Home » Posts tagged 'International Finance Institutions'

Tag Archives: International Finance Institutions

Procedures for World Bank’s new accountability mechanism lacks transparency and inclusivity

In a press release issued early last week, the World Bank has announced that the review of its independent accountability mechanism, the Inspection Panel, has been completed and that a few major reforms were added to the Inspection Panel. Accordingly, a new accountability mechanism – an “expanded” one as the Bank says, called World Bank Accountability Mechanism’ will be in place from September 2020 and will constitute two separate roles – the Inspection Panel (IPN) will focus on the review of compliances of projects with Bank’s operational policies and a separate Dispute Resolution Mechanism (DRS) will resolve the grievances of affected communities, in a time bound manner, instead of compliance review. While housed under one umbrella, the DRS will organisationally be separate from the IPN to ensure its effectiveness and to avoid conflict of interests.

New Roles, Governance Structure

Independent Accountability Mechanisms (IAMs) of Multilateral Development Banks have different governance structures and varied roles with assigned functions. It is necessary to see the new reforms of WB’s IPN in comparison to the previously established roles of both Compliance Advisor Ombudsman (CAO) of the International Finance Corporation (IFC) and Accountability Mechanism (AM) of Asian Development Bank (ADB), since most of the complaints from Indian communities have been registered with these IAMs.

There were only four IAMs that offered both compliance review and dispute resolution services – namely CAO of IFC, the Complaints Mechanism (CM) of European Investment Bank (EIB), AM of ADB, and Independent Review Mechanism (IRM) of African Development Bank (AfDB). Now WB’s new IAM will also offer both compliance review and dispute resolution.

The CAO reports to the President of the World Bank Group, while the dispute resolution component or ‘problem solving function’– the Office of the Special Project Facilitator in ADB’s AM report to the Bank President, and the compliance review component – Compliance Review Panel in AM report to the Board of Directors.  The new IAM of WB will be governed by an ‘Accountability Mechanism Secretary’ (AM Secretary) who will be appointed by and report directly to the Bank’s Executive Directors. While administratively integrated in this new mechanism, the IPN members will remain fully independent and continue to report directly to the Board on all compliance investigation matters. Which effectively means, the DRS staff will report to the AM Secretary who then will report to the Board, whereas the IPN will directly report to the Board (Whereas, the CAO staff along with its three functions – dispute resolution, compliance and advisory- report to the CAO Vice President).

Organisationally in the new IAM, the IPN will have no role in DRS.  The IPN will continue to be constituted and operate as established in the IPN Resolution.

Operationally, the new IAM will apply the existing eligibility criteria of IPN for compliance for its dispute resolution function. There will be no change to the current practice of recommending eligibility, when a complaint is registered, based on the IPN’s current eligibility criteria. During the eligibility phase, the IPN recommends eligibility for compliance. After the Board has approved the eligibility for compliance, the AM Secretary will offer an opportunity for dispute resolution to the parties. If Borrower and Requesters voluntarily agree to go for a dispute resolution, the case will be referred by the AM Secretary to the DRS. The AM Secretary will inform the Board, the IPN and Management of the parties’ decision. In case the parties agree to use the DR process, the compliance process of the IPN will remain in abeyance. If the parties do not agree, the AM Secretary will inform the Board, the IPN and Management and the case will be taken up by the IPN for a compliance investigation. The Parties to the DR process would be the Requesters and the Borrower’s relevant project implementing agency.

While ADB’s AM has a slightly different approach – one can approach its problem solving function office – the Office of the Special Project Facilitator and file a complaint regardless of whether ADB operational policies and procedures have been violated ( this mandate is required only if one is approaching the Office of the Compliance Review Panel).

Meanwhile, the CAO’s Ombudsman function responds to dispute resolution complaints and if they are not solved, they are transferred to the compliance review function.

Extended Eligibility time limit for Requesters to file Complaints

Except the IPN, almost all other IAMs had established their own mechanisms much earlier. They all have longer eligibility time periods for complaints registrations than the IPN. Yet, In the case of the CAO, the eligibility ends when the institution’s engagement with the client or the project ends. Whereas for AM, the latest date by which a complaint can be filed is 2 years after the loan or grant closing date. This date is known in advance, disclosed to the public, and can be found on the ADB website. Their brochure also shows the timeline in which a complaint is processed and responded to.

For IPN, this time requirement will be changed so that any request filed up to fifteen months after the closing date of the loan financing the project can be accepted by the IPN. This requirement will be applicable only to new projects approved by the Board after these changes take effect.

