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World Bank

new internationalist
issue 214 - December 1990

The World Bank is doing its best to present itself as a born-again
friend of the earth. Bruce Rich separates fact from fancy.

Illustration: Alan Hughes The World Bank has been a target for environmental groups around the world for the better part of a decade. In response to this activism, the Bank claimed in 1987 to have seen the green light. Yet some of its most publicized environmental initiatives, such as greatly increased lending to counter tropical deforestation, are now widely seen as global ecological menaces. Instead of the benign green giant that was hoped for, the new, environmental World Bank has turned out to be an ecological Frankenstein armed with a chainsaw.

This judgment may appear overly harsh - especially since the Bank is preparing more and more projects that allegedly promote environmental protection and conservation. Over the past year officials have approved a number of projects that show its environmental reform efforts are, in a few specific cases, beginning to produce results.

In early 1990, for example, the Bank approved innovative loans totalling $161 million for Brazil, Poland and Madagascar to support national environment agencies. Environmental loans for several Latin American countries are also being planned. In addition, a new and critically important environmental assessment policy was introduced in December 1989. Although it needs strengthening, it is an important step forward.

Nevertheless, these attempts at reform have to be evaluated against the overall environmental impact of the Bank's current lending - now running at over $20 billion annually. For every new, environmentally positive project touted by the Bank, environmentalists can point to many others that are causing completely avoidable and unnecessary environmental destruction and social disruption. The Bank continues to have difficulties in dealing with the severe impacts associated with the environmental disruption caused by its projects, particularly with respect to the forced resettlement of populations and threats to the livelihood and survival of indigenous and tribal peoples.

In September 1989, a hearing of the Human Rights Caucus in the US Congress found that more than 1.5 million people are currently being displaced by Bank projects. The Caucus also documented scandalous violations by governments in Asia and Africa of Bank policies that require compensation for anyone who is forcibly resettled.

Since then things have deteriorated further. At Kedung Ombo in Java and in India's Narmada Valley there have been violent confrontations between police and peasants whose villages are threatened by Bank-financed dams. When a second hearing on resettlement at India's Sardar Sarovar dam was held in Washington in October 1989, Congressman James Scheuer was outraged. 'The World Bank's written assurances,' he said, 'don't amount to a hill of beans'.

Although much of the blame for the shoddy treatment of poor people displaced by Bank-financed projects lies with local governments, the Bank has become a major accomplice by failing to enforce its own resettlement policies. These policies, which date back to 1980, theoretically require the implementation of a rehabilitation plan that as a minimum will put displaced populations in a situation that is no worse than before the project. This doesn't seem too much to ask of an institution that prides itself as a leader in alleviating poverty. The 1.5 million being displaced by Bank projects are already among the poorest people of this earth.

A bunker under siege
There has also been mounting criticism of the Bank's Environment Department -whose creation was the centerpiece of the reform efforts. The Environment Department's irrelevance is partly institutional: it has relatively little connection to the Bank's operations complex, where Country Directors and project officers ('Task Managers' in Bankese) prepare projects and build up loan portfolios. But critics have also held the Department's Director responsible for many of the problems. The Director has been accused of taking little initiative in influencing Bank projects and operations - of leaving the department adrift in a sea of meetings and conferences, unfulfilled commitments and irrelevant studies.

'A healthy economy cannot survive in an unhealthy environment. We will encourage ecologically sound patterns of energy use, agricultural development, industrialization and human settlement.'


In fact, by the summer of 1990 the Bank's Environment Department began to resemble a hunker under siege. Internal concern over its ineffectiveness prompted a radical purge by senior management: key staff were relieved of their duties and morale reached unplumbed depths. Relations between the Department and non-governmental organizations (NGOs), always testy, degenerated further.

The environmental problems that continue to plague the Bank's operations are clear in two areas of critical importance -forestry and energy. Here environmentalists allege that Bank policies and projects are promoting largely avoidable ecological degradation. To make matters worse, over the past two years energy and forestry have been the Bank's largest and fastest-growing lending sectors.

In no other area has the Bank emphasized its purported environmental commitment over the past three years more than in the forestry sector. In May 1987 Bank President Barber Conable emphasized that the most important focus of the Bank's new environmental lending would be a global program to support tropical forest conservation. To bolster that, he committed the Bank to increase its forestry lending 150 per cent by 1989. Then in September 1989 Mr Conable announced a tripling of Bank forestry lending by the early 1990s. If this target is met, Bank forestry lending could approach $800 million a year by 1993.

