US Congress raises heat on World Bank over China fears

Financial Times December 18, 2014 7:20 am
Shawn Donnan, World Trade Editor
The US Congress is putting new pressure on the World Bank to preserve its social and environmental rules for projects in developing countries amid fears that the emergence of rivals backed by China may force it to weaken standards.
The World Bank is next year expected to wrap up a review of its safeguards, which were introduced in the 1980s in response to criticism of environmental damage and rights violations linked to bank-funded megaprojects.
But environmentalists fear rising competition from a new BRICS bank and China-backed Asian infrastructure fund mean that review will inevitably lead to lower standards.
A spending bill signed into law by US President Barack Obama on Tuesday includes tough new requirements for the Treasury department, which oversees relations with the World Bank. In particular it calls for the administration to instruct the US executive director at the bank to vote against any project that is subject to environmental or social standards deemed weaker than those now in place.
In a letter sent to Treasury Secretary Jacob Lew on Monday and obtained by the Financial Times, three senior Democratic senators said they were concerned that a draft released by the bank in July “may represent a dilution of existing protections”.
Among the issues cited by the senators was a proposal that would allow projects to be approved and funds to be disbursed before environmental and social concerns such as those over the relocation of people were addressed properly. That, they said, would reduce the bank’s leverage over governments and could see “funds wasted”.
The World Bank has drafted these proposed safeguards to become more nimble and competitive,” Senators Robert Menendez, Barbara Boxer and Edward Markey wrote. “But we believe these safeguards will hurt the World Bank’s efficiency, undermining its ability to compete with other development banks.”
The Washington-based World Bank “sets the bar for international development banks by raising standards, not by lowering them”, the senators wrote.
A US Treasury spokeswoman said the US considered the World Bank’s existing safeguards “an essential tool” and put “great weight” on the input from Congress.
The US has been lobbying countries behind closed doors not to join the new Asian Infrastructure Investment Fund launched by China earlier this year. In public, US officials have also repeatedly raised questions about what sort of environmental and labour standards the new fund would operate with and what impact its creation might have on other lenders.
The World Bank insists the review of its environmental and social safeguards is badly needed to modernise a system that is decades old and unnecessarily bureaucratic and burdensome.
We will have a stronger, more modern set of safeguards at the end of this process, and we are comfortable with the provisions in the [new] US legislation,” Charles Di Leva, the bank’s chief counsel for environmental and international law, told the FT in an emailed statement.
But activists still remain sceptical and concerned over the implications of the proposed changes.
If the World Bank sends a retrograde signal this could lead to an even more rapid race to the bottom than we have already seen,” said Stephanie Fried, executive director of the Ulu Foundation, a campaign group.

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