Formal recognition of the Inspection Panel’s advisory role

Advisory services focus primarily on the lessons that the IAMs learn about the functioning of MDB operational policies. The advice can be given as recommendations in specific compliance reports, lessons learned sections in annual reports and in other publications. The CAO has a robust advisory policy, where the CAO provides independent advice to the President of the World Bank Group and management of IFC and MIGA.  CAO advice focuses on broader social and environmental concerns, policies, procedures, strategic issues, and trends. CAO’s focus is on preventing future harm and improving IFC/MIGA’s performance systemically as their policy states,

The IPN did not have explicit advisory authority. The IPN does provide informal advice through statements in its compliance reports and its publications, including its annual report and Emerging Lessons series. The press release states that this advisory role has been formalised from 2018.

Formalization of the Inspection Panel’s practice of coordinating with co-financiers’ accountability mechanisms on joint complaints

The World Bank engages in co-financing arrangements with other MDBs. In these cases, requesters could file requests for investigations regarding the same set of issues with the IAMs at two institutions. This always led to two challenges. The first challenge arises when one IAM receives a request regarding a project whose agreements stipulate that the policies of another institution govern the project, like the case is with Asian Infrastructure Investment Bank (AIIB). The second arises from differences in the procedures of the two IAMs, such as different time limits for eligibility and different rules on sharing draft reports with the requesters. None of the IAMs have developed any explicit policies or practices on how to deal with these situations. Instead, they have dealt with these situations by signing a case-specific MOU detailing how they will cooperate in investigating the same project. The World Bank is yet to clearly state whether these challenges have been addressed or they remain the same, irrespective of formalising arrangements with co-financiers’ IAMs.

Sharing IPN report with requesters before consideration of the Board

This procedure came into effect from 2018, but is officially declared now under the enhancements for IPN. Earlier, IPN’s investigation report was not shared with the requesters until after the Board had approved it. The requesters maintain that this had created two problems. First, the practice was unfair because requesters were being treated differently from Management. Second, requesters lack the knowledge to engage effectively with Management about the action plan.

Independent and proportionate risk-based verification of Management Action Plans

All the IAMs, except the IPN, are expressly authorized to monitor the implementation of the management action plans (MAPs) developed to address the IAMs findings of non-compliance and the outcomes of dispute resolution procedures. All IAMs that engage in dispute resolution have authority to monitor the implementation of the outcomes of the dispute resolution if the parties so request. In addition, the IAMs including CAO and those at the AfDB, ADB, EIB, EBRD and IDB have authority to monitor the implementation of management action plans developed in response to findings of noncompliance. The authority of the IAMs does vary. In some cases, the IAMs are authorized to monitor all cases in which they have made findings of non-compliance. This is the case with CAO and ADB’s CRP.  In the case of the AfDB’s IRM and the IDB’s MICI this authority requires prior Board authorization. It is usually given at the time the board approves the IAM findings on compliance and is based on a recommendation from the relevant IAM.

From September 2020, the IPN can now verify MAPs in those cases where proportion and risk criteria will include (i) urgency of redress, (ii) risk of repetitive harms, (iii) number and vulnerability. The IPN recommendation, generally, will be made after substantial implementation of the MAP or, if the monitoring report indicates lack of implementation, at any stage of implementation. In exceptional cases, upon IPN recommendation, with input from Group Internal Audit, the Board can discuss and assign verification at the stage of approval of the MAP or shortly after. This process will avoid an automatic “one-size-fits-all” approach. The benefit of this option is that the Board would be assured of receiving independent reports on the adequacy of the management action plans, but restricted to few cases only.

How the procedures fell short

The World Bank’s Inspection Panel was the first accountability mechanism (1993) of its kind for the development finance institutions, which was established as a result of people’s struggles against the Sardar Sarovar Dam Project on river Narmada in India. The tenacious campaign around this project led to the formation of the Morse Commission, which strongly criticized the World Bank’s performance in the areas of environment and resettlement of people displaced by the construction of energy projects. Over the years, the Panel has played a major role in trying to adhere to accountability at the Bank and attempting to secure redress of grievances in some cases. Though established as an independent mechanism from the Bank management, the Panel majorly reported the eligibility of the complaint to the Board of Directors of the Bank and did not possess strong recommendatory powers.

When the review of IPN was first announced officially in 2017, Indian peoples movements, civil society and affected communities had called out to the Bank to keenly call forth to strengthen the IPN mandate. While appreciating the World Bank on this effort for a review on the occasion of Inspection Panel’s 25th Anniversary, the CSOs criticised the Bank for giving less than a fortnight to seek comments on this issue. They demanded to extend the deadline by at least two months in the interest of the sanctity of the process. They further stressed that wider publicity should be given to ensure better participation in the process. “The current consultation is designed and carried out to exclude affected communities, for whom the Inspection Panel is established,” the signatories said with much disappointment.

