The US must engage now on the EBRD leadership search

The U.S. needs to involve itself in the presidency search process for the European Bank for Reconstruction and Development (EBRD) now and begin to identify, encourage, and recruit European candidates that have shared interests with the U.S. This needs to be a joint Treasury and State Department undertaking. The U.S. should look for candidates with a development and finance background, a demonstrated interest in the current footprint of the EBRD, and someone who has a demonstrated pro-American, anti-Russian worldview. For example, a strong candidate could be from the Baltic countries, parts of Central and Eastern Europe, or other European countries who are signaling concerns about Russia through increased defense spending and burden sharing in NATO.

The EBRD was founded in 1991 and was originally established to “help build a new, post-Cold War era in Central and Eastern Europe” by “furthering progress towards market-oriented economies and the promotion of private and entrepreneurial initiative.” Over time, its mission has evolved — for example, the EBRD ended any new business in Russia in 2014, and it began to work in countries in the Maghreb as a response to the Arab Spring uprisings of 2011 — and there are valid questions on if it has evolved too far.

There is a legitimate debate to be had about the future of the EBRD. The current geographic footprint of the EBRD is large, consisting of 39 countries. There are easily a half dozen to a dozen of these 39 countries that could “graduate” from the EBRD in the next three to five years. There is no reason why the EBRD couldn’t maintain its current (or a reduced) geographic footprint and the next president of the EBRD focus on that footprint for his/her notional two four-year terms. Within this geographic footprint, the EBRD may want to consider expanding its service offerings (e.g. infrastructure) or expanding its activity in equity investments. Thirty-six percent of the EBRD’s projects currently qualify as climate change-related projects, and they have a goal of 40 percent by 2020. The EBRD has mostly gotten out of the oil, gas, and coal business, which is unfortunate because there are a handful of strategic projects where the EBRD could be helpful.

The EBRD does not need to be perpetually growing to be important and effective. There is still a lot of work to be done in Central Asia. There is a nascent democracy in Kyrgyzstan, there is an emerging democracy in Uzbekistan, and there is potential for some promising changes in Kazakhstan. The EBRD is a major instrument of indirect U.S. influence in Central Asia. Ukraine now possesses its best government of the last 30 years, but unfortunately Ukraine is going to be collateral damage of the current American political crisis over impeachment. One of the ways for the U.S. to continue to constructively influence Ukraine is through the EBRD. We still have unfinished business in the Balkans and Caucasus. The EBRD has also ramped up a significant amount of work in the Maghreb and should continue to do so.

In the last 10 years, questions about the mission of the EBRD have increased since many countries who were original targets of the EBRD’s work have become prosperous and free societies (e.g. the Baltic countries and Central European nations). At the same time, the interests of the original stakeholders, namely the United States and Europe, have also drifted. Europe is now increasingly concerned about climate change and Africa, while the U.S. (and somewhat Europe) has become increasingly concerned about China.

The current president of the EBRD, Sir Suma Chakrabarti, is a well-regarded leader in global development and has led the organization for the last eight years. The new president of the EBRD will be elected in May 2020 and there will be a decisive board meeting in December. The United States owns 10 percent of the bank’s shares. Collectively 28 EU states hold 63 percent of the total. Traditionally, the presidency of the EBRD has gone to a European.

Additional things to consider are an important report called the “Wise Persons’” report on development finance. This seemingly obscure report, published last week, has enormous implications for the future of the EBRD and American interests in the global system.

The report contemplates three options for Europe to handle a number of challenges — how to finance the challenges of climate change, how to enable prosperity and jobs in Africa, how Europe should respond to the China challenge, and how the diffuse alphabet soup of European development and development finance entities can work together more effectively. Of the three options listed in the Wise Persons’ report, two of them contemplate a fundamental change in the future impact and role of the EBRD.

After reading the Wise Persons’ report and speaking to more than three dozen European and American officials, it is clear that Europeans have taken very seriously the semi-public statements from one or two Trump administration officials who have said that the United States has contemplated “selling its shares” in the EBRD.

The process of how this notional U.S. exit would be achieved — or achieved without America losing its shirt along with its influence — is not completely clear. In the most likely scenario, the U.S. would receive the original money it committed in 1991, not the much larger accumulated profits associated with our 10 percent ownership. This would be a very bad financial deal for the United States and catastrophic in terms of loss of influence and impact for the United States.

Finally, the well-reasoned U.S. National Security Strategy under President Trump has four main points — one of which is that “the U.S. will compete and lead in multilateral organizations so that American interests and principles are protected.” Selling our shares would absolutely go against this. Therefore, it would be wise for U.S. policymakers to make a clear public statement now that it will not sell its shares in the EBRD because it is now apparent that European shareholders have taken these recent unofficial statements as truth and are examining serious options that would harm U.S. interests.

One would also think that Congressional leaders would want to understand why the United States would not only lose its shirt, but also cede U.S. influence to China and Russia in a key part of the world.

The EBRD presidency search will also be complicated by the traditional “European consolation prize” dynamic. A number of other European candidates who fought for positions in the European Investment Bank (EIB), the International Monetary Fund (IMF), and the European Central Bank (ECB) will all be clamoring for the EBRD, saying it is “their turn.” There will be a very strong dynamic to “take care of” candidates from other countries who lost out. The U.S. needs to signal now that there may be some candidates they will not accept; or, the U.S. needs to get behind an alternate European candidate.

We cannot fight something with nothing. The EBRD does approximately $10 billion per year in investments and is an important source of our influence over a large region of the world. The EBRD is the multilateral organization that covers the most countries along China’s Belt and Road network. It would be a huge mistake for the U.S. to sell its shares, and it would be a grave error if the U.S. does not become involved in the presidency search. Arguably, the next candidate for the EBRD presidency is the most important personnel pick in the 30 years of its history.

article published in on October 25, 2019.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s