*{ http://www.foe.org/international/worldbank/ifcreport/
19 juillet 2002

Septembre 2000 }

 *partie=titre DUBIOUS DEVELOPMENT *partie=nil 

The World Bank Group has steadily increased its support of the private sector over the years and its private sector lending arm, the International Finance Corporation (IFC), is an increasingly important facilitator of private investment in the developing world. A part of the World Bank Group whose mission as a development institution is to promote development and alleviate poverty, IFC's lending to the private sector is often at odds with this mission. 

The following report will examine some of the reasons why IFC's lending fails to support positive development for those the World Bank Group is supposed to serve most: the poor and marginalized in the developing world. One of the key reasons for this is that IFC is focused more on economic growth than the quality of growth. Achieving development requires more than increasing growth rates or income levels, as many recent World Bank studies confirm. If IFC wants to promote development through investing in the private sector, which Friends of the Earth does not disagree with, then it must expand how it evaluates potential investments and assesses expected results. 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. 

Much of IFC's portfolio is oriented toward the interest of corporations, not necessarily the interest of the poor or environmental protection in the developing world. The report highlights certain sectors that often cause more developmental problems than benefits, such as the extractive industriesóoil, gas and miningówhich tend to cause severe environmental and social problems for communities. Other types of projects, including large agribusiness, coal-fired power plants that exacerbate global climate change, and luxury hotels chains, are not really delivering on the IFC's development mission. 

The report also points out that many of the beneficiaries of IFC lending are some of the largest corporations in the world and calls on IFC to be more proactive, rather than reacting to the agenda and priorities set by the private sector. The report recommends that IFC cease financing companies with poor environmental and social records until they change their practices. If IFC wants to improve corporate behavior, it can work with companies individually to assist them. Companies with poor corporate records should not be rewarded with public assistance, otherwise there are no incentives for them to change. 

Finally, the report concludes by calling on IFC to fulfill its development mission by adopting a development screen that details the developmental results IFC aims to achieve. IFC must have a clear development strategy, a real sense of what development means, an understanding of and a willingness to use its leverage, and a willingness to say no to companies. 

IFC should be investing in projects that directly benefit local communities and the environment. IFC should challenge private companies to invest in emerging sectors that provide public benefits such as renewable energy, sustainable agriculture, environmentally sound tourism, natural resource conservation and locally owned businesses. These sectors should be prioritized in IFC's portfolio.

It is urgent that IFC takes steps to ensure that its investments are environmentally and socially sound, demonstrate a positive developmental impact beyond just economic growth and are beneficial to the poor and the most marginalized. These changes must be made for IFC to prove that it is fulfilling its developmental role within the World Bank Group.

Dubious Development: How the World Bank's Private Arm Is Failing the Poor and the Environment 

Yanacocha is the largest gold mine in Latin America, owned by a company called Newmont. At this site in the Northern Andean region of Peru, local campesinos tell a story of rivers polluted with mining waste, contaminated drinking sources, displaced people, families broken by men leaving to find work, and eroded indigenous cultures.1 

The Sarshatali coal mine in West Bengal, India, will produce 3.2 million tons of coal annually. The project will disrupt ten local villages and relocate two of them.2 When burned the coal will produce 8.62 million tons of carbon dioxide per year and exacerbate the global threat of climate change. 

Marriott renovated its hotel in Amman, Jordan, upgrading it to five-star quality by adding new amenities such as a health club and a movie theater.3 The resort is geared to meet the needs of the wealthier traveler in Jordan. 

What do all of these projects have in common? They were financially supported by the World Bank Group's private lending armóthe International Finance Corporation (IFC)óand the development benefit resulting from these investments is dubious. 

IFC, which provides loans and equity investments for the private sector, helps drive private sector investment in the developing world. IFC's stated purpose is to fulfill the World Bank's development mission through investing in the private sector. But this drive to channel money to the private sector and achieve certain levels of growth each year, placing the focus on the financial bottom line, can be at odds with the World Bank Group's mission to promote development and alleviate poverty. This is especially true for IFC where the development impact of its investments is currently not fully assessed or emphasized in the decision-making process. Achieving sustainable development is more than increasing economic growth or income. The role of development institutions is to promote development that is equitable and environmentally sustainable, and to serves the needs of the population, especially the poorest and the marginalized. 

