Leading a Multilateral Development Bank in Times of Crisis | Inside EBRD with President Renaud-Basso

Thank you very much for having me.

Thank you.

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.

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.

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.

Yes, for us it's a key focus to ensure that because we manage public funds, to ensure that our money and our loans are well used. So we are very selective in the parties with which we work. We have an integrity department that does due diligence and really looks at the history, the background, the reputation risk related to our clients. But we also work more on the structural transformation. So for example in Ukraine, we've been focusing a lot on state-owned enterprise governance improvement. We've worked with the government on transforming the rules for governance in state-owned enterprise so as to ensure that you have external board members, independent external board members, sometimes coming from foreign countries with a lot of experience in corporate governance. So independence also from the government in terms of decision-making. We participate in the selection of the board members. With a number of clients, we've developed plans on anti-corruption, on procurement. So this is a big priority for us: corporate governance and transparency, rule of law in Ukraine. We link that with our investment, but we also do a lot of policy work: preparing regulation, ensuring that it is well implemented, participating in board appointments. And when we see things we don't like, for example, when at some point there has been an unwarranted change in the management team of big state-owned companies and we were not happy because we thought it was an interference from the government, and at that point the Minister of Energy interfered in the management of a company where we were very active in lending, we decided to suspend and to really get back on track in terms of the quality of the governance. So we are quite demanding and very careful about that. We also work a lot with civil society, and we develop, for example, programs to work on improvement of transparency on procurement with the ProZorro system in Ukraine, which is really public and very open and transparent about all the procurement offers and who has been selected. The role of civil society in Ukraine in that area is very important. We've seen that last summer there were some attempts to change key regulation in terms of the role of anti-corruption bodies, and there was a strong backlash from external donors, EU, and also civil society, and the government went back on track ensuring the independence of these anti-corruption bodies, which are very important.

So, I don't think the aim is to have a global footprint. We have expanded indeed from our core historic mandate, post-Soviet, post-communist countries, to Turkey and South Mediterranean, Middle East, and now the new phase is indeed some sub-Saharan African countries. The logic I see in all this expansion is the broad European neighborhood. So countries which are closely connected to Europe, whose development is very strategic for European stability, European development. When you think, for example, of sub-Saharan African countries, the interconnection, the impact on political stability, economic stability, migration, is very important. So, of course, you can never say no. 20 years is far away, but I think that for now the geographical scope is well defined. We will review the situation with sub-Saharan African countries because we decided to start with a limited expansion to six countries. For the time being it's five, maybe six coming, but then we will see what is the outcome, assess our impact, our role to develop new projects, new pipelines. What we saw when we started investing in the Mediterranean countries is that with our investment, we did not crowd out other multilateral development banks or bilateral development financial institutions, but on the contrary we increased and everybody increased the level of investment. I think because of our model where we focus very much on private sector and policy work to facilitate private sector investment, we probably helped to create a pipeline of projects. One very good example is the work we do on renewable energy, where we work with government in terms of policy to define the right framework at the legislative and regulatory level to attract investors and developers in renewable energy: price setting, auction, all this kind of framework. We've worked with 18 governments to develop that, and then we can finance some projects, but then everybody can finance projects. It really creates a new type of investment beneficial for the countries and gives a lot of opportunities for investors. You mentioned other multilateral development banks. Recently we saw the emergence of development banks such as the AIIB or the New Development Bank. There are also existing development banks that are expanding like regional lenders such as the EIB, the Council of Europe Development Bank, or the Asian Development Bank.

Yes, it's a very specific feature because we have this objective to have 75% of our investment in the private sector, which is unique. For example, AIIB, they are doing mostly public sector. Asian Development Bank historically also was doing mostly public sector. Council of Europe Development Bank is doing only sovereign lending. So this makes it quite unique. But what is also quite unique if we compare, for example, with IFC, which is the World Bank private sector arm, is that we bring together because we can still do a lot. We can do a bit of public sector, and very often it's state-owned enterprise or sub-sovereign local municipalities or local regions. And policy work. So we can talk to government and work with the private sector. Very often our action is really in the policy work to support private sector development and to take measures that will facilitate public-private partnership, improve the business environment for private sector. This gives us a specific approach. It's quite a unique model mix of tools and approaches. And then we cooperate a lot with the others. I think that we see the MDBs, the multilateral development banks, as a system. So we are not competing against each other. Of course, sometimes there is a bit of competition, but competition is not bad because if you compete you do your best. It's a way to stimulate. But we also very much cooperate, do co-financing on projects, have mutual reliance support where when we do a project together, one institution is in the lead and does all the due diligence and the other follows. We have a lot of joint work on thematic issues like how to mobilize more private sector investment, how to develop green transition. So a lot of cooperation which is very useful.

So we are very much engaged because indeed the US are the largest shareholder and they subscribed our capital increase, which is a very good news in terms of support and engagement with the EBRD mandate. I think there are a lot of features: the private sector focus, the idea to develop market economies, the priorities we have on improving governance in the public sector and in the private sector. All this is very much in line with how they see the role of development and how we can help countries to really stabilize, develop for the benefit of the people. Of course, we have a diversity of shareholders, so sometimes shareholders do not agree on everything. But we have mechanisms as a multilateral institution: voting principles, voting rules, and decision making that are efficient and allow us to invest in projects. So it's a dynamic relationship. We try to bring as much support on what we do and our strategies as we can. Everybody is not like we have 100% agreement on everything, but we try to have the largest possible support and to listen to all shareholders, to work with them in a constructive manner. We also work with US businesses, US DFC, for example, working with them on projects. So a lot of ways to cooperate.

Thank you.

It's only to talk about legacy because I have the impression I still have time, but I think that for me, my hope is that in 2028 we will be in full speed of reconstruction of Ukraine and the war will be over. We've seen the resilience of the country, but of course it's a very challenging environment. So I hope that we will have started to deploy really reconstruction, new investment, new foreign direct investment. I also think one of the big new steps under my presidency is the start of investment in sub-Saharan Africa and in Iraq, and I hope that in 2028 we will have shown how we contributed to the development of these countries, investment in the private sector, energy transition, energy security. I also hope, given the current tensions in the Middle East and the destabilizing effect on countries we are investing in like Lebanon, Iraq, Jordan, that the situation will be stabilized and we will be investing for the long term in these countries to help develop new infrastructure, new energy capabilities, more vibrant private sector. And the last point, last but not least, is internal transformation of the bank. The world is changing a lot around us: new technologies, AI, new geographies, a lot of volatility. So an institution like the EBRD needs to remain very agile to embrace new technologies, improve our processes, be quick in the way we deal with clients and provide support to the countries in which we invest.

Thank you, thank you, thank you.