During the deliberations in a symposium organised in India at the 25th year of IPN, in which both the Inspection Panel and Compliance Ombudsman Advisor (CAO) participated remotely, the inadequacy of IAMs in functioning independently and efficiently; lack of capacity and powers to promote and ensure accountability; failure in intervening timely to ensure that the voices of the affected people are adequately heard, addressed and issues resolved; and lack of powers to stay the progress of project construction in cases of extreme violations, were highlighted.

A brief look into the newly released report of the Bank,  ‘Report And Recommendations On The Inspection Panel’s Toolkit Review’ (March 05, 2020) shows that the external review “did not  make recommendations but provided options in seven areas: (i) advisory services, (ii) Bank Executed Trust Funds (BETFs), (iii) co-financing, (iv) sharing findings with Requesters, (v) problem solving/dispute resolution, (vi) time limit on eligibility for requests and (vii) monitoring of Management Action Plans (MAPs)”. And that subsequently, a Working Group of the Committee on Development Effectiveness (CODE) that included members from all Executive Directors’ offices, was established to consider the areas identified by the Review.

When the Bank announced in 2018 that CODE was inviting submissions from relevant stake holders, the Indian civil society had strongly asked for transparent and wider consultative processes with extended time period for affected communities. Opening up the process; adhering to the principle of free, informed and prior consent; adequate time; holding consultations widely and not in national capitals/metros alone; unmasking the ritual format of such processes; IPN having suo moto powers; IPN having suo moto powers for timely intervention – even during the early stages of project appraisal; IPN having a pro-active role even to delay the progress of any project until the violations of the project have been comprehensively corrected and compensated; IPN having monitoring function; IPN having punitive powers and measures for demanding for a fresh Environmental and Social Impact Assessment (ESIA) wherever erroneous ESIA have been found, were the recommendations from the Indian groups.

During both times, the Bank did not acknowledge the receipt of the submissions from India. Despite the recorded exhaustive measures which were being adopted by the Bank to see through this review, this process has been quite the opposite in nature– opaque, extremely limited opportunities for concerned civil society stakeholders and especially for the affected communities to share relevant inputs. The information available in the public domain was restricting in its scope and the final draft proposal was not shared, despite requests being sent by concerned groups from outside India to the Bank. This was a striking drawback, especially in the wake of IFC having faced defeat at the United States Supreme Court on the Immunity Verdict last year, on the case filed by Indian farmers and fishworkers on serious violations caused by IFC-funded Tata Mundra Ultra Mega Power Project in Gujarat India.

With the assistance of the IPN and Management, CODE identified eleven projects whose stakeholders had experience in the IPN process within the last seven years to provide feedback. The selected projects took into consideration regional representation and included projects that had gone through all the different steps of the IPN process. The procedures for arriving at this decision and who all were the stakeholders from these eleven projects is not in the public domain. This tunnel vision and consequent decision making is flawed.

The entire process lacked transparency and inclusivity.

It is further stated in the recommendations that the new Mechanism will be headed by an “Accountability Mechanism Secretary” (AM Secretary) who will be appointed by and report directly to the Bank’s Executive Directors. The AM Secretary will be responsible for planning and overseeing the processes of the Accountability Mechanism in line with agreed procedures and will be responsible for keeping the records of the AM proceedings. She/He will also oversee the Dispute Resolution Service. All staff of the Accountability Mechanism will report to the Accountability Mechanism Secretary with the exception of the Inspection Panel members, who will continue reporting to the Board of Directors. The DR process would have a one-year time limit in order to provide assurance that the process is not prolonged and incentivize the parties to reach an agreement. This administrative challenge is going to present problems with the affected communities who would find it challenging – in the first place to finish the eligibility process of their complaint in English language, the wait during delayed timeline of these complex processes and now having to identify whether they need a compliance review or a dispute resolution.