It is almost Orwellian, then, that several of the Bank's forestry loans over the past two years have been little more than massive cash infusions to promote accelerated commercial logging of some of the planet's last remaining intact forests. The Bank's apparent rationale for these loans is that to save some of the forest it must lend more money to destroy a good part of what remains. Logging is now rebaptized in Bankspeak as 'sustainable forest management. Such is the outrage in the environment community that once non-adversarial groups like the World Wildlife Fund (WWF) have strongly critiqued these loans and helped mobilize the Bank's Executive Directors to stop them.

Huge hydro-electric dams continue to get the lion's share of World Bank energy loans.
Photo: Camera Press

In early 1990 the Bank submitted to its Board for approval a $23 million forestry-and-fishery project for Guinea. Yet, according to WWF, the so-called 'forest management and protection' component of the project is a deforestation scheme in disguise. The Bank's money will help support the construction of 45 miles of roads around two humid forest reserves totalling 150 square kilometres; some 106 square kilometres of these are still pristine rainforests. Worse, hidden in the fine print of 'the management and protection' section of the Bank's project document is its real thrust: two-thirds of the remaining 106 square kilometres are to be opened for timber production. WWF's critique of the loan sparked considerable discussion by the World Bank's Board but did not succeed in delaying or modifying the project. Bank staff argued that without the project logging would proceed at a much greater rate. The project, they said, is a realistic way of helping Guinea control and reduce logging already under way.

Flagrant deforestation
On the heels of the Guinea project the Bank's Board was asked to approve an even more massive deforestation scheme, an $80 million loan for Ivory Coast, another West African country with rapidly disappearing forests. The project will finance and promote timber production on a sustainable basis' in a half-million hectare rainforest under the management of local logging companies. The WWF again strongly criticized the project and Patrick Coady, the Bank's US Executive Director, refused to approve it.

Coady was concerned about opening new forest areas for logging. But he also argued that the project failed to address the 'voluntary resettlement of as many as 200,000 people'. Astoundingly, the Bank's appraisal of the project flagrantly violated its own policies on resettlement: it lacked both terms of reference and specific measures on resettlement of people displaced by the project.

Perversely, the Bank's recent increased emphasis on forestry appears to be nothing less than a full-fledged assault on the remaining tropical and temperate forests of the Third World. Many of these projects evoke the rhetoric of sustainability while accelerating the mining of forest resources. Small amounts are thrown in for environmental studies and support for 'postage stamp' protected areas.

The recent $45.4 million allocated to the Mexico Forestry Development Project is another illuminating example. This project (total cost: $91.1 million) is designed to promote harvesting of one of Latin America's largest remaining temperate forests, the extensive pine and oak stands in the Mexican states of Durango and Chihuahua. The project area covers 9,100 square kilometres - more than 23 per cent of the country's estimated remaining forested area. As much as $48.1 million of the total project costs are for a line of credit to finance the purchase of logging equipment and sawmills; another $33.6 million will go to improve 1215 kilometers of logging roads.

Other funds will go to finance a prefeasibility study for two huge pulpmills in the area as well as a study on the 'pulpability' of native oak species. Nowhere is there a discussion of the sustainability of harvesting in the appraisal report, nor is there any reforestation component. The Bank's environmental justification for this scheme has a familiar ring: 'Timber harvesting.and forest products manufacture will continue with or without Bank involvement.the project has been designed to reduce and mitigate the negative environmental impacts of traditional forestry and forest-industry practices in the two states.

These examples show that much of the Bank's current forestry lending is a threat both to global ecological stability and to the world's remaining rainforests. The Bank's forestry lending appears to be based on the premise that tropical forests are timber resources that can be sustainably exploited. Conservation and protection of the genetic resources in these forests is at best a secondary consideration; it seems strikingly at odds with the primary economic goal of promoting wood exports.

In reality there is no developing country where sustainable management of tropical moist forests is practical. From the standpoint of maintaining biological diversity, it is a contradiction. Incredibly forestry projects, including the three discussed in this article, are exempt from the World Bank's new environmental assessment guidelines since they are assumed to be environmentally beneficial.

