Sir Suma Chakrabarti - President, European Bank for Reconstruction and Development HARDtalk

Now on BBC News, it's time for HARDtalk. Welcome to HARDtalk. I am

Stephen Sackur. Do you remember the tumultuous events in the early 1990s

in Eastern Europe? From the Soviet empire, a more prosperous region

emerged anchored in the EU and Nato. The European Bank for Reconstruction

and Development was created to foster that transformation. My guest

today is the president, Sir Suma Chakrabarti. These days, many of his

investment projects are actually in Turkey, central Asia, and North

Africa. Has mission creep undermined the values of the EBRD.

Sir Suma Chakrabarti, welcome to HARDtalk. It is nice to be would you

agree with me that your bank has moved an awful long way from those

early days and from its original mission? I would not. I would

certainly agree with you that we have expanded geographically, but

the mission is the same. Private sector development, the creation of

effect of markets. But because of the success of the business model,

we decided we should expand to central Asia and Africa, as you

said. It is a sign of success, not mission creep. The problem with that

is that from the beginning, you were a financial institution underpinned

by a clear statement of values. In the places you have just outlined

where you operate today, those values do not seem to be applied in

the same way. Sometimes there are values, such as political,

democratic, values, pluralism, like stated. They are certainly applied

inconsistently. I am not talking about the way they are applied in

the country, but with those projects in those countries. That is not

correct. We have strong diligent standards and our actions are very,

very clear We apply those throughout our projects. Let us talk about

specifics. You are big in central Asia these days. Azerbaijan. Can you

tell me that Article one of your charter which commits the bank to

applying the principles of multi-party democracy, pluralism,

economics, how can that possibly be applied to an economy and a body

politic like Azerbaijan? We say when we do our strategies, and they are

coming forward this year, we look at the 14 point criteria. In some

cases, Azerbaijan will find itself short. We don't actually make a hard

and fast judgement because every country is on a scale are

essentially. What we have said about Azerbaijan in the past is that they

apply principles, though not perfectly. I am not sure that is

right. I don't know if you bothered reading the independent human rights

reports, but they recently said they are systematically dismantling the

country's independence and society. Your first article, your adherence

to multi-party democracy, pluralism, market economics, I fail to see how

two of those statements can fit together. I would argue Azerbaijan

has had problems. I would say it is the job of me and my team to take

these issues up with them and we do that. But also in the last few

years, it is apparent that a number of him and rights advocates have

been released from jail in Azerbaijan. It is less corrupt than

2-3 years ago. Forgive me, but on the fourth of May 2017, the

Bloomberg financial news agency quoted you on the subject of

Azerbaijan saying this, a direct quote, progress in the last year or

so has stopped, really. I think so. I think that is an accurate quote.