While it is appreciated that requesters of complaint can submit their grievances beyond project closure (for new projects with effect to the new change in IPN), a distinct DRS will be operational in six months, and an independent and proportionate risk-based verification of Management Action Plans would be established as an additional assurance, they still do not address the fundamental questions ever posed at the Bank by the communities. Will these changes impact the affected people in any positive way? The tight schedules and methodologies lacked a genuine effort for meaningful consultation. Currently, the onus of identifying Bank’s lending to a particular project, understanding the Bank Operational/Safeguard Policies, knowing about the existence of IPN and developing a complaint in a manner acceptable to IPN is on affected communities. This structure disempowers the communities for they are never consulted in advance with full disclosure of impacts, lenders and of compensation/rehabilitation for their losses in most of the projects. Hence in projects, IPN has knowledge about serious impacts, it should have powers to take suo moto investigation as well as actions. Particularly in cases of high risk or ‘Category A’ projects, knowing the potential irreparable consequences, the IPN should proactively look out for the involvement of the potentially affected communities and facilitate their observations/complaints. Sadly, none of these reflect in the “enhancements” mentioned in the review report for the mechanism which boasts of 27 years’ wealth of documented information and engagement with affected communities and civil societies all around the world.

Villagers Celebrate The Historic US Supreme Court’s Verdict Which Ended The Immunity of the IFIs

For Immediate Release

Villagers Celebrate The Historic US Supreme Court’s Verdict Which Ended The Immunity of the IFIs

March 31, 2019, Mundra: The air in Mundra filled with the slogans like Kaun Banata Hai Hindustan, Machuawara, Majdoor, Kisan! (Who makes India? Fishermen, Labourer and Farmers); Ladenge Jeetenge! (We shall fight, we shall win); Aadiwaasi Machhuawara Kisaan Ekta Zindabad! (Long live the unity of tribals, fishermen and farmers), and Poonjipatiyon Ki Dalaai Band karo! Hundreds of people from Navinal and Tagri villages of Kutch and representatives from various social movements and civil society members have gathered to celebrate the historic verdict of the US Supreme Court that ended the absolute immunity enjoyed for long by the International Financial Institutions.
“Is Development only for Tata, Ambani, and Adani? What about the fishermen from Mundra, who live in the open with huts made up of bamboo and gunny bags but feed thousands of people in and outside Gujarat,” asked Medha Patkar, senior activist, Narmada Bachao Andolan and National Alliance for the Peoples’ Movements. “Every citizen has the constitutional right to question anti-people policies,” she asserted. She further said, “We do not have any problem in discharging Sardar Sarovar (Narmada) Dam waters for the benefit of the farmers of Kutch. However, we will fight if it is given to the industries,” referring to the allocation of water for a large number of industries.
She was speaking at the public meeting, organised by the Machimar Adhikar Sangharsh Sangathan (MAAS), Mundra, which witnessed the participation of the hundreds of the villagers affected by the World Bank Group’s International Finance Corporation-funded Tata Mundra Ultra Mega Power Plant. The meeting was organised to celebrate the historic verdict of the US Supreme Court that ended the absolute immunity enjoyed for long by the International Financial Institutions.
During the occasion, representatives from various social movements and civil society members like  Medha Patkar, senior activist of the Narmada Bachao Andolan; Soumya Dutta, Convenor of the Beyond Copenhagen Collective; Nitaben Mahadev, Gujarat Lok Samiti, Sanjeev Danda, Dalit Adivasi Shakti Adhikaar Manch; and Maju Varghese and Anuradha Munshi from the Working Group on International Financial Institutions (WGonIFIs) were also present to extend their solidarity and felicitate the fishermen and villagers who have been at the forefront of this historic struggle.
The petitioners of the case were garlanded and facilitated at the public meeting. Speakers after speakers alluded their courage, encountering hostilities and the broader impact of this victory to the people around the globe, making institutions like World Bank more accountable.
Speaking at the occasion, Soumya Dutta, emphasised that the recent US Supreme Court’s decision to end immunity of the International Financial Institutions is a significant victory of the people fighting to save their dignity, land and livelihood across the world. He stressed that a broader alliance of different sections of the people affected by the project be formed to fight getting justice.
Sanjeev Danda said the US Supreme Court’s verdict is a firm reminder that fishers and poor are not insects that can’t be eliminated easily. He thanked the villagers for their firm resistance against the might of the IFC and Tata.
