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Banks prop up Eastern Europe

THE World Bank, the European Bank for Reconstruction and Development and the European Investment Bank will provide up to 24.5 billion euros (US$31 billion) to help central and east European banks and businesses cope with the global financial crisis.

"We have a special responsibility for the region and because it makes economic sense," EBRD President Thomas Mirow said in a joint statement issued yesterday in London.

"For many years the growing integration of Europe has been a source of prosperity and mutual benefit and we must not allow this process to be reversed."

The EBRD will provide about 6 billion euros, the EIB about 11 billion euros and the World Bank about 7.5 billion euros, the statement said. The aid will take the form of equity and debt financing, credit lines and political risk insurance.

Eastern European nations are struggling to refinance foreign-currency loans taken out by borrowers during years of prosperity. The global credit crisis that has left banks with more than US$2 trillion in losses and writedowns and triggered a simultaneous recession in the euro region, the United States and Japan, is taking its toll on emerging economies.

Recession looms

Eastern Europe will have a recession this year as demand for exports collapses, the IMF said in January. The economies will shrink 0.4 percent, the IMF forecast. The slump, combined with rising unemployment and falling currencies, increases the risk of more borrowers defaulting on their loans.

The EBRD was created in 1991 to invest in countries from the Balkans to Asia to help them transform their economies. The International Finance Corporation is the World Bank's private-sector lending arm and the EIB is the European Union's lending vehicle.

The EBRD is investing a record 7 billion euros in central and east Europe this year to help the region weather the global economic crisis, compared with about 5.8 billion euros last year.


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