The context of the last five years, Azerbaijan has moved in the right

direction, though in the last year, there has been some stalling. Let us

get this correct, you are giving hundreds of millions of euros to

Azerbaijan, with particular investment into the oil and gas

industry, including the corridor. You have done that for several

years, and you are telling you that you are overtly and exquisitely

believed that in the last year progress has sold. -- explicitly. In

some areas only. It has continued in the fight against corruption, where

they have made major progress in the last few years, in fact. They are a

benchmark, actually. In terms of human rights and other areas, we

will have a dialogue over that. Be frank with me, what do you think the

impact is on, for example, the president himself, of you and your

people in the country consistently giving the Azerbaijan country more

investment capital? What does it send to him? We work directly with

the private sector in Azerbaijan. In the oil and gas... Your investment

is in that. Yes. But the majority of projects are actually outside the

oil and gas sector. A proportion of your overall spending, how much goes

into the oil and gas sector? Yes, it is a large per cent... Yes. But in

terms of projects... The capital flows are measured ultimately by,

you know, frankly, where the money goes, and most goes to the oil and

gas sector. It is not just a point of view frankly propping up a regime

which many in the world believe is aces Danic human rights abuser, but

also one of the key pillars of your mission, you say, is to aid and abet

the transformation of economies to a much more sustainable model. --

systemic. Yet Azerbaijan and a lot of other countries, your key

investments, or in the age old oil and gas sector. It is fundamental to

these economies. Look at others, collect and, Russia in the past. --

Kazakhstan. You want to help them develop. You talk about

transformation, developing a new sustainable economic model. I see

not how that works. Not all of our money goes into the oil and gas

sector. Lots of our projects are not. They are in other sectors,

trying to diversified the economy and raise the share of GDP not for

oil and gas. -- diversify. Otherwise they will be in a cycle of oil and

gas driving everything. I wonder if you learned a very painful lesson in

2014. As I understand it, in 2014, despite your beginnings in Eastern

Europe, you act to put your biggest single lump of money and investment

into Russia. -- actually. In 2014, the wheels fell off, because Russia

invaded Crimea, annexed it, and as a result, the Europeans and Americans

slapped sanctions on Russia, and you were told you had to stop all

investment activity in Russia. Did that teach you something? Well, what

it told us is of course politics does play a part, I think in in --

institution. I remember Tiananmen Square and The World Bank at that

time is well. It does play a role. -- as well. It gives an opportunity

to diversify into other countries, like North Africa. You learned your

lesson from investing, some would argue, far too much of your capital

into Vladimir Putin's Russia at a time when nobody, I think, would try

to argue he was upholding the principles back to good old Article

one about market economics and so on. None would say he was filling

those objectives. But you tell that money after you were told he could

no longer invest there and you put it into countries in central Asia

and North Africa which again do not come even close to meeting your own

founding principles. -- told you could. In 2012, December, 2012, that

was approved. That had political assessment in it. There was a lot of

to and fro, of course, with Moscow over that. 2012. You were telling

yourself that, yes, Vladimir Putin's Russia ticks all the boxes, fully

free market economics, pluralism, multi-party democracies to be that

was a terrible judgement. -- democracy. It is not exactly our

rent judgement. What has happened since in Russia, yes, I feel if we

did a new strategy for Russia they would be a much more testing

conversation, I suspect so, because of what has happened in Russia.

Going back to lessons learned, one of the other countries, and, again,

correct me if I am wrong, it is now the biggest single city of EBR

investments, is Turkey. That is right. The largest market right now.

Are you confident that Turkey, under President Erdogan, is going in the

right direction, one that fulfils all the criteria for the first

article of your mission? That is why you have to look at progress over a

long period to be if you look at Russia and what we were doing the

Russia, and I will come to Turkey in a minute, we were investing 90% in

the private sector, in the automotive sector built up I EBRD.

We were not working directly with the state. In Turkey, it is 98% of

our investment in the private sector. More policy reform.

Renewables, capital markets, those kinds of things. We are not working

directly with the government on very much. I would put this to you as a

result of our conversation. The more you tell me about the long-term

commitment you have made in countries like Russia in the past.

You still have some investments there. And Turkey today. My response

is you have been there for the long-term, you have tried to

persuade yourself and the outside world that this kind of economic

engagement and investment result in a transition to a more democratic

and more free, both politics and economy, there. But the proof in the

pudding is that doesn't. Look at Turkey and its direction of travel

today. Turkey is difficult. No one denies that. That is why this year,

many investors, foreign and direct, they are trying to do what we are

trying to do... Sorry to interrupt, but how much do you think you invest

in Turkey this year? I cannot say for sure, but between 1.3 and 1.5

billion euros. It will still be the largest market without a doubt

because of the size of the economy. But it has been 1.9 billion. That is

a light. They fear it is rapidly going down a spiral of

authoritarianism. -- A lot. The private sector in support of reform

and reaching people who cannot get access to finance, like freelance

want of a nurse and other agency would be denied that finance. The

year, -- did you, when we talk about

renewable technology and solar panels and all about, again, when

one looks at a case study like Mongolia, where you are working with

a huge corporate like Rio Tinto on a copper and goldmine, do you feel

that rather than transition economies, you are just making them

extract more and more value out of what ultimately finite commodity

-based sectors? I started in Botswana, another mineral-rich

country. The issues are similar in Mongolia. There are people wanting

to invest. There are challenging politics with the share of revenue

in particular. We talk about Rio Tinto and others in the government.

We achieved a good result because we also brought in new investors with

that investment in the mine. It was a progressive approach.

Another point about the way the bank operates and those who receive your

investment capital. In recent years, you have invested in a series of

projects in Serbia, I think in other parts of the Balkans, Romania is

another example. You have offered a significant investment, the projects

you have looked at have been mired in allegations of corruption,

kickbacks, bribes. What due diligence do you do? Extremely

strong. Commercial banks cannot achieve our home loan rates. Less

than 1% of any project in any year of approved projects go through that

mechanism. If you look at the universe of projects we look at

every year, we often reject because of integrity standards, social

standards. We take all that out before we go to... In these cases,

the Serbian and Romanian examples, another coal power plant that has

been under allegations of corruption, how did this get

through? They have to go through strong compliance mechanisms. Our

environmental and social officers would check these out. That is not

to say that maybe one or two projects, afterwards, things come to

light. We act on those things. Two hydro projects, one in Croatia and

one in Macedonia. We have actually cancelled the loans, because the

biodiversity impacts were such that they were not right to go ahead

with. It is not as if we don't care about these questions, we do. There

is an after-care issue as well. Trying to put this in a bigger

picture context, we have talked about the origins of the bank.

