June 4 (Bloomberg) -- The World Bank approved an investment in Russia for the first time since President Vladimir Putin annexed Crimea, overriding Canada’s opposition and a lack of support from the U.S. and parts of Europe.
The International Finance Corp., the lender’s private-sector arm, voted May 29 for parts of a 250 million euro ($340 million) package enabling French grocery retailer Groupe Auchan SA to expand in Russia, Vietnam and other emerging markets, World Bank spokeswoman Serene Jweied said yesterday in an e-mail.
The deal thrusts the Washington-based lender, formed in the aftermath of World War II to rebuild Europe, into the debate over how to use economic sanctions to punish Russia for its actions in Ukraine.
“Canada took a principled stance by voting against this project because we do not support projects that benefit Russia,” Canadian Finance Minister Joe Oliver said in an e-mailed statement. “Russia must not interfere in the affairs of a sovereign state.”
The World Bank’s planned investment, its first related to Russia since February, forced countries that have slapped sanctions on Putin’s inner circle to consider withholding development aid as part of their toolkit of penalties.
The U.S. and three European constituencies at the board abstained, according to a board official who asked not to be named because he wasn’t authorized to disclose discussions among the bank’s 25 executive directors.
U.S. Treasury Department spokeswoman Holly Shulman said in an e-mailed response to questions that “we did not think that at this time it is appropriate to support this project.”
Gino Alzetta, the executive director for Belgium who represents nine other countries at the board, abstained partly because the development impact of the project is too weak, according to his statement to the board provided by the Belgian finance ministry.
“It is important to note that we were the only ones to take a strong stand and vote against” the project, Oliver said. “Canada continues to call for calm and for Ukraine’s territorial integrity to be respected.”
Canada’s lone dissent at an institution that’s typically consensus-driven may have an impact on future loans in Russia, said Domenico Lombardi, a former World Bank board official.
“This is designed to apply some psychological pressure on the senior management of the institution to better calibrate the institution’s stance vis-a-vis Russia,” said Lombardi, who is now the director of the global economy program at the Waterloo, Ontario-based Centre for International Governance Innovation in Canada.
“It also shows that there’s no clear agreement or unity among the major shareholders in terms of applying sanctions or escalating pressure on Russia in a consistent way,” he said.
Canada, the U.S. and the European Union said last month they want the European Bank for Reconstruction and Development to examine its role in Russia, the largest recipients of its investments.
Ukraine said it’s deploying heavy weaponry and armored vehicles to strengthen its border with Russia and halt an influx of fighters after skirmishes with separatists claimed another dozen lives. The bloodshed in the mainly Russian-speaking regions underscored the tension with Russia as President Barack Obama began a European tour with talks in Ukraine’s western neighbor Poland.
The World Bank, in a note on its website describing the project, said it will give consumers with lower to middle incomes access to better-quality products at lower prices. In Russia, it will also enable Auchan’s expansion in “frontier regions.”
With more than 300,000 employees, closely held Auchan has more than 1,500 hypermarkets and supermarkets in 15 countries, according to the World Bank’s review of the project. It’s the second-largest food retailer in France and the 11th-largest in the world. Spokesman Francois Cathalifaud declined to comment on the project.
The company entered the Russian market in 2002 and has 78 hypermarkets and 122 Atak supermarkets, according to its website. A hypermarket is a combined grocery and department store.
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