Russia’s relationship with the World Bank has been deteriorating over the past year due to Russia’s invasion of Ukraine. Tensions came to a head in early 2022 when the World Bank halted all programs in Russia and Belarus. However, the question of whether Russia actually “kicked out” the World Bank remains more complex.
What is the World Bank?
The World Bank, officially the International Bank for Reconstruction and Development, is an international financial institution that provides loans and grants to low and middle-income countries for capital projects. It is part of the World Bank Group, which includes five international organizations focused on reducing poverty and promoting development.
The World Bank was established in 1944 with the goal of reconstructing Europe after World War II. Over time, its mission expanded to providing development assistance around the world. The World Bank is owned by 189 member countries but operates as an independent agency. The United States holds the largest ownership stake.
The World Bank provides two primary types of financing – loans at or near market rates (IBRD) and interest-free loans and grants (IDA) to governments of poorer countries. In return, recipient countries agree to maintain certain policies that aim to promote economic growth and improve living standards.
Russia and the World Bank before 2022
Russia joined the World Bank in 1992 after the dissolution of the Soviet Union. Since then, the World Bank has provided over $22 billion in loans, grants, and technical assistance to Russia. The funds have supported a wide range of projects including infrastructure development, health and education programs, environmental initiatives, and more.
As of 2021, Russia held around 2.8% of voting power at the World Bank. It contributed $129 million to the International Bank for Reconstruction and Development and $873 million to the International Development Association in fiscal year 2022.
While Russia has been a member of the World Bank for decades, its relationship has often been strained. There have been tensions over economic policy differences and Russia’s geopolitical actions. This came to a head with Russia’s annexation of Crimea in 2014, which led the World Bank to halt a $3 billion loan program in Russia.
Key World Bank Projects in Russia Before 2022
| Project | Amount | Year Approved |
|---|---|---|
| National Solid Waste Management Project | $468 million | 2011 |
| St. Petersburg Flood Prevention Project | $166 million | 2005 |
| Moscow Social Investment Fund Project | $58 million | 1997 |
| Health Reform Project | $71 million | 1993 |
World Bank Halts Programs in Russia
After Russia invaded Ukraine on February 24, 2022, the World Bank took swift policy action. On February 28, the World Bank announced it had stopped all programs in Russia and Belarus. No new loans or investments would be made to either country.
The World Bank justified the halt by saying Russia’s invasion went against the organization’s core beliefs of promoting peace and prosperity. Specifically, the World Bank cited clause 15 of its general conditions which allows suspension if a borrower country is engaged in actions violating peace and security.
At the time programs were halted, the World Bank had over $450 million in active projects in Russia, which were immediately suspended. The largest was the $370 million “Competitive Regions” program supporting small business development, infrastructure, and climate resilience.
Active World Bank Projects in Russia Halted in February 2022
| Project | Amount |
|---|---|
| Competitive Regions Development Project | $370 million |
| Judicial Reform Support Program | $38 million |
| North Caucasus Highway Construction Project | $25 million |
In addition to stopping new lending, the World Bank said they would not proceed with the approval process for a $500 million loan that was already underway when the invasion occurred.
The halt applied to projects financed by the International Bank for Reconstruction and Development (IBRD). The International Finance Corporation (IFC) also suspended Russia operations, stopping all new investments. However, the International Development Association (IDA) does not operate in Russia.
Russia’s Response
Russian officials condemned the World Bank’s decision to stop operations. Finance Minister Anton Siluanov accused the World Bank of taking a politically motivated stance that contradicted its own interests.
However, Russia stopped short of saying they would break relations with the World Bank or refuse to make payments on outstanding loans. Russia has around $2.2 billion in active World Bank loans to repay over the coming years.
Instead, Russia declared they would fulfill obligations under existing loan agreements in line with the original payment schedules. But they asserted new lending and joint projects were off the table so long as the bank maintains its current stance.
Key Russian Statements on World Bank Halt
| Official | Statement |
|---|---|
| Anton Siluanov, Finance Minister | “The bank’s current position contradicting its goals and interests discredits the institution.” |
| Andrey Belousov, First Deputy Prime Minister | “The bank’s claim about violation of its principles is only a pretext. The bank’s policy is based solely on political motives.” |
| Mikhail Mishustin, Prime Minister | “The government will fulfill all obligations under World Bank loan agreements signed earlier.” |
While criticizing the decision, Russia did not go so far as formally breaking relations or saying the World Bank cannot operate in the country. Legally kicking out the institution would involve Russia exiting as a member country.
Could Russia Exit the World Bank?
While Russia has openly criticized the World Bank’s actions, there are several reasons why formally exiting as a member country could be problematic:
- Russia would still have legal obligations to repay existing loans even if no longer a member
- Exclusion from new World Bank lending would cut off a source of financing for projects
- Pulling out could risk access to other development banks where the U.S. and allies have influence
- Exiting would mean giving up ownership stake and vote on policies
Only one country – Cuba – has voluntarily exited the World Bank, doing so in 1960. No major world power has withdrawn during the World Bank’s 78 year history.
Russia could potentially be forced out if a majority of shareholders voted to revoke membership. But the U.S. and allies likely could not currently get enough votes to expel Russia against its will.
Ongoing Impacts and Analysis
The World Bank’s halt on Russia lending has impacted a number of planned infrastructure projects. Russia has been forced to delay construction timelines and seek alternative domestic financing at higher interest rates.
However, the greatest impact may be on long-term access to capital. The World Bank freeze cuts Russia off from low-cost financing that could boost productivity and growth. This could further isolate Russia’s economy over time.
Experts are skeptical Russia will voluntarily exit the World Bank altogether. Leaving would generate bad publicity, while not releasing them from financial obligations. Instead, Russia may opt for reducing cooperation until sanctions over Ukraine get resolved.
The World Bank could take additional steps like suspending Russia’s membership rights. However, its statutes don’t allow for permanent exclusion of members. So the current freezing of lending may persist for some time amid the impasse.
Conclusion
In summary, the World Bank moved rapidly to halt all lending to Russia after the Ukraine invasion began. However, Russia did not reciprocate by formally kicking out or withdrawing from the institution. Russia remains a World Bank member, albeit currently unable to access any new financing. Tensions may ease if a resolution to the conflict is reached, but the relationship remains on unsteady footing for the foreseeable future.