Friends of the Earth is not opposed to investing in the private sector or fostering private sector development. The important issue for IFC is whether or not these investments are promoting sustainable development and helping to leverage positive development results. The purpose of this report is to evaluate some of the problems with IFC's current lending approach and propose ways that IFC can improve its operations and development results. 

 *partie=titre 1.1 Backing the Private Sector  *partie=nil 

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. 

 *partie=titre 1.2 A Historical Look: Spotlight Shifts to IFC in Last Five Years  *partie=nil 

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  

 *partie=titre 2.1 Emphasizes Growth, Not Always Development  *partie=nil 

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. 

 *partie=titre When Poverty Alleviation Is Missing: The Case of Corredor Sur in Panama  *partie=nil 

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. 
 
 *partie=titre 2.2 "Making Bad Projects Better"  *partie=nil 

 
IFC argues that its role should be to improve environmentally and socially risky projects, in other words, to make bad projects better. The Chad-Cameroon oil pipeline project is a case in point. IFC's involvement did improve the oil pipeline in Chad and Cameroon, but at what cost? IFC spent years of staff time and resources evaluating the project, providing input and working with a reticent company to reach agreement on some of the social and environmental conditions. But that amount of time and resources invested in this project comes at an opportunity cost as well. What other ways could IFC have been using staff time and resources? Is this how development assistance is best spent? Or should dwindling foreign aid be used for projects that are more proactively positive for development and direct private investors toward environmentally sustainable ventures that would not otherwise be financed? Although the answer is not always clear cut, many NGOs believe IFC should not use its finite resources to improve bad projects when these investments can be used for projects that deliver positive development results without the severely negative consequences. 

 *partie=titre 2.3 Problems with Transparency: Protecting Business' Interests  *partie=nil 

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. 

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. 
 
 *partie=titre 2.4 Progress on Policies, But Weaknesses Remain  *partie=nil 

In 1998 after 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. 

 
 *partie=titre 3.1 A Look at the Portfolio and Dubious Projects  *partie=nil 

 The IFC's lending in 1999 went to financial services (36%), infrastructure (15%), oil, gas and mining (15%), chemicals and petrochemicals (7%), cement and construction materials (5%), food and agribusiness (5%), manufacturing (4%), hotels and tourism (3%), and timber, pulp and paper (2%) (see pie chart).

IFC's annual reports include many projects with dubious development benefits. Coca-Cola bottling plants in Azerbaijan, nationwide cable television in Brazil, construction of a cruise ship terminal in Mexico and industrial hog farms in China are just a few examples. IFC does not explain the positive development results achieved from these investments and it is clear that many of IFC's investments do not serve the needs of the poorest and most marginalized groups, enhance equality or promote a long-term vision for economic development that is locally oriented. IFC should be more selective in its investment choices and needs to be clear about the developmental benefitsóbeyond economic growthóthat result from its investments. 

 *partie=titre 3.2 The Extractive Industries: Investing in Environmental & Social Degradation  *partie=nil 

Lending to the extractive industries has represented a significant share of IFC's investments over the past five years, ranging between 14 and 17 percent.24 At the regional level, natural resource extraction accounts for a significant share of total investment in most regions in 1999, except in sub-Saharan Africa. In Central Asia, the Middle East and North Africa, 43 percent of IFC's investments went to oil, gas, and mining projects.25 In Asia and the Pacific, about 6 percent went to oil, gas and mining projects, and 23 percent went to oil, gas, mining and timber projects.26 In Europe, 17 percent went to oil, gas and mining investments, and 20 percent to these sectors and timber.27 In Latin American and the Caribbean, 23 percent went to oil, gas and mining.28 Less lending went to the extractive industries in sub-Saharan Africa (between 1 and 3 percent) in 1999, but in 1997 and 1998, IFC provided $345 million for offshore oil drilling in Cameroon alone, which amounted to about one-third of the total amount that went to sub-Saharan Africa during those years.29 

These industries are popular sectors in which to invest for export and foreign exchange generation. Governments in need of income generation will often exploit the natural resource sectors. But these investments are often made in countries that have inadequate environmental protections and regulatory systems in place, which can result in environmental problems. Furthermore, the social impacts of investing in these sectors can be serious, ranging from human rights infractions to further entrenchment of the gaps between the rich and poor to environmental degradation. 

