Hi everyone. Welcome to the Oxford Policy Podcast. My name is Mark Naro and today with my colleague Christian Eptody, we are delighted to be at the EBRD headquarters, the European Bank for Reconstruction and Development and to be joined by Madam President Odile Renaud-Basso. Madam President, thank you very much for being with us.
Thank you very much for having me.
Madam President, you had a very fulfilling career. You graduated from Sciences Po. You went through ENA. You worked at the European Commission. And you chaired the French Treasury. What key moments of this career do you think helped you the most in becoming the President of EBRD?
I think a lot of moments, different experiences and so forth, helped me and now are very useful in the work I have to do. The first one is I would say a lot of international experience. As you mentioned, I started in my career in Treasury and I had to deal with international issues. I started with working on sub-Saharan African countries in 1994, so a long time ago. It was post a big depreciation, devaluation of the currency, so huge economic shock, and we were working on what kind of support we need to provide to the countries in order to stabilize the situation. Then I moved on dealing with debt issues and as a Secretary General of the Paris Club and then later on I chaired the Paris Club, which was very interesting in debt renegotiation, sovereign debt treatment with a lot of discussion on debt cancellation, debt sustainability. But I also did other things in the course of my work in treasury, dealing with financial regulation, financial institution, but also European issues. And then I moved on to Brussels. Having this European experience is also today very useful because first of all, you learn a lot about negotiations. You negotiate with colleagues and you try to build consensus to move things and get results. But also a lot of connections in the European Commission. What I've learned in my career is that you meet people in different phases and then you very often see them again in different formats. So I also worked a lot on G7, IMF, World Bank issues, which is very useful for me now. My take is that diversity of experience and doing things in different environments, different institution settings, is very useful because you build a lot of knowledge. I also happened at some point to work in Caisse des Dépôts, which is a sort of French public owned public institution, financial institution working a lot on investment with local authorities, social housing. And now with a bank, it helped me a lot in understanding how banks are doing.
How do you manage a bank? The risk, the return, the balance sheet and so forth?
A very recent news for EBRD is the capital increase from 29 billion euros to 34 billion euros. It's only the third capital increase in EBRD's history. So, first of all, about the capital increase. Indeed, it was a long discussion with shareholders and it started a few months after the war in Ukraine started. The discussion was triggered by the fact that we and our shareholders wanted us to invest in Ukraine during the war to support the country. But of course it's risky and for a bank it's not something you do easily because you risk taking losses and impairing your balance sheet. So we started with having some guarantees, investing with guarantees of shareholders or donor countries. Then we realized that the leverage would be much bigger with capital increase. So if you have capital, we can deploy more funding. And so we built some agreement among shareholders that this would be the best way for us to be equipped to support Ukraine in war time but also to have the capacity in reconstruction to deploy enough capital. That took a lot of discussion and then an agreement was reached in spring 2023. On principle, final decision was taken on December 2023, but then each shareholder has to ratify and put money in the budget to pay for the capital increase. That was a big effort to convince everybody, and we are very happy because we have more than 95% support from shareholders, from very large shareholders, all G7 countries, all European countries, but also our countries of operation that subscribed. I think it shows the support for the bank, the support for the strategy, the feeling from shareholders that the bank is useful with our specific mandate, which is supporting private sector and market transition in the countries in which we invest. In Ukraine, this really helped us to invest very substantially. We increased our investment in Ukraine since the beginning of the war, which is not the typical situation for our bank, and we deployed more than 9.5 billion euros, or more than 10 billion dollars, in the country already. We will continue with this level of investment in the war, and we'll be able to increase our investment in the context of reconstruction. We see our role very much to support the private sector. More than 90% of the projects we've been doing in Ukraine are with the private sector. In terms of volume, it's only 50% of the funding because it tends to be smaller projects, but it's very important to keep the economy running, infrastructure functioning as much as possible, and business continuing to develop.
Okay. You mentioned that you chaired the Paris Club and you worked, I mean, the Paris Club worked on restructuring Ukraine's debt multiple times. So, do you think the current war debt is sustainable, the trajectory of the debt, and how could the repayment be done realistically post-war?
So, you know, the IMF, when they have a program, they always look at the sustainability, and they made an assessment, and their assessment is that the debt is sustainable, but of course it depends also very much on the scenarios, how long the war will last, and what will be the economic rebound after the reconstruction. The economy has shrunk: Ukraine's GDP has shrunk by 20% in the first year of the war, then slow increase, positive growth but limited. So, of course, all the debt to GDP, if the GDP shrinks, it's going to increase and there were a lot of borrowing. I think there are some steps that have been taken to ensure the sustainability. The fact that, for example, the EBRD and the 90 billion euros European loan is considered as not repayable unless there will be some reparation from Russia and so forth. So, it's a sort of contingent loan that is not considered as debt increasing in the current situation. And also Paris Club creditors have committed to roll over, suspension, and committed to reconsider the debt treatment. What is worrying for us and that's a challenge is also the situation of the state-owned enterprises, the level of indebtedness has increased and the revenues have not increased in parallel. So that implies that there is quite a lot of work also on the state-owned enterprise debt restructuring. One element which is key for us is that as an MDB, multilateral development bank, we have a preferred creditor status, and when we lend to the public sector government with a sovereign guarantee, we have preferred access to repayment like the IMF, like the World Bank, which is very key in our financial model because that's an element for the triple A rating which is very important for financial institution like us.
Last question I want to ask you about Ukraine: the current report from Transparency International ranked Ukraine 104th out of 182 countries in corruption index. Is it a concern for EBRD despite the commitment from the government to tackle corruption, and how do you take measures to tackle this phenomenon in your investments in Ukraine but also elsewhere?
