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Thursday, May 2, 2002 |
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TRANSCRIPT OF EX-IM ANNUAL CONFERENCE MAY 2, 2002 |
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TRANSCRIPT PREPARED FROM A TAPE RECORDING.] |
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This is the first time I have the honor of hosting the Ex-Im Bank Annual Conference. I look forward to meeting as many of you as possible during the next two days. But although I am new to the Bank, my goals here are the same as they have been throughout my 34 years as a private sector banker - to make Ex-Im Bank as user-friendly, innovative and responsive to your needs as possible. Reauthorization: I'm happy to report that our reauthorization bill, HR2871, was passed by the House yesterday. We still have a way to go. We expect a complex conference between the House and Senate to iron out the differences in their versions of the bill. But we can finally see this long process on the final step to completion.
That's particularly important at this moment in history. Now more than ever, in the fast-changing, increasingly risky and competitive international marketplace, Ex-Im Bank's role supporting U.S. exports and jobs is critically important. That's why the President wants the Senate to pass without delay pending trade legislation granting him trade promotion authority. This will give him the flexibility to negotiate with other countries to open their markets and get the best deals for American producers and workers. It will enable him to achieve his goal to ignite a new era of global economic growth. Ex-Im Bank stands ready to do its part to support that growth. Although Ex-Im Bank is a small agency, it is a key player on President Bush's trade policy, foreign policy, and economic stimulus policy teams. We've been listening to you. And today I'm very pleased to announce some new initiatives and actions that we believe will provide the kind of support that you, the market, have told us you need to compete globally.
Renewable Energy: First, we've established a special Advisory Committee to help Ex-Im Bank increase support for U.S. exporters in the renewable energy industries. This initiative is consistent with President Bush's National Energy Policy that calls for increased exports of environmentally friendly, market-ready U.S. technologies that generate a clean environment and increase energy efficiency. Medical Equipment: Second, we're going to enhance our support for U.S. medical equipment exports. We're going to provide automatic financing of a foreign buyer's local costs - for up to 15% of the contract price -- when we help finance a U.S. medical industry export sale. We will provide this as a standard feature of our coverage for this industry sector, rather than on a case-by-case basis. We also will provide the maximum repayment terms - up to seven years -- allowable under OECD (Organization for Economic
Cooperation and Development) guidelines on these transactions. We will offer capitalization of interest during the construction period for hospital construction or expansion. And we will continue to adopt a particularly flexible attitude when considering individual transactions. We will maintain this initiative as a pilot program for two years and then assess its impact. Expanded Russia Cover: Third, effective May 16, we will open in Russia for long-term financing in both the public and private sectors. We are currently open for short- and medium-term financing in Russia. The decision to expand our activity follows a recent U.S. government interagency review of Russia's risk rating. The change reflects Russia's improved economic performance and commitment to reform. Our new cover policy will expand opportunities for U.S. exporters to participate more fully in this very large, important market. Conclusion: You'll hear more about these initiatives and other Ex-Im Bank programs and foreign market trends during the next day and a half. We want you to go home better informed, and better equipped to use our financing tools to compete in the challenging and exciting global marketplace. For my part, I will do everything in my power to ensure that Ex-Im Bank is accessible and responsive to your needs. We are here to help American businesses reap the benefits of foreign sales, and to support the jobs that depend on exports. REP. LaFALCE: Now I have the honor to introduce our first speaker, Congressman John LaFalce of New York. Congressman LaFalce has served New York's 29th District since 1974, and is a very good and long-time friend of Ex-Im Bank. He understands the importance of our mission to sustain and create U.S. jobs through exports, and we are delighted to have him here with us. As ranking Democrat on the House Committee on Financial Services, Congressman LaFalce has been heavily involved in drafting and pushing through Ex-Im Bank's reauthorization legislation. And I want to thank him for his efforts on the House floor this week in support of this legislation. He is a leader on international trade issues, a strong advocate for small and women-owned businesses, and a leading voice within the Democratic Party on the role of labor issues in international trade negotiations. Congressman LaFalce has taken a special interest in the needs and concerns of the growing number of women small business entrepreneurs. He has worked to improve access to credit and provide other opportunities for women in today's marketplace. Last summer Congressman LaFalce organized a breakfast meeting at Ex-Im Bank to bring together the Democratic membership of the Financial Services Commmittee with Ex-Im Bank's late Chairman John Robson. The goal of the meeting was for Committee members to better understand Ex-Im Bank and its mission. That is the kind of bipartisanship that gets things done.
