SLD finance minister dazzles emerging market fund board members
Jacques de Larosiere's friendship with former Finance Minister Leszek Balcerowicz was a key reason why the newly launched megabuck AIG Emerging Europe Infrastructure Fund scheduled its board meeting in Poland.
But friendship couldn't keep Balcerowicz as a dinner speaker after his Freedom Union (UW) party of economic reformers pulled out of the governing coalition with the Solidarity Election Action (AWS).
De Larosiere's clout as former bigwig with the European Bank for Reconstruction and Development (EBRD), however, helped haul in another brand-name speaker: Marek Belka, who took over as Democratic Left Alliance (SLD) finance minister for the volatile Grzegorz Kolodko, winning plaudits and creating something of a political career in the bargain.
At the June 14 Bristol Hotel banquet, Belka wowed the investors, many of whom were on their first trip to Poland. He gave them a lay-of-the-land picture of the past, present and possible future in terms of the coalition shift and what that means for the country itself. Belka is easy on his feet. A last-minute invite for a bunch of big-money investors didn't faze him and he used candor and humor to leaven the economic facts of life about Poland, a decade into a successful but very tough transition.
It was a fairly flawless performance. One minor glitch: he said he was compelled to accept the invitation partly because of de Larosiere, and partly because his wife works at a key sponsor, ING. Actually, the key sponsor of the new fund is AIG, not ING, and you could hear the intake of breath around the room especially from Kevin Clowe, managing director of AIG Capital Partners of New York.
But Therry Baudon, the London-based chief executive of the Emerging Markets Partnership (Europe), said Belka touched all the right bases and made a lot of sense.
"There were two or three very important messages: that the European Union (EU) accession transcends party lines ... and that there are major social tensions in this transition that have to be managed by whoever is in the government," Baudon said.
Baudon said he agreed with EU entry being a priority for Poland. "Even the most populous nuts can only play games so far with this. EU membership is very important to Poland," he said. "They wanted NATO membership and they got it and the country is mature enough that, regardless of the (government) changes, they won't delay EU accession."
Baudon also agreed with Belka's statement that the UW pullout might lead to next year's liaison with the SLD but that in the meantime the UW "would not make the Solidarity government's life more difficult," for the sake of doing that.
The possible merger of UW and SLD reformers "doesn't make the slightest bit of difference" to his job as a fund manager, Baudon said.
After a difficult 10 years, Poland probably faces another five hard years "of huge tensions in the fabric of the country" before it is home free in terms of tough structural changes, and can then focus on catching up with Western Europe, Baudon said.
The Emerging Europe fund is one of five under the Emerging Markets Partnership. Two others are in Asia and one is in Latin America and rare for international investment funds there is one in Africa, partly at the urging of Arnold H. Weiss, senior vice president and general counsel of the EMP who had worked with both African and Latin American development banks.
The Emerging Europe Fund currently has $525 million in investment money and that will rise to about $600 million, Baudon said. In addition to AIG, other key investors are ABN Amro and Edison Capital, an affiliate of an U.S. electric utility company whose investment arm has gone far afield of the power sector.
In theory, the fund can include countries that were previously part of the Soviet Union as well as Central and Eastern Europe. In reality, Baudon said, they are looking at the 10-12 EU ascension countries for now.
Here's how he sees the fund's target countries:
Slovenia is "way ahead of anybody else. Its gross domestic product (GDP) matches Greece or Portugal, so it's two-to-three times that of Poland. And it's now opening up its economy so it's a golden opportunity for us."
Croatia is second "because it's been leapfrogging ahead" since the death of the president last year.
Poland is "probably third but it's very complicated. Deals take longer to coalesce. Poles are unnecessarily divisive in the way they approach things which is not the case with Slovenia."
Hungary has been a fast-track reform country but "its economy is much less attractive. It is dependent on a few huge industries and there are huge income disparities."
As for the Czech Republic, "it's complicated. It is the worst of these top ones. Vaclav Klaus had a very negative impact on the country for the last four to five years. He suppressed competition. And the way it privatized and Klaus was responsible for this voucher gimmick meant that in the end nothing changed (because state banks ultimately owned most vouchers and therefore most state enterprises.) There was no restructuring. So it has been frozen."
Yes, the fund includes the fast-moving Baltics in its bailiwick "but they are satellites of Sweden and Finland. You can't do much there," he said.
Baudon said that for the most part, the fund's infrastructure investments will be in telecoms, the internet, cable and probably some energy.
