World Bank Group Boosts Assistance for Emerging Countries Affected by Eurozone Crisis

January 25, 2012

$27 Billion in Funding Available for Countries of Emerging Europe and Central Asia

WASHINGTON, January 25, 2012 — The World Bank Group today announced that it is making $27 billion in funding available over the next two years for countries of Emerging Europe and Central Asia (ECA) impacted by the Eurozone crisis. 

While the effects of the Eurozone crisis on the largest economies of Western Europe receive most of the world's attention, the crisis is also hurting people in emerging Eastern European countries, particularly the poorest in Central and Southeastern Europe,” said World Bank President Robert B. Zoellick. “The World Bank Group is expanding funding available to the region so that those countries can rely on these resources to weather the crisis.”

The Eurozone debt crisis is harming the ECA region through three channels – finance, trade, and workers’ remittances – and the importance of each channel depends on the individual characteristics of the countries.

Because of their close links with the Eurozone, countries in Central and Southeastern Europe are likely to face an economic slowdown in 2012,” said Philippe Le Houérou, Vice President for Emerging Europe and Central Asia at the World Bank.The Bank’s additional assistance will help countries maintain a sound macro-fiscal framework, pursue needed structural reforms, ensure flow of credit to small- and medium-enterprises, and protect the most vulnerable parts of the population through stronger and better targeted social safety nets.”

The World Bank Group response in the ECA region will focus on: (i) structural reforms and support for the private sector to keep investment, incomes, and jobs growing; (ii) advisory and financial support to countries with fragile banking systems; and (iii) protection of the most vulnerable through strengthening social safety nets.

  • The World Bank – International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) can increase lending in ECA to around $16 billion in fiscal years 2012-2013 (FY12-13) – an increase of $4 billion over two years relative to lending last year. This increase in lending and associated advisory work would be linked to medium-term policy reforms to enhance competitiveness, sound and sustainable fiscal consolidation efforts, emergency support to avoid banking crises (including lines of credit for trade and small- and medium-enterprises [SMEs]), and reform of social safety nets to improve coverage, cost effectiveness, and sustainability.
  • The International Finance Corporation (IFC) investment and advisory program could reach $10 billion of commitments including mobilization in FY12-13. This would include increased investment for IFC's own account of nearly $2 billion from current levels. IFC’s response is driven by the importance of systemic banks in ECA and will include: short-term financing and trade products to address immediate liquidity concerns, mezzanine and equity investments to shore-up capital shortfalls, strengthened SME financing to fill funding gaps, as well as support for real sector clients.
  • The Multilateral Investment Guarantee Agency (MIGA) political risk insurance products are helping banks in the region maintain funding to their subsidiaries in ECA. MIGA is planning to increase its exposure in the region by $1 billion over the next two years to support economic growth. 

In parallel, the World Bank Group is also partnering with other multilateral development banks to encourage Western European banks to stay in Eastern Europe and not deleverage from the region. The World Bank Group, along with other public sector officials from within the European Bank Coordination "Vienna" Initiative, met in Vienna on January 16th with the aim to enhance the coordination of national policies that could impact the economies of emerging Europe.

At that meeting, it was agreed that the international institutions will assess the impact of the aggregate recapitalization plans by banks on the host countries to identify systemic risks and advise on policy actions. They also agreed to stand ready to provide external assistance and financial support to banks in host countries within their mandate and balance sheet capacities. They pledged to collaborate closely to maximize their impact.

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