EBRD says C.Asia funding still hinges on reforms
The Bank will not compromise over democracy

LAPPEENRANTA, Finland, Oct 22 (Reuters) - The European Bank for Reconstruction and Development will not compromise over democracy and market reforms in Central Asia despite the need to boost stability in the region, the bank's chief said on Monday.

Asked whether the EBRD would have to change its approach to the central Asian countries bordering Afghanistan in view of the new military and political situation there, EBRD president Jean Lemierre said "I see no reason to change the point of view taken by the bank - market economy and democracy go together."

"In the region, we have made the point very clear in the case of Turkmenistan," Lemierre told Reuters in an interview on the sidelines of a conference on the EU's Northern Dimension.

The bank issued a warning to one-party Turkmenistan at its annual meeting in London earlier this year, and warned in July that even limited EBRD involvement in the country's private sector could end unless there was substantial reform.

The EBRD had even earlier said it would not finance state sector projects. Lemierre said the situation in Turkmenistan would be reviewed in the middle of next year.

Lemierre said part of the challenge for the five Central Asian countries where the EBRD operates and has invested $1.3 billion - Turkmenistan, Tajikistan, Uzbekistan, Kazakstan and Kyrgyzstan - was to encourage private sector investment, and he said that would not succeed without reform.

"Private sector investment will not express a normal degree of confidence in these countries without progress on the market economy and democracy," he said.

He said the region as a whole had made progress but it had been uneven and sounder institutions were still needed throughout the area.

"I mean good governance and judiciary, market rules and regulators - this is very important," he said, adding that promoting direct investment was also key.

"Some of these countries are quite attractive for investment, mainly in oil and gas and natural resources. The challenge is to help them be more competitive and to help them diversify their economies. More competitive means mainly infrastructure, railways and so forth."

Lemierre said the EBRD was working in cooperation with the Asian Development Bank in the region but action from other institutions, such as the United Nations and the World Bank, was also needed to promote stability there.