That is not to say that every investment in the extractive industry leads to these results, but by the very nature of these projects, investments in these sectors can come at serious environmental and social costs. IFC investments, from oil development in Nigeria and Guatemala to mining in Peru and Indonesia, can lead to environmental pollution, the forced resettlement and dislocation of communities, and the endangerment of indigenous communities. The beneficiaries of these investments are often multinational corporations, like Exxon and Newmont. Since these projects require little added value in production, there is often little added benefit for the community. Even worse, in some cases extractive industries have further entrenched corrupt and dictatorial governments and exacerbated human rights abuses. From the global perspective, these projects fuel global climate change by continuing reliance on fossil fuels. 

There is a strong case to be made from both an environmental/social point of view and an economic point of view that IFC should concentrate its investments in sectors other than oil, mining and gas. Aside from the negative environmental and social consequences of some of these investments, these projects already receive ample support from the private sector and these are not the sectors where additional financial support is needed. IFC is better off focusing on projects that deliver developmental benefits for local communities without investing in projects that create such serious problems. 

The multi-billion dollar Chad/Cameroon oil pipeline project will impact indigenous Bakola people, who live along the southern portion of the pipeline route.

 *partie=titre Putting Communities at Risk: The Case of the Chad-Cameroon Oil Project  *partie=nil 

The World Bank approved the Chad-Cameroon project in June 2000. IFC will provide $250 million to an oil consortium led by ExxonMobil for the project, which entails development of oil wells in Chad and construction of a 650-km pipeline through Cameroon to the Gulf of Guinea. 

The pipeline, when built, will cut through fragile coastal rainforest in Cameroon and important river systems. Environmental organizations are also concerned about increased deforestation and pollution of water resources and rivers. The World Bank acknowledges that the project will lead to increased oil development in the region, which will result in long-term cumulative greenhouse gas emissions that threaten the global environment. 

Because of serious governance problems in Chad and Cameroon, the conditions needed to make an oil project like this one successful for indigenous peoples and the poor do not exist presently in these countries. Human rights problems and corruption plague the two countries. Transparency International has named Cameroon the most corrupt nation in the world the last two years running. According to the U.S. State Department, there are also rampant human rights problems in the region. A week before the World Bank Group approved the project, a human rights organization from Chad released a press release stating that "under the constant threat of brutal government repression, it is highly unlikely that citizens of Chad will reap any benefits from the World Bank's proposed oil pipeline if it goes forward now."30 Prior to its approval, NGOs in Chad called for a two-year moratorium on the decision to allow time to create political momentum for developing a proper legal framework and establishing environmental and human rights protections. NGOs argued that the governance problems had to be dealt with first before oil development should move ahead. 

After years of international public scrutiny and internal preparation and review, IFC and the World Bank made some technical improvements to the project. For example, the Bank negotiated a revenue management plan intended to share some of the project's profits with Chad's citizens. The World Bank Group also agreed to establish an Independent Advisory Group and technical monitoring advisory group to oversee the implementation of the project. But in the end, the World Bank Group failed to address the most fundamental problemsócorruption and governance issuesóbefore it decided to finance the project. Ultimately, these issues may be the key to whether or not this project is a success in the eyes of local communities. 
 
 *partie=titre 3.3 Fueling Climate Change  *partie=nil 

IFC should promote the development of clean energy and invest in projects that change current energy development trends that threaten the global climate. If energy development continues in its current trend, world energy demand will increase 65 percent by 2020 and two-thirds of the increase will come from developing countries. Ninety-five percent of global energy demand under this scenario would be provided by fossil fuels, which are responsible for dangerous particulate and greenhouse gas emissions that threaten the global commons. The current trend would see the share of greenhouse gas emissions from developing nations rise to 60 percent of the world total, or 40 million tons of carbon dioxide.31 

From oil drilling to pipeline delivery systems to coal-fired power plants, IFC is a major financier of climate change. IFC has committed billions of dollars to projects that will emit millions of tons of carbon dioxide into the atmosphere over their lifetime; carbon dioxide is one of the leading contributors to global warming. As of 1999, IFC committed $533.4 million to mining and extraction of fuel minerals, $205.7 million to motor vehicles, $574 million to chemicals and petrochemicals and even more to fossil fuel power plants.32 These investments dwarf the modest steps IFC is taking to break down market barriers for solar, wind, biomass and energy efficiency programs. IFC should help to create a new energy pathóone that is more environmentally sound and beneficial to the developing world. 

