2.1 Emphasizes Growth, Not Always Development
IFC's modus operandi has been to emphasize economic growth by investing in the private sector, but growth does not necessarily result in sustainable development. Economic growth may result in profits for a company, and it may generate some jobsóeither temporary or permanentóbut that alone is not sufficient for furthering development and alleviating poverty in the developing world.
Some World Bank research acknowledges this disconnect between economic growth and poverty alleviation. In a study of its lending in the poorest countries, the Bank acknowledges that poverty rates increased between 1987 and 1993 from 29 percent of the population to 33 percent, in spite of increased economic growth rates.15 Other research by the World Bank argues that economic growth will not generally translate into increased incomes for the general population or environmental protection unless other conditions are in place. The findings prioritize investments in human development, support of social and environmental programs, and reform of governance and financial regulation problems.16
The conclusion of this research is that economic growth alone is not a sufficient end goal for delivering development that is equitable, sustainable and long-term oriented. Other conditions must be in place and other considerations must be evaluated. If IFC wants to promote development through investing in the private sector, then it must expand how it evaluates potential investments and assesses expected results. Development results, beyond promoting economic growth or generating jobs, must be elaborated and met. It requires a change of mindset from promoting commercial interests and operating more like a commercial bank with a similar portfolio to becoming development practitioners.
Today one of the main criteria IFC uses for evaluating projects is financial return. Between 1996 and 1999, IFC averaged between 5-10% return annually on its investments.17 With that rate of return, IFC has leeway to take more risks in certain projects. IFC could also lower its expectations for financial return when the developmental rate of return is high for projects. In other words, IFC should use more than financial indicators and analyses when evaluating and deciding upon its investments.
| When Poverty Alleviation Is Missing: The Case of Corredor Sur in Panama
In 1998, IFC approved $70 million for the Corredor Sur/Punta Pacifica Project, a 19.5-km toll highway and real estate development project in Panama City. Panama City is plagued by traffic congestion, but mass transit programsówhich are more accessible for the region's poorówould better solve this problem than a toll road would. A new road simply diverts traffic and pollution rather than alleviating it. A 4.6-km marine section of the highway acts as a barrier to coastal currents that regularly cleanse the 40 million tons of raw sewage dumped annually into the Panama Bay, which was already plagued by sewage problems. This has created what local NGOs have termed a "fecal mud swamp." Instead of improving the livelihoods of Panama City communities, Corredor Sur has apparently worsened a public health problem. The project also involves real estate development. Thirty-five hectares of land fill will create islands in the bay, which will be developed for use by the city's wealthier residents. The area selected for this fill area is adjacent to a poor community and it is unclear how these residents will be affected by the real estate development deal. Corredor Sur is ultimately an expensive toll road and real estate development project. The project's development objectives remain unclear. It also highlights IFC's lack of selectivity when it comes to choosing projects, and underscores how the institution reacts to the private sector's interests instead of proactively identifying opportunities to improve development for the greater population. Finally, the case is an example of poor consultation with local communities when the project was under consideration. |
2.2 "Making Bad Projects Better"
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Boca La Caja near Panama Bay. Source: Fundacion para el Desarrollo de la Libertad Ciudadana |
2.3 Problems with Transparency: Protecting Business' Interests
IFC will all too often withhold information from the public, in spite of its information disclosure policy, which states that "there is a presumption in favor of disclosure where disclosure would not materially harm the business and competitive interest of clients."18 But in practice IFC errs on the side of less public disclosure of documents that are not explicitly required for public release.
IFC often hides behind the concept of "business confidential" information, or the notion that releasing sensitive information would harm a company's competitiveness. Business confidentiality should apply to financial information only, but IFC and its clients also use the concept to conceal relevant information about the social and environmental impacts of projects. IFC revised its information disclosure policy in 1998, but this revision did not satisfactorily address this problem or result in the release of more information such as monitoring and compliance reports or independent audits of projects.
