Im stephen sackur. Remember the tumultuous events in the early 1990s in Eastern Europe . From the wreckage of the Soviet Empire, a new, freer more prosperous region emerged anchored in the eu and nato. The European Bank of reconstruction and development was created to foster that transformation. My guest today is Bank President , sir suma chakrabarti. These days, many of his investment projects are actually in turkey, central asia and north africa. Has Mission Creep undermined the values of the ebrd . Suma chakra barti, welcome to hardtalk. Nice to be here. Would you agree with me that your bank has moved an awful long way from those early days and from its original mission . No, i wouldnt. I would certainly agree with you that we have expanded our geography, but i would say the mission is the same. Private sector development, the creation of affective markets, were still actually operating in our traditional region but because of the success of that Business Model, our shareholders did actually agree that we should expand to central asia, to turkey and north africa as you said but actually i think its a sign of success rather than Mission Creep. The only problem with that is that from the very beginning, yours always was a Financial Institution that was underpinned by a clear statement of values. And in the places that youve just outlined where you operate today, those values do not seem to be applied in the same way. Sometimes the values, such as the political values youve talked about, the democratic values, pluralism, theyre certainly applied inconsistently in some places, thats for sure, but with very open about that. Im not talking about the way their applied in these countries, im talking about the way their perceived and applied by the bank when you approach investment projects in those countries. I dont think thats correct. We have very strong Due Diligence standards, appraisal standards, our environmental and social actions are very, very clear and we apply those throughout our projects. Well, lets talk about specifics. Youre quite big these days in central asia, lets talk about azerbaijan, how can you tell me that article one of your founding charter, which commits the bank to applying the principles of multi party democracy, pluralism and market economics, how can that possibly be applied to an economy and The Body Politic like azerbaijan . What we say when we do our Country Strategy, another new strategy for azerbaijan is in fact coming forward this year, we look at a 14 point criteria to assess the politics and in some cases azerbaijan will be found short and in some of the cases it will be found to apply those principles. So we dont actually make a hard and fastjudgement because every country is on a scale essentially and what we said about azerbaijan in the past, i think youll see, it says applying those principles albeit imperfectly. I think thats about right. Im not sure is right. I dont know if you bother reading independent International Human rights reports, but Human Rights Watch recently wrote a report where it said the azerbaijani government is systematically dismantling the countrys independent Civil Society. Now, going back to the words in your article one, your adherence to principles of multi party democracy, pluralism and market economics. I fail to see how those two statements can fit together. I would argue that azerbaijan has certainly has had problems in terms of applying to some of those principles. I would also say its myjob and the job of my team to take those issues up with azerbaijan, and we do that. But also in the last few years, its also become apparent that a number of human rights advocates have been released actually from jail in azerbaijan. The countrys much less corrupt than it used to be two or three years ago, thats also verified internationally. Well, forgive me, but on the fourth of may, 2017, the Bloomberg Financial news agency quoted you on the subject of azerbaijan as saying this, direct quote, progress in the last year or so has stopped really. I think so. Thats an accurate quote of what i said. I said if you take the context of the last five years, azerbaijan has moved in the right direction but over the last year i think they have been a bit of stalling on reform. Lets get this straight, youre giving hundreds of millions of euros to azerbaijan, particular investment in the oil and gas sector, the Southern Gas Corridor that youre investing in. Youve been doing that for several years and youre telling me that you are overtly and explicitly believe that in the year last year progress has completely stalled. And yet youve done nothing to stop your investment. I would say in some areas undoubtedly in some areas it has stalled. It has continued actually in the fight against corruption, were azerbaijans made major progress in the last two or three years in fact, in fact its rather a benchmark in that region now for the progress made there. In terms of human rights and other areas, we continue to have a dialogue with those areas about those things. Be frank with me, what do you think the impact is on for example president aliev himself on you and your people in country consistently giving the azerbaijani more investment capital. What do you think that does and what signal does it send to him . First of all we work very directly with the private sector, very large in azerbaijan. If you look particularly outside the oil and gas sector, because we want to help diversify the economy. But the majority of your investment is in the oil and gas sector. The large projects are in the oil and gas sector, the majority projects are actually outside the oil and gas sector. The proportion of your overall funding into