbian, Kazakh and Mongolian.

In any institution such as the EBRD there will always be questions about future strategy. Where should the bank be active, how much should it invest and in what sort of projects and, thankfully in the case of the EBRD, what should it do with its profits?

When these serious questions are considered by the bank’s larger shareholders they should remember the importance of its special ownership structure and that its original purpose was to work hand in hand with the countries it was created to serve.

To meet the challenges of the future, the EBRD needs to retain its independence and the multilateral structure that has guaranteed its success over the past 17 years.

Its work in developing the private sector will become ever more crucial as it steps up its investments further afield, especially in more difficult economic terrains such as the Caucasus, the Balkans and Central Asia.

The underlying mandate of the EBRD remains unchanged from its foundation – nurturing the private sector, helping to transform economies, and most importantly by being a catalyst for other long-term investors. There may be other areas where the bank’s shareholders would like to apply that mission. The EBRD has the capacity to extend its scope, but not at the expense of its original mandate. The bank’s success has been a result of a clear focus to do one job and see that job through to completion.