IFC's current policy only requires that limited information be made available to the public before project approval. Once IFC approves an investment, it is no longer required to release any information. In instances in which IFC is inclined to release more information, its clients have demanded that it withhold the information. That is why a further clarification and elaboration of the IFC's information disclosure policy would benefit all parties involved. It would provide more information to the public and shareholders, it would provide IFC with more leverage over its clients, and it would assure its private sector clients about what kinds of information will be kept confidential for business confidentiality purposes.
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Credit: Mineral Policy Center |
| Withholding Information:
The Case of Kumtor Mine in the Kyrgyz Republic
The Cameco/Kumtor gold mine in the Kyrgyz Republic illustrates the shortcomings of IFC and MIGA's information disclosure. IFC provided $40 million in financial backing to Cameco, the project sponsor (the project is also supported by MIGA and the European Bank for Reconstruction and Development). In the past two years, two chemical spills have occurred at the mine. On May 20, 1998, a transport truck spilled nearly two tons of sodium cyanide into a local river. The company did not inform surrounding communities until five hours after the spill occurred. The accident led to four deaths and more than 2,000 hospitalizations. Cameco eventually acknowledged its failure to notify communities in a timely manner, a shortcoming that IFC promised to remedy with a revised emergency response plan for the mine. However, on January 20, 2000, the mine had another highway chemical accident. Despite the new emergency response plan, Kyrgyz authorities were not informed of this spill until the next day.19 Environmental, human rights, and local civic leaders have called for an independent, third-party environmental audit of Cameco's operations in the Kyrgyz Republic and immediate release of the emergency response plan for the mine. IFC has denied the need for an independent environmental audit of the mine, and has not been able to persuade Cameco to release the emergency response plan, partly because other financiers have not agreed. Although company emergency response plans are publicly available in the United States, IFC claims they are business confidential documents and therefore cannot require their public release. Examples like this one underscore the need for IFC to clarify its information disclosure policy so that companies cannot hide behind a claim of business confidential information to prevent the sharing of important information with local communities. |
2.4 Progress on Policies, But Weaknesses Remain
In 1998óafter years of confusion about the environmental standards it applies to projectsóIFC modified and adopted the World Bank's environmental and social policies. IFC has taken local consultation with affected communities more seriously and has developed "good practice" guidelines for companies on how to consult with affected communities. However, the good practice guidelines are not binding, even for the most environmentally or socially sensitive projects. IFC does require that for Category A projects local consultations must be held and verified by IFC, but the good practice guidelines elaborate on what is effective consultation and would be useful requirements of project sponsors.
Even though the 1998 policy review clarified which environmental and social policies IFC follows, there still seems to be confusion about these policies internally. A recent Operations Evaluation Group review on implementation of the forest policy at IFC revealed that IFC staff are generally unaware of the forest policy. According to the report, "a major shortcoming was that none of the investment officers interviewed or consulted for this study knew about the existence or requirements of the forest strategy documents, despite the fact that most of them had supervision responsibility of forest-based projects."20 Fortunately IFC's environmental and social experts maintain central oversight of policy compliance, but it is still essential that investment officers have a basic understanding of IFC's environmental and social policy requirements.
But the real test for IFC is after a project is approved and implemented. Currently, IFC does not put enough financial and management resources into the monitoring and supervision of IFC-backed projects to ensure compliance with its policies. Aside from the basic problem that many of the investment officers do not know the policies, IFC does not have sufficient staff to monitor the more than 1280 companies that it supports in its portfolio.21 This is also true for loans to financial intermediaries,22 which is an increasingly important part of IFC's work. Again, an Operations and Evaluations Group's report cited financial intermediaries for "poor monitoring of subproject environmental compliance" and for "a lack of diligence in applying its procedures to ensure sustainable intermediary performance."23 While IFC has improved its policy framework, it still needs to improve implementation of these policies.
That said, the existing policies do not address issues of human rights, gender and social equities and corporate responsibility. The environmental and social policies, called the "safeguard" policies, have been in place at the World Bank for several years without being expanded. If the World Bank Group, including IFC, wants to be a leader in development, then its policy framework will also need to catch up with the changing times.
