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Bretton Woods Observer Winter 2017
A quarterly critical review of developments at the World Bank and IMF

Published by BRETTON WOODS PROJECT
Working with NGOs and researchers to monitor the World Bank and IMF

For a full pdf version go to
http://www.brettonwoodsproject.org/wp-
content/uploads/2017/01/Bretton_Woods_Observer_Winter_2017.pdf

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1.  Behind the fumes: the dirty truth behind the World Bank’s
commitments on climate change (INFRASTRUCTURE/Analysis)
2.  Ghana: political costs of structural adjustment (FINANCE/News)
3.  World Bank continues colonial legacy on Assam’s tea plantations
(RIGHTS/Commentary)
By Simran Sachdev and Jayshree Satpute of Nazdeek
4.  IFC investment in Stora Enso: the need for a responsible IFC tax
policy
Guest analysis by Matti Ylönen, of University of Helsinki and Aalto
University Business School (FINANCE/Analysis)
5.  World Bank IDA18 to introduce increased reliance on capital
markets (FINANCE/News)
6.  The rise and fall of World Bank funded megaprojects
(INFRASTRUCTURE/Analysis)
7.  Doubts persist over IMF participation in new Greek programme
(FINANCE/News)
8.  Bankspeak 2016 (HUMOUR/Commentary)
9.  World Bank appoints new General Counsel (IFI Governance/News)
10. IMF managing director found guilty of “negligence”, remains at
IMF (ACCOUNTABILITY/News)
11. Will IMF’s response to UN report on women’s economic empowerment
change its policies? (GENDER/News)
12. IMF reconsiders new loan as Mozambique defaults (FINANCE/News)
13. IMF approves new Jordan loan (CONDITIONALITY/News)
14. World Bank’s agriculture initiative criticised (LAND/News)
15. World Bank arbitration mechanism ICSID rules in favour of El
Salvador (PRIVATE SECTOR/News)
16. Inside the Institutions (IFI GOVERNANCE/Background)
17. Recommended resources on the World Bank and IMF 2016 (IFI
GOVERNANCE/Background)

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INFRASTRUCTURE Analysis

Behind the fumes: the dirty truth behind the World Bank’s commitments
on climate change

Summary
-IFC investments in FIs supported at least 41 coal power plants since
2013
-Investments contravene 2013 Bank policy on coal, contribute to
climate change and deforestation
-Lack of disclosure on FI sub-projects continues to deprive
communities access to grievance mechanism

The negative development impact of the International Finance
Corporation’s (IFC, the World Bank’s private sector arm) investments
in financial intermediaries (FIs) has once again been brought to
light (see Observer Spring 2014). An October 2016 report, Disaster
for us and the planet, by US-based NGO Inclusive Development
International (IDI) and partners, provided evidence that  “IFC-
supported financial institutions have funded at least 41 new coal
projects …  since the World Bank announced its coal ban in 2013”.
While the IFC has claimed that the concerns of civil society
organisations have largely been addressed through its response to
previously highlighted harmful projects that it funds, the report
demonstrates that the IFC remains exposed to highly damaging
projects.

The report highlighted the IFC’s involvement in the Mahan plant in
India, where it provided millions of dollars in funding to two banks,
IDFC and ICICI, which are “major players in India’s infrastructure
and industrial sectors”. It noted that “in total, these two IFC-
supported banks helped provide approximately $1.9 billion in
financing to build the Mahan coal plant”. The report also disclosed
that “the IFC’s support for the project did not end there” as it
enabled the development of a nearby mine which Greenpeace found
“would displace or otherwise harm 50,000 people who lived in the
forest or depended on it for their livelihoods”.

