Political commitments of the EBRD: A paper reality?

Introduction

In 2021, the European Bank for Reconstruction and Development (EBRD) came under intense criticism from different non-governmental organisations (NGOs). 30 years after its founding, NGOs found that the bank was not adhering to its political commitments as set out in the founding agreement of the bank (Bacheva-McGrath et al., 2021, p. 3). Article 1 of the founding charter stipulates that the EBRD only carries out operations in “… countries committed to and applying the principles of multiparty democracy, pluralism and market economics” (EBRD, n.d. a). Furthermore, the EBRD’s political mandate includes the ‘more for more, less for less’ principle which means that investments are tied to economic and political reforms and investment decreases if there is a deterioration of freedoms (Bacheva-McGrath et al, 2021, p. 8; Bankwatch Network, 2021).Finally, the EBRD looks at the work of the European Convention on Human Rights as a guideline and makes a reference to human rights in its preamble (EBRD, n.d. a). In regards to this last point, the EBRD pays particular attention to those rights “… which, in accordance with international standards, are essential elements of multiparty democracy, pluralism and market economics” and are taken into account when evaluating a country’s progress (EBRD, n.d. a). This mainly relates to civil and political rights (EBRD, n.d. a). However, in 2020 the two biggest countries of operations were Turkey and Egypt, therefore questioning the Bank’s commitment to multiparty democracy, pluralism, market economics, and human rights (Jeannerod, 2021). In recent years, both these countries have seen widespread human rights abuses and suppression of civil and political rights (Bacheva-McGrath et al, 2021, pp. 8-9; Jeannerod, 2021; POMED, 2021).This has led the France director of Human Rights Watch, Bénédicte Jeannerod, to say that the commitment of the EBRD to apply principles of multi-party democracy and pluralism “… looks to be nothing more than a farce” (Jeannerod, 2021).

This critique on the EBRD falls into the broader debate about the responsibility of international financial institutions (IFIs). While on the one hand, some scholars argue that these financial institutions are international legal subjects and therefore have an international legal responsibility (Bradlow & Fourie, 2019, pp. 317-318; Ryngaert & Buchanan, 2011, p. 136), other scholars have argued that the responsibility is complicated by the fact that IFIs are prohibited from intervening in the political affairs of a country and should respect the sovereignty of states (de Moerloose, Türkelli & Curtis, 2022, p. 274). Furthermore, there is no consensus on the  concept of human rights and there are different viewpoints between countries (McInerny-Lankford, 2009, p. 56). In light of this debate, should the EBRD do more to safeguard its political commitments and human rights in the countries of operations? As this article will show, the answer to this question is yes. However, it is important to keep in mind that, although the EBRD is an independent organisation, it is not necessarily a neutral one. Meaning that effects need to be mitigated in which the shareholders, which are mostly European countries, get to dictate the political affairs in the countries of operations. The first section of this article will focus on how the EBRD works and its political commitments, while the second section will focus on some examples where these commitments have not been fulfilled. The article will finish with the debate regarding the responsibility of IFIs and the responsibility of the EBRD in particular.

Background EBRD

The EBRD was founded in 1991 and is an International Financial Institution (IFI) that is  “… designed to foster transition towards open market-oriented economies and to promote private and entrepreneurial development” (European Commission, n.d.). It mainly finances projects for private enterprises, usually together with commercial lending partners, and works with public partners to support privatisation, restructuring, and improvement of municipal services (European Commission, n.d.). The EBRD is owned by 71 governments as well as the European Union (EU) and the European Investment Bank (EIB) (EBRD, n.d. b). The majority of the shareholding is in the hands of EU countries (European Commission, n.d.). The powers of the bank are vested in the Board of Governors that consists of a representative of each shareholder country and delegates its major tasks to a Board of Directors (EBRD, n.d. b; European Commission, n.d.). The Board of Directors is responsible for the direction of the Bank’s operations and policies, thereby following the general objectives as set out by the Board of Governors (EBRD, n.d. c).The EBRD is active in Europe, Central Asia, the Southern and Eastern Mediterranean, Russia, and the Caucasus (EBRD, n.d. d). For a project to be eligible for EBRD funding, it must “… be located in an EBRD country of operations; have strong commercial prospects; involve significant equity contribution in-cash or in-kind from project sponsor; benefit the local economy and help develop the private sector; satisfy banking and environmental standards” (EBRD, 2013).

