MIGA Attacked by NGOs and Congress
•
An NGO report has called for the World Bank Group arm which insures private investments to be shut down. This was swiftly followed by a vote in the US House of Representatives to take money intended for the Multilateral Investment Guarantee Agency (MIGA) and re-allocate it to anti-tuberculosis programmes.
“MIGA has a history of supporting disastrous projects that destroy the environment and harm local communities,” said Carol Welch, Friends of the Earth US Deputy Director of International Programs. “In a world where assistance to poor countries is limited, tax dollars should not be supporting secretive public institutions that promote environmental havoc around the world.” The report – Risky Business – was published in July by Friends of the Earth (US), Urgewald (Germany) and Campagna per la Riforma della Banca Mondiale (Italy). It complains that MIGA has supported projects including Coca-Cola plants, breweries, a Marriott hotel and casino, a Citibank office building, a gas pipeline, and several large mines that have caused significant environmental and social problems.
MIGA guarantees corporations’ investments against political risks such as nationalisation or political instability. The report gives an interesting example of how this works in practice. In 2000 the Indonesian government postponed construction of a power plant contracted to the US-based Enron Corporation. Enron then made a successful claim alleging government interference in its investment, which MIGA had backed with a $15 million insurance policy. MIGA paid Enron $4 million, with an additional $800,000 paid by the government of Indonesia and the rest by MIGA‘s reinsurers. MIGA then announced that it would not provide political risk insurance for any further projects in Indonesia, prompting the government to agree to reimburse the whole $15 million insurance claim. The report comments “in the end Indonesia will have paid MIGA at least $15 million, with nothing tangible to show for it”.
The report makes clear that “one of MIGA‘s main comparative advantages is a strong ‘deterrence’ factor. The existence of a MIGA guarantee comes with the implicit and explicit backing of the World Bank Group and all of MIGA‘s member nations. This makes it far less likely that a government will take or promote actions that could cause a claim to be paid.” MIGA plans to extend its coverage to new categories of risks. A recent MIGA report indicates that these may include “environmental risks, kidnap and ransom, strikes, consumer boycotts, intellectual property rights and weather, provided that these will contribute to increasing foreign direct investment flows.” Risky Business comments that this could mean “such coverage may protect MIGA‘s multinational corporation clients from some of the few ways that communities and workers have available to protest against poor corporate citizenship”. Poor labour or environmental practices may lead to strikes or consumer boycotts, as in the MIGA-backed Freeport McMoRan mine, Indonesia.
Whilst MIGA has made some changes in its social and environmental policy framework, the report concludes that “MIGA has not given any concrete sign of becoming more transparent or accountable, or changing its operations to cover risks for investments in fields of new environmentally friendly technologies, renewable energy, clean production and the transfer of adapted technology for local indigenous enterprises to facilitate their development.” As private insurance companies now provide similar services to MIGA, the NGOs argue that no further aid money should be channelled through the Agency; it should instead go to institutions which are poverty-focussed. Moina Varkie, MIGA‘s Marketing Manager, responded that the NGO report contained “many factual errors” and “hasty and unsubstantiated conclusions”.
Multilateral Investment Guarantee Agency
Profiling Problem Projects: Making the Case for Change at the IFC
MIGA facts and stats
- 70 per cent of companies getting MIGA guarantees are from five industrialized nations.
- Only 12 per cent of MIGA funds support investments in sub-Saharan Africa.
- In 2000 MIGA‘s net income (profit) was $10.9 million.
- The top four sectors to have received MIGA guarantees are financial services, infrastructure, mining, and manufacturing.
- MIGA has hosted six meetings to promote mining investment in Africa.
- Since it started in 1985 MIGA has provided more than $7 billion in political risk insurance for projects in 75 countries.
- Source: Risky Business