The report also detailed IFC’s involvement in Rampal in Bangladesh,
which it calls “one of the most potentially destructive coal plants
in the world”. The plant sits very close to the world’s largest
mangrove, which supports the lives of two million people in India and
Bangladesh, is a UNESCO World Heritage site and home to numerous
endangered and threatened species. The report stressed that “the
World Bank was initially approached to fund Rampal. However, the Bank
declined … Three French banks, Credit Agricole, BNP Paribas and
Societe Generale, were also approached but refused to get involved”.
In April 2016, Norway’s sovereign wealth fund placed the company
charged with building the plant, the National Thermal Power
Corporation, on its exclusion list.  The report emphasised that while
“these institutions distanced themselves from the projects, six IFC-
funded commercial banks arranged billions of dollars in financing for
the National Thermal Power Corporation”, noting that “between 2005
and 2014, the IFC provided $520 million in funding to the six banks”.
Considering the impact of IFC’s involvement in these and other
similar projects, the report stressed that “these projects have also
decimated the world’s forests. Coal plants, and the mines that feed
them, are a leading cause of deforestation globally, further
contributing to climate change.”

Behind the fumes – the hidden story of IFC’s investment in coal
---------------------------------------------------------------------

IFC’s involvement in coal power generation lies in stark contrast to
the World Bank Group’s (WBG) position on coal, as outlined in its
2013 Energy sector directions paper, which states that “the WBG will
provide financial support for greenfield [new] coal power generation
projects only in rare circumstances”(see Bulletin December 2013). The
Bank’s position was reiterated by World Bank president Jim Yong Kim
in November 2016 when, in celebration of the entry into force of the
Paris Climate Change Agreement, he stressed that “without climate
action at scale, more than 100 million people could fall back into
extreme poverty by 2030”, and that “we need to focus special
attention and action on Asia, where energy demand is growing and some
countries continue to look to coal as the solution.”

IDI’s report forms part of a four-part series titled Outsourcing
development: Lifting the veil on the World Bank Group’s lending
through financial intermediaries and contributes to evolving evidence
of the negative development impacts of IFC investments in FIs. During
a months-long investigation following the trail of IFC money, IDI
uncovered 121 harmful projects that the IFC is funding through FIs.
Despite some positive initiatives taken by the IFC, such as the
disclosure of it private equity investments and a stated commitment
to “strengthen and deepen the quality and coverage of IFC’s E&S
[environmental and social] risk management of FIs”, the report
demonstrated that the opaque nature of IFC investments in FIs and its
inability or unwillingness to adequately screen and monitor FI sub-
projects persist to the detriment of communities and the environment
(see Observer Summer 2015).

The report’s reliance on expensive proprietary market information,
unavailable to often marginalised communities affected by IFC-funded
projects or their supporters, demonstrates that concerns about the
lack of disclosure of sub-projects funded by IFC FI clients remain
unaddressed (see Bulletin Nov 2014). The lack of disclosure prevents
communities and CSOs from holding the IFC to account by bringing
cases to light and accessing the IFC’s grievance mechanism, the
Compliance Advisor Ombudsman (CAO). This contravenes the IFC’s
performance standards which oblige the IFC to ensure that communities
are aware of the existence of the CAO.

An October letter to the IFC’s CEO Philippe H. Le Houérou, sent by
six organisations, including the Philippines Movement for Climate
Justice, a coalition of 130 environmental groups in the Philippines,
and Machimar Adhikar Sangharsh Samiti (MASS), pleaded with him to
respond to the call of those working to avoid a “climate catastrophe
by ensuring that the IFC’s new FI investments are coal-free”.

Meanwhile, Owning the outcomes, a joint briefing by Oxfam and IDI
also released in October 2016, challenged five arguments that the IFC
has put forward to repudiate responsibility for harms caused by its
financial-sector investments. David Pred, Managing Director of IDI
commented “While the IFC has tried to distance itself from the
projects funded by its intermediaries, the fact is that these banks
are brazenly disregarding the IFC’s environmental and social
requirements. As a result, the World Bank Group has ended up fuelling
and profiting from business activities responsible for enormous human
suffering, environmental devastation and in some cases serious
crimes”.

tinyurl.com/IFC-FIs-and-coal

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FINANCE News

Ghana: political costs of structural adjustment

In December 2016 Nana Akufo-Addo succeeded John Mahama as president-
elect of Ghana. Peter Suaka, of news site Modern Ghana, argued that
the election was a “vote of rejection of the IMF’s direct control of
Ghana”. In April 2015 Mahama’s administration accepted a near $1
billion loan programme from the IMF (see Observer Autumn 2016), which
Akufo-Addo pledged to review, promising to cut taxes and increase
spending. According to Suaka, Ghana’s programme included policy
conditions commonly prescribed by the IMF that disproportionately
impact the most vulnerable, including subsidy cuts for utilities,
public wage bill freezes and tax increases.

