Undermining development? IFIs’ role in extractive industries in disarray

30 September 2010

Ongoing Bank mining projects’ impacts on rights, gender and the environment suggest a new approach to the sector is needed, as the IMF and World Bank dole out contradictory advice on mining revenues.

In June, human rights violations prompted the Guatemalan government to announce that operations would be suspended at a mine backed by the International Finance Corporation (IFC), the Bank’s private sector arm.  Canadian firm Goldcorp received a $45 million loan from the IFC in 2004 for the Marlin open pit gold and silver mine, despite civil society concerns that consultations and social and environmental impact assessments had been inadequate (see Update 45).  A May report commissioned by Goldcorp claimed that the mine offered social benefits, but found that human rights were being violated, due diligence on social and cultural impacts had not been carried out, and the mine lacked a proper plan for closure. 

The government’s decision followed a protest by 12,000 people in the neighbouring city of Huehuetenango and calls for the suspension by the Inter-American Commission on Human Rights and the UN Special Rapporteur on Human Rights.  Local activists have reportedly been subject to intimidation and violence.  "The communities affected by the Marlin mine applaud the government’s decision. … Nevertheless, we are worried about the threats that we have received. We have been told that there will be consequences for defending our rights,” said Javier de Leon of local organisation, the Association for the Integral Development of San Miguel.

Only 9 per cent of Bank energy and mining operations were gender-informed

Also in defiance of outcry from civil society groups, the Bank’s Multilateral Investment Guarantee Agency (MIGA, Update 72) in August issued a $207 million guarantee to Japanese-French company Strand Minerals for its Weda Bay mineral mine in Indonesia.  The US executive director abstained from endorsing the guarantee at the Bank’s board as Indonesian and international NGOs warned that the project would displace indigenous peoples, destroy tropical forest, and risk polluting water.  Berry Nahdian Furqon of Indonesian NGO WALHI said that “major social, environmental and political risks are not fully reflected in the environmental impact assessment, plans to mitigate such risks do not exist, and safeguards requirements are violated.”  MIGA’s internal accountability mechanism, the Compliance Advisor Ombudsman, is assessing a complaint about the environmental impacts of the project. 

There are also concerns about the sector’s impacts on gender. The Bank’s Gender and Extractive Industries programme warned in  a briefing last year that women can be adversely affected by the loss of traditional jobs and access to resources, pressure on public services, and exposure to pollution during pregnancy, among other effects.  Yet a June Bank internal report found that only 9 per cent of its energy and mining operations were gender-informed (see Update 72).

Dispute delays DRC debt relief

Debt relief worth over $12 billion for the Democratic Republic of Congo (DRC) was delayed as the Canadian government sought to apply pressure in a dispute over mining rights.  At June G8 and G20 meetings, the Canadian prime minister raised the issue of Canadian corporation First Quantum Minerals’ contract, which was cancelled by the DRC government (see Update 70), while the Canadian World Bank executive director caused a delay to the board vote on debt relief.  The debt relief package was eventually agreed in July, including $1.8 billion owed to the Bank’s International Development Association and $491 million to the IMF. 

Director of UK NGO the Jubilee Debt Campaign, Nick Dearden, said that, “The experience of DRC goes to show that debt relief schemes are still operating in the interests of the ‘creditors’. DRC has spent years shelling out tens of millions of dollars in debt ‘repayments’ while also implementing economic conditions which make its economy more attractive and ‘safe’ for foreign investors.” Civil society groups are calling for audits to establish whether countries’ debts are legitimate, or a legacy of irresponsible lending and undemocratic governance, in which case they should be repudiated.

Ironically, in June, the World Bank approved a $50 million grant to improve accountability and transparency in DRC’s mining sector.

Mining tax contradictions

In what could be seen as an attack on the policies promoted by the Bank in the 1990s, a May IMF working paper on Malian mining taxation recommended that the government eliminate tax holidays granted to mining companies, which have meant the state “has not been able to collect its full share of revenues.”  These incentives were traced to Bank influence over the country’s mining codes in 2007 research by civil society network the International Federation for Human Rights (see Update 57). 

However, the IMF paper also advocated halving gold mining royalties to 3 per cent in order to attract foreign investment.  NGO Eurodad questioned whether such a cut was necessary in the world’s fifth poorest country, in the context of rising gold prices and low national tax rates: gold accounts for 75 per cent of the country’s exports but only 8 per cent of GDP. 

Indeed, a 2009 report by NGO Christian Aid found a lack of evidence that generous mineral tax incentives of the kind promoted by the international financial institutions in Latin America had encouraged investment.

In contrast to its approach in Mali, IMF staff endorsed a super-profits tax of 40 per cent on mining companies in Australia.  At a conference, the IMF’s deputy head of tax policy Philip Daniel said it “doesn’t show adverse effects on Australia’s economic prospects.”  An April policy paper also said that resource rents provide “a potentially robust source of relatively non-distorting revenue”, as well as calling for a global crackdown on tax avoidance.

Tax crackdown?

In August, Bank vice president Charles McDonough expressed support for requiring oil and mining companies to publish their revenue and cost figures on a country-by-country basis, to prevent tax avoidance.  The International Accounting Standards Board is considering developing new standards for the sector, long demanded by civil society groups.  These groups are pushing for any rules should be comprehensive and cover all sectors.

The Bank’s position represents a belated and partial response to the 2004 Extractive Industries Review (see Update 49), which recommended that the Bank promote more transparent revenue management and fair revenue sharing.  Clear information on the Bank’s investments in the sector remains unavailable, with mining reported together with energy. The lack of meaningful data is worrying given the Bank’s $8.2 billion portfolio in this area, including 18 per cent of IDA lending. Regionally, energy and mining account for 17 per cent of Bank lending to Africa, 22 per cent in Asia, and 39 per cent in the Middle East and North Africa. Oil, gas and mining form the IFC’s third largest sector, with investments totalling $1.6 billion.

Biased arbitration?

The Bank’s arbitration forum, the International Center for the Settlement of Investment Disputes (ICSID), in August gave the go-ahead to a case against El Salvador filed by the Pacific Rim mining corporation. The company is seeking $700 million in compensation under the Central American Free Trade Agreement, following the country’s rejection of further mining development. ICSID’s strong tendency to dismiss states’ preliminary objections to cases suggests a “fundamental imbalance in favour of transnational corporations”, according to Alexis Stoumbelis of the Canadian Committee in Solidarity with the People of El Salvador.