For the European development bank, democracy is an afterthought

Nearly a quarter century after the end of the Soviet Union, it seems democracy is under attack in a growing number of countries in the former socialist bloc.

Many of them are struggling with economic reforms, and both free markets and sustainable development hinge on the full application of democratic principles.

This was clear already to the founders of the European Bank for Reconstruction and Development (EBRD) when they penned down the bank’s mandate in the spirit of 1990.

Article 1 of the EBRD statute defines the bank’s mandate as promoting market economies in countries committed to multiparty democracy and pluralism, and Article 2 entrusts the bank ‘to promote in the full range of its activities environmentally sound and sustainable development.’

But it is increasingly evident that the bank has strayed away from this mandate.

The EBRD sent almost twice as much money to authoritarian and partly free countries than to free countries in the last 25 years. (Country assessment: Freedom House; Data: EBRD)

Belarus is a case in point. Despite there being a restrictive regime, widely dubbed ‘Europe’s last dictatorship’, the EBRD strategy for Belarus says ‘positive steps’ have been taken to improve the political context.

The document says that Belarus’s presidential election, ‘while not meeting international democratic standards, was held in an environment free from violence’. It refers to the increased international openness in Belarus, the release of some political prisoners in August 2015, and to the restrictive yet lenient approach to the application of the legal framework for human rights.

Democracy and human rights have deteriorated so badly in the EBRD regions that the bank capitalises on even the smallest improvements to justify its engagement with countries like Belarus.

The bank has clearly decided to ignore its own mandate to promote democracy, pluralism and sustainable development.

In the last 25 years, the EBRD sent almost twice as much money to countries that were labelled authoritarian and partly free in the Freedom House ‘Freedom in the World 2015’ report than to countries that were labelled free. Hover over a country to see how much money it received from the EBRD in 2015 and between 1991 and 2015, and to see its Freedom House score. The lower the number, the more authoritarian the country, the darker its colour on the map. (Country freedom rating: Freedom House; Data: EBRD)

For example, Turkey, which The Economist Intelligence Unit’s 2015 Democracy Index ranked at the 97th place, below Uganda, became the largest recipient of EBRD financing when the bank stopped approving projects in Russia, after the annexation of Crimea.

The severe crack-down on media and academia following the recent attempted coup further degrades the democratic credentials of Recep Erdogan’s government, and should cast a doubt over the EBRD’s engagement with the regime.

Another example: Libya has recently become a shareholder of the bank – but it ranks 153rd in the Democracy Index after a 34-place fall. So did China, not really known for multiparty democracy.

The EBRD approach toward Article 1 of its statute has been very inconsistent. While the bank restricts investments in Turkmenistan and Uzbekistan, other authoritarian countries are not subject to the same treatment. Its approval of Egypt as a full country of operations in October 2015 does not exhibit a great deal of concern for compliance with Article 1, and raises concerns about the messages that the bank is sending to oppressive governments.

As a result, the EBRD’s failure to enhance in democracy and human rights casts doubts that it can ensure public participation in investment projects that may have adverse social impacts.

Public participation in decision making remains very low in many of the more advanced transition countries, and too often the private sector is prioritised over the rights of communities to protect their livelihoods.

Complaints to the EBRD’s accountability mechanism on energy projects in Serbia (coal), Georgia (hydropower) and Jordan (gas) are testimonies to the bank’s inability to enforce its own policies. At the same time, Bankwatch’s experience suggests that the lack of complaints from countries with an even worse track record on human rights could be the result of complainants’ concerns for their safety being an insurmountable barrier to justice and practice of their fundamental rights.

There is a range of concrete measures that the EBRD needs to take. Some of them are: the use of human rights benchmarks in country strategies, specific commitments to improve human rights assessments, transparency and public participation in decision making on the project level, and ensuring the safety of complainants.

The bank has traditionally sought to improve the investment climate, and recently it has started attaching greater importance to transparency and participation, as well as access to justice for communities affected by the projects the bank finances.

Considering the volatility of many countries that the EBRD services, democracy is regularly challenged. The overarching trend suggests that progress is difficult to maintain and that democratic rights are often undermined.

Perhaps most striking is that no less than nine of the EBRD countries of operation are labelled by this index as authoritarian. And last year alone, the EBRD has granted them $2.5 billion – nearly a quarter of its total investment volume in 2015.

Turkey, not included in this group of countries in the index’s 2015 edition, received nearly $2.2 billion last year.

If a quarter of the EBRD’s annual investments goes to countries who show little to no commitment to democracy and pluralism, the bank should seriously reconsider the operational approach to implementing its political mandate, instead of investing in projects in countries ruled by dictators.