The IMF’s insistence that the Ghanaian government not finance its
budget from the Bank of Ghana, also referred to as “zero financing”,
has also been criticised. Newman Kusi of the Institute of Fiscal
Studies of Ghana told news site B&FT online in December that the
measure was premature, “not in the interest of the country” and does
not make any sense in the Ghanaian context. In September, ahead of
the election, the Ghanaian government issued a fifth Eurobond which
Peter Quartey of the University of Ghana argued was a response to
this restriction and aimed to “raise money to close the resulting
revenue gap”. News agency Bloomberg similarly described the Eurobond
as an effort by the Ghanaian government to “loosen the IMF’s
straitjacket ahead of the elections”, explaining that the bond
issuance means Ghana can delay calling on the next tranche of the IMF
programme.

In January, Yaw Osafo Marfo of the new Akufo-Addo administration said
that “the IMF programme will certainly be reviewed” because “the
current programme literally squeezes all the fiscal spaces” the
president needs to implement his political programme, according to
news site Africa Daily Report.

tinyurl.com/Ghanaelection

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RIGHTS Commentary

World Bank continues colonial legacy on Assam’s tea plantations
By Simran Sachdev and Jayshree Satpute of Nazdeek

An Adivasi woman working in Assam’s tea plantations will carry her
baby on her back as she has nowhere to leave her children, and she’ll
bring another child along to help her pick tea leaves. She will spend
eight to nine hours picking leaves and gather a total of 24 kilograms
a day, with few or no breaks. In breach of the state’s legal minimum
wage of 250 Indian rupees per day, she will receive only 126 rupees
(about £1.52). Failure to meet her daily target will further reduce
her wage. Aggravating her poor working conditions, there is no toilet
accessible in her workplace, and the housing and sanitation
facilities provided for her in the plantation are in disrepair.

Nazdeek’s online exhibition shows that despite an investment by the
International Finance Corporation (IFC), the World Bank Group’s
private sector arm, very little has changed in Assam’s tea gardens
since colonial times. Tea plantations in Assam act as pseudo-states –
plantation workers live and work there, requiring all basic services
at the site. In order to truly improve working and living conditions
for tea laborers through this investment, the IFC must ensure that
the long-standing colonial structure in tea plantations is
dismantled, and use its leverage with plantation owners to ensure
workers can live a life of dignity, rather than that of a slave.

The IFC joined forces with Tata Global Beverages in 2009, investing
$7.8 million for a 19.9 per cent stake in Amalgamated Plantations
Private Limited – the second largest producer and supplier of tea in
India. Tata retained a 49.6 per cent stake. The project implemented
an employee-share-ownership programme, which claimed to offer 30,000
workers the opportunity to make decisions in the company and share in
its profits. The investment was supposed to help lift workers out of
poverty and improve their working and living conditions. However, in
a 2013 complaint with the IFC’s accountability mechanism, the
Compliance Advisor Ombudsman (CAO), three Indian non-governmental
organisations cited poor living and working conditions for tea
laborers in Assam, noting that “the living and working conditions on
the tea estates do not comply with IFC social safeguard policies. The
conditions are also not in compliance with Indian domestic law, and
particularly the Plantation Labour Act.” (see Bulletin Februari
2014).

The CAO conducted an investigation and published its findings in a
report made public in November 2016, validating the complainants’
claims. The report confirmed numerous allegations made in the
complaint, including lack of compliance with requirements on housing
and other basic services; insufficient consideration of workers’
health; lack of due diligence in assessing the risk of child labour;
exposure of workers to extremely hazardous chemicals; and lack of an
effective grievance mechanism for workers.

