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The CGD Podcast
Who Should Lead the EBRD? – 2016 Presidential Candidates
00:35:55
It has operations in more than 30 countries worth around $9 billion. And now the European Bank for Reconstruction and Development is searching for its next leader. This week's podcast puts the same questions to both candidates for easy comparison.
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- [00:05]
A
Hello, I'm Rajesh Merchandani and thanks for joining me for this edition of the CGD podcast. Now, many of you will know that CGD repeatedly calls for greater transparency in the selection process for leading jobs at international institutions. Sometimes we even insert ourselves into the process. Last year we hosted a forum for candidates for the presidency of the African Development bank and it was cited as influential in the final election of Akinwumi Adesina of Nigeria. Now we're turning our attention to the European bank for Reconstruction and Development, the ebrd. The incumbent president Sisuma Chakrabarty is seeking a second term, but he faces a challenge from the president of the national bank of Poland, Marek Boelcke. I recorded podcasts with each candidate asking them the same questions, although follow up questions differed depending on their responses. I had help in deciding the subject areas and the questions from CGD colleagues. And here we've edited together the answers so you can compare them directly. Some of the responses have been edited down for length, but if you're interested, we're also posting both full interviews on our website, cgdev.org the first candidate you'll hear from here is Marek Belka. And after they both answered the first question, you'll easily be able to tell who's who. So the first section is scale and range of operations of the ebrd. And the first question is this. The ebrd, as you know, was set up to help post communist states in Eastern Europe develop market economies. In recent years it has expanded operations into North Africa. Now its reach spreads from Morocco to Mongolia. What under your leadership should be the future footprint of the ebrd.
- [01:51]
B
If we treat EBRD a Europe focused bank well, and if you care about stability of the continent, then you have to care about the stability of the neighborhood. Well, having said this, the further, let's say growth of our region of operations is not an objective in itself. That's clear. Because in some of those regions, in some of those countries we encounter challenges that we may not be fully suited to face. And also I think the nature of transition, which is as a matter of fact, the core mandate of the bank is different in say, summit countries from what we had in Central Europe or we have in countries of Central Asia, say post Soviet countries.
- [02:59]
A
Does that mean, in your opinion, the EBRD should not grow in size?
- [03:04]
B
Well, I don't think that in the immediate future we should aim at this. There is a lot to do in our traditional region of operations, so we shouldn't aim at Beating records here and now.
- [03:22]
A
Here's how Sir Suma Chakrabarti answered that same first question about the future footprint of the ebrd.
- [03:29]
C
I think essentially it's got a job to do in the 36 existing very different countries of operation. As you're right, of course, that we started off with countries that were formerly planned economies. Since then we've added countries that were mixed economies, always and never had a planned economy approach. What was interesting about that is that clearly our shareholders thought that our very much our private sector business model was relevant to a wider set of countries. But I think we've got a job on now just to intensify our work in all 36 countries of operation. That's what we should be focused on.
- [04:06]
A
So that suggests deepening in the areas.
- [04:08]
C
Absolutely. I think we've got a lot to do in those areas. The transition challenges that those countries are facing are enormous. They come from global economic trends, but also regional and national economic trends. There are geopolitical issues, there are economic environmental issues in all of those countries and they're very heterogeneous. They're not all very similar as they might have been in when EBRD first started. So there's quite a lot of sector and country expertise that's quite specific to those countries that we need to build on. So deepening is fundamentally what we have to be about.
- [04:38]
A
So not growing in size as well. So you'd be deepening where you're at?
- [04:41]
C
No, I think we will. I think we will be growing in size. Our shareholders have agreed already that in our strategic and capital framework through to 2020, that we should actually increase our investment volume. We're currently running at just over 9 billion euros a year. Last year was a record year. I think we can be expected to get up to about 10 billion euros a year during that period.
