President Kim says the World Bank’s social and environmental performance standards are a requirement to collaborate with businesses and “we don’t compromise on that”. However, an audit released just last week by one of the Bank’s own watchdogs (the Compliance Advisor/Ombudsman – CAO) found that the Bank’s private sector arm (the International Finance Corporation – IFC) committed serious violations of its mandatory safeguards in financing its client which manages the Tata Mundra coal plant in India. The IFC rejected the audit’s findings. “By clearing the IFC response, President Kim sends a clear message that he supports his staff’s denial of science, of expert findings and endorses management’s avoidance of accountability,” said Bharat Patel in a press release. The local fishing communities filed the complaint to the CAO in June 2011 because of the “deterioration of water quality and fish populations, forced displacement of fishermen, community health impacts due to air emissions” among others. It will be interesting to see what Kim does next given that he writes “we are learning from failure as well”.
Kim argues the private sector should be the main engine to create “good jobs” because an estimated 90 percent of new jobs are created by the private sector. As analysis of the 2013 World Development Report highlighted IFI investments should be “evaluated in terms of their net impact on job numbers, both direct and indirect, and on job quality”. These jobs should be stable, adequately paid and have good working conditions.
A central theme of Kim’s blog is that overseas development aid of $125 billion a year will not be enough to tackle global poverty. He proposes engaging “responsibly with the private sector, to leverage their investment and their talent”. As our report ‘Leveraging’ private sector finance highlights there are risks with this approach such as the private sector’s interests in profitability taking precedence over development outcomes.
In assessing the role of the private sector in reducing poverty it is worth mentioning the important trend of the World Bank (and other regional development banks) to increasingly channel funds via financial intermediaries, such as private equity funds and hedge funds. The IFC now allocates over half of its funds to financial intermediaries. However, the lack of transparency means it is very difficult to know what impact these investments have. Earlier this year the CAO released an audit which concluded that the IFC lacks sufficient information to know if its lending has negative environmental or social impacts. Before putting more emphasis on private sector investments the Bank should show what the full development impact is of existing investments.
This comment appeared on the Oxfam America website, responding to World Bank President Jim Yong Kim’s blog “Private sector investment is critical to end extreme poverty” (Published on Oxfam International on 28 October 2013)