As mentioned in the introduction, the EBRD has political commitments to multiparty democracy, pluralism, and market economics as well as a ‘more for more, less for less’ principle. Furthermore, the EBRD is committed to human rights, especially civil and political rights. Besides these commitments stemming from the preamble and the founding agreement of the bank, the EBRD is an affiliated member of the Cross-Sector Biodiversity Initiative of the Equator Principles Association, the International Petroleum Industry Environmental Conservation Association, and the International Council on Mining and Metals that develops and shares good practices related to biodiversity in extractive industries (The Equator Principles Association, n.d.). Furthermore, the Environmental and Social Policy of the EBRD includes the commitment to “… not knowingly finance projects that would contravene country obligations under relevant international treaties and agreements related to environmental protection, human rights, and sustainable development, as identified during project appraisal” (EBRD, 2008, p. 4). The EBRD also develops political country-level assessments in four areas: Free elections and representative government; civil society, media, and participation; rule of law and access to justice; and civil and political rights (Bacheva-McGrath et al, 2021, p. 4). Despite these commitments, scholars and NGOs have pointed out that there have been numerous projects financed by the EBRD that did not adhere to these commitments and that not all investments in countries of operations are in line with the EBRD’s objectives. This will be the focus of the next section.

Political commitments: A farce?  

Although the commitments of the EBRD sound very positive, unfortunately there have been numerous instances in which they were not respected. For example, the Baku-Tbilisi-Ceyhan pipeline project designed to transport crude oil from the Caspian Sea to the Mediterranean did not have adequate pipeline safety and resettlement plans, and suffered from faulty environmental impact studies (Wright, 2012, p. 65). Since the start of the operation in 2006, there also have been several oil spills which are probably caused by inadequate pipeline monitoring (Wright, 2012, p.65). Another example is the North-South Corridor project in Georgia whose aim is to promote trade with Russia (Bankwatch Network, 2022, p. 1). Part of this project is the Kvesheti-Kobi road aimed “… to improve access to road infrastructure and road safety, land transit for cargo and the region’s tourism potential” and is co-financed by the EBRD with 60 million USD (Bankwatch Network, 2022, p. 1). Nevertheless, there are doubts whether the project will actually support Georgia’s sustainable development and that instead it will harm the Khada Valley by threatening its “… unique cultural heritage, landscape and biodiversity, as well as the livelihoods of local communities’ (Bankwatch Network, 2022, p. 2). This is further complicated by the fact that the feasibility study of the Kvesheti-Kobi Road project developed by the World Bank has not been published despite the project promoters’ claims that all relevant studies are available to the public (Bankwatch Network, 2022, p. 2).                    

Moreover, problems with the political commitments of the EBRD are not only limited to projects but also relate to countries of operations more broadly. As mentioned in the introduction, in 2020, one of the biggest countries of operations of the EBRD was Turkey. However, in recent years, more political rights and civil liberties have been suppressed and the government has started a crackdown on civil society (Bacheva-McGrath et al , 2021, pp. 8-9). In March 2021, Turkey withdrew from the Council of Europe’s convention on Preventing and Combating Violence Against Women and Domestic Violence (Bacheva-McGrath et al, 2021, p. 9). Despite these developments, human rights and democracy were not on the agenda during the virtual visit to Turkey in May 2020 by the EBRD president (Bacheva-McGrath et al, 2021, p. 9). The president even promised the same level of investments in 2021 as in 2020, making the ‘more for more, less for less principle’ questionable (Bacheva-McGrath et al, 2020, pp. 8-9; Bankwatch network, 2021).

It would thus seem that on paper the EBRD is committed to democracy, sustainable development, and human rights, but that in practice these commitments are often thrown overboard in regards to certain projects and countries of operations. In light of these findings, it is important to look at what kind of responsibilities the EBRD has in the international realm.

International (legal) responsibility?