- [05:04]
A
Okay, the next question in this section is this. In North Africa, the EBRD overlaps with the African Development Bank. In Central Asia, it overlaps with the Asian Development bank in many places with the World Bank. How do you see this overlap working in the future? Is it a source of collaboration or competition? And if there is overlap, why does the EBRD need to be there in the first place?
- [05:31]
B
Well, I think that we should remind ourselves about the initial mandate and focus of the ebrd its transition. And it's the build up of resilient, vibrant private sector. And this is where the bulk of our competence lies. This is not 100% the same in other development banks. They have probably more leaning onto working with public sector, taking up big, big infrastructure projects. So there is certain potential for synergy. We can work together and work together in crowding in other investors.
- [06:34]
C
Two things. First of all, I don't think there is this overlap. Yes, in regional territorial matters, of course we're in the same places, but we're doing quite different things and our business models are different. Ours is very much this project based, private sector focused business model, quite distinct from the others. And therefore there's complementarity rather than competition and overlap, I would argue. It's interesting that it was the African Development Bank, Donald Kabiruka, the former president, who was actually extremely positive about EBRD coming to North Africa because he said they aren't really a private sector bank. We are and we can be complementary to each other. Similarly in Central Asia, working with the Asian Debunk bank and now of course the new Asian Infrastructure Investment Bank. Again, complementarity is what we're about.
- [07:20]
A
So let's move on to the next question area, which is the political mandate of the EBRD and the nature of your work given that political mandate. The first question is the EBRD is the only multilateral development bank to have a political mandate to promote democracy. Is that a blessing or a curse? And how would you respond to that as president?
- [07:40]
C
I think it's a very important, distinctive feature of the ebrd. For many of us, myself included, it's one of the reasons we come to work. It's because of that mandate that Article 1 is fundamental. It's really a part of continuity in the bank that our business model is focused on trying to help these countries become more market oriented through private sector development in countries that are committed to democracy and political pluralism. This of course, was a 1991 moment when we were created 25 years ago. We're celebrating our anniversary this year, our Silver Jubilee. But it's an important part of the mandate of the bank to try and help countries that both develop democratic institutions as well as market institutions. We see those two things as going hand in hand. By the way, it's very important a market. It's very difficult to develop a market economy over the long term without developing some political and economic institutions to underpin that market. And I think EBRD is very much right to focus in on that and to stick to that distinctive mandate.
- [08:39]
B
There is a certain peculiarity in the EBRD that on the one hand a mandate is clearly defined and it's political, as you stated. But the main, the main instrument is or are Projects. So we have to work through projects mostly in the private sector. So it's only quite recently that we have sort of come to underline the necessity for political dialogue, for policy dialogue rather. But this policy dialogue is implemented through implementation of projects. On the one hand it's very practical because we avoid conflicts, big conflicts. But on the other hand we have to be very smart in discovering what the real problems are in different post or transition countries. And we have to tailor our activity and our elements of policy dialogue to the needs of individual nations. We like to talk much about private public partnerships and there are some countries where this does not work at all. And the reason for me is quite obvious, although not obvious to outsiders, it's the poor quality of the state. If the quality of the state is poor, PPP does not work or ends up in corruption.
- [10:29]
A
This actually takes me to the next question in this section. So let me ask you the question, because to save you repeating yourself, this question comes from our President Nancy Birtzel.
- [10:40]
C
Much of EBRD's work is to focus on the private sector, especially small and medium sized enterprises, compared to other MDBs that lend a lot more relatively to sovereign governments. Does lending primarily to small private sector clients give EBRD the policy leverage it needs to push reforms with governments themselves? Both economic policy reforms and governance reforms?
- [11:12]
B
The PPP projects are exactly those projects that give us leverage over the sovereigns, over the policymakers, because okay, we normally appear in projects that are not easily bankable by private sector, by private sector alone. We appear in situations when the sovereigns don't have enough money, which is probably more and more urgent in countries of our region of operations. So here we can provide not only credibility but also some oversight. This is probably not the only example, but one of the examples where even if we are relatively small as a bank, we can have a leverage, especially in smaller countries.
