EBRD president ‘confident’ US Congress will back big capital increase

The U.S. Congress will back the European Bank for Reconstruction and Development’s call for a big capital increase despite U.S. Republican suspicion of further foreign aid money, its president believes. In an interview with Devex, Odile Renaud-Basso said she is “confident” the injection of €300-500 million ($325-542 million) — one-tenth of the sum EBRD is seeking — will receive cross-party support in Washington and allow the bank to accelerate its Ukraine reconstruction plans. The bank wants to secure a final agreement by the end of 2023 on the proposed €3-5 billion paid-in boost to its capital base, only the third it has sought since its formation 32 years ago. In Congress, a Republican-driven House budget bill cuts funding for several multilateral institutions — and Janet Yellen, the U.S. Treasury Secretary, is believed to want to secure reform to Multilateral Development Banks, or MDBs, before asking for more money. But, speaking at the EBRD’s London headquarters, Renaud-Basso said there is still “across the board” support for backing Ukraine militarily and financially, which would extend to Congress in a vote on a capital increase. “I’m confident. You've seen different parts of the Congress supporting the package [for Ukraine] from the U.S. government in different forms — military, but also economic, budgetary,” she said. “So, there is this across-the-board support and, because this is very closely related to Ukraine, I am confident.” At its general meeting in May, EBRD’s board of governors also approved changes to its statutes to enable “the limited and incremental expansion of its operations to sub-Saharan Africa and Iraq.” But Renaud-Basso stressed the capital increase is being sought for Ukraine, an intention likely to boost support in Washington, and that other countries and regions would only benefit indirectly. “It's very clear that we don't need capital increase for Africa. This will increase our capacity to intervene in Ukraine, while avoiding having to reduce our support for the other countries,” she said. “So it's targeted to Ukraine, but benefiting all our countries of operation, which are very often directly or indirectly affected by the impact of the war.” Renaud-Basso also pointed to the advantage of the bank no longer having to obtain 50% guarantees from donors for investments in Ukraine “because of the risk situation,” if it had upfront capital instead. A “roadmap” set out at the recent Paris financing summit called on MDBs to outline plans to “work more efficiently” together, as well as with national development banks, U.N. agencies, and philanthropies, by the G20 summit in India in September. Renaud-Basso agreed MDBs “can do more” on cooperation, pointing to the need to avoid duplication on climate financing and on ensuring high labor standards in products used. “If you want to deliver on climate policies, there’s a lot of investment, but also a lot of policy work — you know, regulation, pricing, investment planning, and so forth. A lot of technicity and specialists,” she said. “Often, we are going to support the country to develop its energy transition strategy, but somebody could do their industry transition strategy, somebody else could work on transport. We need to be sure we cover everything and that it fits together.” The president pointed to existing cooperation to ensure “no forced labor” in the supply of solar panels, suggesting there should be similar initiatives. “Another example that could be more consistent is standards levels,” she said. Renaud-Basso backed Yellen’s statement, at the Paris summit, that MDBs collectively have the potential to “unlock $200 billion in new lending capacity” over the next decade “through balance sheet measures.” “A lot of work” has already been carried out on the way MDBs leverage their capital to identify “conservative” rules that can be changed and “practices that are not the same” across banks, she said. EBRD already removed a restriction to prevent it from lending more than its overall capital “without taking risk into account,” which she said, “will give us, in the future, more capabilities.” “The rationale behind it [the $200 billion target] is good. It's a useful exercise, also triggering more discussion with rating agencies in order for them to better understand the specificities of the model of the MDBs and maximize our capacity,” Renaud-Basso said. The president also said EBRD’s fresh energy strategy will continue to back new gas projects when they are the only way to wean lower-income countries off coal.