Nitaben Mahadev expressed solidarity on behalf of organisations in Gujarat and wished the people the best to take the fight to higher heights.
Buddha Ismail Jam, the main petitioner of the case against the ongoing IFC, emphasised the need to stay together. He said, “If we continue to stay strong for the remaining struggle, nobody can snatch justice away from us.”
Gajendra Sinh Jadeja, a co-petitioner of the case and Sarpanch of the Navinal Panchayat in Mundra, listed the problems currently being faced by the fishermen, farmers and pastoralists. He said, “The production of cotton, dates, chikoo has considerably reduced due to the coal-ash, which has also adversely impacted the health of the people. Similarly, the inlet and outlet channel have increased the salinity, thus impacting agriculture. Additionally, the channel has also driven away from the fishes away from the coast, due to which, the fishermen have to travel about 25 kilometres into the sea.”
Bharat Patel, thanked the villagers, civil society and social movements across the country for their solidarity, and the Earth Rights International, for their unflinching support. He asserted that the policies of the IFIs need to be amended and said that they can’t function at the cost of the lives of people. Talking about the further course of action, he said, “We will fight till the ecology is restored; the people who lost their livelihoods are adequately compensated; and the officials of IFC and Tata Power, who conspired to destroy our lives for their greed are criminally charged.”
Background
On February 27, 2019, the Supreme Court of United States, in a historic 7-1 decision, the U.S. Supreme Court decided in Jam v. IFC that international organisations like the International Finance Corporation of the World Bank Group do not enjoy absolute immunity.
The Court’s decision marks a defining moment for the IFC – the arm of the World Bank Group that lends to the private sector. For years, the IFC has operated as if it were “above the law,” at times pursuing reckless lending projects that inflicted serious human rights abuses on local communities, and then leaving the communities to fend for themselves.
In the case of the Tata Mundra, since the beginning, the IFC recognised that the Tata Mundra coal-fired power plant is a high-risk project that could have significant adverse impacts on local communities and their environment. Despite knowing the risks, the IFC provided a critical Rs 1,800 crore (USD 450 million) loan in 2008, thus enabling the project’s construction. Despite this, the IFC failed to take reasonable steps to prevent the harms it predicted and failed to ensure that the project abided by the environmental and social safeguards.
As predicted, the plant caused significant harm to the communities living in its shadow. Construction of the plant destroyed vital sources of water used for drinking and irrigation. Coal ash has contaminated crops and fish laid out to dry, air pollutants are at levels dangerous to human health, and there has already been a rise in respiratory problems. The enormous quantity of thermal pollution – hot water released from the plant – has destroyed the local marine environment and the fish populations that fishermen rely on to support their families. Although a 2015 law required all plants to install cooling towers to minimise thermal pollution by the end of 2017, the Tata plant has failed to do so.
A nine-mile-long coal conveyor belt, which transports coal from the port to the Plant, runs next to local villages and near fishing grounds. Coal dust from the conveyor and fly ash from the plant frequently contaminate drying fish, reducing their value, damage agricultural production, and cover homes and property.
The IFC’s own internal compliance mechanism, the Compliance Advisor Ombudsman (CAO), issued a scathing report in 2013 confirming that the IFC had failed to ensure the Tata Mundra project complied with the environmental and social conditions of the IFC’s loan at virtually every stage of the project. The report recommended the IFC to take remedial action. However, the IFC’s management responded to the CAO by rejecting most of its findings and ignoring others. In a follow-up report in early 2017, the CAO observed that the IFC remained out of compliance and had failed to take any meaningful steps to remedy the situation.
The harms suffered by the people are all the more regrettable because the project made no economic sense from the beginning. In 2017, in fact, Tata Power began trying to unload a majority of its shares in the project for one rupee because of the losses it has suffered and will suffer in future. At the moment, the plant is operating much-below capacity in part because India has an oversupply of electricity.
Please visit here for more background and accessing documents related to the case.
About us:
Machimar Adhikar Sangharsh Sangathan (MAAS) is a trade union of the fish workers in Mundra and a co-petitioner in the historic Budha Jam vs IFC case.
 
