Development Bank Blasted on Spending

EUROPE'S newest development bank stands accused of squandering money on itself while failing to accelerate investment in the countries of the former Soviet empire.

Jacques Attali, head of the European Bank for Reconstruction and Development (EBRD), has been asked to defend laying out twice as much on running costs as on loans to Eastern Europe.

Charges of lavish spending were detailed in reports by the London Financial Times ahead of the bank's second annual meeting (April 23-27). They sparked a lively debate about the reasons for EBRD's sluggish lending performance, and about the style and character of its French-born founding president.

Mr. Attali's critics doubt whether EBRD has a useful role to play. His defenders say it will take several years for the bank to create for itself a secure "niche" as an international lender.

EBRD was set up in 1990 to provide development funds to Europe's former communist states. Its mandate requires it to concentrate mainly on private-sector development, particularly the privatization of firms which used to be state-run.

Attali, a former policy adviser to President Francois Mitterrand, has confirmed that since 1991 his bank has spent 200 million British pounds (US$305 million) on overheads while disbursing a bit more than 100 million British pounds in loans. But he claims that outlays on EBRD have been "well spent" and fit into "a long-term strategy."

IN a heavily researched report headed "The bank that likes to say yes - to itself" the Financial Times reported on April 13 that in 1992 Attali personally used private jets costing 600,000 British pounds, purchased works of art costing 250,000 British pounds pounds, and authorized the spending of 52,000 British pounds on a Christmas party.

Between April 1991 and the end of 1992, EBRD's running costs included salaries for a staff of 23 executive directors, the same number of "alternates" and secretaries, plus a chef who used to cook meals in Mr. Mitterrand's official Paris residence.

Accounts of Attali's alleged extravagance prompted concern among EBRD directors ahead of the annual meeting. Theo Waigal, Germany's finance minister and the bank's chairman, said he would insist on Attali justifying his spending policies.

"If we find any unjustified expenditures, we will draw the appropriate conclusions," Mr. Waigel said.

Norman Lamont, Britain's chancellor of the exchequer, has said Attali must account for the 22 million British pounds contributed by London to the bank's start-up costs. Government sources speak of "misgivings" about the bank's decision in 1991 to move from its original headquarters and spend 50 million British pounds fitting out more luxurious premises in London's financial district.

Michael Hodges, an international banking specialist at the London School of Economics, thinks Attali and EBRD have faced "real problems" in the bank's start-up phase. "Attali and his colleagues are keen not to be seen pouring money into a sink-hole," he says. "They have been very choosy about the projects they are willing to back. Perhaps they should be taking greater risks than commercial lenders."

Mr. Hodges said it would take four or five years for EBRD to be "fully up and running."

In a scathing editorial, the London Times declared on April 14: "If EBRD did not exist, nobody would now invent it." But since it did exist, "the shareholders must impose far tougher auditing controls, and they should rethink its mandate, to bring it in line with the world outside its marble halls."

In the run-up to EBRD's annual meeting Attali announced that in the future all bank executives, except himself and the vice president Ron Freeman, would use economy-class air travel.

EBRD has faced difficulties fulfilling its mandate to lend 60 percent of its funds to private enterprise projects in countries where entrepreneurial skills are in short supply.

In a television interview April 18 Attali admitted that finding the right types of project had required "a great deal of hard work." He said his bank planned to treble its investments in Eastern Europe over the next 12 months. More than 250 feasibility studies had been made of likely projects, of which 88 had been approved so far. The largest projects were in Poland.