As Crisis Deepens, EBRD Freezes New Investment in Russia
Published: July 24, 2014 (Issue # 1821)
The European Bank of Reconstruction and Development, or EBRD, on Wednesday froze financing of new projects in Russia amid escalating international condemnation of Russia's alleged role in the downing of a passenger jet in eastern Ukraine.
"A majority of the board of directors of the EBRD, including all European Union member states and several non-EU shareholders, have given clear guidance to the EBRD management that, for the time being, they will be unable to approve new investment projects in the Russian Federation," the organization said in a statement Wednesday.
The London-based development bank will continue work on its 305 active projects in Russia, where its operating portfolio amounts to 8.4 billion euros ($11 billion).
While the loss of new EBRD investments is far from trivial — about 19 percent of its investments, or nearly $1 billion, went to Russia in the first half of this year — the decision suggests that worse may be on the horizon, analysts said.
"It is a harbinger of what is going to happen, which is the increasing capital isolation of Russia," said Fredrik Erixon, director of the European Center for International Political Economy.
International lenders have shut their doors on Russian banks and companies in recent months for fear of further sanctions from the West over Russia's policy in Ukraine, leaving Russian banks unable to access additional financing and meet the needs of the national economy.
"Given the high capital need and the high investment need in the Russian economy, [capital isolation] is going to have a very, very strong effect on national GDP," Erixon said.
The EBRD's decision shows that the doors have only shut tighter since the downing of Malaysia Airlines Flight MH17 last week, which the U.S. and others have blamed on Russia's alleged funneling of weapons to the pro-Russia separatist rebels in Ukraine's east.
The deaths of the 298 people on board, many of them EU citizens, has put the EU under pressure from the U.S. and member states such as Britain to ratchet up sanctions to so-called "stage three" sector-wide measures.
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