Kremlin attacks EBRD lending freeze as 'politically motivated'

By Jason Corcoran in London May 12, 2016

The Kremlin has attacked the European Bank for Reconstruction and Development (EBRD) over its freeze on lending in Russia, describing it as "politicised" and "discriminatory." 

Russian Deputy Finance Minister Sergei Storchak said the bank was going into riskier areas to make up for the absence of projects in Russia and still spending heavily in parts of Central Europe even though they are well down the development track. 

"In contrast to the sanctions of the EU and some countries aimed at Russian state companies and specific individuals, the EBRD has gone much further in its politicised approach," said Storchak."The bank’s discriminatory policy towards our country is also expressed in the tacit ban on cooperation with Russian sponsors in a number of the bank’s countries of operations, which is at variance with free market principles."

Storchak, who made a similar attack at the EBRD’s summit in Tbilisi last year, issued the statement as the bank celebrated its 25-year anniversary at its Annual Meeting in London. Storchak attended the event but didn't particpate in any of public discussions. 

The London-based lender was set up in 1991 by Western governments to help former communist countries make the transition to capitalism. Last year was the first full year in which the bank brought no new projects to Russia – once the single largest recipient of annual funding – after a majority of the shareholders decided to halt new funding in July 2014, following Russia’s seizure and annexation of Crimea from Ukraine

“What we are seeing is a trend towards the erosion of the EBRD’s mandate, which expresses itself in a shift of business emphasis towards areas which do not fully correspond to its core function," Storchak's added.. "Refocusing the EBRD’s business activity on high-risk regions endangers the bank’s financial stability."

Since the Arab Spring, the EBRD has moved into the southern and eastern Mediterranean region such as  Morocco, Tunisia, Egypt and Jordan. EBRD officials are also understood to have considered investing in Burma and Singapore before ruling both out.

Russia remains a shareholder but the UK, Germany and the US are the largest shareholders and hold sway over any important decisions. The EBRD is poised to start winding down its operations in Russia if the EU in June renews its sanctions against the Kremlin over its involvement in the Ukrainian conflict, bne IntelliNews reported exclusively in April.

“Some senior figures at the bank want us to wind up,” an EBRD insider told bne IntelliNews. “There’s been some in-fighting about it because management on the ground in Moscow want to carry on. If the sanctions are renewed in June, we will have to cut down on our staff numbers in Russia.”

The EBRD’s Russia portfolio, its second largest after Turkey, has shrunk to €5.35bn from €6.3bn a year ago following a number of exits.

Sir Suma Chakrabarti, speaking to journalists after he was re-elected as EBRD President on May 11, pointed out that the current run-off for EBRD exits was the same as it would have been if the bank were still allowed to make new investments. 

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