Contact:
Dr Bharat Patel (Mundra, Gujarat, India)
General Secretary, Machimar Adhikar Sangharsh Sangathan
+ 91 94264 69803
bharatp1977@gmail.com

भारत में जलविद्युत विकास को बड़े पैमाने पर बढ़ावा

इस सेक्टर में निजी क्षत्रे को आकर्षित करने के लिए सरकार ने 2016 में इस पर चर्चा शुरू की कि नवीकरणीय ऊर्जा के क्षत्रे को और विस्तृत किया जाए ताकि 25 मेगावाट क्षमता से अधिक के जलविद्युत स्टेशन भी उसमें शामिल किए जा सके। इससे सरकार को 2022 तक 175 मेगावाट नवीकरणीय ऊर्जा उत्पादित करने के लक्ष्य को हासिल करने में मदद मिलेगी।

The Role of IFIs in the Development Agenda

Ulka Mahajan on the Context of the Role of IFIs in the Development Agenda

Coastal Infrastructure and Fishers Struggle in India

Jesu Rathnam, Convenor, Coastal Action Network, on the coastal infrastructure and fishers struggle in India

CSOs Call for Accountability and Disclosure from AIIB on its FI Investments

By Tani Alex

U211P5029T2D882456F24DT20160118092953

Representatives from civil society organizations from all over the world have written a letter this week to the AIIB, drawing urgent attention to rising concerns of AIIB’s investments through Financial Intermediaries (FIs). This is in context of AIIB developing its strategy to invest more in equity and funds, without formulating robust policies and systems around FI investments regarding transparency, accountability and efficient channels of communication with all stakeholders. FI investments mean a “hands-off” or third-party lending, with which comes potential risks – the clients of FIs are not held accountable for the environmental and social safeguards.

The letter urges AIIB to learn from International Finance Corporation’s (private lending arm of World Bank Group) lessons on FIs from the recent past. The Compliance Advisor Ombudsman (CAO), which is IFC’s accountability mechanism, and various CSOs had submitted their own findings regarding the high risk of lending through FIs. Accordingly, the CAO addressed the highly problematic relationship between IFC and the FIs’ clients, wherein it is not assured whether the FIs’ clients ESMS is leading to the implementation of the Performance Standards (of IFC) at the subproject level. IFC’s CEO has already announced that IFC has cut its high-risk lending from 18 to just 5 investments, and has committed such projects to climate mitigation and women-owned SMEs.

Studies carried out by CSOstracking IFC investments in FIs support these findings. The letter explains that the study examined a small segment IFC’s FI portfolio, wherein more than 130 projects and companies funded by two dozen FIs are causing/likely to cause critical environmental harms and human rights violations. The projects spread over 24 countries come from a range of high-risk sectors which includes private military contracting, mining, infrastructure, energy, industrial agriculture, transport and infrastructure. Few of the demands put forth in the letter to AIIB on policy, investment decision-making and contracts with FIs include: high scrutiny on project portfolio, track record of ESF policy, aligning with AIIB’s own ESF even for sub-projects, monitoring FIs’ clients’ ESF due diligence and ensuring project-affected communities have access to redress including the AIIB’saccountabilitymechanism. Moreover, FIs should also adhere to disclosure of its investments, which should reflect in AIIB’s website. A provision for this should also be included in AIIB’s upcoming Public Information Policy. The letter concludes reminding AIIB of its promise delivered by its VP DJ Pandian to CSOs during the AGM Meet at Jeju in 2017, that AIIB will disclose high-risk sub-projects supported by equity funds.

Among the FIs, AIIB has approved and invested in India is India Infrastructure Fund, targeting investments in infrastructure, energy and transport sectors. This project is partnered with the General Partner and its investment team, a global infrastructure investment and management platform, for a period of eleven years. AIIB has approved 150 mn USD, out of the total project cost of 750 mn USD. Another FI project in the pipeline for India is the National Investment Infrastructure Fund(NIIF), considering to invest in roads, airports, ports, power and urban infrastructure. NIIF is established by the Government of India (GoI) who owns 49% stake. Out of the target project fund of 2.1 bn USD, AIIB is considering to invest 200 mn USD, over an implementation period of 19 years, while GoI invests 1 bn USD.

IMF and World Bank: Marching to a G20 Tune?

By Nancy Alexander

This year, the G20 Finance Ministers and Central Bank Governors’ Meeting on October 12-13 overlapped with the IMF-World Bank annual meeting on October 13-15 in Washington, DC.

As of December 1, 2017, Argentina becomes G20 President with the past and future Presidents (Germany and Japan, respectively) as part of the G20 Troika.  At the October G20 meeting, Argentina announced that it’s two key G20 Finance Track priorities will be the Future of Work (shared with the Sherpa Track and possibly looking at automation, education, and womens’ entrepreneurship as well) and Infrastructure Financing, especially through financialising infrastructure as an asset class. The priorities of the Argentine Sherpa Track will be announced at the final German Sherpa Meeting on 9-10 November in Berlin.[1]

The individual G20 member countries hold the overwhelming majority of votesat the IMF and World Bank, so it is not surprising that G20 priorities are often identical to those of the institutions they dominate.  For example, infrastructure financing has been a G20 development theme since 2010 and a powerful Finance Track theme since 2014, except under Germany, when infrastructure issues were dealt with by the Sustainability Working Group and under the Compact with Africa.

