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. Last Updated: 07/27/2016

Russia Pushes for EBRD Funds

Russia may lag other East European countries in attracting foreign investment, but Moscow already gets the biggest share of funds from the European Bank for Reconstruction and Development.

Officials say lending to Russia from the bank, set up to help the former Soviet bloc move to a market economy, overtook that to second-placed Poland for the first time last year.

As a result Russia will back a proposal to double the bank's capital from 10 billion ecu ($12.5 billion), the main issue at the EBRD's annual meeting in Sofia next week.

"We will certainly support the decision to raise the capital and will continue working to attract credits to solve our priority tasks," Andrei Filev, head of the Finance Ministry's international financial organizations department, said.

Foreign direct investment into Russia last year was about $1.8 billion, up from a meager $1 billion in 1994 but well behind that in countries such as Poland, Hungary and the Czech Republic, and a fraction of the $15-plus billion China is attracting each year.

Russian oil and metals companies -- some of the largest in the world -- are potentially among the most lucrative in the emerging markets universe.

But uncertain property laws, high taxes and a reputation for crime and corruption have put off many potential investors.

Hence the Russian search for international funds -- and the desire for as much money as possible to be available.

Lou Naumovsky, resident EBRD representative in Moscow, said Russia was solidly behind the capital increase.

"Our president has made no bones about the fact that Russia, Ukraine, Kazakhstan and other countries, but especially Russia, have been the reason for the timing of the capital increase," he said.

The EBRD has already lent Russia 2 billion ecu, running up against a ceiling imposed by its rule limiting investments in any one country to 20 percent of its capital.

As one of the larger shareholders in the bank, Russia will have to pay 400 million ecu in under the capital increase.

But this will be done over 12 years, and disbursements from loans so far already exceed the initial subscription.

One of the EBRD's main programs in Russia is the Financial Institutions Development Project, run with the World Bank, which channels funds to a dozen major Russian banks, to which more will be added, for lending on to Russian firms.

Russia wants the EBRD to work more through intermediaries, and is encouraging it to put money into the so far inactive Russian Export-Import Bank.

The EBRD is already a shareholder in one commercial bank, Tokobank, and is considering a stake in Mosbiznesbank.

Loans and investments in small businesses in the regions, another target area, are channeled through local banks or specially created investment and venture capital funds.