 *partie=titre 3.4 Agribusiness/ Livestock *partie=nil 

IFC provides loans for livestock ventures, such as cattle production and hog and chicken farms from Argentina to China. The livestock industry is one of the most ecologically inefficient and environmentally detrimental forms of food production. The World Bank estimates that 800 million people, including 200 million children under the age of five, are malnourished today. Rather than allocate half of the world's grain production to livestock feed, 33 a more efficient use of this grain production is to promote plant-based diets, which are lower on the food chain. 

Increasing the production of low-cost calories and food protein is a more efficient and ecologically sound approach to food production in the developing world. Cattle production and factory farms can cause serious environmental pollution, contaminating rivers and drinking water sources, they can lead to deforestation and biodiversity loss, and they can accelerate soil erosion and lead to increased greenhouse gas emissions. The beneficiaries of these loans tend to be wealthier urban consumers rather than those with lower incomes, and these investments are supporting industrial agricultural practices instead of smaller, family farm operations that tend to be more environmentally sustainable. 

 *partie=titre 3.5 Social Sectors: Health and Education *partie=nil 

IFC's involvement in the social sectors is relatively new, currently representing only four percent of IFC's lending,34 but it is one sector that IFC Management has identified as a focus for future lending. In 1999, IFC provided financing for four education projects in West Africa.35 Privatized education is primarily aimed at providing good education for the upper and middle class. The Executive Vice President of IFC, Peter Woicke, recently posed the question: "Is there a role to foster a middle class or should we concentrate just on the poor?"36 IFC's support for private education is based upon the premise that privatization expands educational opportunities, frees up public resources for more efficient use, and broadens the scope for innovation in the classroom.37 It is important to support education and expand access to good quality education for everyone, including the middle class. Targeting the middle class is particularly important to combat the problem of "brain drain"ówhen members of the mid to upper class leave their homeland for schools in industrialized countries, and often don't return. But privatized education may harm the poor and more vulnerable in a community by accentuating and exacerbating economic disparities. Educational services should be available for everyone. If the IFC is involved in lending for private education programs, then it must ensure that the poor have access to education too. This may involve grants or subsidies that should be coordinated with other World Bank or aid agencies. At a minimum, the poor and most marginalized in a community cannot be excluded from access based on affordability of services. 

The privatization of health care raises similar problems. Health care privatization treats health services as a commodity, with supply, demand, and profit maximization determining prices. While privatization can help address inefficiency and deliver health care to areas not taken care of by the state, it can also result in more limited services and restricted access for those unable to afford the new prices.38 Private health services, driven by market forces rather than medical needs, often serve more profitable areas or groups of people. IFC must be aware of the problems associated with private health care options and aim to contribute to broad health care coverage and universal access for people, regardless of level of income. 

Since IFC has identified investment in the social sectors as one of its priority areas, then it must proceed with awareness that investing in these projects should not result in the exclusion of services for the poor and those most marginalized. IFC should also build alliances with development organizations to learn from their experience and incorporate innovative ways to maximize benefits for all. 

 *partie=titre 4.1 Transnational Corporations Are Big Beneficiaries  *partie=nil 

IFC's beneficiaries include some of the world's richest corporations: Rio Tinto, Citibank, Marriott, and ExxonMobil, to name a few. The annual sales of some of these companies outrank the GDP of many developing countries. Of the world's top 100 economies (countries ranked by their GDP and companies ranked by their sales), 51 are corporations. Royal Dutch/Shell is the 33rd largest economy and Exxon is the 37th. 39 Figure 2 illustrates the disparity between the earnings of IFC-supported corporations and the GDP of some countries that borrow from the World Bank Group. 

In situations where IFC supports transnational or foreign-owned companies, the chances for local benefit are diminished since these companies take most of their profits back home to their shareholders. One cannot assume that a domestically owned company always benefits the community either, but in general, these companies may be closer to the development priorities and needs of a community. Some investments may be better suited for transnational companies just by their nature, but when a transnational or foreign-owned company is the major investor, IFC's role should be to help ensure that local benefits are maximized. In general, IFC should try to prioritize support to domestically owned companies that have a direct interest in the well-being of a community and a country. 

