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By Kenneth Rapoza
The European Bank for Reconstruction and Development is drastically shrinking its presence in Russia, Reuters reported on Friday. But the decision to vacate its best customer in terms of bank profits is not because of the current sanctions regime, or threats that Donald Trump may be caught in a Russia scandal that worsens relations even more than they are already.
Reuters pointed out that Trump was at least on the minds of some members of the board, most like British or American shareholders in EBRD. The bank was created in 1991 to fund the reconstruction of the Soviet Union and get companies and countries on board with Western business practices. At the start of 2017 some EBRD officials had privately talked about the possibility of returning to private sector lending in Russia, Reuters reported. But these ideas evaporated when the scandal over contact between members of U.S. President Donald Trump's team and Russian officials during last year's election campaign soured the international mood towards Moscow.
This summer, congress forced Trump's hand on a Russian sanctions bill that made rules banning certain commercial trade with oil and gas firms, and lending to banks and Russian defense contracts illegal worldwide. But the EBRD is not beholden to Washington and Brussels. They are a sovereign system much like the United Nations. When you step into EBRD's offices in Moscow, you're essentially on stateless property.
So EBRD's decision is not based on sanctions, or fears that Trump's Russia collusion investigation will result in even harsher sanctions down the line. The decision to stop lending to Russia was made in the Obama years, back in July 2014, following the downing of Malaysian flight MH-17 over eastern Ukraine. The EU and other G-7 countries agreed that they would not fund any projects in Russia and that put bank management on notice. They were free to bring new projects to the table, but individual countries said they would no longer back them because of the incident with MH-17 in Ukraine.
EBRD has 788 projects in Russia at the moment that have a combined 24.8 billion euros in loans since inception. Those will continue to be part of the EBRD portfolio and receive EBRD support.
The bank said in a statement that new, existing portfolio projects account for around 3.3 billion euros in loans. Instead, as Reuters reported, they are closing five regional offices and keeping Moscow and St. Petersburg. The bank is currently using Russian-based bankers for various Central Asia development projects that can be managed from those two cities. Russia is one of the largest of the 65 shareholders, surpassing Canada. Only Japan, France, Germany, Italy, the U.S. and U.K. contribute more to the bank than the Russians.
"It was a position EBRD took in July, three years ago, and because we can't do anything new in Russia, we don't need all that infrastructure," says Jonathan Charles, a former BBC reporter and now managing director of communications for EBRD in London. Their Russian staff of 160 will be reduced by half. As far as reviewing that decision at a later date, Charles says it depends on the circumstances surrounding the Russia-Ukraine imbroglio. "It is all connected to the events in Russia and Ukraine, and at the moment we see no immediate sign of changes in that position," he says.
Russia and Ukraine went their separate ways starting in February 2014, following the ouster of pro-Russia president Viktor Yanukovych. When a pro-Western government took over, Russia moved to annex Crimea, then an autonomously governed region of southeastern Ukraine. Sanctions were imposed on individuals and private Russian banks in Crimea. But in the summer of 2014, ethnic Russians in east Ukraine started their own push for autonomy. Backed by Russia's government, separatists quickly caused a ruckus in eastern industrial towns like Donetsk and Luhansk. This is where the Malaysian flight comes in.
According to the Dutch Safety Board and the Joint Investigation Team of foreign investigators working on discovery, the passenger plane was shot down by a BUK missile from east Ukraine. As of this summer, no criminal prosecutions have been made.