World Bank email leaks reveal internal row over 'light touch' $50bn loans

Date of publication: 
5 July 2014

Environmentalists and human rights campaigners have sounded the alarm at radical plans to ease conditions for World Bank loans, enabling more than $50bn (£29bn) of public money a year to be made available for large power, mining, transport and farming projects.

Leaked emails seen by the Observer reveal that senior figures at the bank feared that light-touch regulation would lead to an increase in “problem projects”. Critics are also worried that the door could be opened to large-scale environmental destruction and a lack of protection for communities affected by projects.

Ana Revenga, the bank’s vice-president for poverty reduction, says in one of the emails: “It might appear that the bank is interested in lending more, hence lowering standards … [It] would likely entail an increase in the number of problem projects and cancellations.” The email exchanges indicate that the bank may expand the use of “biodiversity offsetting” – which lets developers destroy nature in one place if they compensate elsewhere. Many social and environmental safeguards appear to have been dropped under the plans, which have not been made public but are at an advanced stage.

The bank group, which loans and guarantees around $50bn a year to over 100 countries to alleviate poverty, is the world’s largest development institution, with Britain as its largest donor. It has been consistently criticised for its damaging lending policies and because it is dominated by industrialised countries.

Strong safeguards and conditions on its loans and guarantees were put in place after a series of environmentally destructive projects in the 1980s and 1990s such as the Narmada dam in India and the resettlement of hundreds of thousands of people to make way for palm plantations in Indonesia.

But the World Bank group, which includes the International Finance Corporation, the International Bank for Reconstruction and Development and the International Development Association, is in the process of a reorganisation and wants to harmonise safeguards and standards between its private and public lending groups.

The emails show the bank’s managers are keen to increase its overall lending and feel that the present standards are too onerous and deter prospective borrowers. According to the comments from the bank’s vice-presidents, this could mean a reduction in bank oversight and accountability, with client countries being made to monitor their own projects and a gutting of the bank’s inspection panel – an independent complaints mechanism for communities who believe that they have been, or are likely to be, adversely affected by projects.

Comments sent to bank management by the senior staff, who include heads of the bank’s legal and finance offices as well as regional chiefs in Asia, Africa and the Middle East, make clear that the bank also plans to pass responsibility for monitoring projects to private equity fund managers or commercial banks.

The emails show that there is concern among the bank’s presidents that environmental standards could fall if the plans are implemented. “Some of the language would severely weaken the protections that currently exist for diversity and natural habitats. There is particular cause for concern,” says Zloubida Allaoua, vice-president for sustainable development. “Why so little said about the important and immediate environmental issues facing countries, apart from climate change?”, asks Mohamed Qureshi, director of strategy.

Several vice-presidents fear that the proposed changes will lead to extra costs and problems. “It is far from certain that the [draft] would streamline and simplify environmental and social standards … it could add significant costs”, says Marialisa Motta, director of finance and private sector development.

Civil society groups who have seen the comments by vice-presidents are alarmed. “Despite (a) guarantee that this review process would not lead to any weakening of environmental and social safeguards, from what we understand the plan eviscerates protections for the poor and the environment. This is completely unacceptable,” said Stephanie Fried of the Ulu Foundation.

A World Bank spokesman said: “We do not comment on leaks. A vigorous and healthy internal discussion is an important part of our deliberative process. Our work on reviewing our environmental and social safeguards is ongoing. We will submit in the coming weeks our views to our board’s committee on development effectiveness. We will then engage in further public consultation to get additional views”.