As the EBRD does not always adhere to its own political commitments of democracy, pluralism, sustainable development, and human rights, are there ways in which the bank can be internationally held accountable? The answer to this question is complicated as there are no clear guidelines. IFIs are not signatories to international human rights treaties (Bradlow & Fourie, 2019, p. 317) and under the current legal framework, non-state actors cannot be held accountable for the violation of economic, social, and cultural rights (Vandenbogaerde, 2013, p. 204). Furthermore, scholars disagree whether IFIs have an international legal responsibility. One side of the debate argues that IFIs are subjects of international law, meaning that they are bound by customary international law and general principles of law that do address human rights issues (Bradlow & Fourie, 2019, pp. 317-318). This follows the International Court of Justice (ICJ) who said that “international organisations are subjects of international law, and as such, are bound by any obligation incumbent upon them under general rules of international law, under their constitutions or under international agreements to which they are parties” (ICJ, 1980, pp. 89-90). Furthermore, the International Law Commission (ILC) created the Draft Articles on the Responsibility of International Organizations in which it is laid down that “every internationally wrongful act of an international organisation entails the international responsibility of the international organisation” (ILC, 2011, p. 2). However, Cedric Ryngaert and Holly Buchanan have pointed out that there are very few enforcement mechanisms that have actual jurisdiction to hold international organisations responsible for their wrongdoings (2011, p. 132).                                            

Furthermore, the responsibility of IFIs is limited due to the prohibition to intervene in the political affairs of states and the obligation to respect the sovereignty of states (Bradlow & Fourie, 2019, pp. 320-321). As human rights are often considered inherently political, they are seen to be outside the permitted realm of considerations for international institutions (McInerney-Lankford, 2009, p. 55). If IFIs forced recipient states to take certain measures in exchange for financing, it would question the sovereignty of states (de Moerloose, Türkelli & Curtis, 2022, p. 274). Moreover, it is worth keeping in mind that human rights are a controversial subject in IFIs because there is not one agreed upon definition and there might be differing viewpoints between different states, especially between countries of the so-called ‘Global North’ and ‘Global South’ (McInerney-Lankford, 2009, p. 56), with countries of the Global North often being powerful members of IFIs. This has led some countries to resist being dictated on human rights by lending instruments as these dictates come from countries with economic power and not necessarily with exemplary human rights records (McInerney-Lankford, 2009, p. 56). There is thus a power asymmetry between those countries or institutions that provide financing and those countries who receive it. And although some countries might be able to resist human rights oversight by more economically powerful countries, other poorer and less powerful countries may not (McInerney-Lankford, 2009, p. 56). This has led to the creation of the New Development Bank and the Asian Infrastructure Investment Bank which are controlled by emerging economies to counter the domination of powerful economic countries (de Moerloose, Türkelly & Curtis, 2022, p. 275).                                            

As  is clear from the above, it is difficult to assess what kind of (legal) responsibility IFIs, such as the EBRD, have. Nevertheless, it is important to keep in mind that the EBRD has committed itself to multiparty democracy, pluralism, market economies, human rights, and sustainable development. Meaning that even if there were no legally binding international responsibility for the EBRD, they have chosen to adhere to certain political commitments. Based on this, project-affected citizens and NGOs can hold the EBRD accountable. In accordance with this, the EBRD should work towards an effective implementation of their own principles. This can already start by making sure that all relevant project documents are made publicly available. Furthermore, the EBRD should not refrain from addressing human rights issues to countries of operation as it has done in the past with Turkey. It also includes making sure that project-affected citizens and NGOs are able to speak out and voice their concerns. Moreover, it should be made sure that power asymmetries between the EBRD and recipient countries do not worsen. In addition, the EBRD should be prevented from becoming a tool of more economically powerful states to dictate the political affairs of less powerful states. These effects could be mitigated by making sure that EBRD policies are consistently implemented across every project and country of operations, thereby preventing the EBRD’s political commitments being only adhered to on a case-by-case basis. Furthermore, the EBRD could outsource the country-level assessments and evaluation of a country’s progress to an independent research institute or think tank.                                                             

Conclusion

Although on paper the EBRD has made commitments to multiparty democracy, pluralism, market economics, human rights, and sustainable development, its implementation of these commitments has been questionable. Both in its projects as well as in the countries of operations more broadly it seems as if these commitments are not a priority. This might be enforced by the fact that there is no clear guideline and scholarly consensus regarding the international legal responsibility of IFIs. Nevertheless, the statements by the ICJ and ILC do confirm that IFIs have at least some responsibility regarding general rules of international law as well as internationally wrongful acts. However, it is not very clear how this can be enforced as there are few mechanisms with jurisdiction to do this (Ryngaert & Buchanan, 2011, p. 132). Despite this uncertainty at the international level, it is important to reiterate that it was the EBRD who formulated the political commitments and included it in its preamble and founding agreement. Meaning that they can be held accountable on the basis of this. The EBRD can thus no longer shield behind its paper reality of political commitments and should turn it into an actual reality.

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