How the EBRD Can Help Fight Structural Corruption in the Western Balkans

The European Bank for Reconstruction and Development (EBRD), created in 1991 to help former Eastern bloc countries undergoing economic transitions, is a multilateral bank that uses investment as a way to build market economies and integrate them into regional and global systems. The EBRD started out primarily investing in private enterprises with commercial partners, but its focus has since expanded to the public sector, which now accounts for over 50% of its portfolio in about a third of its countries of operation. The EBRD, like other international financial institutions, recognizes the risks that corruption and other forms of misconduct pose to the effectiveness of its projects and to its own credibility, and has taken extensive precautions to prevent misconduct by project clients and the EBRD’s own staff.

While the EBRD has worked hard to guard against corruption in the bank’s investment projects, the EBRD can and should do more to explicitly promote anticorruption reform—particularly in regions like the Western Balkans, where corruption is widespread and reforms have stalled. The EBRD, by virtue of being one of the region’s biggest lenders, and one with a good reputation, has considerable leverage and legitimacy. Of course, sustainable reform ultimately needs to come from domestic agents, and EBRD officials are understandably cautious about what they can realistically accomplish (a point that Sergei Guriev, the EBRD’s former chief economist, noted in a KickBack podcast last fall). All that said, the EBRD can and should do more to shape domestic anticorruption agendas in the countries it assists, beyond simply insisting on integrity and regulatory compliance for EBRD grants and loans.

To its credit, the EBRD has explicitly recognized and emphasized the importance of good governance to economic development, and has started to look at ways to promote lasting governance-related reforms and structural change. In pursuing this agenda in the Western Balkans, the EBRD should apply lessons learned from its more aggressive anticorruption efforts in Ukraine, and in particular should push for reforms in three main areas:

  • First, the EBRD should focus on reform of state-owned enterprises (SOEs), which often lack accountability and transparency, making them quite vulnerable to corruption. For example, in Bosnia and Herzegovina, where there are currently no good ways to publicly access accurate and updated data about the SOE sector, the EBRD should help to set up a strategic advisory group for the support of governance reforms (as was done in Ukraine), with a special subgroup or council—composed of EBRD technical staff, host country government officials, and civil society experts— to develop an action plan for SOE reform, including guidance on how to make SOE operations and finances more transparent. The action plan should require annual independent audits, with state budget support contingent upon timely compliance. The plan should also lay out standardized rules for the privatization process, so that if governments decided to privatize a company they must follow an established, transparent transition process.
  • Second, the Ukraine precedent demonstrates the possibility for anticorruption-related technological partnerships with the EBRD. The EBRD lent its technical expertise to help Ukraine develop a centralized, open online procurement platform called ProZorro. Those sorts of tools are desperately needed in Balkan countries. The EBRD should set up a high-level consultation processes with individual countries to explore creating similar centralized technological infrastructure.
  • Third, again following the Ukrainian model, the EBRD should work with Balkan countries to set up business ombudsmen with the authority to investigate alleged wrongdoing by state entities, and to refer cases to the appropriate authorities if the allegations are substantiated (and also to publish the ombudsman’s findings and recommendations on its website). The EBRD has started such consultations with Albania, and should push for similar systems throughout the Balkans. An ombudsman’s office, with independent leadership and staff, could have more legitimacy in the eyes of both government officials and the public, and could encourage more reporting of suspected corruption.

The EBRD is well-positioned to build on its successful investment projects in the Western Balkans to advocate for governance reforms that more explicitly addresses corruption. The EBRD’s successful engagement with Ukraine provides a roadmap for the types of engagement that are both politically feasible and practically effective. These incremental steps can also help lay the foundation for a real transformation in the region, one that will advance both anticorruption and development goals.

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