azerbaijan, how much of it goes into the oil and gas sector . Percentage . In terms of the overall funding, a larger percentage goes into oil and gas. But in terms of projects, which matters. What would you expect, the capital flows are ultimately measured by whether money goes and most of the money goes into the oil and gas sector. It isntjust a point about you frankly propping up a regime which many in the world regard as a systemic human rights abuser, but also another of the key pillars of your mission, you say, is to aid and abet the transformation of economies to a much more sustainable model and yet in azerbaijan and a whole host of other countries, some of your key investments are in the age old commodity sector, particularly oil and gas. Now, how does that work . Because oil and gas is fundamental to many of these economies, not just azerbaijan, lets take some others like kazakhstan and others, russia in the past, and turkmenistan, fundamental to the Economic Development of those countries. If youre interested in Economic Development you will want to help those sectors grow. You use the language of trans formation of developing a new sustainable economic model, and im struggling to see how that fits with pouring all of your money into the oil and gas sector. Because not all of our money is going into the oil and gas sector, the majority of projects, whether its azerbaijan, kazakhstan or whatever, are not in the oil and gas sector. Theyre actually in other sectors, trying to diversify the economy. Trying to raise the share of gdp that is not for oil and gas. That is fundamental to those countries, because otherwise theyre locked into a cycle, the oil price driving everything. So its very important they diversify into agriculture and other areas too. I wonder whether you learned a very painful lesson in 2014, as i understand it, and correct me if im wrong, by 2014, despite your beginnings in post Soviet EmpireEastern Europe, you had actually put your biggest single lump of money and investment into russia, and in 2014, the wheels fell off because russia invaded crimea, annexed it. As a result the europeans and americans slapped sanctions on russia and you were told that you had to stop all Investment Activity in russia. Did that teach you something . Well, what it taught us is of course politics does play a part i think in all international institutions. Its not the first time. Im old enough to remember tiananmen square, what happened to the world bank at that time as well. It does place. Play a role in international institutions. What it also meant, though, is it gave an opportunity to diversify also into other countries. Central asia, as you mention, into north africa too. So you learned your lesson from investing some would argue far too much of your capital into Vladimir Putins russia at a time when nobody i think would really try to argue that he was upholding the principles backed in good old article one about multi party democracy, pluralism and market economics. I dont think many would argue that putin was fulfilling all of those objectives. But you took that money after you were told you could no longer invest there and you put it into countries in central asia and north africa which again do not come even close to meeting your own founding principle. Some assumptions there that need challenging. First of all, in 2012, the last russia Country Strategy in december, 2012 was approved after consultation with Civil Society and everyone else, and that had the political assessment in it. There was a lot of to and fro of course with moscow over that. So back then, 2012, in 2012 you were telling yourself that yes, Vladimir Putins russia does tick all the boxes. Multiparty democracy, pluralism. On balance it did. Fully free market economics. On balance it did. Really . My goodness, that was a terrible misjudgement. Well, if it was a Mis Judgement on our part, process, so its not exactly our own judgement as well. What has happened since in russia, yes, i think that if we were to do a new Country Strategy for russia, there would be much more of a testing conversation. I suspect so because of some of the things that have happened in russia, without a doubt. Getting back to this point about lessons learned, one of these other countries, and again, correct me if im wrong, but i now believe it is the biggest single recipient of you bid investment, is turkey. Thats right, turkey is our largest market right now. Are you confident that turkey under president erdogan is going under the direction that again fulfils all of those criteria for article one of your mission . Which is why i think you have to look at progress over a long period. If you look at russia, what we were doing in russia, and ill come to turkey in a minute, we were investing essentially in the private sector. 90 of our investments were in the private sector, in the reforming regions like kaluga, the whole automated sector that was built up there by ebrd, in tatarstan, we were actually not working directly with the state except in some rare areas largely to do with Policy Reform actually. In turkey, 98 of our investments are in the private sector. Where we work with the state is again on Policy Reform. Renewables, capital markets, those sorts of things. So were not working directly with the government on very much. But i suppose what i would put to you as a result of this conversation is that the more you tell me about the long term commitment youve made to countries such as russia in the past, you still have some investments there, plus turkey today, the more my response is, well, yes youve been there for the long term, you been trying to persuade yourselves and the outside world that this sort of Economic Investment and engagement results in transition to a more democratic, freer both politics and economy. But the proof of the putting is that it doesnt. Look at the Direction Of Travel in turkey today. I think in turkey today the political context is difficult. No ones going to deny that. And thats why this year i think many investors, domestic and Foreign Investors, will almost certainly do less than they were planning to do. Including the ebrd by the way. Sorry to interrupted, but how much do you think you will invest in turkey this year . I cant say for sure but my guess would be somewhere between 1. 