 *partie=titre  Largest Independent Power Producer Also Largest IFC Borrower  *partie=nil 

AES (Applied Energy Services Corporation) is the largest independent power producer in the world, with assets of $11 billion and 40,000 MW of electricity generation40 It astutely created and continues to maintain a progressive, "green" image, which has been played up by the media. Press articles invariably mention AES's non-hierarchical, grassroots structure, and focus upon the fact that its co-founder, Roger Sant, is the current chair of the board of World Wildlife Fund USA. 

The reality, however, is somewhat different from the image AES portrays. AES has a problematic record. It has been accused of corruption and of failing to fulfill its investment obligations in Argentina41 and Uganda.42 Moreover, it has opposed trade unions in countries like Hungary and is regarded as an anti-union company in the U.S. and Europe.43 AES is the same company that falsified reports and misled the EPA in 1992 regarding Shady Point, a 320 MW coal-fired plant in Oklahoma.44 It is involved in several environmentally controversial projects that are actively opposed by local communities, like the Guayama Coal Plant in Puerto Rico.45 On occasion AES has taken to suing the local community, as in the case of Bucksport, Maine, where AES sued the town for opposing the Harriman Cove Project, a coal-fired power plant.46 This happened despite AES's earlier assurances that it would leave if unwanted by the community. In sharp contrast with its green image, AES recently declined to endorse the CERES (Coalition for Environmentally Responsible Economies) principles, corporate environmental responsibility guidelines that more than 50 companies have endorsed.47 

Despite these problems with its corporate conduct, AES remains a favorite of the World Bank Group. In an interview about the Bujagali Hydropower Project in Uganda, AES CEO. Dennis Bakke claimed "we (AES) are the biggest private users of World Bank money through IFC. They (IFC) trust AES a lot and are very keen for us to do this."48 

A closer study does indeed show a close a relationship. IFC has approved or is in the process of considering seven major AES projects, three of which were approved within this last year. Taken together, these projects total nearly one billion dollars of financial assistance from IFC to AES.49 
 
 *partie=titre 4.2 Corporate Polluters and Human Rights Violators  *partie=nil 

As a public financial institution, IFC should invest in companies that demonstrate a commitment to corporate responsibility and have a track record of meeting high standards of social and environmental performance. As part of its due diligence process, IFC should review the corporate record of potential clients to determine if a company has a responsible record or not (factors such as violations of environmental laws, problems with community interactions or human rights abuses should be cause for concern). Companies with recent records of poor environmental or social performance should not be eligible for IFC financial assistance until that record changes. 

ExxonMobil. IFC provided $250 million to ExxonMobil to build the Chad-Cameroon Oil Pipeline Project. Exxon and Mobil, which merged in 1999, have been the most aggressive opponents of the Kyoto Protocol, an international agreement to cut greenhouse gases. In 1998, the U.S. Department of Justice accused Exxon of approximately 200 violations of the Clean Air Act. Exxon was fined for exceeding benzene limits in Louisiana and discharging chemicals above underground drinking water sources. In addition, Communities for a Better Environment sued Exxon, accusing the company of contaminating drinking water sources in more than 10,000 sites in California. In January 1998 over 40,000 barrels of oil spilled from a ruptured Mobil pipeline off the coast of Nigeria, affecting 120 coastline communities, home to some 500,000 people. 

Newmont. IFC has supported Canadian mining company Newmont, the second largest mining company in the world, and its operations in Peru. Recent local protests in Peru have charged the project with inadequate safeguards for the environment. Newmont recently reported a mercury spill at its IFC-financed mine in Peru. Its operations in other countries exhibit similar disregard for the environment and local communities. Their operations in Nevada have destroyed sacred Indian grounds of the Western Shoshone. The company's Minahasa Raya gold mine has polluted rivers and coastal waters in Sulawesi, Indonesia.50 The company has a reputation for disregard for local communities.51 

 *partie=titre 5.1 Long-Term Development and Poverty Alleviation  *partie=nil 

IFC should contribute to the World Bank Group's mission to promote sustainable development and alleviate poverty. To foster economic growth that benefits the poor and decreases inequities, IFC should promote economic investment that directly responds to the needs of the most disadvantaged sectors of society. IFC should target investments that deliver economic benefits or services to the poor and the most marginalized. These can be investments that provide services to the poor, such as access to clean water or clean energy, expanding access to capital for local populations, or investments that provide a productive and environmentally sustainable economic generation for a local community, such as shade-grown coffee or organic agriculture. 