Since 2010, the G20 has focused urging the Multilateral Development Banks to standardize, scale-up, and replicate mega-projects, especially public-private partnerships (PPPs) in emerging and developing countries.  Indeed, the G20 encouraged the strengthening of existing and start-up of new Project Preparation Facilities (PPFs) with the capability of accelerating mega-project preparation — especially for trade facilitation in the energy, water, transportation and ICT sectors.  In each geographical region and subregion, Master Plans for Infrastructure in these four sectors have already been designed.

Especially since 2014, the G20 has tried to solve the problem of how countries can attract private investors, particularly long-term institutional investors (pension and insurance and mutual funds and sovereign wealth funds) which hold over $100 trillion in savings. While the G20 and the MDBs have not succeeded in mobilizing much additional financing for PPPs from investors, efforts to overcome remaining obstacles are described in Boxes 1 and 2.[2]

Until the German Presidency, there was no effort to promote infrastructure that would be environmentally and socially sustainable.  Even under the German Presidency, the officials leading the powerful Finance Track said that sustainability is the job of the (less powerful) Sherpa track.  Infrastructure contributes approximately 60% of greenhouse gases (GHG) emitted to the atmosphere; therefore, it is crucial that urgent steps be taken to curtail infrastructure that locks-in carbon-intense technology and ensure that infrastructure meet criteria for mitigation of GHG and adaptation to the effects of global warming.  At present, all such criteria are voluntary whereas the rights of investors are legally protected in trade/investment agreements and the PPP contracts that include investment provisions.

  • At the 2014 Australian G20 Summit, the G20 Global Infrastructure Hub was launched to expand the project “pipeline” for preparation and financing.
  • Also, in 2014, the World Bank launched the Global Infrastructure Facility.  At the launch, Bank President Jim Kim stated “We have several trillions of dollars in assets represented today looking for long-term, sustainable and stable investments…In leveraging those resources, our partnership offers great promise for tackling the massive infrastructure deficit…”
  • In 2016, the World Bank’s private sector arm, the International Finance Corporation (IFC) launched its Managed Co-Lending Portfolio Program, a loan-syndications initiative that enables third-party investors to participate passively in IFC’s senior loan portfolio. The first partnership under the program was signed with the global insurance company Allianz. Under the agreement, Allianz intends to invest $500 million, which will be channeled into IFC debt financing for infrastructure projects in emerging markets.
  • 2016 was also the year when China launched the Asian Infrastructure Investment Bank (AIIB) and the BRICS (Brazil-Russia-India-China-South Africa) launched the New Development Bank (NDB).

Box 1: New infrastructure-related institutions

The G20 has directed each multilateral development bank to expand infrastructure financing for years, especially by “crowding in” the private sector. At the Hamburg G20 Summit in July, Leaders adopted principles to achieve this.[3]  These principles underpin the theme presented at the IMF/World Bank annual meetings — namely “Maximizing Finance for Development” (also known as the “Cascade” or “billions to trillions”). The October 14 Communique of the Development Committee emphasizes this theme, which is actually a relatively new paradigm for financing infrastructure.[4]The IMF and World Bank’s two papers[5]for the Development Committee meeting describe this paradigm and its implementation.

While the World Bank is tasked with expanding private investment in infrastructure, the IMF’s Infrastructure Policy Support Initiative provides tools to help countries assess the macroeconomic and financial implications of various investment programs and improve their institutional capacity.

The gist of the “Maximizing Finance for Development” paradigm is that nothing should be publicly financed if it can be commercially financed AND that if commercial financing is NOT forthcoming for a project, a country must promote a more investment-friendly environment and/or private sector guarantees, risk insurance and other inducements should be provided.  My blog criticizes the paradigm[6], which relies heavily on expanding the launch of PPPs, including by packaging them in portfolios for trading.

Figure 1: Maximizing Finance for Development (“the Cascade”). Creator: Jim Yong Kim, Speech at LSE 04/11/2017.

There are Cascade pilots in nine countries (Cameroon, Côte d’Ivoire, Egypt, Indonesia, Iraq, Jordan, Kenya, Nepal and Vietnam) which are intended to introduce private sector solutions in energy, transportation, and other infrastructure sectors. The pilots will gradually expand to include other sectors and countries.

The “Maximizing Finance for Development” paradigm responds to the G20 interest in attracting private investors, especially long-term institutional investors such as pension and insurance and mutual funds as well as sovereign wealth funds. As it is, OECD pension funds ($30 trillion) and insurance funds face staggering gaps and potential insolvency unless they can get higher yields on their savings.  Many long-term institutional investors, such as pension funds, will work with hedge funds and private equity funds to deploy their assets under management (AUM) in infrastructure portfolios for these higher yields.

