Submission to UK Parliamentary Committee on the World Bank - October 25, 2002

Submission to the International Development Committee, House of Commons
On the Relationship between the World Bank and Sustainable Development
October 25, 2002
1. The Halifax Initiative, a Canadian coalition of non-governmental organizations, would like to thank-you for your commitment as Parliamentarians to receive evidence on the actions of the international financial institutions, from a broad range of witnesses, in order to better assist in ensuring the institutions’ accountability. We welcome this endeavor, and will advocate for it to be replicated in our own Parliament.
2. The Halifax Initiative is a coalition of 14 Canadian international development, environment, human rights, labour unions and faith groups. We came together at the 50th Anniversary of the World Bank and the International Monetary Fund to ensure that the fundamental reform of the institutions was high on the agenda of the G7 agenda in 1995. We work to ensure the transformation of the international financial system and its institutions to achieve poverty eradication, environmental sustainability and an equitable redistribution of wealth.  Member groups include Oxfam Canada, the Canadian Labour Congress, Kairos: Canadian Ecumenical Justice Initiatives and the Canadian Council for International Cooperation, among others.
3. Our submission is focused on the environmental role of the World Bank. We chose to highlight this topic, as it is pertinent in regards to governments’ commitments made at the World Summit on Sustainable Development.  Together with Friends of the Earth, the Halifax Initiative recently undertook a study to review how the World Bank’s approach to development has impacted countries’ capacities to meet specific objectives named in Agenda 21. It on this report, “Marketing the Earth: The World Bank and Sustainable Development” that this submission is based.
4. Our findings are grim. As a 2002 report by the Operations and Evaluation Department of the World Bank noted:
Environmental sustainability has not been integrated into the Bank’s core objectives and country assistance strategies, and linkages between macroeconomic policy, poverty alleviation, and environmental sustainability have not explicitly been forged. There has been a lack of consistent management commitment to the environment, coupled with a lack of consistent management accountability. The Bank has not supported environment efforts as a central theme through staff incentives or resources. [i]
5. This submission provides examples of how the Bank has failed to integrate sustainable development principles in two key sectors – climate change and forests. This submission also provides evidence to the failings of the Bank in regards to addressing the debt crisis of the poorest countries. This is included in a submission focused on the environment, as debt is a critical link in the chain forming the vicious circle of poverty and environmental degradation trapping the poorest countries.
Climate Change
6. Under the UN Framework Convention on Climate Change, the task of mobilizing the financial resources needed to ensure that poorer, developing countries are given the resources to develop their economies in a sustainable manner was given to the World Bank and other multilateral institutions. The Convention states:
"...Multilateral institutions play a crucial role by providing intellectual leadership and policy advice, and by marshalling resources for countries committed to sustainable development."
7. After these momentous documents were delivered to the world, one would expect a response of a similar magnitude from the World Bank with regard to its energy lending practices, particularly since energy and power sector lending have traditionally been among the top two or three sectors of World Bank lending.
8. However, research shows little has changed at the World Bank since Rio. In fact, the agenda being pushed by the World Bank and its major shareholders—opening up oil, gas and coal fields to private investment, pushing privatization and deregulation of the power sectors in various countries, and investing heavily in fossil fuel-based industry and infrastructure—continues, ensuring a dirty technological lock-in by developing countries, with disastrous consequences for the poorest.