- [12:14]
C
But not only so it used to be believed in development that you could only really have that leverage with governments if you did fast dispersing budget support or balance of payment support. I think EBRD shows actually with a great knowledge at sector level, at project level, at company level, at client level, and you build that up through clusters of projects at sector level. You have the expertise and knowledge that any government serious about its development and transition to market economy would want to leverage itself. So it's about, of course, the government wanting to own the reform process and wanting to move forward. And as you know, we published this famous report back in 2013 which showed a lot of governments were Rather stuck in transition. They weren't pushing forward the policy reforms required to progress their development. Last two years we have pushed very, very hard through our investment climate and governance initiative. This whole question of policy reform based on our project and sector knowledge, and that is paying off. Countries like Kazakhstan really reforming so fast that we're investing more and more in that country. PPP law, for example, reformed in Kazakhstan because of us and because they wanted to reform it.
- [13:24]
A
How does your work in Kazakhstan, though, reconcile with the political mandate to promote democracy?
- [13:31]
C
Well, Kazakhstan is a functioning democracy.
- [13:34]
A
Functioning in what sense?
- [13:35]
C
Well, in the sense they have elections. There are multi parties, multiple parties. There's just not one party. Of course, the same party has won elections resoundingly a number of times. But it is a functioning democracy in that sense. Now, what we're saying in Article 1 very much is about a process, democratic process. There isn't a station at which everyone's arrived already, which is called democracy. They're on a process, they're applying the principles off. And some will be further ahead than others, that's for sure. And what we're trying to do through our country processes, country statutory processes, is build us more for more agenda. The more reform you undertake, the more ebid we'll be able to do.
- [14:15]
A
So let's move on to the third section, which is the Russia question. How important do you think the relationship with Russia should be to the bank? It's been your biggest client after.
- [14:25]
C
Well, as you know, it was shareholder guidance back in July 2014 which said that EBRD should not invest in new projects in Russia. But we have a huge stock of existing projects in Russia which we have to manage and monitor and disperse on. And so the portfolio management is very, very important in Russia. This is important to the functioning of various sectors, various clients across all sweep of sectors. Don't forget we invested in many reforming regions, very important to keep those investments going well. So that's very important. Secondly, Russia is also a very important economy in the region. When the Russian economy sneezes, Central Asia catches the cold. And that's what's happened for the last couple of years. Firstly, oil price and sanctions, and then Russian economy really slowing down, remittances and trade really slowing down to Central Asia. It's affected those economies enormously. So Russia is important in terms of engagement for portfolio reasons, but also because of what happens through the Russian economy, its transmission mechanisms into its neighboring economies. So we have to continue talking to Russian government, Russian private sector about those aspects.
- [15:39]
A
I'm going to go back to that point, about the political mandate, though, I mean, would you call Russia a functioning democracy?
- [15:44]
C
I think we would. I think Russia, you know, is a democratic country. It has elections. That's not the point about the guidance. The guidance was given for other reasons, other geopolitical reasons, as testified to by many of our shareholders. So I think we have to make a distinction between what is our operational job. Our operational job is investment and policy advice around economics and investment climate and so on. Our operational role isn't about promoting democracy. We're not a, you know, we don't finance democracy as such through our operations. We are working in countries that are on their own route towards democracy. That's a different thing. So that's what the article actually says, and Russia is on that journey.
- [16:28]
B
I think that the main problem for the Russian economy is how to diversify away from commodities, export and commodity sectors. So yes, this should be important both for the bank and for Russia. But we know that the decision to suspend new operations was linked to the decision, the political decision about sanctions. So, you know, the president or the management of the bank alone does not make this decision.
- [17:02]
A
If the relationship with Russia should be important, how does that fit with the EBRD's political mandate to promote democracy?
