The turn of the century witnessed a significant renewal of interest in Southeast Europe.2 The international community, notably the European Union (EU), took steps to bring lasting peace and stability to the region under the auspices of the Stability Pact and the Stabilisation and Association Process. These steps have coincided with considerable progress in the countries of Southeast Europe. All of them are now democracies and are forging ahead with political, economic and administrative reforms. International investors have started to identify the oppor-tunities brought about by these changes. Nevertheless, the region has still a very long road ahead before it reaches EU standards of living and economic development. To address this challenge, it is essential to design relevant economic policies and to ensure the appropriate involvement of the private sector. In both respects, the potential contribution of the financial system to economic growth is of particular relevance.

The Financial Sector and Economic Development: Evidence from Southeast Europe

Kreditanstalt fur Wiederaufbau (KfW), the German ‘Reconstruction Loan Corporation’ as the original name read, primarily conducts credit activities aimed at promoting the German economy: infrastructure financing, export and project finance, small and medium-sized enterprise financing as a second-tier institution, refinancing of venture capital companies, and many other operations. Another section works for the promotion of developing and transforming economies, mostly as an implementing agency for the German Federal Government within the framework of official German Financial Cooperation, but also as an agent of the European Commission or of other individual countries. Here KfW finances projects in various economic sectors, such as energy, water supply, health, infrastructure and others. Another important field of activity is the promotion of efficient and stable financial sectors. At present, financial sector support accounts on average for roughly 10 per cent of KfW’s annual commitments.

Werner Neuhauss

Papers

Refinancing Banks in an Unstable Financial Environment