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The Mission of Multilateral Financial Institutions in the Global Economy

May 29, 2017, 16:57 UTC+3
1 pages in this article

Multilateral development banks (MDBs) have a major impact on the global economy. The flip side, however, is their sensitivity to the political environment, as can be seen from the EBRD joining the sanctions against Russia. In response to the need for more MDBs in the global economy, Russia and China have created the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) to benefit all economies worldwide.

Since the early 1990s, Russia has been cooperating with MDBs, including the World Bank, the European Bank for Reconstruction and Development, and others.

  • To date, the World Bank has disbursed more than USD 10.5 billion in loans for Russia across over 70 projects in a variety of industries.
  • Prior to 2014, the EBRD was involved in financing 800 projects in Russia, with total investments exceeding EUR 24 billion. The largest investments include the construction of the central section of the Western High Speed Diameter in Saint Petersburg, contribution to the charter capital of the Moscow Exchange MICEX–RTS, etc.

After Western countries imposed sanctions against Russia in 2014, the EBRD adopted a resolution on the “temporary suspension” of new project financing in the country.

  • According to the Ministry of Finance, in 2016 Russia’s share in the EBRD’s total portfolio went down to 12% and might see a further drop to 8–9% in 2017. At the same time, it is Russian projects that generated 35% of the EBRD’s operating profit last year.
  • Russia’s attempts to resolve the issue have so far been unsuccessful. According to Minister of Economic Development Maxim Oreshkin, the stance taken by the EBRD is a dangerous precedent for international financial relations, with a member facing discrimination based on nationality and MDBs turning from development institutions into levers of international policy.

The integration of Russia and its EAEU partners into the global economic space and the need to develop the infrastructure and digital economy highlight the importance of close cooperation with international financial institutions.

  • Speaking at the One Belt, One Road Forum in Beijing in May 2017, Russian President Vladimir Putin said that large projects in infrastructure, energy, transport, and modern high-tech industries in Russia certainly require substantial private investments. 
  • According to Minister of Finance Anton Siluanov, Russia and international development institutions need to join their efforts in investing in local infrastructure projects. To this end, the Government pins hopes on support from the NDB and the AIIB, which Russia helped to establish.

Over the next decade, the new MDBs are expected to emerge as full-fledged competitors for the World Bank and the EBRD, transforming Asia to the global investment powerhouse.

  • The AIIB's capital was announced at USD 100 billion, which makes it the world’s largest international organisation. Three quarters of the bank’s capital are held by Asian economies, including Russia with a 6.54% stake as the third largest shareholder after China and India.
  • There are new nations soon to contribute to the AIIB's capital: after the annual meeting in June 2017 the bank is expected to add 25 new members to the current 57 signatory countries.
  • The capital of the New Development Bank is capped at USD 100 billion and is evenly split among the shareholders (20% each).

With the new MDBs currently at an emerging stage, the AIIB is set to focus on co-financing projects led by other development banks, including the EBRD, World Bank, European Investment Bank (EIB), etc. Still, both the AIIB and NDB are gradually gaining weight in the global economy.

  • In 2016, the AIIB approved nine investment projects that benefit seven nations and have a total value of USD 1.73 billion. Over the next five years, financing might well grow to as much as USD 5 billion a year. The AIIB’s priorities for 2017 include green infrastructure and cross-border connectivity, alongside solutions that catalyse private capital.
  • In 2016, Russia submitted for the AIIB’s review 16 projects in the Far East for a total of USD 8 billion and is also negotiating the bank’s prospective involvement in the construction of the Meridian Highway to connect West China and Europe.
  • In 2016, the NDB approved more than USD 1.5 billion in financing the first investment projects in its member states, including over USD 100 million to fund small hydroelectric power stations in Karelia – Byeloporozhskaya HPP-1 and Byeloporozhskaya HPP-2. In April 2017, the bank signed a memorandum of understanding with the Eurasian Development Bank.
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