One of the most effective ways for IFC to maximize poverty alleviation via private sector investments is to target small- and medium-sized enterprises (see section 5.3). IFC should also favor projects that generate local employment and ownership, that benefit women entrepreneurs, and that develop new and environmentally sustainable businesses. Friends of the Earth recommends that IFC adopt a "development screen" with clear social and environmental criteria for projects and companies. A development screen would provide better guidance about the types of projects that meet IFC's mission to support long-term sustainable development and poverty alleviation. 

 *partie=titre 5.2 Invest in Environmental Sustainability  *partie=nil 

IFC should prioritize investments to promote environmental sustainability. Rather than respond to the private sectors' priorities, IFC should be challenging and directing private investment toward development of environmentally sustainable industries such as electric cars and electric bicycles in polluted cities like Mexico City or Shanghai; development and use of alternative wood products such as kenaff and industrial hemp; certified wood production to meet the growing demand for sustainably grown and harvested timber, mass transit systems, organic agriculture and manufacturing with zero pollution output. 

Through its environmental projects unit, IFC finances some environmentally beneficial projects. For example, IFC supports the Conservera Amazonica heart of palm project in Peru. The project sponsor is organically certified for not using pesticides or fertilizers, and is being certified by the Forest Stewardship Council. The project will provide income for the local indigenous community, including employment for 500 people. It is an example of an innovative approach to protecting the environment, providing economic development for local people and encouraging the development of local businesses. IFC should learn from the environmental projects unit and work to make projects like Conservera Amazonica the rule, not the exception. It should catalyze private sector financing in the most environmentally and socially beneficial enterprises, making these investments more bankable and paving the way for a greener, more sustainable development path. 

IFC financed an eco-tour lodge along the border of the Tarangire National Park that is an example of how an investment can benefit local people and the environment and provide economic development options for local economiesóin this case promoting eco-tourism. The Boundary Hill Lodge helped to spur the creation of a wildlife conservation area and will employ and be jointly owned by the local Lolkisale village where 4,000 Maasai reside.52 The lodge will provide safari experiences for visitors to Tanzania, helping to attract new visitors to the country. This eco-lodge differs from other luxury hotels IFC finances in that it is helping to support a small business, not an international hotel conglomerate like Marriott. While investments in five-star hotels may create jobs, IFC financing may not be needed. IFC should support opportunities for tourism development that work with local communities and help preserve natural resources and environmental attractions. 
 
 *partie=titre Seeds of Change: Solar Development Corporation and the Renewable Energy and Efficiency Fund  *partie=nil 

IFC has embarked upon some small but positive initiatives that promote good alternatives to fossil fuels and will help combat climate change. IFC should continue focusing on these types of investments and mainstream them into its overall portfolio. 

 *partie=titre Solar Development Corporation (SDC)  *partie=nil 

The SDC is a global off-grid PV investment fund. IFC launched it as a pre-commercial and eventually commercial development and financing fund with an emphasis on rural areas. Target initial capital is $50 million, $15 million of which will support market and business development and $35 million of which will support commercial financing.53 IFC has recognized the need to help develop the international solar energy market, especially in regions that do not have access to the electric grid. 

 *partie=titre Renewable Energy & Efficiency Fund (REEF)  *partie=nil 

IFC joined other private and public sector groups to invest in the Renewable Energy and Energy Efficiency Fund (REEF), the first global private equity fund devoted exclusively to investments in renewable energy and energy efficiency projects. The fund will invest up to US$100 million in these projects and "is intended to stimulate investment in environmentally friendly energy technologies in the developing world."54 The fund will target investments in grid-connected renewable energy technologies such as small-scale hydroelectric plants, geothermal power plants, biomass-fueled power plants or cogeneration units, and wind farms.55 REEF will also invest in off-grid renewable energy projects and energy efficiency projects. 

