Dubious Development
Executive Summary
What Is IFC?
What Is Wrong with IFC?
Where Is IFC Money Going?
How Corporations Benefit from IFC Support
Where Should IFC Money Go?
Conclusion and Policy Recommendations
Resources and More Information
Appendix: Proposal for a Development Screen at IFC
Back to Friends of the Earth

What Is IFC?

1.1 Backing the Private Sector

The World Bank Group is a public, multilateral development institution. Its shareholders are governments and its mission is to alleviate poverty around the world. The World Bank gives loans to governments through its "public" lending arms, the International Bank for Reconstruction and Development (IBRD)ówhich supports middle income economiesóand the International Development Association (IDA)ówhich supports the poorest countries. The Bank also supports the private sector through IFC and the Multilateral Investment Guarantee Agency (MIGA) which provides political risk insurance to private companies. Established in 1956, IFC's role is to "promote private sector investment in the developing world, which will reduce poverty and improve people's lives."4

The World Bank Group has steadily increased its investment in the private sector over the years. When James Wolfensohn joined the World Bank Group as President in 1994, he brought a new focus for the private sector side of the institution's work. He pledged that the World Bank Group would become more of "a partner to both developing nations and private capital."5

In the last five years, IFC's support of the private sector has grown steadily.6 Even the Bank Group's lending to governmentsóthrough the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), which together are called the World Bankóreflects new approaches for assisting the private sector. IBRD and IDA now provide partial risk and partial credit guarantees to facilitate private investment. The World Bank's support of "structural adjustment" loans is also on the rise. These macroeconomic loans result in more favorable conditions for private sector investment in the developing world, but often at a cost to the poor and the environment. In 1999, more than half of the World Bank's lending to governments was for structural and sectoral adjustment loans.7

The Bank's support of the private sector is expected to increase even more. The World Bank Group's Board of Directors recently decided to merge departments of IBRD and IDA with IFC to "better align and expand work related to the private sector."8 In 1998, the Bank's government shareholders agreed to an $850 million capital increase for MIGA. IFC has expressed its own need for more money,9 arguing it will need more capital from its shareholder governments to ensure steady economic growth in the developing world and increase investment in frontier markets.10 So far, however, IFC Management has not successfully persuaded its shareholders that it needs more resources. Several governments are said to have concerns about whether or not IFC is delivering on its development mission effectively enough.11

In general, the World Bank Group's increased focus on private sector lending and developing new tools for private sector development has not been matched with efforts to ensure that its private sector investments lead to further poverty alleviation or sustainable development.

1.2 A Historical Look: Spotlight Shifts to IFC in Last Five Years

The Biobio River
Credit: International Rivers Network
Non-Governmental Organizations (NGOs) have monitored the World Bank for two decades, but only turned their attention to IFC in the early to mid-1990's. The Pangue Dam, which was one of six dams proposed by the electricity company Endesa along Chile's Biobio River, brought IFC to the international NGO community's attention. A Chilean NGO called Grupo por el Biobio (GABB), working on behalf of the Peheunche indigenous people impacted by the project, filed a claim before the World Bank's inspection panel in 1995. While IFC is currently not under the purview of the inspection panel, the Bank's President required an investigation anyway. The claim alleged that IFC violated World Bank policies by failing to do comprehensive environmental studies and failing to protect the rights of indigenous peoples. The claim prompted the World Bank's President Wolfensohn to commission an outside independent expert to review the project. The expert's report, called the "Hair Report" after the lead author Jay Hair, confirmed that IFC had systematically violated World Bank policies and had failed to adequately enforce the environmental and social covenants of the loan agreement.12 Criticism of the project brought environmental and social issues to the forefront at IFC, forcing staff and management to confront their lack of attention to social and environmental considerations.13 Since then, IFC has changed its approach to assessing projects and has improved its review of projects for conformance with its policies. For example, the number of environmental and social staff has increased from 11 in 1994 to 24 in 2000.14

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Executive Summary | Section 1 | Section 2 | Section 3 | Section 4 | Section 5 | Section 6
Resources | Appendix