9. Nevertheless, and despite the fact that fossil fuel combustion is the leading cause of climate change, since Agenda 21 and the Climate Convention were signed in 1992, the World Bank has invested over $20 billion in oil, gas and coal projects in developing countries and economies in transition. These projects will release over 40 billion tons of carbon dioxide (CO2) over their lifetimes—an amount equivalent to almost twice the annual anthropogenic greenhouse gas emissions of the entire globe for 1999[ii]. Although this energy investment is made in the name of the poor in developing countries, the poorest 2 billion, those who live largely in rural areas where clean, renewable energy would be most cost-effective, are the target of less than ten percent—of all World Bank energy lending. [iii]
10. From 1992 through to June 2002:[iv]
Number of World Bank fossil fuel projects: 226
Number of World Bank renewables/energy efficiency projects: 35
Approved financing for fossil fuel projects: $22 billion
Approved financing for renewables/energy efficiency: $1 billion
11. Most of the World Bank’s renewables portfolio is facilitated through the Global Environmental Facility. A 1998 GEF Performance Study notes “the Bank has not taken meaningful action to reduce the impact of its traditional role as financier of fossil fuel power development”. The same study recommends, “The World Bank should begin a transition from its role in financing conventional power loans to a new role in financing sustainable energy technologies.” [v]
12. The Bank sometimes justifies its involvement in controversial oil exploitation projects by arguing its involvement ensures sustainable development benefits for local communities. The on-going experience with the Chad-Cameroon Oil and Pipeline project however, is proving that this is not the case. The recent report on the investigation by the Inspection Panel, the independent accountability mechanism of the Bank, shows that whereas the aspects of the project that are meant to ensure minimal environmental impacts and maximum development are behind schedule, the pipeline construction is not. The Bank’s response to the Inspection Panel did not include delaying the pipeline construction until capacity is built to ensure the environment is protected and community needs addressed. As a result, another claim to the Bank’s Inspection Panel has been filed, documenting again broken promises. Consistently, whether the World Bank is involved or not, fossil fuel exploitation projects fail to protect the poor or the environment.
13. Recommendation #1: The World Bank should reverse the ratio of fossil fuel lending to energy efficiency and renewable energy projects – which is currently 20:1 in favour of climate change. 
14. The Bank is currently revising its safeguard policies, including its 1991 Forests Policy. In 1991, as a result of international criticism of the role the Bank was playing in facilitating forest destruction, the Bank adopted a Forests policy prohibiting the Bank from supporting projects in moist tropical forests. The new policy appeared as if it would steer the Bank in a different course regarding the world’s forests. Unfortunately, this proved not to be the case. The Bank continued to be a major actor in forest destruction.[vi]Although it suspended lending to some of the most openly destructive projects, its staff basically disregarded the new forest policy, while management did little to ensure its implementation. [vii] That was the conclusion of an extensive review carried out during 1999 by the Bank's Operations Evaluation Department (OED) on the implementation of the 1991 Forest Policy. In general terms, the OED concluded that the Bank had basically failed in containing rates of deforestation in moist tropical forests, which was one of the main objectives pursued by the 1991 policy. Regarding implementation, the OED highlighted the lack of sufficient synergy between conservation and development and the fact that the multi-sectoral approach --emphasized in the forest policy as essential-- was "not pursued actively." Integration of the forest policy with country assistance strategies, macroeconomic and sectoral analysis, or with lending to adjustment, infrastructure or agriculture, "was also limited”[viii]
15. The OED review was the first step in a long and fruitful consultation process carried out by the Bank with the stated aim of improving its performance in relation to forests. However, the Bank is now adopting a new forest policy that is perceived as a major threat to forests. In spite of it being defined as a "safeguard policy", forests will not be made safer by the adoption of this policy.  The new policy flies in the face of demands of civil society and ignores most of the advice given to the Bank by its own Technical Advisory Group. In addition, it fails to address the main causes of deforestation that the Bank’s own Operations Evaluation Department identified as being driven by the powerful forces of globalization and economic liberalization.
16. In fact, the proposed policy relies on market forces or marketing arrangements to address deforestation. Large-scale timber export and carbon sequestration projects are the likely mechanisms. Yet there is no evidence to date that these mechanisms can be effective in promoting environmentally sound and socially equitable development.
17. The proposed policy opens the doors to Bank extractive investments in all types of forests except those Bank bureaucrats deem to be "critical forests". Participatory mechanisms to ensure that the nearly one billion people world-wide whose livelihoods depend on forests will have a say in the definition of "critical forests" are not part of the plan. Given the balance-of-power in many of the world’s main forest countries where governments and the logging companies operate in highly destructive and non-equitable ways, a much stronger requirement for the rights of affected people is called for.
18. Instead of proposing clear and strong new safeguards to protect the world’s forests, the proposed policy refers to seven other existing World Bank "Safeguard Policies" as a means to ensuring the protection of ecosystems and forest-dependent people. Ecosystems are to be protected under the Safeguard Policy for Natural Habitats, yet this policy has been largely ineffective and has not halted destructive investment projects. Local people’s rights are to be protected under the Indigenous Peoples’ Policy, yet this policy does not secure the tenure rights of indigenous forest peoples and fully ignores the hundreds of millions of non-indigenous people depending on forests for their survival.