 *partie=titre 5.3 Supporting Small- and Medium-Sized Enterprises  *partie=nil 

The best way to maximize the benefit for the poor and disadvantaged in a country through private sector investments is by targeting small- and medium-sized enterprises, which IFC has emphasized more in the last couple of years. Part of the merger between the World Bank and IFC includes bringing together their lending for small and medium enterprises (SMEs). This new merger will focus on providing the technical skills needed by small business owners, such as how to market products and how to develop a business. 

IFC has maintained a focus on SMEs over the years through facilities like the African Enterprise Fund and the South Pacific Enterprise Fund. Some of the projects managed by IFC's Environmental Projects Unit for SMEs include small-scale forestry and reforestation in Costa Rica, and photovoltaic solar lighting systems in Vietnam, Bangladesh and the Dominican Republic.56 These are examples of the kinds of projects Friends of the Earth and other NGOs would like to see the IFC emphasize even more. IFC should also favor projects that promote local employment and ownership, benefit women entrepreneurs and develop new businesses that are environmentally sustainable and in the long-term interest of a community. 

 *partie=titre 5.4 Using Leverage Globally  *partie=nil 

IFC has significant leverage to change the behavior of corporations and to promote stronger environmental and social standards for other institutions such as commercial banks and Export Credit Agencies (bilateral government agencies that support corporations doing business abroad). Even without financing a project, IFC can still influence corporations and work with them to improve their overall corporate responsibility and practices. IFC can work with individual corporations, assisting them in the development and application of strong environmental and social standardsówhether they are financed by the World Bank Group or not. IFC can wield leverage and influence over the private sector simply because it is a leading international institution whose standards are, de facto, the international guidelines that companies often follow. According to an internal survey of private sector clients, IFC found that the one aspect its clients value the most in working with them is the environmental and social advice IFC provides.57 

IFC can also help green private investment by assisting the commercial banking sector and Export Credit Agencies (ECAs) in establishing environmental and social policies and environmental management systems. Commercial banks and ECAsówhich have few environmental standardsóenable many environmentally harmful development projects to proceed without support from the World Bank Group. Many commercial banks and several of the ECAs are feeling pressured to develop standards, but they do not have much experience in this area. IFC can play a positive role in promoting the adoption of strong environmental and social standards that make both financial and environmental sense. 

IFC needs to do more to fulfill its development mission. IFC should develop a clear development strategy, a real sense of what development means, an understanding of and a willingness to use its leverage, and a willingness to say no to potential transactions to maximize its investments. IFC should be investing in projects that directly benefit local communities or lead to a minimum level of environmental or social benefit. IFC should challenge private companies to invest in emerging sectors that provide public benefits such as renewable energy, sustainable agriculture, environmentally sound tourism, natural resource conservation and locally owned businesses. These sectors should be prioritized in IFC's portfolio.

Friends of the Earth does not oppose investing in the private sector so long as IFC can meet this basic test: that the investments are environmentally and socially sound, demonstrate a positive developmental impact beyond just economic growth and help to alleviate poverty. For that to be realized, IFC must seize on its role and leverage in the global economy. As a financier, capital mobilizer and partial owner of some projects, IFC can make a difference in development. The question is how willing is IFC to use this leverage and how quickly will they use it? 

Friends of the Earth makes the following recommendations to IFC to improve its overall developmental impact and general operations as a publicly owned institution. 

