Ukraine, Russia, and the EBRD’s Uncomfortable “Democracy” Mandate

March 11, 2014

Among the international financial institutions (IFIs) now lining up to demonstrate support for the interim government in Ukraine is the European Bank for Reconstruction and Development (EBRD). And its offer of 5 billion euros over six years looks pretty good alongside the 3 billion dollars put on the table by the World Bank for the upcoming year.

The EBRD is the only IFI that has a specific charter mandate to work in countries “committed to and applying the principles of multiparty democracy, pluralism, and market economics.” And what could be more compelling than Ukraine today, where the parliament turned out the old corrupt regime in favor of a new government that has declared itself committed to these very principles? So, fantastic!

Well, not so fast. There are a couple of things that make this whole “democracy” thing uncomfortable for the EBRD at the moment. First, that 5 billion on offer to Ukraine over the next six years—it’s actually a bit less on an annual basis than its level of assistance to Ukraine over the past five years, when bank investments in the country averaged about 900 million euros a year. So much for a democracy dividend when it comes to EBRD financing.

Even more uncomfortable is the bank’s record of assistance for Ukraine’s neighbor. Russia has long been the largest recipient of EBRD support. Last year the bank poured over 20 percent of its resources into the country. Has Mr. Putin’s government demonstrated itself to be committed to and applying the principles of “multiparty democracy, pluralism, and market economics”? Apparently the EBRD thinks so.

Interestingly, the EBRD produces excellent research on the intersection between economic reform and democratization, including the role that the bank’s investments play in promoting economic and political transitions. And within this body of work, the EBRD has sought to justify its heavy support for Russia.

But ultimately, high-level decisions about the EBRD’s investment program are not driven by a research program. They’re determined by the bank’s shareholders, the largest of whom are the United States, the United Kingdom, Germany, France, Italy, and Japan. Will they continue to go along with a Russia-dominated investment program? Current geostrategic interests alone would suggest not.

The bigger question for the EBRD is whether this episode will drive the institution to a more visible approach in support of its democracy mandate, not just in Russia, but in the central Asian countries and in the newly qualified countries in North Africa and the Middle East. In many of these countries, reconciling EBRD investments with the democracy commitment is a challenge.

In the Wall Street Journal this week, Bill Easterly uses Ukraine as a starting point to highlight the problems associated with donors and multilateral institutions pursuing “development” agendas that are indifferent to democratic rights. That’s all the more problematic for a development institution whose charter seeks to promote these very rights.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.