U.S., Canada to Oppose World Bank Aid Projects in Russia

July 25 (Bloomberg) -- Bloomberg’s Ryan Chilcote reports on what comes next for Ukraine as Prime Minister Arseniy Yatsenyuk announces his resignation after the collapse of his coalition. He speaks on “Bloomberg Surveillance.”

The U.S. and Canada will oppose World Bank projects in Russia, adding economic pressure on the country over its actions in Ukraine.

The U.S. will vote against Russia-related loans and investments that come before the board, Treasury Department spokeswoman Holly Shulman said. Melissa Lantsman, a spokeswoman for Canadian Finance Minister Joe Oliver, said her country also opposes such projects. European governments are discussing doing the same, a European official said, asking not to be named because the discussions are confidential. Japanese Finance Minister Taro Aso said his nation may reconsider support.

The World Bank unit that lends directly to governments has 10 investment projects currently in Russia totaling $668 million, though less than half of the total has been disbursed, according to the bank. It also has nine Russian projects in preparation worth a total of $1.34 billion, including one on pre-school education and another focused on energy efficiency, according to its website.

While Canada and the U.S. account for about one-fifth of votes at the 188-member institution, their opposition would be enough to delay loans, said Scott Morris, a former deputy assistant secretary for development finance and debt at the Treasury in Washington. If European Union countries follow the U.S., the bank’s largest shareholder, projects could end up not being presented to the board, he said.

Photographer: Rob Stothard/Getty Images

A pro-Russia rebel and a local resident walk past an apartment building damaged by rocket fire in Snizhne, Ukraine, on July 23, 2014. Close

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Photographer: Rob Stothard/Getty Images

A pro-Russia rebel and a local resident walk past an apartment building damaged by rocket fire in Snizhne, Ukraine, on July 23, 2014.

Halting Projects

“If they informally took a poll of their shareholders and understood that the balance weighed toward opposition, it’s very unlikely the bank management would proceed to bring something to the board and watch it be rejected,” Morris said. “This is a very difficult thing for the president of the World Bank to navigate.”

World Bank spokesman David Theis declined to comment.

Two days ago, the European Bank for Reconstruction and Development bowed to its shareholders and said it’s halting new Russia projects after a majority indicated it would not support them. European Union leaders last week had made it part of their latest round of sanctions over Russia’s involvement in unrest in eastern Ukraine.

The U.S. and Canada have also decided to oppose EBRD projects in Russia, the spokeswomen said.

“We will consider what to do based on what the European and other nations decide to do,” Japan’s Aso said.

The U.S. is pushing Europe to toughen its stance toward President Vladimir Putin a week after a Malaysian commercial jet was destroyed by a missile American officials say was probably fired from a Russian-supplied launcher. Russia denies involvement in the disaster, which led to the death of 298 people.

Nearing Contraction

Yesterday, the International Monetary Fund said Russia’s economic growth will slow to 0.2 percent this year from 1.3 percent last year. Sanctions may weaken growth even further, IMF chief economist Olivier Blanchard told reporters in Mexico City.

While the economic impact of scrapped development projects on Russia would be minor, the opposition to World Bank support could prove painful if Russia needed a rapid disbursement from the bank, said Morris, a senior associate at the Center for Global Development, an aid research group in Washington.

The World Bank already was thrust into discussions over how to use economic sanctions to punish Russia, when the lender eight weeks ago approved its first investment there since Putin annexed Crimea. Canada then voted against it, while the U.S. and some EU countries abstained.

Kim’s View

The International Finance Corp., the World Bank’s private-sector arm, voted May 29 for parts of a 250 million euros ($337 million) package enabling French grocery retailer Groupe Auchan SA to expand in Russia, Vietnam and other emerging markets.

World Bank President Jim Yong Kim tried to keep his institution outside of the debate earlier this week, saying the bank has a good relationship with both Ukraine and Russia.

“We are going to continue to focus on trying to provide the kind of support and advice that will help both of those countries in responding to issues of poverty,” he said in a July 22 interview in the southern Indian city of Chennai. “It is extremely important for the world community to have an organization that remains apart from the politics and focuses on economics.”

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net Brendan Murray, Andy Sharp

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