In response to the claim that “Workers are impoverished and suffer
from malnutrition due to inadequate compensation”, the CAO report
found “that IFC has not assured itself that the wages paid by the
client are consistent with IFC’s commitment to support jobs which
offer a ‘way out of poverty’ or ‘protect and promote the health’ of
workers…” At a minimum the IFC should ensure that workers are paid
the legal minimum wage. While even that is below a living wage,
abiding by Indian labour laws is essential, and it is the bare
minimum that the IFC can do to improve living and working conditions
for tea laborers.

In response to the CAO report, the IFC released an action plan that
should have directly, and in a timely fashion, addressed the CAO’s
findings. The implementation of the plan is to be monitored by the
CAO. The IFC’s action plan, however, is very limited in scope. Rather
than addressing the root causes of workers’ poverty as highlighted in
the CAO report, the plan only envisages few interventions increasing
the provision of basic health and sanitation services over the next
two years. The quality of these services, as well as the plan’s
overall potential to truly tackle labour exploitation and appalling
living conditions, are highly questionable. The IFC should see the
CAO report as an occasion to ensure it meets it’s development mandate
by creating structural change on Assam’s tea plantations, as it is
terribly overdue.

The 2013 complaint is key to the struggle of tea plantation workers,
but it is only one step towards fair working conditions. Nazdeek and
partner organisations are working alongside tea plantation workers to
run advocacy campaigns, conduct legal empowerment and education
initiatives, and use strategic litigation to ensure just wages,
improved health services, and better housing conditions – all to
challenge the colonial structure still embedded in Assam. Given the
IFC’s claim of working to “help create opportunity for all,” it
should fully support these efforts, and it should ensure that workers
are in a position to break the cycle of poverty and to make decisions
about their own futures.

tinyurl.com/AssamTata

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FINANCE analysis

IFC investment in Stora Enso: the need for a responsible IFC tax
policy
Guest analysis by Matti Ylönen, of University of Helsinki and Aalto
University Business School

Summary
-IFC praises Stora Enso while ignoring its tax arrangements
-IFC investments in Stora Enso support practices that deprive
Brazilian government of essential tax revenue

The negative development impact of aggressive tax avoidance by
multinational corporations has become an increasing cause for
concern, with a 2015 UN Conference on Trade and Development paper
noting that developing countries lose $100 million annually in tax
revenue due to related tax practices. Meanwhile, according to World
Bank 2016 figures, the International Finance Corporation (IFC, the
World Bank’s private sector arm) has comprised nearly 20 per cent of
World Bank commitments for the past five years. This calls for more
attention to be paid to the tax impacts of IFC’s investments, as
highlighted in the April 2016 Oxfam report The IFC and tax havens.

Stora Enso: Brazilian pulp paper trail via the Netherlands
---------------------------------------------------------------------

The IFC has a long history of financing Stora Enso — one of the
world’s largest pulp and paper companies. Supporting Stora Enso
activities in China and Laos, the IFC has stressed the company’s
commitment to “sustainable forestry management”. One issue that has
not received equal coverage is Stora Enso’s tax practices.

In 2005, Stora Enso started joint venture Veracel in Brazil with
Brazilian pulp company Fibria. The two companies had equal stakes in
Veracel, and Stora Enso was entitled to half of its pulp output.
According to financial statements and harbour and customs data, Stora
Enso first shipped the pulp to its paper mills in Europe through
Belgian ports. However, the paper trail of the trade is more
interesting than its logistics.

In 2012 I co-authored a study published in Finnish business magazine
Talouselämä which demonstrated that the paper trail of this
arrangement went through Amsterdam. The operations did not require
this arrangement, but it generated major tax savings. When Veracel’s
pulp trade to Europe began, Stora Enso made its Dutch holding company
Stora Enso Amsterdam (SEA) the hub of its trade. The 2012 study
showed that Stora Enso sold the Veracel pulp to SEA significantly
below market prices, which then sold the pulp at market-based prices
to its paper mills in Europe. The average tax rate that Stora Enso
paid from these profits in the Netherlands was only 1.5 per cent,
contrary to the Dutch corporate income tax rates of 20–34.5 per cent.
This arrangement amassed over €300 million (approximately $324
million) of profits to the SEA in 2005–2010, representing half of the
profits of Stora Enso in this period.

