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7/29/2002 (Balkanalysis.com)
By Christopher Deliso
Its headquarters are in Greece, while its president is Turkish and its current vice-presidents are Russian, Romanian and Ukrainian. As an exercise in political parity, the Black Sea Trade and Development Bank is unsurpassed. As a multi-national banking institution, the Black Sea Trade and Development bank isn’t doing so bad, either.
Since 1999, Thessaloniki’s fledgling financial institution has doubled its operations annually, in a diverse region of some 11 countries and 350 million people. So far, the bank has pledged over $371 million to 44 development and trade finance projects in the energy, telecommunications, transportation, manufacturing and tourism sectors. In 2001, it approved 11 new project finance operations, at $87 million, and seven trade finance operations, at $47.9 million. As of the most recent board meeting in June, $404 million of board-approved projects and $199 million of signings were underway, according to strategist and Programs Manager Panayotis Gavras.
Of course, future speculation is premature. In the 2001 annual report, President Ersoy Volkan admitted that ” … even with its favorable growth prospects our region still continues to be somewhat overlooked by foreign direct investment and international lenders.” Moreover, a slumping global economy has made would-be investors skittish.
Yet there are reasons for optimism. Most importantly, the bank’s statutory foundations are solid. Its managerial composition, the proportional nature of its stock subscriptions and its legislative safeguards, have helped the BSTDB to chart a course through potentially turbulent political seas.
The bank’s 11-strong Board of Governors, and the 12-person Board of Directors it oversees, are composed of experts, ministers and advisors nominated by each member state. The BSTDB also acknowledges economic realities in its graduated approach to capital composition. Of 1998’s stated $1 billion capital base, leaders Russia, Greece and Turkey each contribute 16.5 percent, in the form of SDR, or special drawing rights, shares. Three mid-level countries, Ukraine, Bulgaria and Romania, fund 13.5 percent each. The rest — Albania, Moldova, Azerbaijan, Armenia and Georgia — each hold 2 percent of the bank’s stock. This scheme reflects the member states’ economic disparities — and also prevents any 50-50 voting split.
For all this sagacious provisioning, there are inevitably some holes. Statute 5.3 states that the bank’s authorized capital stock should be reviewed — and potentially, increased — at five-year intervals. If an increase is voted, shareholders can increase their stock, although they are not obliged to do so, beginning with the smallest shareholder countries.
However, the bank has not been able to decide exactly when the first capital review should occur. Some count from 1997, when the bank was formed. Others argue for 1998, and the president’s appointment. Still others claim 1999, when the bank commenced operations. Capital review could therefore occur in 2002, 2003, or 2004. This surprising oversight is dismissed by bank officials as merely a problem for “the legal guys to sort out.” It does however factor in to any analysis of the BSTDB’s potential.
Although the bank’s subscribed capital share base is one billion SDR at $1.32 billion, this is composed of both callable and payable shares. As of Dec. 31, $250 million — less than 25 percent — had been paid up. Under the bank’s charter, only 10 percent of subscribers’ shares are payable, whereas 70 percent remain callable and 20 percent are paid with promissory notes. All member states presently have outstanding payable share obligations. Bank reserves, as of Dec. 31, stand at only $4.6 million. In their defense, bank representatives cite the BSTDB’s strong constituent currencies — including the U.S. dollar, the euro and the Japanese yen — and the bank’s good quality assets. Nevertheless, the BSTDB remains sensitive to both global economic fluctuations and the complexities of administering and uniting 11 countries of varying economic volatility.
Youth also incurs limitations. The BSTDB suffers from a lack of name recognition, offers only non-concessional lending, and has not yet acquired a credit rating. Its funding is strictly limited, in terms of both cash (up to $20 million) and percentage (up to 35 percent) for individual projects. Compared with other development banks, the BSTDB’s operations are modest.
Bank officials are quick to respond to these criticisms. Public relations chief Valery Aksenov points to a plethora of business publications that have featured the BSTDB, as well as many efforts to promote the bank at business conferences and meetings of the European Union, the European Bank for Reconstruction and Development and others. “The upcoming IMF (International Monetary Fund) summit in Washington is being especially targeted for bank promotion,” says Aksenov.
Acquiring a credit rating is “also something that is very much on our minds,” according to Panayotis Gavras: “We will get one, but what matters most is to get it at the appropriate point in time, and to achieve an investment grade rating — otherwise we would have to raise our cost of funding and pass this higher cost through to our clients. But to get a rating, you really need to show results and shareholder commitment. Unless you have a track record, it’s difficult.” The BSTDB is still working on building one.
Yet perhaps such criticism is unfair. The BSTDB is unique among development banks, in regards to its size, reach, and operations. And so it should be judged.
First, it is regionally focused. As such, the bank is most like the Andean Development Corporation, known as CAF. But the CAF orchestrates mostly Spanish-speaking countries, whereas the BSTDB oversees diverse linguistic and ethnic groups. The CAF also lists “developing and consolidating democracy” in its mandate, whereas the BSTDB stays away from politics. Unlike many financiers, the BSTDB does not discriminate in terms of public or private sector investment. It also does not undertake the World Bank’s enormous projects.
Admits Gavras, “there is concessional and cheap money sloshing around. The World Bank and the EIB (European Investment Bank) do huge infrastructure projects at prices we are not willing to match. Our more conservative approach allows us to concentrate on smaller investments.”
Unlike the IMF and others, the BSTDB does not attach policy conditions by which debtor states can be controlled. After NATO’s Kosovo bombardment, the European Agency for Reconstruction offered aid to Serbia — municipality by municipality — conditional on compliance with the EAR’s reform requirements. This year, Serbia’s IMF economic aid package has been continually harassed by powerful enemies in the U.S. Senate.
Macedonia, another example, has been in compliance with most of the conditions set by the IMF and World Bank, but nevertheless failed to get a standby arrangement with the fund. By linking economic aid with politics, big international creditors frequently trespass out of their rightful domain. For the BSTDB, such meddling would be tantamount to a “death warrant.”
Rather than bully, the BSTDB pushes inter-regional cooperation. Traditional antagonists like Turkey and Greece work together, and Armenia and Azerbaijan “don’t vote down each others’ projects,” assures Gavras, who cites the benefits of the bank’s leadership: “the theory with development banks is that political risks scare off investors. We can focus on financial risk, because our board members are, in many cases, high officials or ministers — and oftentimes we can draw upon them as a resource should non-commercial issues bog down an investment. This helps enormously in mitigating risk.”
This article was originally published on 29 July 2002 by UPI.
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