The bank meeting in the Georgian capital created a genuine link between ‘advanced’ Western countries and emerging markets of the East.
I spent much of last week in Tbilisi, a city of around 1.5m people on the south-eastern fringe of Europe. Sitting at the juncture of historic East-West trade routes, the Georgian capital has long been a melting pot of cultural mingling, a place where rival empires collide.
With its mix of medieval, classical and Soviet architecture, some of it charming, some of it not, Tbilisi is a good place to think about the broad sweep of foreign affairs. That was particularly true during my latest visit, as the city was hosting the annual meeting of the European Bank for Reconstruction and Development (EBRD). For several days, some of Tbilisi’s most prominent downtown buildings – including the ornate old parliament and several beautiful museums – were inhabited by a multi-cultural gaggle of officials, bankers, investors and journalists.
Founded in 1991, the EBRD is an international financial institution like the World Bank, existing to generate and implement investments that encourage the development of market economies. Initially focused on post-Soviet Eastern Europe, it has since expanded to 36 “countries of operation” – including Central Asia, North Africa and parts of the Middle East. Headquartered in London, EBRD shareholders include many developed-country governments, the biggest of which is the US. Despite state ownership, the EBRD invests mainly in companies, with the private sector providing the overwhelming share of the capital.
EBRD annual meetings are, in my experience, far more interesting than equivalent events held by the World Bank and International Monetary Fund (IMF). At the joint bank/fund gabfests, often held in Washington, the crowd is invariably Western-centric – and everyone speaks in English. There seems to be an “accepted consensus” on almost every topic – or, at least, before you ask them, it’s generally easy to predict what delegates are going to say.
EBRD meetings are different. Opposing views fly around, expressed in a welter of languages. The discussions are more vibrant, with a genuine sense in the sessions and coffee breaks of conflicting perspectives. While in Tbilisi, I heard Turkish construction magnates winding up French officials, Russian industrialists arguing with bankers from Frankfurt. Perhaps it was the location, but last week’s event struck me as a genuine interface between “advanced” Western countries and the emerging markets of the East. Good. The more such countries trade, the better. Countries that trade generate mutual wealth and security. Countries that trade are less likely to go to war.
Talking with numerous EBRD delegates, the conversation kept returning to three main subjects. The first was the Russia-Ukraine conflict – and the prospect that Kiev could soon default. Natalie Jaresko, the American-born investment banker who last year became Ukraine’s finance minister, was in Tbilisi, pushing Kiev’s position regarding its $23bn (£14bn) debt restructuring negotiations, which have lately turned sour.
The government of Ukraine, war-torn and deep in recession, is taking serious umbrage at the hard line displayed by many of the private-sector creditors who, according to Jaresko, refuse point blank not only to re-negotiate debt terms but even to reveal their identity.
With Kiev accusing such creditors of lacking “good faith”, market speculation increasingly suggests the debt talks will bust the IMF’s June deadline, jeopardising the latest tranche of international assistance. Having contracted 6.8pc in 2014, and due to shrink a further 7.5pc this year on the EBRD’s latest forecasts, Ukraine is clearly suffering. And with much of the productive heart of the economy located in the East, a region pulverised by shelling, the outlook is terrible.
While barely noticed in the West, Ukraine’s debt negotiations could easily become front-page news across the world. A Kiev default is well capable of sparking a systemic crisis that would spread across Europe, and beyond, upending the fragile global recovery. Given the complexity of the negotiations – involving not just bad-tempered private and public sector creditors, but with governments in Washington and Moscow looking on and both sides pulling strings – a sovereign default is by no means impossible. When markets are nervous, defaults in seemingly far-away places can suddenly become very significant – as we learnt in Thailand in 1997.
Then, of course, there is Greece – another hot topic in Tbilisi. While it’s often assumed the Greek crisis will somehow be resolved, with the eurozone avoiding another systemic meltdown, that certainly wasn’t the view of most people I talked to at the EBRD meeting. The networking sessions were abuzz with talk of Greece having taken the almost unprecedented step of raiding its own IMF account (money held by members on the IMF’s behalf) to repay €750m (£542m) to the IMF – and the grim picture that paints not just of the country’s financial position, but of relations between Greece and the IMF. Then data published on Wednesday showed the Greek economy, having finally escaped a six-year recession last year, slipping back into negative growth during the first three months of 2015.
An observation I heard several times while in Tbilisi, not least by Greek delegates, is that Athens’ debt negotiations may require another election, or perhaps a snap referendum, before this mega-stand-off – which, again, poses huge systemic risks not just to the eurozone, but to global markets more broadly – finally ends.
The other big topic of conversation in Tbilisi was the Asian Infrastructure Investment Bank – a $50bn Chinese-led rival to the World Bank, launched last October. The US originally urged big Western economies not to join the AIIB. But Washington then had to watch helplessly as the UK, then Germany, France and Italy – mindful of the importance of securing future access to Chinese markets, and perhaps further Chinese investment in Western sovereign debt – joined the AIIB as founder members anyway, sparking a transatlantic war of words.
Former US Secretary of State Madeleine Albright has since admitted that “America screwed up” regarding AIIB, acknowledging a “certain amount of frustration” in China and elsewhere that the US Congress still refuses to ratify changes to IMF voting rights, agreed five years ago, that more accurately reflect the economic importance of emerging markets.
The Tbilisi crowd, even the Americans I spoke too, all agreed that the AIIB’s formation, and Washington’s stern reaction and subsequent volte face, represent a significant moment, ending the assumption that the US will always and everywhere dominate multilateral organisation.
“We are already building links to the fledgling Asian Infrastructure Development Bank,” said Sir Suma Chakrabarti, the EBRD’s Anglo-Indian president, as he opened the EBRD annual meeting in Tbilisi. “The AIIB is a new and important partner for us all.”
The recent UK general election campaign has been criticised on a number of fronts. Party leaders remained remote, engaging in almost no contact with the general public. The pollsters were fixated on the wrong questions, and their methodology was seemingly dodgy – or, at least, they spectacularly failed to predict the result.
Of all the failings of our national debate in the run-up to polling day, last week in Tbilisi brought home to me perhaps the most serious. Foreign affairs, including ghastly debt negotiations, matter. International trade matters. Our relations with the fast-growing economies of the East matter.
Yet, during weeks of campaigning, on these vital subjects I heard not a jot.