Ladies and Gentlemen, I give you Congressman John LaFalce. MR. LaFALCE: We just cut a deal. We couldn't decide whether we'd get together for an Italian dinner or a Cuban dinner. We decided both. [Laughter.]
MR. LaFALCE: You can come, too. [Pause.]
MR. LaFALCE: My pager better not go off now. A little embarrassing. So he and I established a great, great relationship at that time, and I so looked forward to renewing the personal and professional relationship. And one of the first things I did was say, well, all right, let's you and I get together again, which we did. But then let me bring you together at least with all the Democrats on the Financial Services Committee that serve along with me. And we came over and had a great breakfast, and I felt so good that Ex-Im had such strong, principled, aggressive, and visionary leadership. And I was very saddened by John's passing personally, and the Ex-Im Bank lost his tremendous leadership. But I also knew that John had tremendous confidence and respect for all his members, and I have come to have that same confidence and respect. And Eduardo and Dan Renberg and Vanessa Weaver, whose dad I worked with so many years ago when he was the Administrator of the SBA. It's always great to see one of your children grow up and be even better than you ever were. That's how I feel about my son, and I'm sure that's how Vernon feels about Vanessa. And I had such a pleasurable time when Joe Gramerso (ph) came over to my office and we were able to talk a little teeny bit about Ex-Im Bank and then an awful lot about politics in the State of New Hampshire, Presidential primaries over the years, because he goes back just about as far as I do. So I look forward to working very closely with all of you. Now, let me say a few words about the twists and the turns of H.R. 2871, the Export-Import Bank Reauthorization Act of 2001, which won approval in the House yesterday, which is 2002. The more alert amongst you might note that the title of the bill reflects a more optimistic timeline for congressional action than what actually transpired. We're now five months into 2002 and eight months past the expiration of the previous Ex-Im authorization. But we finally won passage in the House yesterday, and we did it by voice vote, which shows what you can do when you work collegially, when you work in a bipartisan fashion, when you work primarily with the centrists of both parties, as opposed to attempting to placate either the extremists of the right in the Republican Party or the left in the Democratic Party. And that's not without some frustrations, though, and I had a lot of frustrations over the past month. A lot of my frustration had to do with the unwillingness of the leadership in the Republican Party in the House to move the bill prior to this week. And I think they were trying primarily to placate the administration with some of the administration's concerns. But, in any event, I don't want to dwell on that. We now have a bill that passed the Senate and a bill that passed the House, and they're very similar, though there are some differences, but there are differences that we ought to be able to resolve in a day. You know, we ought to be able to get together and sit down and come either to a compromise or to use the best method that I've discovered in 28 years of resolving differences--a flip of the coin--but we ought to pass the bill. And with Paul Sarbanes as chairman of the Senate Banking Committee, I think that's going to be a pretty easy task. Paul is a great intellect, he has great knowledge, and I really hold him in the very, very highest esteem. Let me say a few words about the core strengths in the House-passed bill. I worked very closely with the chairman of the subcommittee that was responsible for this, Congressman Doug Bereuter, and he, too, is an individual for whom I have the greatest respect. A little bit of envy, too, because he looks so young and yet he and I were born on the same day in the same year. We, too, have become good friends, and we, too, have very similar thoughts on these issues. First, the bill places particular emphasis on the need to expand outreach to small businesses. You know, I've got a lot of big businesses in my district. They really don't need all that much help. They're pretty sophisticated. When we're dealing with Eastman-Kodak, when we're dealing with Xerox or Bausch & Lomb, they're set up. But I've got thousands of small businesses, and they really don't feel that comfortable trying to export to Spain or trying to export to Thailand, or wherever it might be abroad. They have difficulties with the language, with understanding the laws, et cetera. And yet they do have products, especially, sometimes services, that they would love to export.
