EBRD faces a life out of the limelight

Holding the annual general meeting of the European Bank for Reconstruction and Development in St Petersburg was the decision of its former president, Jacques Attali. Mr Attali's aim of holding the meeting in an East European city was to signal to the customers that the bank was really interested in their needs. St Petersburg was chosen as the place most likely to attract a good turnout from the West.

It has worked. The meeting, which was formally opened yesterday, has in public relations terms been a great success: 4,000 bankers descending on St Petersburg, visits by the finance ministers of most of the Group of Seven industrial countries (including Kenneth Clarke) and by the Russian Prime Minister, Viktor Chernomyrdin.

But the meeting has marked another success: the rehabilitation of the bank in the eyes both of its shareholders - the governments that provided the capital - and its customers - the borrowers in East and central Europe. The ghost of Mr Attali's extravagances, 'the glistening bank', has been exorcised.

It has taken the new president, Jacques de Larosiere, the former managing director of the International Monetary Fund, just six months to turn the bank around.

The recipe has been very simple. Cut the frills (first-class air travel is out, not just Mr Attali's private jet). Cut staff numbers. Re- allocate staff so that there are twice as many out in the customer countries, rather than sitting in headquarters. And end the artificial split between 'merchant' and 'development' banking that had set the two sides of the bank at war with each other. Result: the amount of money that the bank has been lending has shot up, and it has been able to declare a profit. It has been a fascinating example of the way in which a competent administrator can completely change an organisation within six months.

This week has seen the accolades pour in. Lawrence Summers, the US Under-Secretary for International Affairs, not only praised Mr de Larosiere in his formal speech - everyone does that - but told journalists that he really meant what he said, not something that politicians usually do. He added, in response to questions, that he expected the US would now pay its next contribution to the EBRD - last year's having been blocked by Congress.

Just as important, maybe more so, has been the response by the customers. It is hard to be precise, but some countries complained that Mr Attali had 'pet' borrowers that would get all his time while the others would never see either him or his staff. Now that the whole operation is less chaotic and there are more people in the regional offices, all the potential client countries are apparently receiving attention.

So the job in its original terms is done. The EBRD will now operate smoothly and efficiently. This leads to the much more important question for which it is impossible at this stage to give a satisfactory answer. This is whether a bank like the EBRD is actually the best way of helping East European countries. It is a bureaucracy, and even a reasonably efficient bureaucracy may not be the right way to encourage countries to shift from a bureaucratic system to a market one.

Of course the EBRD is aware of this. It seeks to use its limited funds to act as a magnet for commercial funds - to ensure that they have a multiplier effect. It is trying to increase the proportion of its lending to the private sector. And it is trying to target loans on small and medium-sized businesses.

But given the imbalances of resources in the world - the few billion that it has at its disposal is small when compared with the funds of financial markets or of multinationals - it is not clear that you really need help from the EBRD to make projects go ahead. It is perfectly possible that most of the things it supports would have happened anyway.

And when they don't - when the EBRD ends up as a lender as as last resort - it is explicitly lending on projects that have been unattractive to the private sector. That raises the crucial issue: if the private sector isn't prepared to put up the money, maybe the project isn't worth financing at all.

There are reports from the Czech Republic that customers are saying they no longer need the EBRD because they can now get better commercial terms. If the bank is to become redundant, this is surely the best reason.

The EBRD is trying hard to do all the right things, to help small companies, to do as little damage to the environment as possible, to encourage enterprise and so on. And anyone here in St Petersburg can see the vast amount of investment that's needed simply by looking about at the dilapidated state of the city. But when the history of the rebuilding of central and Eastern Europe is written, it's hard to see the EBRD being accorded more than a minor role.