U.S. Pushes for Outside Oversight of World Bank, Opposes Push Toward ‘Big Hydro’

Howard Schneider
Friday, January 24, 2014

The United States is demanding stricter oversight of World Bank projects amid concern that the bank has slipped in how closely it guards against violence, forced resettlement and other conflict associated with the works that it funds.

Jim Yong Kim, president of the World Bank Group, gestures during a session at the World Economic Forum on Jan. 24
Jim Yong Kim, president of the World Bank Group, during a session at the World Economic Forum on Jan. 24
Photo by Chris Ratcliffe, Bloomberg

In a blow to plans set by World Bank President Jim Yong Kim, the United States recently approved an appropriations bill that orders the bank’s U.S. board member to vote against any major hydroelectric project — a type of development that has been a source of local land conflicts and controversies through­out the bank’s history. The measure also demands that the organization undertake “independent outside evaluations” of all of its lending.

The demand coincides with a spate of disputes between the World Bank, civil society groups and the United States over past bank-funded projects that have been linked to killings of villagers and forcing people from their land. The cases include still-unpaid reparations from a Guatemala dam project from the 1970s in which hundreds of villagers were killed, concern about forced relocations in Ethiopia, and funding for a palm oil and food company whose operations in Honduras in recent years were the scenes of deadly fighting between workers and security guards.

The bank has extensive procedures to guard the rights of local residents and a number of ostensibly independent review bodies inside its bureaucracy. But the growing concerns led Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate appropriations subcommittee on foreign operations, to make a broad call for stricter oversight by an outside organization.

“Senator Leahy does not believe the evaluation process — the internal process — is what the institution needs to provide independent evaluation of the effectiveness of their lending,” said David Carle, Leahy’s spokesman. “It is time to make clear that [Kim] needs to look outside the institution.”

It is not uncommon for Congress to use the appropriations bill to attach strings or recommendations about the operations of international organizations such as the World Bank, where the United States is the largest shareholder and an influential voice on policy.

The recently approved bill included $1.55 billion for the World Bank’s concessional lending arm — what a spokesman for the bank called “strong support.” But the list of amendments reflects skepticism about some of the central ideas that Kim has laid out since he was nominated to the bank’s top job by President Obama two years ago.

Carle said that Leahy believes the bank’s renewed interest in large hydro projects “is a mistake and wanted to send that message.”Kim has said he wants to steer the bank toward larger “transformational” infrastructure projects and has specifically mentioned the building of large-scale hydroelectric dams in energy-starved parts of Africa and elsewhere to advance development and tackle climate change.

Kim also has said the bank should focus more of its work in the world’s conflict zones, where close oversight of which companies and projects get funded is even more critical.

In the Honduran case, funding for the Dinant Corp. flowed both directly from the bank’s International Finance Corp. and — less transparently — through a Honduran bank that the IFC supported. The IFC was criticized by its internal ombudsman in a recent report for overlooking the risk of violence in the area.

A World Bank spokesman said that the U.S. demand was still being analyzed and that “we will work with the U.S. to understand their views.”

The U.S. vote alone would not be enough to block hydroelectric or other projects from moving forward. But the Leahy amendments recommend withholding U.S. funding for the bank unless an outside evaluation process is established.

They also require U.S. Treasury officials and the American member of the World Bank board to pressure the organization to more quickly resolve disputes where “individuals and communities . . . suffer violations of human rights, including forced displacement, resulting from any loan, grant, strategy or policy.”

The amendments apply to all international financial institutions, including regional ones such as the Inter-American Development Bank and the African Development Bank. But the focus was on the World Bank, and the measure referred specifically to disputes in Cambodia, Ethi­o­pia and Guatemala.

The Guatemalan case in particular stands out for its level of violence at the time and for the long-standing demand for reparations for the community involved. Construction of the Chixoy Dam in the 1970s was funded by the World Bank and the Inter-American Development Bank. It coincided with a bloody civil conflict, and several hundred villagers were killed and thousands displaced in clashes as the army tried to clear the way for the project.

The uprooted community has struggled since. In 2010, a reparations plan was agreed to by the Guatemalan government, but the money has not been paid. Under the Leahy amendment, U.S. Treasury officials are expected to begin pressuring the World Bank and the IADB to push for payment. There is a separate threat to withhold military training funds from the Guatemalan army unless the reparations are paid.

The bank has suggested using money from existing projects to benefit the affected families, and a spokesperson said the bank would “look for opportunities” to do more.

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