And so in drafting the legislation, we spent some good time assessing the barriers to assistance for small businesses. I have long been convinced that technology enhancements would be critical to any meaningful effort to expand services for small businesses nationwide. But for small businesses, working with Ex-Im Bank could be a daunting prospect. And so we drafted the legislation convinced that Ex-Im can go a long way toward bringing in new small businesses and serving them better by expanding the use of technology throughout the transaction process. As a result, our legislation expands the budget authority for technology upgrades and provides guidance to Ex-Im on the implementation of new technologies. We, in drafting the legislation, also took very seriously concerns about the condition of the United States steel industry and Ex-Im activities that may have exacerbated problems in that industry. This is a highly controversial issue. It's contentious. It's contentious within the Congress. The administration has done some things that have created some inherent conflicts within the administration. We have some difficulties with our trading partners and competitors, especially within the European Union. So what we attempted to do is establish some standards to ensure that Ex-Im would not support transactions that would contradict existing countervailing duty or antidumping orders. And the bill also raises the bar of scrutiny for transactions that might have the effect of contributing to a material injury of a U.S. industry. We also did something I'm sure Ex-Im likes very much. We increased authorization for the bank's administrative expenses and for the allotment ceiling on the total amount of lending and credit the bank is authorized to have outstanding. As we require the bank to expand its assistance and outreach to small businesses, we must in turn provide more funding for the administrative expenses that inevitably come with this effort. You have to go together. In raising the ceiling for the value of the bank's lending portfolio, we are sending a clear signal that the bank should be doing more rather than less in the years ahead. A key element of Ex-Im's mission is to support exports in sectors and geographic markets that are underserved by private creditors--hence, a strong emphasis at the bank on small business exports and expanding export markets in regions such as Sub-Saharan Africa. Both are areas in which private sector support falls well short of demand, and Ex-Im's charge to go into underserved markets is particularly relevant today when economic engagement with other countries is an essential element of foreign policy and national security. In the aftermath of the terrorist attacks, many of us recognize the heightened importance of engaging with the world on many different levels, and one of the most important is economic engagement. Few people made this case more eloquently than the World Bank Chairman Jim Wolfensohn. Last October I met with Chairman--or President Wolfensohn, as I did with John Robson, and I brought all the Democrats on my committee with me. We discussed the mission of the World Bank in a post-9/11 world. And his message was clear: The terrorist attacks shattered the illusion that a wall exists between the world of the rich and the world of the poor. For many years, we lived in comfort behind this imaginary wall, far too indifferent to what was going on outside our borders. But in the months since last September, we've had to move very quickly to determine how best to reach out to other countries and other people who were previously of too little interest to the United States and other of the industrialized, more wealthy countries. Now, certainly much has been achieved already in the war on terrorism by high-level engagement between the Bush administration and foreign leaders. But top-level diplomacy will ultimately fail if it is not supported by bottom-up engagement in the political, the social, and the economic spheres. And here is where institutions like the Ex-Im Bank can have a critical role to play. With each export transaction supported by the Bank, we can make a new connection and develop a new familiarity with a market, with a people, and with a country that had previously been slightly more foreign to us. And with thousands of these transactions, we can take a thousand steps forward toward a world of interdependence and prosperity, a world in which terrorism would find it much more difficult to exist. Now, I also want to offer a few broader comments on United States trade policy, and in here I have a slightly different perspective than the one articulated by Eduardo a few minutes ago. I have been disappointed by this administration's approach to trade policy. In my view, they've placed far too much emphasis and expended far too much political capital on passing fast-track legislation on their own terms. They have consistently promoted the view that nothing can be achieved on the trade front without fast track and, in particular, that nothing can be achieved without a fast-track authority that pays, at best, cursory attention to labor and environmental standards. Yet the United States-Jordan Free Trade Agreement belies both of these claims. In the Jordan agreement, we were able to negotiate and conclude a significant expression of trade without the benefit of fast-track authority, and the agreement includes a reasonable framework for labor and environmental standards. I suspect that many of you will not share my view on the role of labor standards in trade negotiations, in trade agreements, especially free trade agreements. But, for me, there is a very clear principle of consistent treatment at issue, and I want to explain it. I mean, I was a very, very strong promoter of the U.S.