In response to our findings, Stora Enso highlighted “logistical
reasons” for its arrangement. However, in a subsequent academic
article we argued that the arrangement was artificial and that it
violated Stora Enso’s principles on transparency and corporate
responsibility, which state: “we reflect our business transactions
openly, accurately and fairly in the accounts of the company,
including ‘how the monetary flows [and] … business operations are
formed’.”

Whilst our study covered 2005–2010, more recent annual reports
indicate that the practice has continued. In 2013, SEA was discussed
for the first time in Stora Enso’s Corporate Responsibility Report
which stated that “pulp from our joint venture Veracel in Brazil is
traded via a pulp sourcing and marketing company based in Amsterdam”.
The tax policy sections in its 2014 and 2015 annual reports
reproduced similar statements, noting that the pulp is traded via
Amsterdam for “logistical and operational reasons”. At the time of
writing, the financial statements of Stora Enso Amsterdam were only
available until 2013.

Misguided praise by the IFC
---------------------------------------------------------------------

While Stora Enso has regularly been cast in a positive light by
inclusion in indices such as the Dow Jones Sustainability Index and
FTSE4Good, which the IFC even promoted in 2015, our research
demonstrated that Stora Enso’s tax arrangements were depriving the
government of Brazil of essential tax revenues. Stora Enso’s use of
opaque transfer pricing arrangements implied that it failed to abide
by IFC standards requiring that companies demonstrate “commitment to
transparency and good governance on [their] operations.” As a
development institution, the IFC failed in its due diligence to
ensure that Stora Enso’s business practices, including its tax
arrangements, support the IFC’s sustainable development objectives
(see Observer Autumn 2016).

The Stora Enso case therefore substantiates the argument in Oxfam’s
briefing that “the existing policies of the IFC need significant
revision to include responsible corporate tax considerations – beyond
legal compliance – to be included in sustainability considerations
and development impacts”.

tinyurl.com/IFC-tax-policy-required

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FINANCE news

World Bank IDA18 to introduce increased reliance on capital markets

Summary
-IDA 18 to receive increased funding through capital markets,
questions about debt risk
-IDA18 launched new $2.5 billion private sector window, including IFC
and MIGA
-Concerns raised about social risks, IFC’s poor track record

After the final meeting of the International Development
Association’s (IDA, the World Bank’s low income country arm) 18th
replenishment round in December, the World Bank announced a likely
funding envelope of $75 billion for IDA through 2020. Every three
years, donors meet to replenish IDA resources and review its policy
framework (see Update 69). IDA18’s $75 billion, however, does not
quite compare with IDA17’s $52 billion (see Observer Winter 2014),
because IDA18 is expected to use its strong credit rating to leverage
its equity and raise about a third of the $75 billion through the
capital debt markets, subject to eventual repayments. Another third
of the IDA18 funds will come from the Bank’s own resources, such as
the International Bank for Reconstruction and Development (IBRD, the
Banks middle income country arm), the International Finance
Corporation’s contribution (IFC, the Banks private sector arm) and
from borrowers’ repayments of earlier IDA credits.

Paddy Carter of UK-based think-thank Overseas Development Institute
commented that “comparing headline numbers from IDA17 to IDA18 can be
misleading, in the sense that borrowing cannot really be considered
‘replenishment’ and the decision by donor countries not to put more
money into IDA is hard to square with their rhetoric about the need
to scale up efforts for sustainable development.” Tim Jones from UK-
based NGO the Jubilee Debt Campaign cautioned: “Raising money from
capital markets ties IDA funding more closely into the interest rates
the World Bank can borrow at. In the future this could mean higher
interest rates for IDA recipients; increasing risk of future debt
crises.”