- [17:11]
B
Well, it's not only about Russia, it's about many countries that we are present in.
- [17:16]
A
But let's talk about Russia.
- [17:18]
B
The problem is more. Well, first the suspension of operations that happened, what, two years ago was not, you know, triggered by the problems with internal democracy. More, it was triggered by, well, let's say international crises.
- [17:44]
A
But the nature of democracy in Russia is sufficient, in your view, for the EBRD to carry on and continue working in Russia for it to be important, as you said.
- [17:56]
B
And what about Egypt?
- [17:58]
A
You tell me. I mean, that was another question about the political mandate, isn't it? I mean, how does it fit?
- [18:04]
B
The problem is that we should look at dynamics and whether the situation goes in the right direction, whether we have good management, improvement of human rights, or whether the situation changes to the worse. And it's not that we have to react immediately. I mean, democracy institution building is a long term process. We see many countries in which we are present all over our region of operation where we would have doubts about certain, let's say, institutional solutions. So we have to be pragmatic. At the same time, we have to be principle in certain situations. If we see that the country goes in the wrong direction, then we should speak out.
- [19:14]
A
The second question in this section comes from Owen Barda, who is our vice President and Director of our Europe Programme based in London.
- [19:22]
C
I'd like to ask about Russia, which has in the past been EBRD's biggest client. Your work there is in a hiatus because Russia is politically isolated and subject to sanctions. What effects does this have on EBRD's business model and what's your plan to deal with those effects?
- [19:40]
B
It is one of the successes of the management of the bank that the gap that was created by the suspension of operations in Russia was filled by other countries. Turkey, Ukraine and to certain extent the Samet region. But of course, this is. This may not be sustainable. This may not be sustainable.
- [20:08]
C
We.
- [20:10]
B
We. We need. I hope that the future will bring us a normalization on this front.
- [20:19]
C
So for the last two years we've been dealing with it in a sense, and we had record investment last year of 9.4 billion. How so? Given that Russia was no longer part of our new projects as such, because the organization in the last four years become much more flexible internally. So we were able to redeploy our staff working on Russia, many of whom are really good staff, high quality staff on other countries of operation. Turkey, Kazakhstan, I mentioned earlier, Turkey, which has become our largest country of operation. Also some of them worked on Ukraine, some of them worked on Poland and so on. So that has been the great success. Central Asia. The numbers have gone up in Central Asia, which is one of our poorest regions. Last year we had a 75% increase in our investment in Central Asia. A lot of that down to the Russian staff who then started working on Central Asia. That's how we managed this.
- [21:10]
A
Okay, let's move to the next section. This is the EBRD's relationships with other development banks. The first question in this section comes from Scott Morris, a senior fellow here at the Centre for Global Development, who is our expert on multilateral banking. How should the EBRD respond to the.
- [21:28]
C
Establishment of the AIIB and the New Development Bank?
- [21:31]
B
And more broadly, what should the EBRD's relationship with China be?
- [21:35]
C
So we have, from the day it was mooted that the AIB would be created, the NDB would be created, IB in particular of great importance to us, we have been very clearly positive about the creation. We see this as helping to fill a huge financing gap in infrastructure, obviously of various sorts. And we see the AIB as a potential real partner for us in our region, Central Asia, of course, but they will also work further towards Turkey and potentially as far as Egypt.
- [22:08]
B
Even so, there is a shorthand expression, silk Road. No matter what we precisely understand under this, because there are many Silk Roads I have heard about, but all of them are quite important for, for the countries along the Silk Road, especially the Central Asian countries which need development, not just transition development. And here there is a scope for cooperation and coordination. I understand that the main infrastructural projects will not be our domain. We are too small and probably with different competence. But if you have an ambitious infrastructure project, you have to sort of surround it with smaller private sector driven projects that dynamize the economies around it. And here we are. So there is a synergy here.