-Canada Free Trade Agreement, more so perhaps than any other Member of Congress, which is why we had a conference in my district immediately after, 3,000 people and Carla Hills came, et cetera. I had difficulties with the NAFTA, though. I strongly supported the WTO and I strongly supported PNTR.
But when it comes to fast-track authority, let me explain to you what is being requested by Democratic Presidents and Republican Presidents alike. It is not authority for them to go forward. They have plenary authority. What they are asking Congress to do is give up Congress' constitutional authority. That's what they're asking for. They don't need authority to go forward. They just want Congress to say that Congress will not exercise the authority that Congress has to offer amendments to legislation that would implement their negotiations. You must understand what Democratic Presidents and Republican Presidents are attempting to do. For the purpose of trade, they are trying to, in effect, convert a representative system of democracy into a parliamentary system, where the President for the purpose of trade is prime minister and the Congress becomes a parliament, and the vote then is simply yes or no. And it is not on the merits of the bill anymore; it is really a vote of confidence in the President or not. So for the purposes of trade, that really is what they're trying to do, whether they realize it or not. But, also, a great fraud is being perpetrated. And what is the fraud? Well, the fraud is this: It is--any legislation that Congress passes that would purport to forfeit the right to offer amendments is constitutionally unenforceable. The Congress has the right to offer amendments under the Constitution of the United States. No legislation could impair that right. And so we are passing legislation that on its face is constitutionally unenforceable. It just creates an illusion. We deceive ourselves, though, because most Members of Congress don't know that. But most Members of Congress also don't know--and I suspect that neither President Bush nor President Clinton knew until I told President Clinton--that in every single fast-track bill ever submitted to the Congress or passed, or trade promotion authority, there has always been a provision and there remains a provision that says Congress shall not offer an amendment to the bill unless Congress wishes to offer an amendment to the bill. And that's in there, and nobody knows it. Our trading partners don't know it. Presidents don't know it. Most Members of Congress don't. But it's in there because the drafters of it realize that, without it, it would be flagrantly unconstitutional. So with that escape clause--so the language really is just hortatory and it's not necessary. Now, that goes to one issue. The other issue is what should be in our agreements. Well, there's a lot of different forms of capital, and here is where you have difference in perspectives between our parties. I am of the opinion that it takes financial capital, it takes intellectual capital to make a product or a service. But I'm also of the opinion that it takes human capital to make a product or a service. And I defy any one of you to explain to me how there can be a product or a service without human capital. And so in order to have trade, you have to have products or services. In order to have products or services, you must have this combination of capital, including human capital--i.e., labor--and, therefore, if you are to enter into an agreement with another country, why just deal with certain aspects of capital? Why not deal with all aspects of capital? I'm not saying you can mandate what other countries pay their people or something like that. But you can establish certain core principles--principles, for example, of a just wage, just working conditions, et cetera, and then work on from there. I go into this just not to convince you, because I doubt that I will, but simply to have you understand a little bit better the perspective of some of us who can be your strongest advocates and proponents, who can be the strongest advocates and proponents of trade, and who can also say but we ought to do it right. Either we are going to help bring the other peoples of the world up, or surely as I'm standing here, they will bring us down.