Building the greenhouse
Energy is now the Bank's biggest single lending sector, accounting for 18 per cent of its new loans in 1989. World Bank-financed energy projects, mainly large dams and coal-fired plants, have destroyed sensitive and valuable ecosystems, threatened human health and forced the resettlement of hundreds of thousands of poor and indigenous people.

In addition, the kind of energy development promoted by the Bank has profound international environmental risks, not the least of which is global warming through increased CO2 emissions. World Bank-financed, coal-fired power plants accounted for seven per cent of the increase in CO2 emissions from the Third World during the 1980s.

Environmental groups in the US as well as in countries like Brazil and India have called repeatedly for the Bank to fund more cost-effective, energy-efficiency programs - and even the US Congress joined the clamour in 1989.

In countries like Brazil and India, the Bank's own studies have shown that as much as half of the projected new power demands over the next 15 years could be met by efficiency and conservation investments - at less than half the cost of new power plants to produce the same amount of electricity. Despite these arguments, the World Bank has devoted no more than three per cent of its energy and industrial-sector lending to energy-efficiency Improvements over the last decade.

This is short-sighted, to say the least. Many developing countries won't be able to meet their future energy demand simply by increasing supply. In India, public energy investment has grown from 20 per cent to 31 per cent of the federal budget over the past 15 years. If the trends of the past decade and a half continued, 99 per cent of India's total federal budget would be spent on energy by 2020. All of India's hydro-power would be tapped, the country's domestic uranium reserves would be exploited and coal supplies would be exhausted. The disastrous consequences would include the forced displacement of 10.6 million people - in effect creating a city of environmental refugees the size of Bombay - and the inundation of nearly three per cent of India's existing land area.

Unfortunately, the need for energy-efficiency improvements has made little or no impact on the Bank's lndian loans. Despite energy loans of nearly $8.5 billion over the past nine years, not a single dollar has gone towards efficiency improvements. Similarly, out of a total of $2.3 billion in industry loans to India from 1981-89, only $53 million (two per cent) went to energy-efficiency improvements (though a $225 million efficiency loan is finally in preparation).

Financing fiascos
The Bank's ecological record after three years of environmental reform poses a conundrum: how can an institution that is purported to be the world's greatest repository of development expertise continue to finance such fiascos?

There are two short answers. The first is the Bank's institutional priority to keep money moving through the project pipeline. The second is the need not to push the Bank's larger borrowers too far on project quality. Energy-efficiency investments often have less political payoff for both Third World Energy Ministries and World Bank country directors - they don't have the same splashy impact as big dams and giant power grids. In addition, in some areas such as management of tropical moist forests, the development profession is an Emperor who many view as virtually naked: there is little consensus and less practical experience in promoting so-called sustainable forestry in the Third World.

There is a real danger that industrialized nations may rely even more on the World Bank to solve the global environmental crisis even though the Bank is still clearly an important part of the problem. It is up to the main industrialized nations (who control the World Bank's Board of Executive Directors) to give stronger, less ambiguous signals that environmental sustainability, not moving money, is the number one priority.

Recently the Bank's financial staff aggressively promoted a new environmental lending facility called the 'Green Fund'. The proposal was prepared in a few weeks last January without consulting non-governmental organizations. Approval came quickly along with additional funding (about $2.4 billion) from major donor governments. Leading US environmental groups pointed out that although cheap environmental loans were necessary, the solution was not to give more money to the Bank before it had demonstrated -more than rhetorically - its competence to manage the already enormous funds at its disposal in an environmentally sustainable manner. In essence they argued that the Green Fund would amount to throwing good money after bad.

The creation of a Global Green Fund under Bank management has to be preceded by much closer scrutiny by governments and NGOs of what is actually going on in individual Bank projects and loans. NGOs have performed an invaluable service in recent years by providing independent information to the Bank's Board on the real environmental and social impacts of specific projects - information that has often contrasted sharply with the optimistic claims of Bank staff.

Increased scrutiny, however, cannot occur without radical changes in the World Bank's treatment of information. The Bank is a public international institution, funded with public funds for public purposes; its withholding of information on its activities is intolerable and a scandal. In the final analysis, sustainable development and public accountability are inseparable.

Bruce Rich is senior attorney with the Environmental Defense Fund In Washington DC. For his research and advocacy work on multilateral development banks he was awarded the Global 500 Award by the UN Environment Programme in 1988.

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New Internationalist issue 214 magazine cover This article is from the December 1990 issue of New Internationalist.
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