Market Focus : East Meets the West at New Europe Bank : The agency aims to remake economies in the old Soviet Bloc. At just nine months old, it’s already ‘walking.’

At the creation of the European Bank for Reconstruction and Development nine months ago, French President Francois Mitterrand declared of the new agency set up to provide Eastern Europe with investment funds:

“You are adventuring into the unknown, into a game for which the rules are yet to be defined, by yourselves. But you have a mission that only you can do.”

Today, no one is making any firm predictions as to the efficacy of a bank that intends to help the emerging Eastern European nations establish a democratic market economy, but most experts here applaud the vigor of the effort shown so far.

Under the presidency of French economist Jacques Attali, the bank--which is known by its initials, EBRD--has moved rapidly to finance various projects in what used to be the Soviet Bloc.

Development operations recently funded by the bank range from wholesale markets in Moscow and St. Petersburg to oil drilling in western Siberia and a telecommunications system in the Russian capital.

The bank has also signed an agreement with the Russian government to establish a permanent, high-level Privatization Advisory Group to counsel officials in that former Soviet republic on legislation, strategy and techniques for successfully transforming state-owned enterprises into privately owned businesses.

In other Eastern European countries, the bank has approved loans for a telecommunications center in Romania, a private computer software company in Hungary and three Polish cold-storage companies.

In Czechoslovakia, the agency invested in CSA, the national airline, and in Cokoladovny, the nation’s largest food producer. The bank is also studying investments in the aerospace, petrochemical and paper industries in Czechoslovakia.

Often, the bank makes investments in partnership with large Western European firms--Air France in the case of CSA; Nestle, the Swiss food products firm, and BSN, the French bakery, in the case of Cokoladovny.

The bank’s rise has been accomplished swiftly, if quietly. First suggested by Mitterrand in the fall of 1989, it came into being May 29, 1990, with 40 countries signing the enabling agreement, including the United States and Japan as well as the principal countries of Western Europe.

Actual banking operations began on April 15, 1991, from headquarters in London, the financial center of Europe, and with a capital subscription of nearly $13 billion.

Since then, the bank has recruited a staff of 350 to establish contact and make preparatory missions to Central and Eastern European countries, hammering out procedures for granting loans and forging a strategy for the institution.

It has become, says President Attali, “a center of expertise” on Eastern Europe’s economic and financial problems.

The objectives of the European Bank are to provide advice, loans and equity investment and debt guarantees to qualified applicants in the countries of Central and Eastern Europe.

One knowledgeable private banker in London believes that the administrative setup, with 23 directors representing all the 40 supporting countries, is cumbersome and that it takes too much time to obtain approval for projects.

However, he adds: “The bank can give Eastern Europe a big psychological boost, and it does act as a focal point for other banks in establishing the needs and requirements of those countries. It can’t do any harm and could do some good.”

In a recent breakfast meeting with journalists, Attali, once a political adviser to Mitterrand, said the EBRD’s seven original Eastern European bank clients may well expand to more than 20 as the old Soviet Union breaks up.

And he clearly has been thinking about the impact of the breakup. He proposed in a recent interview with the newsletter EBRD Watch that the West offer to trade the former Soviet Union debt forgiveness in return for its nuclear weapons. It’s an approach that would help reduce the danger of nuclear proliferation, he argued, while at the same time providing crucial debt relief as the former republics try to reform their economies--all at a cost he estimated at “less than 1%” of the aggregate annual defense budgets of the world’s seven largest industrial nations.

Attali has no illusions about the size of the task of reconstructing Eastern Europe.

“Those countries are facing an economic crisis worse than the 1930s,” Attali said. “They have to avoid massive unemployment or inflation. That happened in the 1930s--and we know where that led.

“Reconstruction will not happen overnight--and that is a message we must pass along. For they’ve got to create new property laws, central banks, a tax system. It may take two years, four years, nobody knows.”

Beyond helping build new infrastructures in Eastern Europe, Attali believes that it is essential to open up trade possibilities for those nations’ economies.

“The most important thing the West can do for these countries,” he said, “is to open up world markets for their products. Otherwise, help may prove meaningless.”

Toward that end, the bank president believes in the creation of a Continent-wide Common Market, rather than only the current 12 states, an idea that might put him into conflict with his former boss, the more protectionist-minded Mitterrand.

Attali suggests that Eastern and Western Europe could take as their model the relationship among the United States, Canada and Mexico.

“A multilateral trade agreement between the countries of Eastern and Western Europe could be a real shortcut, “ he said. “There’s not much point financing trade without open borders.”

Attali says the EBRD does not take a doctrinaire approach to funding and wants to be flexible enough to make such decisions on a case-by-case basis.

“We are the lender of last resort,” he declared. “We work on the spot with the people there to see what can be done for them tomorrow.”

Where Bank’s Money Is Going

The European Bank for Reconstruction and Development has approved 16 loans and technical assistance projects worth more than $500 million. Among them:

ROMANIAN TELECOMMUNICATIONS SYSTEM * $180-million loan connect 600,000 new subscribers and replace 400,000 worn-out lines.

HUNGARIAN TELECOMMUNICATIONS COMPANY

* $115-million loan to expand and modernize service.

THREE POLISH JOINT VENTURE COMPANIES

* $6.6 million in loans to build and operate food processing and cold-storage facilities.

RUSSIA

* $14 million to finance pilot projects in wholesale farm markets in Moscow, St. Petersburg, and Kolumna.

* $9.5 million to set up advisory body with World Bank to assist privatization program.

* $6.5-million loan for joint-venture oil drilling operation in western Siberia.

* $4.7-million loan for joint venture developing enhanced telecommunications system for hard-currency-paying hotel clients in Moscow.

* $4.5 million for program to advise St. Petersburg on privatization.

* $2.8 million to establish International School of Finance and Banking in Russia with training in commercial banking, central banking, insurance and the securities market.

* $500,000 to survey road transport system and identify investment priorities.