I want the job of the President and the Congress and the Ex-Im Bank to bring all the people of the world up. [Applause.] MR. : Ladies and gentlemen, please welcome Vanessa Weaver, member of the Board of Directors of the Export-Import Bank of the United States. [Applause.] MS. WEAVER: Thank you very much. I wanted to thank Congressman LaFalce for his remarkable words. It's an honor for us to have today, and I wanted to thank him very, very much for all the diligent work he's done on the floor and on Capitol Hill. I don't think we'd all be standing here today if it weren't for Congressman LaFalce. It's my pleasure now to introduce Noreen Doyle, the First Vice President of the European Bank for Reconstruction and Development. She's come all the way across the Pond to be here today, and we're delighted she's here. Ms. Doyle became the bank's top-ranking banker last year. She chairs EBRD's Operations Committee, which reviews and recommends all debt and equity investments and shapes the bank's policy. She's been with EBRD since 1992, a year after the London-based institution was established. She helps use the tools of investment to build market economies and democracies in 27 countries, from Central Europe to Central Asia. EBRD is owned by about 60 countries, including the United States. It's the largest single investor in that region. It works to mobilize private sector investment in most of its projects, and it's a worldwide leader in the area.
The bank has a 12.2 billion euro portfolio at the end of 2000 and has a 1.5 billion euro in disbursements this year. MS. DOYLE: Ladies and gentlemen, first I would like to thank Ex-Im Bank for the honor to be present at this conference. And, second, I'd like to thank Congressman LaFalce, who introduced the bill where the United States contributed its capital to the EBRD. So I want to personally thank him for doing that in 1991. I'm very pleased to be here, and I'm very pleased to have had the introduction explain that the United States is the largest shareholder in the European Bank. So although we're called the European Bank, we are very keen to support United States companies doing business in Central and Eastern Europe and the former Soviet Union. It's always a pleasure to have an opportunity to talk about what the EBRD is doing to help market economy take root in the countries of Central and Eastern Europe and the former Soviet Union. As I am addressing an American audience, I'd like to start by focusing on a deal that brings what we do close to home.
In just over four months, a new assembly line beside the mighty Volga River will roll out the first model of a four-wheel-drive vehicle built by Russians and Americans, the Chevy Neva (ph). We at the EBRD are proud of the role the bank played to make this deal possible, bringing together General Motors and their Russian partners, AvtoVAZ. That's nothing new for bankers, but it did take a lot of work to bring together the Russians, the Americans, with project financing. And inevitably getting an agreement involved concessions and a lot of compromises by all sides. When we finally signed the deal last year, General Motors said it would not have come off but for the EBRD. Those are the kind of words any banker prides himself on. But if I had to put my finger on what really helped to bridge the gulf between the Americans and the Russians, the bankers, the borrowers, and the lenders, I'd have to say it was counterparties who, apart from everything else, understood the country they were dealing with and were familiar with their partners' mentality. The General Motors team was led by a man who was knowledgeable, first, about the Soviet Union from his earlier days, and then about Russia in the last decade, and he was deeply respected by his partners at AvtoVAZ. That factor was to count quite a lot in the difficult times during the deal. There's always some part in the deal when the going gets tough and you must be able to trust your partners to overcome the difficulties. If you don't know anything about the country you're dealing with and don't understand your partner's thinking, building up trust is an uphill task--not to say an impossible one. And I do think when the EBRD was started in 1991, the shareholders--the Americans, Europeans, other countries--had an impression that if we could explain democratic principles and explain the market economy, it wouldn't really take much time for those principles and that kind of economics to be embraced. But explaining and understanding are quite different -- [tape ends].