Bankwatch analysis of EBRD operations in CEE at 25 years since the fall of the Berlin Wall

May 14, 2014

Warsaw – As the EBRD celebrates 25 years since the fall of the Berlin Wall and the benefits it has brought to its countries of operation in the post-socialist space, a new Bankwatch report criticises the bank for having systematically promoted a „markets above all” approach, which has often put democratic and environmental concerns on the back burner, and occasionally proved straightforwardly detrimental to the region.

The Bankwatch analysis is available for download here: http://bankwatch.org/EBRD-stuck-in-market

„This report sums up our main observations and criticisms of the EBRD, coming after almost two decades of monitoring the bank as it tries to fulfill its triple mandate of promoting market economies, democratisation and sustainable development in its countries of operations,” says Bankwatch research coordinator Pippa Gallop, the main author of the analysis.

„What we note beyond doubt is that the EBRD is driven by what could be called market fundamentalism, in that it assumes that by promoting markets, privatisation and economic liberalisation, it is contributing to sorting out all types of problems in its countries of operations. While such an approach may have gone down easily in the early 1990s, it looks shockingly anachronistic today and is leading to investments of questionable value.”

The Bankwatch analysis highlights developments in the EBRD’s countries of operation that are not emphasised by the bank in its public communication. After more than two decades of EBRD loans to Central and Eastern European countries, only the Czech Republic has „graduated” from recipient status, thus being considered as having completed transition.

The EBRD to date fails to have a solid system of evaluating its human and environmental impact and chooses to rely on the assumption that markets benefit people. As a result it continues to promote privatisation even in countries with high levels of corruption while criticising socially progressive policies such as the introduction of free public transport in Tallinn, Estonia. Some of the countries that have fared best in the bank’s assessment of economic performance have also been among the hardest hit by the economic and financial crisis, which indicates that the EBRD models may ignore economic vulnerabilites and need to be significantly improved.

The bank's focus on developing the private sector has also led it to finance companies whose need for development finance is far from proven, including several owned by billionaires, such as Kulczyk Investments, owned by Poland's richest man, Jan Kulczyk, and Russia's Transportation Investments Holding Ltd owned by Nikita Mishin, Konstantin Nikolaev and Andrey Filatov who are also involved in the controversial Moscow-St. Petersburg motorway which is planned to run through Khimki Forest near Moscow. Other projects such as shopping centres also attract criticism as undeserving recipients of development finance.

Democracy promotion, despite being core to the mission of the EBRD, remains a blurry area for this institution. The bank has limited its involvement with countries run by authoritarian regimes such as Belarus, Turkmenistan and Uzbekistan, but it continues to operate in Russia and has recently started lending to Egypt among other countries in North Africa and the Middle East. Stating that it is closely monitoring the situation on the ground, the EBRD keeps lending to Russia and Egypt while severe human rights abuses are being committed by the governments (including, for example, the execution of almost 600 people by the Egyptian authorities earlier this year). Moreover, despite the bank admitting to the need for a diversification of economies, significant chunks of its loans to these countries go to the energy sector, which is recognised for enabling authoritarianism as energy revenues make countries less dependent on tax incomes.

As part of its mission to enable sustainable development, the EBRD has been making major efforts to clean up its energy lending portfolio, by restricting coal lending, tightening industrial emissions provisions in its lending policies, and improving recourse mechanisms. Yet it still invests in large hydro power projects that destroy biodiversity and coal mines which negatively impact livelihoods. The bank’s stated support to sustainable energy deserves deeper scrutiny too as new coal units at Sostanj, Slovenia, and Belchatow, Poland, have been financed with money from the EBRD’s Sustainable Energy Initiative.

„In the past the EBRD has regularly claimed a leadership role in the transition success stories and recently it was cheered as an experienced transition leader to unleash its private sector finance magic on the post Arab Spring countries,” commented Fidanka Bacheva-McGrath, Bankwatch's EBRD Co-ordinator. „Last year the bank confessed that transition got “stuck”, and conveniently blamed it on its recipient countries, on their corrupt political elites and unskilled labour force. This is incredibly hypocritical. If anyone is stuck, it is the EBRD – stuck in the market, keeping company with elites and oligarchs and foreign investors, and clearly detached from the hardship of ordinary people. It is time for the EBRD to descend from its high market ground and to catch up with its democracy and sustainability mandates.”