Investing capital through a bank which has, as its members, Europeans

and a number of other shareholders, that you could nurture and foster

free market capitalism and Democratic values, and that your

work would herald a new era. It seems to me, in some ways, that job

has pretty much been done. If you look across Eastern Europe, most

countries are anchored in the EU, and those who aren't are desperately

trying to get in. That is why it seems to me that you are desperately

scratching around for new places you can invest money, and make money,

and you are compromising on the core beliefs that the institution began

with. I would of course reject that. Starting with the traditional

countries we started with in Eastern Europe. You then have advanced very

well over the last 25 years. Some are members of the EU and Nato. If

the transition job done? Is it completely finished? No. A number of

areas such as energy efficiency still remain. I think there is a lot

of work to do there. In the areas of taking equity from companies,

companies in Poland and other countries, they could become

regional champions and hopefully global overtime. Those are things

that are part of our mission. Yes, the challenge is diminishing, in the

Balkans, they aspire to be in the EU, some areas. We want to help them

be credible members of the EU, using the approximation process which

helps them. A lot of our shareholders think that this pushed

on creating effective markets has been very successful and it should

be taken elsewhere. It is the concept that the business model

matters more than geography to many of our shareholders. Yes, taking it

elsewhere, looking eastward, does it sit confidently with you that China

is now actually a shareholder? Yes it is. It sits very confidently with

me. How do you think they relate to Article one of your charter? Article

one applies to borrowing and China is not a borrower. If they are a

shareholder, they clearly wield some sort of influence. They are one of

67 shareholders. In terms of its weight, it is perhaps more... China

is very important for our region, Central Asia and other regions.

China is also important, EBRD is also important to the Chinese model

so that they can take you to their own banks. I can see that you are

very aware that they are now rivals in the international multi lending

sphere. I don't think they are rivals. They have their own

international infrastructure in beds and bank... Is not their own. Is

based in Beijing. He would not quibble whether they decide their

own strategy. Yes I would. We helped set it up. We were the last

multilaterally created bank. They asked for our help on governance,

appraisal standards, environmental and social standards. They have

pretty much developed what the older models have used. I don't think the

Chinese run this on their own. You are talking about shareholders who

own about 25%, quite sizeable. We have financed projects... I know,

thank you for reminding me. You are working with them in some countries

we have discussed in Central Asia. The Chinese want to develop their

economic powers, some people call it the new silk road. You are now

involved in road, rail and infrastructure projects with the

Chinese. Some would say you are doing their bidding. We are involved

with the Asian infrastructure investment bank, I don't think you

would be calling the United States World Bank 's... It is somewhat

different. I would just point out the inconsistency. This is not a

Chinese lead banker. They have a Chinese president Hu is the largest

shareholder, but they have 77 other shareholders. We will incur finance

with them in Central Asia, we had already done some. But we will do

our appraisals and due diligence. I think it is a win-win situation for

the region. The point about the way it the Chinese do business, not

getting stuck on the argument about whether the Chinese are... They

don't make value judgements. Repeating your Article one mission

to apply the principles of multi-party democracy, pluralism and

economics, that is the sort of value based submission that the Chinese

don't recognise. The World Bank doesn't either. Many banks don't. I

don't see why this is just about the Chinese. They are not the only

bank... Is about the fact that you have compromised, as you have sought

to expand your markets, whether you have compromised your baseline

principal. I don't think we have. We apply those principles for central

Asian countries and all other countries. We go through these

criteria in great detail. A lot of public consultation as well with

lots of societies and organisations. I don't think we have compromised,

we are rather transparent about it. A final thought on the international

context. In the early 1990s, the West thought they had won the sort

of values battle, and the economic battle and that liberal democracy

and free markets were the way the world was going to go, and that free

markets would propagate those western visions of how the world

economy should work. Things look a bit less clear now, not least with

Donald Trump talking the language of protectionism while the Chinese

appear to be the greatest defenders of open borders and free trade. Does

the current political climate make it more difficult for you,

particularly as Western governments seem to be more economically

nationalist? I think what has happened is after the event for us.

A few years ago, before some of the political changes in the West as you

described, we were already seeing that many other countries we worked

with, yet globalisation was successful in everyone out of

poverty, or large chunks of people. Relativity had Western Force but he

had growing inequality, take Turkey. If you judge them on the basis of

Istanbul, you get a false reading. Go to suburbs and you will see. Talk

to female entrepreneurs who can't get finance. Also things were before

the changes from Donald Trump and the Brexit referendum. What we saw

was that globalisation was not working for everyone. Inequality was

becoming an issue. We published reports on this and we had a

strategy to wrap this up. We have 16 women in business programmes in 16

different countries. Helping female entrepreneurs getting access to

finance. We try to tackle youth unemployment in many countries, one

of the byproducts of the age we are living in. It is dangerous socially,

politically, economically. We are trying to match what firms and

companies want with the education sector. Are you saying that

globalisation in its worst sense doesn't work? I have thought that

for some time. My view is that you have got to make globalisation work

better. It has got to have an inclusive agenda. Suma Chakrabarti,

we have to end there, but thank you very much for being on HARDtalk.

Thank you. Thanks very much indeed. Tuesday was a predominantly dry day

with the heart of the country