-- are there to bridge the gap between local businesses and foreign investors. We at the bank have built up a huge amount of experience in doing business in what is a difficult environment. Some of our experience was acquired with great pain, as during the Russian crisis of 1998. We had 25 percent of the bank's portfolio in Russia, so we learned by experience. We learned with our friends at Ex-Im to go through the bankruptcy process in Russia, and I have to say we and they went through successfully and recovered all of our money. But we felt we have the obligation to test the system, to show that we can proceed through the judicial process to receive what is owed to us. Our deep knowledge of the area and experience there is something unique that the EBRD has to offer. But I want to return to the GM deal briefly to highlight another factor. The EBRD not only provided a $100 million loan to the joint venture, but also took a 17 percent stake in the equity of the joint venture. The EBRD's presence in the capital of the company provides political comfort to foreign investors, but it also sends out the message that we are prepared to share the risk. The Board of General Motors was quoted, after they approved this transactions, as saying it was "approved only if the EBRD would take part as a shareholder." And why? With the exception of the large oil companies, the EBRD is the single largest investor in Russia, and the Russian Government is a shareholder of the EBRD, and the Russians, like the United States, have permanent members on our Board of Directors and know and support each project. So we have the political access and leverage to help American companies working in the region to sort out difficulties. But the bank does not just focus on large companies and large deals. Part of our discussions with General Motors was to encourage them to bring in to Russia, to Eastern Europe, their suppliers, which we are prepared to support with financing, and we think that that will contribute more opportunities for American companies. Let me turn from the transaction to our role in the region more generally. We continue to expand our activities across the 27 countries through investment projects which are based on our trinity of rules. One is it must advance transition. It must contribute to the change towards market economies. The second is it must respect sound banking principles. And the third is it must not crowd out the private sector. That's a difficult tightrope to walk, sound banking but not crowding the private sector out. So why wouldn't the private sector come in if it's sound banking? And the reason is we're operating in difficult political environments.
So our objective is to bring the private sector with us to encourage them to take some risk by taking more risk than they will take. These countries are expected to be--these eight countries are expected to be members of the European Union in 2004 and we think provide very good opportunities for investors as well as exporters. At the same time, we achieved record business volume in what we call the early and intermediate transition countries. These are the countries of the Caucasus, of Southeastern Europe and the Balkan Region, and of Central Asia. The EBRD maintains a very strong focus on SME development. During 2001, loan disbursements were made for over 65,000 business loans, including our very successful Russian small business program, but also new activities in Belarus, Bulgaria, Ukraine, Uzbekistan, and the former Republic of Yugoslavia. Just to digress a moment on Yugoslavia, Yugoslavia is the most recent member of the EBRD and became a member on January of 2001, after the fall of the Milosevic regime, which kept that country behind a barrier for the past decade. In the first year of its membership, EBRD contributed 200 million in loans and equity investments to Yugoslavia, including a microfinance bank, which was set up in April of 2001, and by the end of the year had made more than 600 loans in Yugoslavia. I think we will see that country make very significant progress during the next few years. Against the background of a very difficult external environment, the economies of Central and Eastern Europe and the Commonwealth of Independent States, the CIS, are proving remarkably resilient. In 2001, real GDP growth for the region as a whole was 4.4 percent, the second-best performance since the transition began in 1990. In most countries, including Russia, private domestic demand was the main engine of growth. Foreign direct investment into Central and Eastern Europe in 2001 held up well, as investors reassessed the risk-return profile of the region against other emerging market regions, although in totality the foreign direct investment in our region remains a fraction of what it is in Asia and Latin America. In Central and Eastern Europe particularly, growth fell to 2.6 percent from 4 percent in 2000, but was still ahead of the Western European growth. The largest economy in Central Europe and the Baltics, Poland, saw growth fall to 1 percent. In Southeastern Europe, growth was significantly higher in 2001 than 2000, driven by a very strong recovery on Romania, which saw its growth rate jump to 5.3 percent from 1.8 percent the year before.
