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DEVELOPMENT: World Bank’s Private Arm Pledges to Listen

Emad Mekay

WASHINGTON, Aug 18 2004 (IPS) - The World Bank’s private sector arm, the International Finance Corporation (IFC), is opening its doors for talks on its rules and guidelines for lending, a move that could influence billions of dollars in future loans to the private sector annually.

The IFC says it is launching public consultations as it updates its environmental and social safeguard policies and reviews another policy on information disclosure.

“We believe this process will improve IFC’s effectiveness as a development bank supporting private sector investments, and help improve the social and environmental performance of the projects we finance,” said IFC Executive Vice President Peter Woicke.

The World Bank is the world’s largest public-sector lender to developing nations, while the IFC lends to companies whose projects are supposed to contribute to development in those countries.

The review is particularly critical because several public and private institutions now take their cues on social and environmental standards from the IFC.

For example, as it develops a common standard on environmental and social issues, the credit group of the Organisation for Economic Co-operation and Development (OECD) has been moving closer to the IFC’s principles and the guidelines. The OECD is a group of 29 industrial nations that work to coordinate their economic and development policies.

Also, the investment banks that form the so-called “Equator Principles” group – some 20 international institutions – have also adopted the safeguard policies and sector guidelines of the World Bank and IFC.

The IFC guidelines recommend how to deal with such issues as natural habitat, indigenous peoples, involuntary resettlement, dam safety and cultural sites.

The equator banks, which include global names like ABN AMRO Bank, Barclays, Citigroup, Crédit Lyonnais, Credit Suisse Group, Dresdner Bank and Royal Bank of Canada, sometimes co-finance projects with the World Bank in mining, oil, gas and related sectors.

The IFC review is also important because the agency has promised to incorporate in it recommendations from the Extractive Industries Review, an independent assessment of the World Bank’s involvement in funding oil, gas and mining projects. The EIR suggested the bank bail out of mining and gas projects and re-channel funds into renewable energy.

The bank has said it will accept some EIR recommendations, but that it opposes ending funding to oil and gas projects because that would do more harm than good to the developing nations that rely on cash from those projects.

“The IFC’s increasingly become important because it’s viewed as (a) flagship and increasingly (seen) as setting the sort of minimum common environmental and social standards for private and public investments around the world,” said Bruce Rich of the group Environmental Defence. “So therefore, the IFC revising its policies is quite important.”

The IFC has loaned 16.8 billion dollars worldwide since 2003. From its founding in 1956 through 2003, it has lent around 59 billion dollars to 2,990 companies that worked in 140 developing countries.

Among other things, the review will determine whether indigenous communities have the right to say “no” to an IFC project, whether some environmentally vulnerable areas should be protected from any kind of development and how international pollution standards should be modified.

IFC says it will consult clients and other external stakeholders, governments, industry associations, the financial sector and civil society.

It is planning regional consultations in Buenos Aires this September, for Latin America and the Caribbean; in Manila, for Asia, in October; African meetings in Nairobi in November; and to consult in Istanbul in December, for the region of Eastern Europe, Central Asia and the Middle East.

Consultations will also be held during the annual meetings of the World Bank Group later this year.

But watchdog groups are wary the IFC might use the process to “white-wash” participation, adding that recent statements from the agency on its precious metals and mining policies did not include recommendations from the EIR.

For example, the draft policies do not rule out the disposal of tailings in rivers or shallow marine areas.

“This is not a promising start,” said Janneke Bruil of Friends of the Earth International, in a statement. “The IFC seems out of touch with reality. Reckless dumping of toxic waste in our rivers and seas is irresponsible, outdated, unacceptable and worlds away from its mission to alleviate poverty through sustainable development.”

Earlier in July around 140 non-governmental organisations (NGOs), 80 from IFC borrowing countries and 60 from donor nations, wrote the IFC expressing concern about the new review, and arguing that the lender should set higher goals for its environmental, social and disclosure policies.

They called on the IFC to add guidelines stating that all projects should incorporate an integrated assessment of environment and social issues, including labour, gender, human rights, health and poverty reduction.

The groups also said they want to see all of the IFC’s standards and policies apply to financial intermediaries (FIs) – institutions such as banks, insurance companies, mutual funds, pension funds and finance companies that borrow from the World Bank and then loan to others – and that this review process should implement the recommendations in the EIR.

The groups called on the IFC to not just commit to principles but to also spell out specifics.

“Again, whereas sound principles are vital to securing the best transparency standards for IFC and its clients, specific rules are also needed. Full transparency and disclosure is paramount,” said their letter.

The NGOs included ActionAid USA, International Rivers Network, Bank Information Centre, Earthworks, Friends of the Earth and Bretton Woods Project, among many others.

“The IFC is notoriously bad at doing effective meaningful consultations,” said Graham Saul of Friends of the Earth Canada.

But the agency contends it will address all those concerns, and that it will disclose its draft guidelines and policies at least 30 days prior to the first regional consultation.

It also pledged to post on its website all external comments received regarding the review and to translate its “approach paper” into the “main language(s) of the people participating in each regional consultation.”

The IFC promised to provide simultaneous interpretation during consultations and, finally, to disclose the final draft of the policy for public comment before it goes to its board of directors.