According to the Bank’s December press release, to date, a total of
48 countries have pledged resources to IDA18, also accounting  for a
third of the funds, and additional countries are expected to pledge
in the near-term. Details of the contributions made by individual
countries are to be announced in spring. As with IDA17, the UK is
likely to remain the largest donor, followed by the US. According to
newssite Nikkei Asian Review, Japan is the third largest donor with a
$5.23 billion contribution, an increase of about 20 per cent from
three years ago.

A total of 75 low-income countries are eligible to benefit from the
IDA18 financing of grants and low- to zero-interest loans. The Bank
said in its December press release IDA18 will double the resources to
address fragility, conflict and violence to more than $14 billion and
provide an additional $2 billion for refugees and countries that host
them. Caroline Heider director general of the Bank’s Independent
Evaluation Group (IEG), told Devex in October that a key finding of a
2016 evaluation of the World Bank’s engagement in situations of
fragility, conflict and violence “is that the causes of conflict, the
shape of the political economy and the identity of key stakeholders
are often either not understood [by the Bank]… or are understood but
not translated into a strategy or operational programme.” Korinna
Horta of German NGO Urgewald commented “this substantial rise in IDA
resources will increase the pressure of the World Bank to accelerate
lending at a time when it has greatly weakened its environmental and
social standards (see Observer Autumn 2016, Summer 2016). The number
of problem projects is likely to rise significantly with untold risks
to affected people and their environment. The Bank needs to ensure
project implementation benefits the poor.”

Private sector window
---------------------------------------------------------------------

IDA18 includes a controversial plan to create a $2.5 billion private
sector window (PSW) to complement existing investments into private
sector development in IDA countries. The PSW will be introduced
together with the IFC and Multilateral Investment Guarantee Agency
(MIGA, the Bank’s political risk insurance arm). A September IDA
report on PSW set out the proposed governance arrangments with
details still to be worked out, noting that strategic direction and
monitoring will be provided by an oversight committee composed of the
Boards of the three institution. According to the Bank, the PSW “will
help mobilise private capital and scale up private sector development
in the poorest countries, particularly in fragile situations”. NGO
Oxfam raised concerns about the PSW in a September briefing, urging
the Bank to ensure private sector investments are pro-poor: “Social
risk is especially important to consider in the context of fragile
states where there is a real possibility for fuelling social
conflict, particularly those related to land and natural resources.”
Nick Galasso of Oxfam International expressed further concerns in
December, arguing that the IFC “has a poor record of protecting the
communities they’re supposed to be helping from the impacts of their
clients’ projects (see Observer Spring 2016). We urge the Bank to
significantly reform and ramp up their oversight and protections
before a single dollar is invested.”

tinyurl.com/IDA18PSW

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INFRASTRUCTURE Analysis

The rise and fall of World Bank funded megaprojects

Summary
-World Bank confirms support for controversial Southern Gas Corridor
-Bank pulls out of DRC Inga hydropower project
-IFC to sell stake in Guinea Simandou mining project
-New complaint regarding Uganda Bujagali hydropower project lodged

The World Bank concluded 2016 by adding a controversial megaproject
to its portfolio, while beyond the main spotlight it withdrew support
from other high-profile megaprojects. In late December, the Bank
approved $800 million towards the Trans-Anatolian Natural Gas
Pipeline (TANAP) project, with half of the funding going to
Azerbaijan and half to Turkey (see Observer Summer 2016). Originating
in Azerbaijan, TANAP stretches for 1,820 km from Georgia to Greece,
crossing Turkey. It forms part of the high-risk and controversial
3,500 km long Southern Gas Corridor, connecting gas pipelines from
Azerbaijan to Europe. TANAP will link with the western section of the
corridor, running to Italy through Greece and Albania.