In the Commonwealth of Independent States, the weighted average growth declined to 6 percent from nearly 8 percent in 2000, but apart from Russia, Azerbaijan, Turkmenistan, Uzbekistan, all the rest of the CIS countries actually increased their growth rates in 2000. In the CIS, there is wide agreement about a continuing slowdown in the growth of Russia, which is already evident in industrial production patterns in early 2002. We are expecting growth between 3 and 4 percent for this year, and we expect that the rest of the CIS will mirror this slowdown. I spoke already about the former Republic of Yugoslavia in its first year of transition. It does demonstrate that rapid reform is both feasible and brings rewards. Nevertheless, the foundations for sustainable high growth in Yugoslavia are not yet in place and will require that the current momentum is retained. For countries in Central Europe and the Baltics, the prospect of EU accession has had a significant influence on the extent of reforms in recent years, while the stabilization and association process, which is not a step for immediate accession into Europe as the eight countries I mentioned have taken, but a secondary step for association with Europe, has been a spur to reforms in Southeastern Europe, particularly in Romania and Bulgaria. In the CIS, one of the key short-term priorities for many countries, including Russia, including Kazakhstan, is to gain membership in the World Trade Organization, and, again, this is a spur for those countries to undertake reforms. If we look ahead, the bank will continue to be active in all of its countries of operation. In the most advanced countries, such as the Czech Republic, Hungary, and Slovenia, we will focus on restructuring and supporting continued privatizations, particularly in the energy industries, and focus on providing capital to help these countries comply with environmental standards that are set as part of their acceding to the European Union. We can also consider and will also consider greenfield foreign direct investment. In the financial sector, the bank works with local banks which have developed over the past decade to provide credit lines directed specifically at small- and medium-sized enterprises, and we expect over the next years to help develop more sources of venture capital, equity financing, and other forms of non-bank financing, such as leasing companies. And these provide opportunities for foreign investors to work in the countries. I'll use as an example an interesting transaction we closed recently in Russia with Caterpillar.
We have been striving since the mid-1990s to see if we can establish leasing companies in Russia, but the legislation wasn't ever there. And I can recall in 1996 our colleagues spent days, if not months, in the central bank of Russia trying to identify which part of the central bank was in charge of leasing companies and finally gave up, realizing that they didn't know what leasing companies are. And we know how important leasing companies can be as a source of financing for small businesses and a source of financing for exporters into countries. The EBRD intends to continue to expand its activities eastward, especially in the less developed countries of Central Asia and the Caucasus. This is a significant challenge for the bank, which is primarily involved in the private sector, and where many of these countries have built up considerable sovereign debt, so they are unable to borrow at the government level in significant amounts. We are constrained from doing business with the private sector because the foreign direct investment in the Caucasus and in Central Asia is limited. We do work very directly with the governments, both central governments and local governments, to improve the investment climate so that we can encourage foreign investors to make investments in even the most difficult countries. And it is heartening to report that even in a small and poor country like Moldova, a Spanish utility came in and invested in the privatization process in the energy business and has quite remarkably turned it around from a loss-making entity with very low collections to a high-collection, profitable industry. And it demonstrates what the private sector involvement can do because it has a different mentality.
We will continue to expand our activities in Russia. We expect during 2002 to do approximately a billion dollars of new business. The project pipeline includes projects in the natural resource sector. In banking--and here particularly the Russian Government post-crisis has finally recognized the need to address the banking system, which is not functioning as a banking system should in a large and market economy, and we are working with the government towards the privatization of Vanestorg (?) Bank, which is the second largest state bank.
