Q&A: Monique Barbut gives the view from the Wise Persons Group

BRUSSELS — When a senior European Investment Bank official labeled concerns about its record in least developed countries and fragile states as “fake news” at an event last week, it did not go unchallenged. “We never said that EIB has not invested in poor countries,” Monique Barbut, former executive secretary of the United Nations Convention to Combat Desertification and 1 of 9 experts behind last month’s long-awaited report on how to rationalize European development finance, told Devex. “[The problem] is their model of intervention, which does not seem to us like a reliable model in the long term for something that wants to be a development agency.” The so-called “Wise Persons” report, commissioned by European Union member states to rationalize the bloc’s development finance architecture, outlined three long-term options for a new European Climate and Sustainable Development Bank. Option 1: managed by the European Bank for Reconstruction and Development, which would take over EIB activity outside the EU; Option 2: a new bank under mixed ownership from today’s main development players, including the European Commission; or Option 3: EIB creates a subsidiary for its activity outside the EU, which it would then participate in as a minority shareholder along with EU states, the commission, and national development banks. “Contrary to what EIB says, for it to completely change its model also comes at a cost. For the EBRD option, it is either a capital increase or buying out the minority shareholders.” --— Monique Barbut, Wise Persons Group Devex spoke to Barbut to find out more about the report’s findings and next steps. This conversation has been translated from French and edited for length and clarity. Do you think that EIB President Werner Hoyer’s plan for a subsidiary is a sign that EIB is ready to change its model, which you criticized? That’s the way EIB presented things to us. But it’s not just a question of creating a subsidiary. There are two ways to see things. Either you create a subsidiary because you want to fence off activities at the international level without changing the model — and that for us did not make sense. Or you create a subsidiary in which you put the means, which are quite large in terms of human capital and different kinds of financing. You could not do that with market loans, it’s not possible. You would need subsidies. Even if you only do it on a model of loans, it is going to be very advantageous loans. And so where we did not agree was when EIB told us that basically this would be done at a cost that the EIB could absorb by itself. That is not true. But wouldn’t EIB say that EBRD has no experience in sub-Saharan Africa? We completely agree. The big difference is that we consider that EBRD already has more of a culture of development. For example, the way it intervened in North Africa, shows that it has the capacity to adapt its toolbox to very different geographies. When EBRD sets up somewhere, it immediately puts teams in the country, which is not the case for EIB. So, we thought EBRD was more flexible. It was constructed as a development bank. So it is not a complete change of operating system that it would have to make, while that would be the case for EIB. EIB often points out its mandate comes from EU member states, and if these countries want it to act differently and take more risks in low-income countries, etc. then that course should be set more explicitly. The courageous thing to do would be to say “We want to do it because we consider that Europe must have a development tool, but that means that you should also change our mandate.” They do not go that far, and it is their responsibility to say that in the proposition that they are making. That’s the problem. Today it is true they are limited. If the EIB came to its board with completely different projects I think that indeed many countries would say “nyet[a]” but that is normal in the current structure in which the EIB is evolving. But now, if the president of EIB says, “I want to construct a real European development agency,” he must go beyond what he is proposing. It is not about simply putting assets in a subsidiary. It is about saying “You must accept taking risk, you must accept this and that,” but he is not even asking for that. It is there that we have the debate. What are your impressions on how the report has been received? I find that it has been pretty well-received. All in all we are very happy that in particular there was no debate on all the short-term measures we propose. Regarding what to do in the medium term, how to position Europe as a more visible actor with a real development policy, which is similar to what other multilateral institutions offer, I have seen very well that there was more debate, a risk perhaps to bury our proposals, because they are politically complicated. For example, what we said about EBRD being the instrument today, which is the most adapted from a technical point of view to become this aid agency, came with important political conditions — in particular that Europe has a real majority and the ability to take decisions which are not hampered by minority shareholders, which is not the case today. Indeed, making EBRD the European Climate and Sustainable Development Bank would require a capital increase to dilute the non-EU shareholders. So without political will, do we risk going round in circles and waiting years before real structural change? None of the options comes without a cost. Contrary to what EIB says, for it to completely change its model also comes at a cost. For the EBRD option, it is either a capital increase or buying out the minority shareholders. There are different ways to proceed. Because it requires long, technical study, we were not able to evaluate the total cost and hence the final option to favor. That is why we said it needs a more complete study of these costs. But we said at the same time this technical study should not come at the detriment to the political discussion, which must start now. That is where I’m doubtful — I do not see the organization of this discussion. The first gesture is to see how this is going to be presented at the council [where EU member states meet in different formats], for which kind of decision. And from there, we will see if things can lead on. But at the same time, it is not normal that nothing happens on these questions. We are speaking about a relatively heavy budget, with important themes for the whole EU. It is not normal that when we put as much money as we put into EU development, there are not clear policies that come from it. What do you say to people who suggest that — now that EBRD’s initial raison d’être of helping former Soviet states become market economies is accomplished — it should be wound up? I understand this kind of position very well. The EBRD had one mandate, that it implemented successfully. We should congratulate EBRD. And it is true that if all the infrastructure of EBRD — human capital, everything that was created at EBRD — is not used on other things then we must close EBRD. Its mandate is finished. It was there to help countries, in particular from Eastern Europe, to reach a level on certain things. It perfectly fulfilled its mandate, [along with] complementary missions in North Africa. Either we say we do not want to lose the human capital and everything that was invested in the construction of EBRD, and we will use all this to do something completely different. Or, we do not want to do that other thing with EBRD, in which case we must, for once — because we never do it — say the mandate of EBRD is finished.