Prospective shareholders will meet in Cairo in November to allocate shares for the $5,000 million regional development bank, announced at the Amman economic summit. This is the first step towards setting up the new bank, which could begin operating from its Cairo headquarters as early as mid-1997.
Details were announced in Amman on 31 October after 12 months of wrangling between the US and Europe about what form the new institution should take. But several European and Gulf states are still unconvinced that the bank is the appropriate way to improve development prospects in the Middle East.
‘The Bank for Economic Co-operation & Development in the Middle East & North Africa (MEDB) is one piece of the financial reform needed to undergird the economic growth of the region,’ Joan Spero, US undersecretary of state for economic and business affairs, told delegates at the conference. She said the bank has a ‘clear economic mission’ to assist the private sector, promote regional projects and advance regional economic policy.
‘It will be more of a merchant bank than a traditional regional development bank…It will be small, both in terms of capital and staff,’ she said. The bank will have authorised capital of $5,000 million, of which $1,250 million will be paid up and the rest in callable shares. Spero said more than 70 per cent of the capital is subscribed. ‘We are deliberately leaving a number of shares open,’ she said, for those EU states which are still undecided.
The capital base will be used to leverage funds through co-financing with existing international financial institutions and the private sector on a concessional and non-concessional basis. MEDB will also offer equity financing, guarantees and technical assistance.
The US has been the driving force behind the plans for MEDB, which was first proposed at last year’s regional economic summit in Casablanca. Its efforts have been supported by Israel, Jordan, Egypt and the Palestinians. The US is expected to provide a large proportion of the start-up capital, so that the bank can begin operations within 18 months to two years.
However, the US has yet to win over support from France, the UK, Germany and several other European states who have opposed a regional bank, arguing instead for a smaller institution that would channel existing funds more efficiently. Responding to concerns that the new bank could prove another tier of bureaucracy in the region, Spero said MEDB would have a non-resident board and will be streamlined institution.
The US has also failed to convince several Gulf states, notably Saudi Arabia and the UAE. Saudi Arabia has made clear its
objections to giving Israel a key role in regional bodies before a comprehensive Middle East peace agreement exists. Saudi Commerce Minister Osama Bin Jaafar Bin Ibrahim al-Faqih told delegates that there were enough institutions already in place to meet the development needs of the region. Under these circumstances, he said the kingdom could not participate in the bank.
The US remains confident that support for MEDB will broaden once it is up and running, and the bank’s role becomes clearer. ‘It will function as a catalyst for additional investment in the region,’ says one US economist. ‘It is the catalysing function that it ought to focus on, and that is how I see others being drawn in.’ Without more widespread support than is presently the case, the bank’s regional scope could prove quite narrow.