In developing the pipeline for Russia for 2002 and beyond, the bank seeks to select clients that are demonstrating--Russian clients, because we work not only with foreign investors but Russian domestic companies. but we are seeking to support clients that demonstrate adherence to the recently passed Russian corporate governance code. And I think this is a remarkable step in the first decade to recognize--and the crisis prompted this recognition--that corporate governance and good corporate behavior are fundamental to accessing international capital. To give you an example of a transaction recently done in Russia, we have just signed a deal with Michelin Tires, which brings me back to the themes at the beginning of the speech. Our $20 million investment for a 49 percent stake in the first Russian production plant to be set up by an international tire maker once again demonstrates the EBRD's willingness to take risks with its partners. But it also illustrates what the benefits of a major strategic deal such as the General Motors deal can spin off. There's little doubt in my mind that if General Motors had not decided to start producing the Chevy Neva in Russia, if Ford had not set up a Russian assembly plant, it would have made much less sense for Michelin to start local tire production in Russia. And the benefits of the auto industry's revival are not only being felt by multinationals. Last month the EBRD announced that under its DIF, its Direct Investment Facility, which is equity investments as small as $200,000 in local companies, last month we took a stake in a small Russian firm that produces dies and press forms used by vehicle manufacturers and automobile suppliers for the production of body parts. This firm, in fact, was introduced to us by Ford's Russian operations, and we hope that the EBRD investment in this company will help it compete for major export orders from international automakers. There's an obvious role for the EBRD to play in working together with the U.S. Ex-Im Bank in our countries. We can share our experience, good experiences and bad, and we can help find the right partners for American companies. But I'd like to return to the Russian theme once more and focus on something that EBRD and the Ex-Im Bank have in common. Amongst export credit agencies, U.S. Ex-Im Bank is a pioneer in financing municipalities. The EBRD, on the other hand, is the only one of the international financial institutions to finance municipal programs directly. The EBRD has started to tap and to develop the Russian local debt markets to make ruble financing available to municipalities that desperately need to renew their outdated infrastructure, but cannot take the currency risk where their revenue stream is in rubles. Again, as an aside, if you look at Russia as a large market and only moving towards market economy in ten years, one of the incredible distortions in that market is that they have a stock market that is more liquid than their money market or bond market. And businesses in Russia with excess liquidity invest that liquidity in the stock market, something that as a banker for the last 30 years is absolutely horrifying. But there is no local bond capital markets, and we are trying, with others, to issue short-term--we're doing something--and we've told our Board this, and they have endorsed it. We're doing something we tell banks not to do. We are issuing commercial paper in rubles and lending long term to Russian corporates, not a strategy we would advise any bank to do, but a strategy that is necessary to kick-start a local bond market, a local commercial paper market, post-crisis, when the government defaulted on its local debt, which no government had ever done before. The fear in the markets is to take government paper, something which in every other country is viewed as the safest investment. So we are working on that front to provide domestic capital markets in Russia. But getting back to the municipalities, it makes it very important to strengthen the creditworthiness of the local authorities, and our loans in the municipal sector are, in fact, usually accompanied by programs aimed at the financial management skills of the local authorities. And the first work of this nature we did in 1996 in St. Petersburg. Things are finally beginning to move on the municipal front in terms of the government's attention to this part of the economy. The government has made a priority of municipal and housing sector reform. The possibility of private sector involvement in the provision of municipal services is being discussed for the first time since the 1917 revolution. It was very encouraging to hear President Putin in his State of the Nation address last month emphasizing the importance of letting residents decide for themselves which firms offered the best value for money. So I close by noting that U.S. Ex-Im Bank has just financed its first municipal deal in Russia to improve the lighting to 450 schools in the city of St. Petersburg. So let me end by saying that whether it's a question of making classrooms brighter or helping some of the greatest companies in American industry to set up local production, the EBRD can also be a partner for U.S. Ex-Im and for you. Thank you. [Applause.]
MR. : Thank you, Noreen, for those great remarks. I'm looking forward to see Ex-Im Bank and the EBRD working together, not only in Russia but elsewhere, and I feel gratified to know that EBRD is in great hands with you there.
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