3 billion euros and 1. 5 billion euros. Billion . Yes, it will still be the largest market without a doubt because of the size of the economy but it will be a lot less than the previous two years, where its been over 1. 9 billion euros. Thats one heck of a lot of new money going into a country that many outside observers fear is very rapidly going down a spiral of authoritarianism. Going to the private sector in support of market reform, in support of creating effective markets, reaching people who cannot get access to finance, for example female entrepreneurs, under developed regions, who otherwise would be denied that finace. When we get back to this point about sustainability, you know, i looked across the piece at what youre doing and youve talked about investment in new renewable technologies, solar panels and all sorts of other things. But again, when one looks, for example, at a particular case study like mongolia, where you working with a corporate like rio tinto on the copper and gold mine. Do you worry that rather than Transitioning Economies youre simply encouraging them to try and extract more and more value out of what are ultimately finite commodity based industrial sectors . No. Look, i started my career in botswana, another mineral rich country, and the issues in mongolia are very similar. Between companies, Foreign Investors like rio tinto and others wanting to invest and, of course, the politics of that nation, the political economy, often challenging the share out of revenue if you like in particular. We played the role very much of honest broker actually in mongolia between rio tinto and others and the government. And i think actually we achieve a very good result because we also brought in new investors with that investment in the 0yu tolgoi mine. So it was actually a rather progressive i think approach that we took in mongolia. Another point about the way the bank operates and those who receive your investment capital. In recent years, you have invested in a series of projects in serbia, i think in other parts of the balkans, romania is another example. You have offered a significant investment, the projects you have looked at have been mired in allegations of corruption, kickbacks, bribes. What Due Diligence do you do . Extremely strong. Commercial banks cannot achieve our home loan rates. Less than 1 of any projects in any year of approved projects go through that mechanism. If you look at the universe of projects we look at every year, we often reject because of integrity standards, social standards. We take all that out before we go to. In these cases, the serbian and romanian examples, another Coal Power Plant that has been under allegations of corruption, how did this get through . They have to go through strong compliance mechanisms. 0ur Environmental and social officers would check these out. That is not to say that maybe one or two projects, afterwards, things come to light. We act on those things. Two hydro projects, one in croatia and one in macedonia, we have actually cancelled the loans, because the Biodiversity Impacts were such that they were not right to go ahead with. It is not as if we dont care about these questions, we do. There is an after care issue as well. Trying to put this in a Bigger Picture context, we have talked about the origins of the bank. Investing capital through a bank which has, as its members, europeans and a number of other shareholders, that you could nurture and foster Free Market Capitalism and democratic values, and that your work would herald a new era. It seems to me, in some ways, thatjob has pretty much been done. If you look across Eastern Europe, most countries are anchored in the eu, and those who arent are desperately trying to get in. That is why it seems to me that you are desperately scratching around for new places you can invest money, and make money, and you are compromising on the core beliefs that the institution began with. I would of course reject that. Starting with the traditional countries we started with in Eastern Europe. Some of them have advanced very well over the last 25 years. Some are members of the eu and nato. Is the Transition Job done . Is it completely finished . No. A number of areas such as Energy Efficiency still remain. I think there is a lot of work to do there. In the areas of Taking Equity from companies, companies in poland and other countries, they could become regional champions and hopefully global over time. Those are things that are part of our mission. Yes, the challenge is diminishing, in the balkans, they aspire to be in the eu, some areas. We want to help them be credible members of the eu, using the Approximation Process which helps them. A lot of our shareholders think that this push on creating effective markets has been very successful and it should be taken elsewhere. It is the concept that the Business Model matters more than geography to many of our shareholders. Yes, taking it elsewhere, looking eastward, does it sit comfortably with you that china is now actually a shareholder . Yes it does. It sits very