BUDAPEST, June 7: The European Investment Bank (EIB) said that it planned to increase lending to central and eastern Europe substantially from 1998 to help post-communist countries to prepare for European Union (EU) membership.The EIB, the EU's long-term financing institution, currently lends 1.1-1.2 billion Ecus ($1.2-1.3 billion) to the region annually.

"In the next three to four years we should be achieving between 1.5 and two billion Ecus," a divisional head at the EIB Christopher Knowles.

Knowles, who is responsible for lending to central and eastern Europe, was speaking to reporters during a conference on the financing opportunities of small and medium-size enterprises in the region.

The increase would be part of a planned "pre-accession facility", similar to assistance extended to Portugal and Greece before they joined the EU because they were less developed than the EU average, he said.

A number of former Soviet satellites have applied to join the EU, with countries such as Hungary, Poland and the Czech Republic tipped for membership early in the next century.

Knowles said the EU was likely to approve the programme within six months, adding that it would probably be put "in place effectively at the beginning of next year".

The most important feature of the programme was that it would handle the beneficiary countries as if they were already members of the EU.

"In this respect, bankers could be ahead of politicians," he said.The EU might link its financial support to the region -- amounting to more than one billion Ecus a year -- to EIB loans in the future, just as it did in the member-countries, to make more effective use of these resources."Such a decision is beginning to come forward," Knowles said.

Small and medium enterprises (SMEs) in the region also benefited from EIB lending. EIB lending to enterprises in Hungary, made through 10 local banks, totalled 300 million Ecus, including loans to SMEs.

Hungarian enterprises had all the necessary technical and manufacturing skills but they should keep costs, mainly labour costs, at low levels as this was the key factor of their competitiveness compared with companies in the EU.

"Most foreign investors (coming into Hungary) expect that inflation will be under control and that costs will remain at competitive levels," he said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.