Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean, North America

DEVELOPMENT: World Bank Bows to National Safeguards in New Policy

Emad Mekay

WASHINGTON, Jun 9 2004 (IPS) - Watchdog groups are accusing the World Bank of further diluting its environmental standards with a project in Mexico that will apply national safeguard policies, part of a new strategy to increase lending to middle-income countries.

Sources close to the Bank, the world’s largest public development lender, deny the charges and argue the institution is giving borrowing countries that have good social and environmental track records, ownership of their projects.

The Bank on Tuesday approved a 108-million-dollar loan that will finance a series of infrastructure projects in the Mexican state of Guanajuato, at the same time setting aside its own environmental and social safeguard policies.

The Bank instead says it will rely on Mexican laws and procedures, many of which, critics say, do not meet the lender’s standards.

The move, they add, represents a profound shift in how the Bank does business and undermines its development and poverty-reduction role.

"The World Bank is shutting down avenues of redress to communities that may be harmed by Bank-financed projects in order to facilitate more lending to its borrowers," according to Bruce Jenkins, policy director of the Washington-based Bank Information Centre (BIC). "It is an unacceptable trade-off."

Guanajuato is the first major pilot project of the Bank’s new middle-income country strategy, which is based on a paper called ‘Enhancing World Bank Support to Middle Income Countries’ (MIC Strategy), a confidential document that delegates implementing safeguard policies to borrowing governments.

The policy is being adopted because Bank lending to middle-income countries fell sharply after 1999, mainly because the Washington-based institution withdrew from ‘bricks and mortar’ infrastructure projects.

With annual average lending of 11.6 billion dollars in the 2000-03 period, Bank loans were only about half as much as in 1999, and 26 percent lower than in the 1990-97 period. The drop was caused mainly by reduced investment lending for infrastructure projects in middle-income countries.

The strategy document, seen by IPS, was initially obtained by the California-based group International Rivers Network. The Bank "needs to act urgently to reinvigorate its engagement in these countries," it says.

Watchdog groups insist that "reinvigorating lending" means evaluating projects with weaker standards.

But the Bank argues that developing countries need to go through a "graduation" phase, and that Mexico has adequate environmental laws and oversight bodies, as part of the North American Free Trade Agreement (NAFTA), to apply sound environmental and social standards to the project.

"If they (borrowing countries) are successful in building up their institutions and their laws, then surely they should have the ability to maintain and run projects under those laws," one source close to the deal told IPS.

By allowing Mexico to implement its own laws and rules over the project the Bank is now giving the country "ownership", which has been a long-time demand of civil society groups, added the source.

According to a Bank statement released Wednesday, "the state of Guanajuato was nominated as a pilot state because of its legal framework, sustainable fiscal and financial frameworks and its institutional capacity to uphold environmental and social safeguards."

"This project aims to strengthen the state of Guanajuato’s capacity by putting the state in the driver’s seat, while ensuring compliance with the principles of the Bank’s policies, including monitoring and evaluation standards and complaint processes, which apply in all Bank-financed projects," said Krishna Challa, World Bank task manager for the project, which will include highways, water and sanitation and housing.

Earlier this week dozens of non-governmental organisations (NGOs) from 60 countries wrote in a protest letter that, unlike the World Bank, Mexico does not have a law on the involuntary resettlement of project-affected people, and that the country’s law on environmental assessments is much weaker than current Bank policy in critical areas.

In a statement Wednesday, groups decried the Bank’s decision. "The environment has been seriously degraded in Mexico, and more than half of Guanajuato’s population lives in poverty," said Arturo Morales Tirado, president of the Mexican Audubon Society in Guanajuato.

"This requires that the World Bank comply with its strictest social and environmental standards in its new infrastructure project."

Northern groups have similar fears.

"It is disturbing that, contrary to international trends, the World Bank seems to consider environmental standards an obstacle rather than an added value of its lending," said Peter Bosshard, policy director of International Rivers Network.

Bosshard said NGOs do want to see countries take ownership of projects, but issues like human rights, the environment and forced relocation should all be judged by international standards, which are often higher than domestic ones.

Critics are also concerned that by relying primarily on national standards rather than its own safeguard policies, the Bank will dramatically reduce its accountability, particularly since the mandate of its independent investigative body, the Inspection Panel, does not extend to reviewing national policies and procedures. A source close to the World Bank vehemently denied that charge.

"The World Bank standards themselves stay in place," he said. "It is very much a testing process. It’s a pilot project. It’s going to be looked at very closely, not just by us but of course by the NGOs and by the federal government of Mexico as well."

The Bank developed its safeguard policies over the past two decades to mitigate environmental and social destruction in its projects after Bank financing of large dams in India and road building in the Amazon in the 1980s and 1990s focused international attention on the need for higher environmental and social standards.

The World Bank’s most important environmental reforms came in the 1990s, when it adopted a more cautious approach to high-risk infrastructure and forestry projects.