Civil society has repeatedly criticised the Southern Gas Corridor due
to the wide range of risks associated with the project, including
geopolitical concerns, such as the human rights situation in
Azerbaijan and the increasingly repressive regime in Turkey (see
Observer Summer 2016). According to Xavier Sol of NGO Counter
Balance, local opposition to the project has prompted affected
communities in Albania, Greece and Italy to submit complaints to the
European Investment Bank and the European Bank for Reconstruction and
Development, two of the other funders of the project. Alleged corrupt
practices linked to the main company responsible for the Turkish
section of the pipeline were revealed in a mid-December report by NGO
coalition Bankwatch. Moreover, questions have been raised about the
World Bank funding what is in essence a fossil fuel project, despite
its alleged support for the UN’s 2015 Paris Agreement on climate
change, including an August 2016 statement that it “has ramped up its
support for climate work post Paris”, including “more investments in
renewable energy.”

Exit through the backdoor
---------------------------------------------------------------------

Also in 2016, the World Bank retreated from two high-profile
megaprojects, Inga 3 and Simandou. In 2014, the Bank approved a $73
million grant for the Democratic Republic of Congo (DRC) Inga 3
hydropower project, despite the US abstaining due to “governance and
environmental risks” and the board noting “significant implementation
risks” (see Bulletin May 2014). Inga 3 is part of the $100 billion
Grand Inga hydropower project with potential capacity to generate
40,000 megawatts, which would make it the largest hydropower facility
in the world. In 2013, Rachel Kyte, then World Bank vice president
for sustainable development, argued that Inga was high on the Bank’s
agenda: “People have been looking at the Inga dam for as long as I
have been in the development business … The stars are aligned now”
(see Update 86). The project has received long standing criticism
from civil society, including that only about a fifth of Inga 3’s
expected energy output would go to the national utility company, with
the rest being exported to South Africa or going to DRC-based mining
companies (see Observer Spring 2015). Two years in, the Bank first
suspended the project in July 2016, and then cancelled its financing
in September, citing “the government of DRC’s decision to take the
project in a different strategic direction to that agreed” (see
Observer Autumn 2016).

Moreover, according to early October 2016 media reports, the Bank’s
private sector arm, the International Finance Corporation (IFC), is
seeking to limit its involvement in the controversial Guinea Simandou
mine, Africa’s largest iron ore project, by selling its five per cent
stake in the joint venture behind the mine (see Observer Summer 2014,
Bulletin Dec 2013, Update 82). As late as February 2016, the IFC
called Simandou “a world-class, low cost iron ore deposit with
significant economic potential for Guinea”. However, the project has
come under strong civil society criticism, including for lack of
clear poverty reduction impacts and questionable plans to ‘offset’
the mine’s environmental impact (see Observer Summer 2014). It has
also been beset by other problems, such as the slump in iron ore
prices and corruption allegations. Moreover, in late October the
largest stakeholder in the venture, mining giant Rio Tinto, announced
that it will sell its 47 per cent stake to China’s Chinalco. Shortly
after, in mid-November, fresh allegations of bribery were revealed,
resulting in the dismissal of two high-level Rio Tinto executives.

Bujagali: a troubled megaproject
---------------------------------------------------------------------

The Bujagali hydropower project in Uganda, another high-profile
megaproject which has received funding from both the World Bank, the
IFC and the Multilateral Investment Guarantee Agency (MIGA, the
Bank’s political risk insurance arm), continues to attract criticism
(see Update 86, 80, 62). The IFC called Bujagali “a model and an
inspiration for launching other large-scale infrastructure projects
in highly challenging environments” in 2012, however, civil society
and local communities have deemed the project controversial from its
conception (see Update 16). In June 2016, the Bank’s accountability
mechanism, the Inspection Panel (IPN), received its third complaint
that involved Bujagali, regarding likely negative environmental and
social impacts of the filling of a related reservoir. Bujagali is
also subject to seven complaints to the IFC’s accountability
mechanism, the Compliance Advisor Ombudsman, most recently in 2015
regarding lack of compensation for damaged crops (see Update 86, 80,
62). Moreover, the Bank’s performance in Uganda has come under
further scrutiny due to “multiple failures” identified in relation to
a road project, leading to the Bank in September announcing its
intention to withhold new lending to the country (see Observer Autumn
2016).

