Russian Challenge to EBRD Freeze Hits Geopolitical WallBy , , and
London-based lender has halted new projects since 2014
Russia remains at odds with the West over Ukraine, Syria
A Russian challenge to the European Bank for Reconstruction and Development’s funding freeze was rejected by shareholders who remain opposed to many of the nation’s foreign policies.
Economy Minister Maxim Oreshkin questioned the legitimacy of the 2014 decision to halt new Russian projects when the EBRD’s board met Wednesday in Cyprus, saying the bank violated its own rules. The London-based bank’s portfolio in Russia has almost halved, to 3.7 billion euros ($4.1 billion), since the end of 2014.
A vote by the EBRD’s board on the issue was “final and binding,” President Suma Chakrabarti told reporters in Nicosia. Responding to criticism of the bank’s financial performance, he said “I made it very clear in the discussions with shareholders that the statements made by the Russian government I considered to be speculative.”
The EBRD, controlled mostly by shareholders in Europe and North America, stopped new funding for Russia after President Vladimir Putin annexed Crimea and backed an insurgency in eastern Ukraine. Russia, exiting its longest recession this century, wants to shift to an investment-led growth model after the oil-price crash and the ruble crisis. Putin called for steps to achieve this goal last month.
Putin’s involvement in the conflicts in Ukraine and Syria have put him at odds with the U.S. and Europe. Both have sanctioned Russia, while Donald Trump’s presidency has so far failed to bring about the thaw in relations suggested by some of his campaign comments.
The tensions are deterring the flow of cash into Russia, whose sovereign-credit rating was cut to junk by S&P Global Ratings and Moody’s Investors Service in 2015. While the central bank is confident a “lengthy investment pause” is over, data such as construction paint a gloomier picture. Russia needs 5 trillion rubles ($86 billion) in extra annual investment for growth to reach 3 percent, Oreshkin said last month.
Before the Ukraine crisis, Russia was the EBRD’s biggest single country for investment, with the bank channeling funds into financial services, agriculture, transport and manufacturing. Oreshkin had argued that stopping new financing breached several articles of the bank’s establishing agreement, and contributed to a deterioration in its financial performance.
“It amounts to discrimination based on nationality, and is inadmissible as part of the activities of a multilateral development institution,” according to a written statement from Oreshkin. “This approach gives rise to the risk of future arbitrary treatment of the statute of the bank and of its members being deprived of their shareholders’ rights.”
The lender focuses on the kind of projects that would help Russia, according to Daniel Salter, head of equity strategy at Renaissance Capital in London.
“Boosting investment is key,” he said by email. “Some of this will be domestically financed, but attracting international investment can help accelerate the adoption of new technologies and best practice.”