US blocks Russia ADB entry

06/05/2007 | Simon Pirani, Philip Alexander

Iraq cited as key sticking point

The US is seeking concessions on Soviet-era Iraqi debt from Russia before supporting its application to join the ADB, Moscow officials claim, amid mounting tension between the two powers.

Japan is also cool on the Russian move.

Russian foreign ministry official Andrei Kondakov told Emerging Markets yesterday that the issue of Iraqi and Afghan debt had been raised by the US at talks in Kyoto at the weekend. “The word ‘linkage’ was not used by the US side, but [a delegation headed by Treasury official Kenneth Peel] asked us to consider the debt issue.

“Relating that to Russia’s ADB membership is not helpful”, Kondakov, director of the department for economic cooperation at the Russian ministry of foreign affairs, said.

“Russia is applying to join the bank as a donor: we don’t regard agreement on this as a gift from other shareholders.

“A couple of months ago, at a meeting between [US Treasury secretary] Hank Paulson and [Russian finance minister] Aleksei Kudrin, it was made clear that the US is very happy for Russia to join both the ADB and the Inter American Development Bank. But now it appears that there is this implied linkage with these other issues.”

Russia inherited about $10 billion of the $150 billion Iraq borrowed under Saddam Hussein, and has linked any write-off to the highly charged issue of control of Iraqi oil. At a UN-sponsored conference on Iraq’s future in Sharm el-Sheikh at the weekend, Iraq turned down Moscow’s proposal to exchange debt forgiveness for a share in the Rumaila field, Iraq’s largest. Afghanistan’s $10 billion in post-Soviet debt is less contentious. Russian officials have repeatedly stated that a write-off can be arranged.

The US’s reported reluctance to push for Russia to join the ADB comes against a background of heightened tension between the two powers since president Vladimir Putin’s denunciation of Washington’s “unipolar world” in Munich in February.

One well placed American development community source said that Washington had also been irritated by a Russian refusal to contribute more funds to the World Bank’s IDA soft loans window, until the row over bank president Paul Wolfowitz was resolved.

Russia sees ADB membership as a means to developing economic cooperation in Asia, and providing commercial opportunities for Russian companies who would be eligible to tender for contracts on ADB-linked projects, Kondakov said.

The ADB secretariat has drafted plans for Russia to join the institution as a regional donor, a membership category that means it would not borrow from the bank, with a shareholding of between 0.5% and 2.0%.

Japan started talks with Russia at the ADB meeting in Istanbul two years ago about membership, but is concerned that Russian membership would shift the balance of power in the bank, said Kondakov. Moscow hopes the small shareholding it seeks will shift Tokyo’s position.

Russia would need support from 75% of ADB shareholders to be accepted. The US and Japan, the two largest shareholders, each command 12.8% of total votes. Other regional powers including China and India are understood to welcome the application, and if either Washington or Tokyo relents, the necessary majority could probably be mustered.

The US delegation to the Kyoto meeting declined to comment.

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