The idea of this paradigm is for the public sector to take high risks at the early stages of project identification, design and construction and the long-term investors to take a revenue stream over 20 or 30 years. To counter this agenda, a Global Campaign Manifesto on PPPswas launched by 152 national, regional and international civil society organisations, trade unions and citizens’ organisations from 45 countries to “sound the alarm on dangerous PPPs.

Megaprojects and PPPs are not inherently dangerous, but when their design fails to produce adequate social and environmental co-benefits and heap risk on governments, they become so.  When risk is heaped onto governments, PPPs tend to increase inequality by privatizing gains and socializinglosses. The World Bank “Guidance on PPP Contractual Provisions” proves how heavily the World Bank proposes heaping risk on governments as well as introducing “stabilization” procedures that would inhibit the right to regulate/legislate in the public interest.  Motoko Aizawa summarizes key critical pointson the Guidance and links to the legal analysisof the Guidance by the firm Foley Hoag. Despite major problems with the “Guidance” – it will be launched in Cape Town, Kuala Lumpur, and possibly Abidjan — unless the process is stopped in order to radically revise it.

In Africa, the “Compact with Africa” report by the Africa Development Bank, World Bank, and IMF (March 2017, Baden Baden) describes how public utilities would be taken “off balance sheet” and user fees and domestic resources would be mobilized, along with aid, to shoulder public risks and, meanwhile, development banks would offer guarantees and liquidity facilities to offset risks to the private sector.

The heavy policy conditionalities proposed by the G7/G20 for each African country participating in the “Compact” include requirements that governments use the World Bank’s “Guidance on PPP Contractual Provisions” which would impose enormous risks on governments while hobbling their capacity to protect the public interest.  The conditions also require that governments develop Systematic Investor Response Mechanisms (SIRMs) to satisfy investor grievances before they reach international tribunals (Investor-State Dispute Settlement).  Concerns for investors are not matched by concerns for citizens who often lack even basic information about the development of projects that will affect their lives.

In light of the heavier push for financialising infrastructure, we have a recent NEPAD announcement which calls for African asset owners to raise the percentage of assets under management for infrastructure from 1.5% to 5%. This strategy is aggressively promoted by Africa’s Continental Business Network (CBN), which issued a communique in September calling for the adoption of this strategy at the AU Summit in January 2018 with a roadmap presented to the African Finance Ministers meeting in March 2018 as well as the G7 and G20 Summits later in the year.

Box 2: G20 compact with Africa

The G20 will measure the performance of each MDB by the extent to which it leverages private investment[7]and, in turn, the MDBs will measure the performance of many countries by how effectively they leverage private investment.

In conclusion, the “Maximizing Finance for Development” approach would create greater reliance on commercial financing and reduce the need for World Bank lending to governments, as would the Trump/Mnuchin push to reduce World Bank lending operations to creditworthy countries (See FT 10/13/17 “US Demands China loan rethink as condition of World Bank cash”). If these approaches are implemented, the World Bank could shrink as the Asian Infrastructure Investment Bank (and others) expand. Potentially the finance available for public goods (stable finance, sustainable development and climate goals, urban infrastructure such as sanitation…) would become even more scarce. Privatization and deregulation would give market players, even the predators, freer rein.

[1]At the final German Sherpa meeting on November 9-10 in Berlin, the Argentine Sherpa will announce the priorities for the 2018 Presidency.  The Germans have chosen 7 topics for this meeting: 1) a review of outcomes of the Hamburg Summit (Trade, Migration, Anti-Corruption, Terrorism, and Digitalization); 2) the Climate and Energy Action Plan; 3) the Global Forum on Steel Excess Capacity; 4) Main Outcomes of the Finance Trade, including the Compact with Africa; 5) G20 Governance; 6) We-Fi/Business Women Leaders’ Taskforce; and 7) Health.
[2]For descriptions of financialization, see an article by Nick Hildyard of Corner House and a blog by the World Bank Group’s Chief Financial Officer.
[4]Communique of the Development Committee, IMF and World Bank, October 14, 2017.
[6]N. Alexander, “Beware the Cascade,” JustGovernance, Boell Blog
[7]See Annex 2 of the Hamburg Principles and the report of the Global Infrastructure Hub to the G20 Finance Deputies.   These two documents established the metrics for the first Joint Report of the MDBs on mobilizing private finance. This sets up a competition among the MDBs in terms of their efficiency and modalities for mobilizing private finance, in general, and for infrastructure, in particular.
Nancy Alexander is the Program Director, Economic Governance & G20 at the Heinrich-Böll-Stiftung North America.
The analysis first appeared here.