- [23:34]
A
And that leads me again to the next question in this section, which is this. The AIIB will focus on lending for public infrastructure, while the EBRD focuses on the private sector. So what in your view is the advantage of EBRD's approach to development? Or should there be a shift given the arrival of the aiib?
- [23:54]
B
Not really, because here I see complementarity rather than competition. Besides, you know, you can build a fantastic highway or a super efficient railway and it may remain moribund if you don't have private sector or small businesses or small communal local enterprises around it. And here we are with all the investors that we can mobilize and catalyze to go there.
- [24:32]
C
I think I've been arguing that for the last few years. It's been absolutely obvious that if we're going to finance the new Sustainable development goals, the SDGs, that the old model, which relied heavily on grant financing from aid agencies, is not going to be enough, frankly. Of course we need grants for a variety of social sectors particularly. But actually to get these sort of levels of investment into these countries that we need into emerging markets, developing countries, the private sector is going to have to take much more of a strain both in the financing of that development, but also in the delivery of that development. This is where EPRD becomes, comes from periphery to center stage of the multilateral system. That's what's been happening. I think that's why the UN Secretary General asked us to help write the chapter for financing for development on private sector financing. And that's why we were centre stage at ADDIS in a way that we probably wouldn't have been when the MDGs were created. So I think there's been a shift in a recognition that the private sector matters development. And if it does, then who better to talk to than the EBRD and get them involved? You asked about China, I didn't address that. I should just do that. China became our 67th shareholder, our latest shareholder in mid January. I see it as a win, win, win for China because firstly, because it's a win for them, because the EBRD has a business model which is of great interest to all our shareholders and to the Chinese, because it's private sector focus is something they're quite interested in actually showing their own development banks the way forward. Not just focusing on the public sector, but taking the private sector model forward. Vbrd, it's a win obviously to have the world's second largest economy as a member. And I think most importantly for me, it's a win for our countries of operation. And I don't just mean those neighboring China, of course they will gain from the One Belt, One Road Initiative. Central Asia will gain, but I also mean those in North Africa and East Europe.
- [26:27]
A
The third question in this section is in North Africa, the EBRD is working with the African Development bank, providing technical support on private sector activities. Given how the EBRD started, what are the lessons of post communist Europe that are relevant to working in North Africa with the countries there?
- [26:48]
C
I think the interesting lessons to be learned are multiple, particularly around areas like privatization, how to do PPPs. All those things have been done to much greater extent in Eastern Europe than there were in North Africa. Another area that I would say is of great relevance is the SME work. You mentioned it earlier. Between 40 to 50%, depending on whose definition you use of an SME. But between 40 to 50% of our lending in any year is in the SME area. We're really good at this. And SMEs are vital for North Africa because of the huge numbers of youth unemployment. They're the best answer frankly to trying to mop up that youth unemployment, I think. So that's really important.
- [27:34]
B
I remember in Poland, or as a counter example in Russia, the problem was how to build up private sector. How to, let's say, provide the market, not only resources but the market for the new private sector to flourish. And it was painful because. It was painful because you have to do it at the cost of the very unefficient state sector. The problem is not in, let's say, triggering the private initiative. The problem is how to build institutions, provide rule of law or predictability in economic judiciary, for example, in dispute resolutions, so that these small enterprises develop into medium size and then in bigger. So I think that our focus in those countries should be more on institution building through projects.
- [28:52]
A
Okay, the last question section is this the future of the multilateral Development banks? How should the MDBs respond to, to the growth of shared problems in the world that require shared solutions and investment in global public goods. I'm thinking about things like clean climate data, pandemic response, things like that. How should the EBRD particularly respond to that? Especially given that you are more known.
- [29:22]
B
For private sector investment, we should see the following linkage. If we advocate green economy or green projects or climate related projects, we shouldn't forget, especially in dialogue with those countries, and I know them very well, that these projects are about modernization. It's not just about energy conservation, about global public goods, because it may not be very appealing to countries, especially small, stuck in transition. Let's put it this way, countries, it's good to say that if you are going to build modern economy, this is the best way to proceed. Energy conservation, greening, this is not just about the global public goods. It's in your own interest. This is how we should proceed.
