NGOs respond to EU aid for Ukraine: watch for the devil in the details

As the European Council on aid to Ukraine concludes today in Brussels NGOs caution that the €11 billion put forward by the EU come on terms which will not necessarily foster an independent, self-reliant Ukraine.

“It is very important that the world and especially the European Union stand by Ukraine right now,” comments Bankwatch’s executive director Mark Fodor. “Yet the financial package proposed by the EU relies too heavily on loans via institutions whose track record in both Ukraine and Russia has done more to benefit the domestic elites and foreign corporations than the general population. This sounds like just administering more of a medicine that has proven to suffocate the patient in the past".

Out of the €11 billion that the EU said this week it could make available for Ukraine over the next years, around 8 billion would come in the form of loans provided by the European Investment Bank and the European Bank for Reconstruction and Development to specific projects to be proposed by public and private actors in the country.

The EU aid package has been explicitly linked to Ukraine agreeing to a macro-economic stabilisation package with the International Monetary Fund.

"The insistence by the IMF and EBRD on Ukraine’s quick signing up to macro-economic conditionalities is of concern as well,” adds Mark Fodor. "If the West is serious about wanting to support Ukraine’s independence, it should not be asking Ukraine to sign on to massive commitments while they have a Russian gun at their heads. Ukrainians should be allowed to make their own decisions when it comes to economic reforms.”

The EIB and the EBRD have been lending to both Ukraine and Russia for years. Russia is the biggest recipient of EBRD loans (net investment €23.7 billion), accounting for just under 30 percent of the bank’s portfolio. [1] Ukraine is the third largest recipient of the EBRD with a net investment of €8.7 billion [2]. The EIB, which started operations in Ukraine in 2007, has invested €2.1 billion into the country to date.

"After two decades of seeing EIB and EBRD loans supposedly propping up integration and democratisation in Central and Eastern Europe, we fail to be convinced,” says Bankwatch’s Petr Hlobil. "What we see in practice is banks seeking profit investing in larger business ventures because they offer surer guarantee of return while offering puny support to smaller economic activities. Moreover, projects financed by both banks are often being rushed through without proper consultation of affected people and often under a veil of secrecy as regards the financial terms.”

Commenting on the EU aid package focus on gas diversification in Ukraine, Bankwatch Ukraine coordinator Iryna Holovko said, "While gas supply diversification is important, real savings can come from decreasing consumption via investments in energy efficiency and preventing energy loss in households and municipality buildings. That’s the way to truly reduce our dependency on Russian gas and to benefit ordinary people by reducing their energy bills.

The energy sector today is run by the same people as before, so we fear that if the EU starts pumping money into the energy sector without safeguards (e.g., fulfilling Energy Community obligations, full transparency and public participation in decisions over energy projects), this aid would continue to benefit gas trading companies and connected structures, instead of helping to fix the critical situation in our energy sector and economy.”

Notes for editors

[1] For one example of how the EBRD has been financing some of the richest people in Russia, read this Bankwatch briefing on a loan to raiway company NPK: http://bankwatch.org/publications/ebrds-policy-offshore-financial-centres-meaningful* One of the beneficiaries of the EBRD’s Sustainable Energy Initiative has been steel giant Severstal, headed by its Soviet times manager, oligarch Alexei Mordashov: http://www.foreign.senate.gov/imo/media/doc/55285.pdf (see p. 37)
*updated version available upon request

Russia’s representative to the EBRD, Elena Kotova, who played an important role in bank decisions, has been investigated for money laundering in the UK http://www.businessweek.com/news/2012-08-16/russian-banker-s-money-laundering-case-risks-worsening-u-dot-k-dot-ties

[2] Country profiles for Russia and Ukraine here:
http://www.ebrd.com/pages/country/russia.shtml
http://www.ebrd.com/pages/country/ukraine.shtm

According to the EBRD’s own calculations from 2013 Transition report, faith in market-based solutions was lowest in Ukraine among all Eastern Europe, Caucasus and Central Asian countries after the recent financial crisis (see p. 15 of the report).

On the new Country Strategy for Russia: the strategy takes a very optimistic view of the present human rights situation in Russia.
http://bankwatch.org/bwmail/56/more-questions-answers-ebrds-new-country-strategy-russia