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DEVELOPMENT: World Bank Accused of Easing Lending Safeguards

Jim Lobe

WASHINGTON, Sep 21 2004 (IPS) - Peter Woicke, the director of the World Bank’s International Finance Corporation (IFC), has strongly rejected the concerns of more than 100 environmental, development and indigenous groups that his agency is planning to water down its strict social and environmental conditions on its future loans and investments.

In a letter sent to Woicke and World Bank President James Wolfensohn last week, the groups registered "deep concerns" about the IFC’s intent to replace its 10 "Safeguard Policies" on protecting the environment and local communities with new "performance standards" that would set objectives for each project.

Such a change, the groups charged, "impl(ies) a major shift from a mandatory and compliance-based approach to a mainly discretionary approach".

"Reasonable people must be able to understand and agree upon the bottom-line standards that will be expected of IFC-financed projects," according to Janneke Bruil of Friends of the Earth International (FoEI), most of whose national chapters signed the letter. "These decisions should not be left to the whims of individual staff."

But Woicke denied that the "performance standards", which he hopes will be approved by the end of the Bank Group’s fiscal year next Jun. 30, will have that effect.

"I don’t think in today’s world that it would be possible for any part of the World Bank Group to lower our standards," Woicke told reporters Tuesday, adding that the proposed performance standards were designed to create a more comprehensive policy framework.

Woicke’s remarks came at the release of the IFC’s 2004 annual report which detailed the 4.75 billion dollars in new investments it made to private-sector initiatives in the developing world, a substantial increase over its 2003 commitments of 3.85 billion dollars.

Of the total, some 3.4 billion dollars came in the form of loans; 1.1 billion dollars in the form of equity or quasi-equity stakes; and 231 million dollars in structured-finance and risk-management transactions. In addition, the agency, which acts as the main source of private-sector finance in the Bank Group, mobilised nearly 900 million dollars in development finance through loan syndications.

Since its founding in 1956, the agency has committed more than 44 billion of its own resources and arranged some 23 billion dollars in syndications in 140 develping countries. The value of its current portfolio stands at nearly 18 billion dollars as well as another 5.5 billion dollars held for participants in loan syndications.

Woicke noted that IFC investments in sub-Saharan Africa nearly tripled during fiscal year 2004, from 140 million dollars to 405 million dollars, while its investments in Europe and Central Asia rose by some 35 percent, to 1.7 billion dollars in developing countries of Europe and Central Asia.

The IFC has been considered a global leader in imposing social and environmental conditions on its loan commitments since the early 1990s and particularly 1998 when most of its 10 "Safeguard Policies", which are designed to ensure that the projects it supports do not harm the environment or local communities, were introduced.

The Safeguards cover a range of concerns, such as the integration of pest management practices in its agricultural projects; its opposition to child or forced labour; the enforcement of policies to protect indigenous populations from colonisation by outsiders; and a ban on financing forestry projects designed to facilitate the logging of primary tropical forests.

Application of these safeguards have resulted in the agency’s refusal to support a number of controversial projects around the world, including several mining and oil and gas projects in remote and ecologically sensitive regions, particularly in South America.

The safeguards have been widely praised by non-governmental groups some of which, however, have claimed that the IFC has not applied them in a consistent manner. Many of the same groups, for example, believe that a number of IFC-supported projects – notably, the controversial Chad-Cameroon and the Baku-Tbilisi-Ceyhan (BTC) pipeline projects – have failed to comply.

Nonetheless, the IFC’s safeguards have become the basis for the "Equator Principles" to which some two dozen of the world largest private banks, including Citigroup, Bank of America, Barclays, Credit Lyonnais and Credit Suisse, subscribe. Those banks, which together provided some 80 percent of the private financing for projects in developing countries in 2003, have essentially agreed to apply the same safeguards as the IFC in deciding whether or not to support projects.

Similarly, the IFC’s Safeguards are used by a growing number of export credit agencies (ECAs) of the world’s wealthy nations which provide billions of dollars in loans, guarantees, and other support for private lenders each year.

"The IFC increasingly has become important because it’s viewed as (a) flagship and …as setting the sort of minimum common environmental standards for private and public investments around the world," said Bruce Rich, an analyst at Environmental Defence (ED), who also signed the letter to Woicke. "So therefore, the IFC revising its policies is quite important."

The letter argued that, as drafted, the new standards are "far too vague and allow for subjective judgement to determine the prevailing standard for any given project."

They also note that, if adopted, the proposed rules would result in a double standard for the IFC, on the one hand, and the rest of the World Bank Group on the other.

That concern was also voiced by the Bank’s legal department in a memo that was leaked the press and cited in the group’s letter. The new standards, it said, could result in the perception that the IFC would apply "a generally weaker and more relaxed set of ‘standards’ for the private sector" than the Bank applies to public-sector projects. Such a double standard, it warned, could also make it more difficult for the Bank to take part in public-private projects, a major focus of Wolfensohn’s tenure.

But Woicke said the legal department’s concerns had been based on a "misunderstanding" that had been cleared up four weeks before the memo leaked to the press.

He said the new standards had been drafted after a review found "gaps" in the Safeguards, particularly with respect to labour rights, which needed to be filled in a more comprehensive policy.

He also insisted that there will be no difference in the environmental and social standards that will have to be met by both public- and private-sector projects. Under the proposed changes, however, the standards for private-sector projects will be written in a "more practical" way.