The IFC has to bring elements that commercial banks can’t to deals in middle-income countries – or it’s not doing its job, says Lars Thunell, the corporation’s chief.
Winning a commitment to greater transparency from Russia’s aluminium oligarch, Oleg Deripaska, is an example of the IFC’s unique value, Thunell told Emerging Markets in an interview.
“Banks who work with us see the IFC as a means of reducing risk, because of our multilateral status. In particular we add value on corporate governance.” he said. “We are one of the institutions that helped [Deripaska] to change the structure of his holdings to increase transparency. That’s something the private banks could not do,” Thunell said, responding to a question about commercial bankers’ complaints that the corporation’s drive for new business was coming close to territory banks considered their own.
A full disclosure of ownership by Deripaska, whose holding company Basic Element controls Rusal, Russia’s largest aluminium maker, was made a requirement for $150 million in loans by the IFC and EBRD to an alumina-bauxite project in the Komi republic in north-west Russia.
The two institutions had agreed to fund the project in 2004, when it was managed by Sual, a smaller aluminium maker. When Rusal took a 50% interest last year, they reviewed its record and ownership structure. The upshot was the promise of disclosure, plus “detailed commitments to greater transparency, good corporate governance and high business standards”.
Thunell would not comment on the IFC’s widely-criticised $350 million syndication in June this year for the Industrial Union of Donbass, a Ukrainian metals and power holding, but said: “As a former commercial banker I respect that point of view. At the IFC we have to add something. We must be ahead of private investors.”
For the IFC, “profits are important, but the development impact is more important”, Thunell said. The institution is focusing on “frontier markets”, a concept that includes not only the poorest countries, but also geographical regions and industrial sectors in better-off nations that are lagging behind.
“In Russia there are seven regions that, if they were independent countries, would qualify for IDA funding, and the picture in China is similar,” Thunell said. He added that while the IFC’s commitments in sub-Saharan Africa were small by volume, the very large number of smaller transactions had a greater development impact.
The institution is “focusing on post-conflict countries”, such as the Democratic Republic of Congo, where it has 30 staff on the ground. “Everybody was waiting for the election. We tried to think about what would happen afterwards”, he said. In 2005, the IFC’s commitments to sub-Saharan Africa were less than 7% of the total: $445 million of a $6.45 billion total (including IFC account and syndications). Most of the funding went to Europe and central Asia ($2.35 billion) and Latin America and the Caribbean ($1.78 billion).