BOFIT Viikkokatsaus / BOFIT Weekly 2017/20

The majority of shareholders in the European Bank for Reconstruction and Development (EBRD) decided in summer 2014 to halt any new projects in Russia in response to Russia's annexation of Crimea and its involvement in the conflict in Eastern Ukraine. Disbursements under earlier EBRD financial commitments, however, were allowed to continue.

Russia already previously asked to have the decision reversed. Bringing the matter to the EBRD annual meeting this month resulted in a vote where an overwhelming majority of the bank's 67 shareholders (65 countries plus the EU and the European Investment Bank) found that the financing freeze on Russia complied with the EBRD's rules. Media reported that three CIS countries and Mongolia joined Russia in seeking to overturn the decision, with two CIS countries abstaining from voting. Russia holds a 4 % stake in the EBRD and has a 4 % voting share.

At his address to the annual meeting, economy minister Maxim Oreshkin explained how Russia saw the restriction as violating the EBRD articles of establishment. Oreshkin said that the bank's income, 30 % of which has come from Russia in recent years, would be reduced by keeping the financing ban in place. Less officially, Oreshkin suggested that the current situation would make the EBRD's AAA credit rating questionable, and Russia would draw the attention of credit rating agencies to the slide in the bank's income from Russia.

The EBRD has financial commitments to Russia of €3.7 billion (less than 10 % of the bank's total commitments). In 2012, financing commitments to Russia exceeded €10 billion (26 %). Of the projects in Russia with EBRD participation, 84 % are in the private sector. The EBRD was established in 1991 to support progress towards market-oriented economies in the bank's countries of operation that today comprise over 30 countries in Central and Eastern Europe, Central Asia, and the Eastern and Southern Mediterranean.