- [30:37]
C
We need to all of us stick to what we know best. So you know what's distinctive about us, what's our raison d', etre, if you like, why do we exist? In our case, as you say, it's the private sector. Knowledge of the private sector in all its many Facets, sizes from SMEs all the way through to big corporates and in variety of sectors, energy, banking, you know, industry, commerce, agribusiness, all of these are things we know about. But in the private sector particularly so where we can add value is in partnerships with, let's say the African Development bank in North Africa. Talk about SMEs where they have the country knowledge and we have the SME. How to make SMEs work well, that sort of knowledge and you marry those together. Where we can also work very well together is in designing reform programs, say in Ukraine for example, right now, where we can help with our knowledge of say banking and energy and agribusiness on designing a sector level type reforms. Whereas the World bank can work much more on the public administration side because that's what they're known for. And you have to design a total package of reforms for a country like Ukraine. So it's that complementarity that I think we should be seeking much more. But we should also be trying to be innovative, looking for new platforms where we can work together. And I think AIB and the African Development bank in particular are offering us a lot of options in that.
- [32:03]
A
Okay, the last question, Suma, is simple. Why do you deserve a second term as EPRD president?
- [32:11]
C
Well, on a personal level, I think it has to be the track record of the last four years and the vision I've set out for the coming four. But let me start by saying that I would be proud to be given another four year term. I think this is an institution of which I am just so proud. I mean, I was there on day one. I was actually at the inauguration ceremony as a very junior official. I started working on Eastern Europe ballads time as well. So for me, EBRD's history is a bit of my own personal history, if you like. And for 25 years, I think EBRD has been a great success story, a rather unsung success story in my view. And I think we've done a much better job in actually communicating what EBRD has done. The track record of the last four years is, I think, really good. I must thank my staff for that. It's been fantastic teamwork. But the transition impact numbers have gone up, the investment volumes have gone up. So we're investing more, but higher quality. And we're also doing things that we weren't doing before like the investment climate and governance initiative, pushing policy reform in helping support reformers like the green economy. Transition push, we are known, as I said earlier, energy efficiency, private sector EBRD people say push that harder. So we're making a big effort on climate change. That's the sort of thing I'm proud of. And you know, I think it'd be wonderful to give that track record further push over the next four years.
- [33:36]
A
Okay, Suma Chakravarti, thank you very much.
- [33:39]
C
Thank you.
- [33:40]
A
Okay, Mr. Bellko, just the final question to you now, very straightforward question. Why do you deserve to be the EBRD President?
- [33:48]
B
I know what transition was and is about. And I have hands on experience not only from Poland, but also from other countries in the region. I know how the IFIs work. I have worked in the IMF. I have worked in the UN. I also know something about EBRD, also with due respect also I know how political process unfolds. I've been part of it for many years and well, 25 years after the establishment of the EBRD. And we all have talked about great success, which there was, there is, and the success was partially due to the ebrd. Well, then it occurred to it may be the good opportunity to show the flag of the countries of transition or advanced countries of transition and suggest that they might take the helm of this organization as it is the case in other regional development banks.
- [35:09]
A
Marek Belka, pleasure to talk with you. Thank you very much.
- [35:12]
B
Thank you.
- [35:14]
A
So there you have it. Those were the responses of Marek Boelcke and to Suma Chakrabarti to the same questions in this podcast for the presidency of the ebrd. The governors of the bank will elect a new president in May. I hope in some small way CGD may have helped them make their choice. As I said before, you can hear the full interview with each candidate on our website. We've also linked to their candidate statements via the EBRD website. We're@cgdev.org remember? And please do join me, Rajesh Merchandani, for the next podcast from the Centre for Global Development.