"Gambling with People's Lives": The World Bank and High-Risk Projects

Vol. 7, No. 1

January, 2004

by Carol Welch
Friends of the Earth - U.S.

In the 1980s and early 1990s, the World Bank financed a number of highly visible development disasters. Dams in India's Narmada Valley, forestry and road projects in Amazonia, and gold mines in Pacific countries uprooted and impoverished hundreds of thousands of people and devastated the environment. Confronted by mounting public criticism, the World Bank began to shy away from many large infrastructure and logging projects in the mid-1990s.

But recently the tide has turned. Big is beautiful again, and megaprojects are back in style. In October 2002, the Bank removed its ban on support for commercial logging in tropical moist forests. In February 2003, it announced that it would take up large dam projects again in its 'high risk/high reward' strategy for the water sector.

In response to the Bank's re-embrace of risky projects, Environmental Defense, Friends of the Earth and International Rivers Network released a report in September 2003 that examines the World Bank's high-risk strategy, and considers past experience with the Bank's high-risk projects in sectors such as water, forestry, and mining. The report coincided with release of the Bank's new Infrastructure Action Plan (IAP), which presents a strategy for the Bank to increase its involvement in large infrastructure projects, many of which would fit in the "high risk" category.

The report, Gambling with People's Lives (from www.foe.org), finds that:

The World Bank has not learned lessons from its earlier mistakes. It has not strengthened its social and environmental safeguard policies, but rather has weakened them in important aspects. These policies still have glaring gaps (for example in the protection of human rights), and the Bank has a poor track record of putting its existing policies into practice.

Decentralized, participatory, low-tech alternatives to destructive megaprojects in sectors such as water and power do exist. Yet the World Bank has not made participation, social equity and the environment a core part of its development model, and therefore is not in a good position to consider such alternatives.

The World Bank often does not assess how the costs and benefits of its projects are distributed among various social groups. It has not explained who will bear the increased risks of its new high-risk strategy, and how the interests of these people will be protected.

The World Bank often does not adequately take into account how corruption and a lack of democratic rights affect the outcome of development projects.

The report has triggered strong reactions from the Bank. Our three organizations participated in a week of meetings with various officials of the World Bank Group in November 2003 to discuss the report and our concerns with the Bank's high-risk approach,. Our program consisted of a debate on the high-risk strategy at the World Bank, some meetings with management and staff members of the Bank, the International Finance Corporation (IFC) and the Multilateral Investment Guaranty Agency (MIGA), as well as a series of meetings with Executive Directors (EDs) and ED advisors.

The report's provocative title ruffled feathers and many people were personally offended by the titleOur message that an increased focus on high-risk projects would mean increased controversy certainly got across. The Bank staff's standard defense was that the bad track record was a problem of the past, and that the Bank had learned from its mistakes. At the debate, the Bank gave a bureaucratic response to our critique. Often using Powerpoint presentations, staff presented the Bank's work on forestry, water, the IAP, and the safeguard policies. No Bank officials addressed the report's institutional critique regarding the Bank's inability to deal with risk in an equitable manner. We did not get a chance to respond to the staff presentations. The Bank staff did not attack the report, but deplored the lack of communication between the Bank and civil society. One duplicitous senior staff member praised our report at the debate, after having sent colleagues a nasty e-mail message about it in advance.

Executive Director staffers also told us that our report upset Bank staff and management, though they recognized that this was the role of NGOs. They urged us to adopt a more "cooperative" approach. Almost all ED offices we visited were generally sympathetic to NGO concerns, but most of them in principle supported an involvement of the Bank in high-risk projects, and a certain delegation of responsibility for safeguard policy compliance to borrowing governments. Many ED offices expressed what we believe is a rather naïve confidence in the ability of safeguard policies and the monitoring role of NGOs to mitigate negative social and environmental impacts. Many ED staff expressed a view that if safeguards become too cumbersome, the Bank will be bypassed as a lender. In general, the perception seems to be that borrowers want these projects and that the Bank is well-placed - particularly relative to other financial actors- to manage the most complex or risky projects.
According to various sources, the driving forces behind the high-risk strategy and the IAP are India, China, Brazil, the US, Japan, and African countries. The IAP is controversial within the Bank itself: one ED advisor told us that preparing a paragraph on the IAP for the Development Committee communiqué at the 2003 annual meeting in Dubai took several hours. A few European offices expressed some concerns that the IAP will detract from increased lending for budget support (also known as structural adjustment lending).

The first steps in implementing the IAP include increasing budgets for infrastructure and hiring new staff. On the country level, governments and country directors are encouraged to carry out Recent Economic Developments in Infrastructure assessments (REDIs). REDIs are data collections on the status of infrastructure in a country, including quality, affordability, and coverage. It is unclear, however, what the formal process for identifying projects is, and where it is most strategic to push for public participation in the assessment of project options.

In response to specific concerns about the IAP that we raised, Nemat Shafik, Vice President for Infrastructure and Private Sector Development, who is in charge of the IAP and its implementation, agreed that:

vested interests favor new infrastructure over better management;

that various infrastructure options should be assessed in a participatory manner;

hat national expertise should be tapped and foreign consultancy trust funds are problematic; and

that communities should be empowered to fulfill their own infrastructure needs.

These observations, however, have yet to be followed through on any of the Bank's megaprojects. The Bank also needs to make sure there is greater transparency in private infrastructure projects.

Shafik also reported that the only "high-risk" projects underway or in preparation are those that the Bank has considered for a long while, such as the Baku-Tbilisi-Ceyhan oil pipeline and the Nam Theun 2 dam in Laos. However, the IAP does call for enhanced risk mitigation instruments and an increased, coordinated role with all arms of the Bank Group, including its political risk insurance arm, MIGA. MIGA is preparing to support mining projects in the Democratic Republic of Congo and Sierra Leone, both high-risk countries in terms of governance alone. When asked about these projects, MIGA staff commented that governance issues are important in both countries, but are not addressed in the project Environmental Impact Assessments, which is the only information publicly available about the projects. It appears that although MIGA continues to operate as an appendage of the Bank, it has yet to learn even the superficial rhetorical dodges the Bank uses to try to reduce suspicions.

In the report and in meetings, Environmental Defense, Friends of the Earth and International Rivers Network have presented a series of demands to the World Bank. They include:

Since the Bank is not capable of adequately dealing with high risk, it should not support new high-risk projects.

The Bank, other financial institutions, governments, industry, NGOs, affected people's groups, legal experts, and other stakeholders should discuss mechanisms to assess and repair the damage done by existing projects.

The Bank's safeguard policies must be strengthened and expanded. The Bank should adopt the principle of free, prior and informed consent of project-affected people, and should create a comprehensive human rights policy. (These recommendations were largely echoed in the recently released final report of the Extractive Industries Review [See article].)

Governments should strengthen mechanisms to support decentralized, participatory, low-cost alternatives to the Bank's high-risk approach.

If the World Bank pushes through its new high-risk strategy, it will put poor people - the people who are supposed to be at the core of its development mandate - and the environment at great risk for projects that generate dubious rewards. The World Bank's new strategy will likely increase social conflict, and block the development of more people-centered alternatives. Yet affected people and the international public will no longer accept large-scale environmental destruction and human rights abuses. The Bank will therefore find it difficult to implement its new strategy.

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