 *partie=titre Policy Recommendations  *partie=nil 

Maximize Positive Development Impact by Adopting Development Screen. IFC should adopt a development screen that establishes clear development objectives to evaluate whether or not projects will contribute positively to development. Based on the experience of the socially responsible investment community, a development screen would provide more clarity for staff and clients on the types of projects that meet the World Bank Group's development goals. A screen would clarify the kinds of results IFC aims to achieve from their investments, elaborate for staff and clients how it measures development impact and reduce the time and resources spent on projects that do not match the organization's priorities for development results on the ground. A development screen would enable IFC to be more selective in the projects it supports. The development, or investment, criteria should be developed through a consultative and participatory process that seeks input from a variety of stakeholders and civil society. The objectives could include, for example, that a project should generate long-term local employment, support women entrepreneurs, facilitate the transfer of environmental technology, or promote investment in environmentally sound businesses. Adoption of a development screen approach would respond to the criticism lodged by stakeholders, including some of the shareholders, and avoid projects that have no real development benefit. 
Evaluate and Measure Development Risk. IFC evaluates the financial risk associated with projects, but not development risk. Development risk may include political freedoms in a given country, the human rights situation, or the presence of corruption. Many factors determine the success of a project, and often these factors are not related to the financial viability of a project. IFC should develop analyses of the development risks associated with a project and whether or not the conditions exist for a project to contribute to positive development impact. Each project should be evaluated for its development risk as well as its financial risk when deciding whether or not to support a project. 
Invest in Environmentally and Socially Sustainable Investments. IFC should use its leverage to change development paths, not simply development impacts. As a facilitator of private investment in the developing world, IFC has the ability to influence the kind of private enterprise that is supported in these countries. IFC should help to set a more sustainable development path that is environmentally and socially beneficial. These investments could include the development of renewable energy and organic agriculture, and the conservation of important natural resources. It would require IFC to think outside the box, reach out to innovative business developers, be more pro-active rather than reacting to the private sector's priorities, and set internal goals to identify the kinds of projects and sectors that deserve support. Such a strategy may also help diversify the companies IFC assists. 
Screen Companies for Their Environmental and Social Record. Companies with currently poor records of behavior, which could include environmental violations and allegations of human rights abuses, corruption and problems working with local communities, should not benefit from IFC financial support. In the due diligence process IFC should review prospective clients' records of corporate behavior before too much time and resources are invested in the project. If a company has a continual record of problems, then IFC should not financially support this company, but may opt to work with the company to modify its corporate behavior. This assistance could include training for smaller companies that may not have the ability to develop standards on their own or may not understand how to apply them. By doing this, IFC would use its leverage to challenge companies to operate by higher standards and take corporate responsibility seriously. 
Reduce Environmentally Harmful Lending by Expanding Exclusionary Lending List. IFC currently maintains a list of projects that are excluded from financial backing because of their environmental and social impact. This list currently includes, for example, production or trade in weapons, tobacco, and gambling enterprises, and trade in endangered wildlife, ozone-depleting chemicals and radioactive materials. IFC should update and revise this list to exclude:
1. Projects in or impacting World Heritage Sites, UN List of National Parks and Protected Areas and other intact ecosystems of global importance;
2. Infrastructure or extractive projects in frontier or primary tropical, temperate or boreal forests;
3. Oil, gas and mining investments, with an immediate ban in pristine and ecologically important areas;58
4. Projects involving the production or use of persistent organic pollutants;
5. Large dams with significant environmental/social impacts or large scale resettlement;
6. Aquaculture located in mangrove areas; and
7. Large-scale livestock facilities.

Strengthen Environmental and Social Standards. IFC should apply "best practice" as required practice. IFC's policy framework should be expanded to include best practice standards from information disclosure to standards for the mining industry to consultation with local communities (including making the good practice consultation requirements mandatory for Category A Projects). IFC's policies do not fully address social and environment-related issues. Many issues, such as corruption and corporate bribes, the relationship between companies and security forces, interactions with local communities, child labor, and worker and human rights issues are currently not addressed. Rather than ignore or address these issues in an inadequate or inconsistent manner, IFC should identify what is best practice in each of these areas and adopt best practice as the required standard. This is particularly important if IFC wants to be in a position to challenge and lead the private sector to operate more responsibly. 
Use Leverage to Establish Environmental and Social Standards at Export Credit Agencies and Private Financial Institutions. Assist the Export Credit Agencies, commercial banks and private insurers in establishing environmental and social review standards and management systems for their investments. IFC should contribute to an overall effort to improve international standards applied by the financial community. 
Improve Information Disclosure. IFC's information disclosure policy should be strengthened by clarifying the definition of business confidential information and allowing the public release of all project-related information that is not business confidential, including information about projects that are financed through financial intermediaries. This should include the public release of independent third-party audits of environmentally and socially sensitive projects, emergency response plans, and oil spill response plans, for example. Furthermore, IFC should release environmental assessments (EAs) no later than 120 days before a project decision, and it should release the Summary of Project Information for Category A projects at the same time EAs are released. IFC practice should favor more disclosure and transparency so long as that practice does not compromise the private sector's financially sensitive information.