Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

EBRD Rift May Hit Aid to Russia

Many want more EBRD funding to go to countries that are on their way to the EU.

KIEV -- A split among shareholders of the European Bank for Reconstruction and Development over where to concentrate its resources is threatening to slow down lending to Russia.

Philippe Maystadt, the chairman of the EBRD's board of governors, said at a news conference that more funding should be directed toward central and east European countries that are in the process of acceding to the European Union.

Maystadt, a Belgian deputy prime minister, said the geographical distribution of the bank's resources last year reflected a decline in funding to so-called "advanced" countries, most of which are on the track to EU accession.

"I really think this decline has been excessive," he said, adding "we were a little above target in Russia."

Last year, Russia accounted for 32 percent of the EBRD's commitments to the region, while those for advanced countries stood at 24 percent and so-called "early or intermediate" countries at 44 percent.

The EBRD board of directors last September approved a strategy until the year 2001, at which time cumulative commitments to Russia and advanced countries would stand at 30 percent each, while "early or intermediate" countries would stand at 40 percent.

The debate over how to allocate EBRD funding has been long-running, but it has intensified this year after Poland, Hungary and the Czech Republic were put on the fast track to join the EU. The EBRD, set up in 1991 to assist the transition from communist to market economies, is dominated by European countries, but the United States has a 10 percent stake.

The United States is seen to be pushing for advanced countries to "graduate" from the EBRD, freeing up funds for lending to former Soviet republics, where Washington has been pumping in aid.

"Most of the financing for public infrastructure investments needed to meet accession requirements will necessarily come from ... capital markets and from the EU," said David Lipton, the assistant secretary for international affairs of the U.S. Treasury.

The Europeans, meanwhile, are facing the massive costs of integrating Central European economies into the EU. "The heavy investment demand generated by the prospect of EU accession" will offer real potential for increased commitments to advanced countries, Maystadt said.

Acting EBRD President Charles Frank sounded a note of compromise at a news conference Tuesday.

"From our perspective, we will have to be active in all our countries of operation, whether they are advanced transition countries or less advanced," he said. "I'm convinced, quite frankly, that even in the advanced transition countries, there is plenty of work for us to do, and we will do it. In the less advanced countries and in Russia, I'm convinced there's a lot of work for us to do as well."

The EBRD has been criticized for crowding out the private sector in countries such as Hungary and Poland, where foreign investment has boomed. In Russia, it has faced growing demand, with the number of signed projects increasing to 2.6 billion ecu ($2.9 billion) by the end of 1997 from 1.7 billion ecu a year earlier.

Bank officials sidestepped the question of whether Russia could be undercut by the new targets.

"Russia will get a fair share of the new commitments," Maystadt said.

But when asked if Russia could get less money as a result of the tussle, EBRD Chief Economist Nicholas Stern said, "Over time, we have to take into account those targets."

The wrangling over distribution of the bank's resources comes amid differences over who should be the new president of the EBRD.

The finance ministers of the EU nations are due to meet in Brussels on May 19 to consider the issue of the new head of the bank. The post has been vacant since Jacques de Larosiere left in January.

France is pushing for Philippe Lagayette, former head of the state bank Caisse Des Depots et Consignations, to head the EBRD. But he may be out of the running after France led a high-profile push for its candidate to head the new European Central Bank.

The dispute over the European Central Bank chair could boost the chances of a German taking over as EBRD president. Germany has not nominated a candidate, but the German secretary of state, Horst Kohler, has been mentioned. Spain has proposed former Finance Minister Pedro Solbes.