World Bank Group

World Bank approves first Russia investment since Ukraine crisis

World Bank overrides opposition to provide cash for retailer's expansion in Russia

PUBLISHED : Thursday, 05 June, 2014, 5:34am
UPDATED : Thursday, 05 June, 2014, 5:34am

The World Bank approved an investment in Russia for the first time since President Vladimir Putin annexed Crimea, overriding opposition from Canada and lack of support from the US.

The International Finance Corporation, the lender's private-sector arm, voted on May 29 for parts of a €250 million (HK$2.64 billion) package enabling French grocery retailer Groupe Auchan to expand in Russia, Vietnam and other emerging markets, a World Bank spokeswoman said.

The deal thrusts the Washington-based lender, formed in the aftermath of the second world war to rebuild Europe, into the debate over how to use economic sanctions to punish Russia for its actions in Ukraine.

"Canada took a principled stance by voting against this project because we do not support projects that benefit Russia," Canadian Finance Minister Joe Oliver said in a statement. "Russia must not interfere in the affairs of a sovereign state."

The World Bank's planned investment, its first related to Russia since February, forced countries that have slapped sanctions on Putin's inner circle to consider withholding development aid as part of their toolkit of penalties. The US and three other constituencies at the board abstained, according to a board official who asked not to be named because he was not authorised to disclose discussions among the bank's 25 executive directors.

A spokeswoman for the US Deaprtment of the Treasury said that "we did not think that at this time it is appropriate to support this project".

"It is important to note that we were the only ones to take a strong stand and vote against" the project, Oliver said. "Canada continues to call for calm and for Ukraine's territorial integrity to be respected."

Canada's lone dissent at an institution that is typically consensus-driven may have an impact on future loans in Russia, said Domenico Lombardi, a former World Bank board official.

"This is designed to apply some psychological pressure on the senior management of the institution to better calibrate the institution's stance vis-à-vis Russia," said Lombardi, who is now the director of the global economy programme at the Waterloo, Ontario-based Centre for International Governance Innovation in Canada.

"It also shows that there's no clear agreement or unity among the major shareholders in terms of applying sanctions or escalating pressure on Russia in a consistent way," he said.

Canada, the US and the European Union said last month that they want the European Bank for Reconstruction and Development to examine its role in Russia, the largest recipient of its investments.