A furious public row broke out on Wednesday between the EBRD and the Russian government, which accused the development bank of being a tool of foreign policy in an attack that threatens to take their relationship to new lows.
The diatribe by Russian economy minister Maxim Oreshkin came after EBRD rejected a complaint by Russia that the development bank’s investment freeze in the country had breached internal EBRD rules. He said his country would now turn its attentions to the Asian Infrastructure Investment Bank, the recently inaugurated multilateral based in Beijing in which China holds a 30% share.
EBRD president Suma Chakrabarti emerged from a meeting of the bank’s board of governors to say that they had “overwhelmingly agreed that the bank had complied with its own internal rules”. That, he added was a “final and binding resolution”.
Russia has long argued that the EBRD’s ban negatively affected all lending in the country rather than, as is the case with EU and US sanctions, targetting specific individuals or corporates.
On Wednesday, at a meeting of board of governors, Oreshkin made yet another plea to have the lending ban lifted, arguing that it was “unfair” and “not underpinned by international law”. He used an external legal opinion to claim the bank failed to follow its own rules when imposing the freeze, which followed the annexation of Crimea and the downing of a Malaysian jet by Russian-backed rebels over eastern Ukraine.
But the pleas to ministers from the bank’s 65 country shareholders, present in Nicosia, fell on deaf ears.
Despite the resolution, Chakrabarti talked fondly about Russia, which remains one of the bank’s largest theatres of operation, with seven full-time officers, an SME advisory service, and an outstanding lending portfolio worth €3.7bn ($4bn). “We maintain a deep and special relationship with Russia,” he said.
But that did not stop Oreshkin from venting his fury in public. After Chakrabarti left, the Russian minister took the stage. Clearly agitated and reading from a pre-planned script, he tore into the EBRD, claiming the lending freeze “created an extremely dangerous precedent in international financial relations”, and “turned the EBRD into a tool of foreign policy rather than a development bank”.
‘WE CHOOSE AIIB INSTEAD’
He then took aim at the bank’s finances, claiming that the EBRD’s cost-to-income ratio was 42%, far above the 33% required to maintain its triple-A credit rating. The bank later disputed the figure, a spokesman saying the ratio was “well below” the 33% ceiling. Oreshkin thundered that costs had risen 71% since 2011; EBRD’s Russian-born economist Sergei Guriev said that figure was “factually untrue”.
But the minister was not finished. He said the EBRD had “deviated from its original mandate” by focusing in recent years on leveraged buy-outs and investing directly in IPO-ready private vehicles. “The bank is taking an ‘Uber’-[style] approach to lending,” he said. “It is not Russia that needs the EBRD, but the EBRD that needs Russia.”
In truth, independent analysts believe both sides need each other. Chakrabarti remained a staunch defender of the bank’s commitment to Russia. He added that “at no point has there ever been, or was there today, any suggestion of the bank” cutting its ties to Russia. In a statement released later through Russian news agency TASS, Oreshkin stated publicly that despite its bitter disappointment, Russia had “no intention” of leaving the EBRD.
But he could not resist a final, departing barb. “We are doing very well,” the minister said, in a nod to the Russian economy, which is set to return to growth this year after two years of recession. “So we won’t be needing to get in touch with [the EBRD] about any new investments. We will focus on the [new China led-multilateral], the AIIB instead.”