19. The new policy represents a severe weakening of the existing Operational Policy on Forests. Its planned provisions are unacceptable because they lack proper safeguards and pose a high risk to the forests and forest peoples who will inevitably be harmed when Bank projects go wrong.[ix]  Lastly, the Bank has completely sidestepped the controversial issue of the impacts on forests of programmatic and structural adjustment lending.
20. Recommendation # 2. The World Bank should ensure that the new Forests Policy leave in place the ban on projects in moist tropical forests and extend the ban to other critical forests.
21. Recommendation #3. The Bank must commit to identify and avoid or mitigate environmental and social impacts of its adjustment lending and advice. 
22. Chapter 3 of Agenda 21 called on governments to make poverty alleviation a major priority, including by examining “the international economic framework, including resource flows and structural adjustment programmes, to ensure that social and environmental concerns are addressed, and … conduct a review of the policies of international organizations”.  The burden of external indebtedness and depressed commodity prices are specifically mentioned as issues meriting greater international cooperation. 
23. Ten years later, the poorest countries continue to be buried under debt. After debt relief under the World Bank and IMF programme, the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, debt service in Mali was $88 million in 2000. This is greater than the level of government spending on health ($54 million in 1998), in a country where one in four children do not live to see their fifth birthday, and where per capita spending on health is $5 as compared to the World Bank's recommended level for basic health care of $12. In Zambia, debt service after enhanced HIPC remains more than spending on health and education in 1998 combined. [x
24. The goal of the Bank’s debt relief programme is to get impoverished countries to a level of "debt sustainability" in which they continue to make payments to the full extent possible given their economic situation.  The Bank’s own review of the Enhanced HIPC Initiative showed that even this minimum goal was not being reached the institutions had projected much higher rates of export growth than what was realized. [xi] For Guinea-Bissau for example, the IFIs had predicted 13.9% export growth in 2001 and it actually was –15.9%. On average for 24 HIPCs, the IFIs had predicted 11.6% export growth, yet actual growth was 5.8%. If the IFIs’ promise debt relief of $100 million, for example, yet export earnings decrease by this amount, the country remains in the same fiscal position as before debt relief. The poorest countries are too vulnerable to commodity price fluctuations and natural disasters, and their populations are too poor, for the IFIs to continue to tinker with “sustainability” levels. As well, the Bank also found that of the five countries due to receive debt relief in the past year, four had not, due to “delays in implementing key macroeconomic or structural adjustment reforms”. [xii
25. Recommendation # 4: The Bank should cancel the debt owed to it by the poorest countries. Both Canada and the UK governments have cancelled HIPC debt owed to them and this same policy should be adopted to address multilateral debt.
Thank-you for the opportunity to provide testimony in regards to the World Bank.
Pamela Foster
Halifax Initiative Coalition
153 Chapel Street, Suite 104
Ottawa, Ontario, K1N 1H5
Tel: 1-613-789-4447
Fax: 1-613-241-4170
[i] Liebenthal, Andrés. “Promoting Environmental Sustainability in Development”. World Bank Operations Evaluation Department, 2002.
[ii] Sustainable Energy and Economy Network database at
[iii]  See “The World Bank and the G-7: Changing the Earth’s Climate for Business,” SEEN/IPS, 1997.
[iv] Sustainable Energy and Economy Network database at
[v] Global Environment Facility. “Study of the GEF’s Overall Performance”. March 2, 1998, p. xiv.
[vi] Colchester, Marcus and Korinna Horta. The World Bank and the World’s Forests: a lost decade. Forest Peoples Programme/Environmental Defense, 2000.
[vii] World Rainforest Movement. “WRM Bulletin: special issue on the World Bank”,  2000.
[viii] World Bank, Operations Evaluation Department. A Review of the World Bank's 1991 Forest Strategy and its Implementation. World Bank, 2000.
[ix] World Rainforest Movement, Forest Peoples Programme and Environmental Defense Fund.  “World Bank's Proposed Policy Puts World's Forests at Risk”. Statement, June 2002.
[xi] World Bank and IMF. HIPC Initiative: Status of Implementation. World Bank, April 14, 2002.
[xii] Ibid.