Josh Klemm of US-based NGO International Rivers commented: “The World
Bank has been slow to learn the hard-won lessons of the past that
mega-projects rarely produce tangible benefits, and more often result
in mega harms. The Bank would do well to acknowledge that better,
smaller-scale solutions are readily available and much better suited
to meet the needs of the world’s poorest.”

G20 and the MDB infrastructure consensus
---------------------------------------------------------------------

The World Bank has continued to work with other multilateral
development banks (MDBs) to create a consensus around infrastructure,
which could pave the way for more large-scale infrastructure projects
(see Observer Spring 2016). In mid-August, the MDBs published a
“joint declaration of aspirations on actions to support
infrastructure investment” for the G20, in order to “identify
bottlenecks that hinder greater levels of private and public sector
infrastructure investment”. The declaration noted the MDBs’ “unique
opportunity to build on past and current work to catalyse higher
levels of private investment into developing country infrastructure”,
including “to lower transaction costs, risk and risk perception”.
Moreover, MDBs form a key part of the new Global Infrastructure
Connectivity Alliance, launched by the G20 in September 2016, with
the World Bank serving as the secretariat. The alliance’s objective
is “to enhance cooperation and synergies of existing and future
global infrastructure and trade facilitation programs seeking to
improve connectivity within, between and among countries.”

tinyurl.com/WBmegaprojects

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FINANCE News

Doubts persist over IMF participation in new Greek programme

Summary
-Disagreements within Troika made public as IMF blames European
Stability Mechanism for unsustainable proposals
-IMF claims it is not pushing austerity
-Greece refuses to implement proposed IMF labour and pensions reforms

As negotiations proceed between the Troika (the European Commission,
the European Central Bank and the IMF) and Greece on a third loan
package of $92 million by 2018 (see Observer Summer 2016), the
participation and role of the Fund remain uncertain. While Germany
has stood firm against debt relief for Greece, the Fund has called
for “upfront” and “unconditional” debt relief and stressed that its
participation in the third loan package will depend on its evaluation
of the sustainability of Greece’s €330 billion ($353 billion) debt.
While Greece has recently suggested that it is happy to proceed
without the Fund, its participation in the new package is considered
politically important to Germany, which has threatened to block a new
agreement without the IMF.

IMF claims it’s not demanding more austerity
---------------------------------------------------------------------

In mid-December senior IMF officials published a blog disputing Greek
government assertion: that it is pushing for additional austerity
measures, arguing that “the IMF is not demanding more austerity” and
that “Greece’s debt is highly unsustainable and no amount of
structural reforms will make it sustainable again without significant
debt relief.” The blog concludes “if Greece agrees with its European
partners on ambitious fiscal targets, don’t criticise the IMF for
being the ones insisting on austerity”.

According to The Guardian newspaper, the Greek finance minister in
December stated that “the IMF is economising with the truth when it
says it is not asking for more austerity”, stressing that “the IMF
was advocating policies that were bound to increase inequality and
social exclusion – contradicting its own self-avowed goal of
inclusive growth”. Commenting on the continued push for additional
pension and labour reforms, the finance minister stressed that “Greek
expenditure on both pensions and other subsidies is about 70 per cent
of the EU average and 52 per cent of that of Germany.”

In mid-December, news service Reuters quoted European Commission
spokeswoman Annika Breidthardt “the European institutions consider
that the policies of the ESM [European Stability Mechanism] program
are sound and if fully implemented can return Greece to sustainable
growth and can allow Greece to regain market access”. The IMF and ESM
disagree on the size of budget surplus required of Greece, with the
IMF arguing that European demands for a surplus of 3.5 per cent of
GDP in 2018 is unachievable without additional counterproductive and
likely unsustainable measures. The IMF has proposed that Greece aims
at a 1.5 per cent surplus.

Trade union brings case on human rights violations linked to
austerity
---------------------------------------------------------------------

In October 2016 news agency AP reported that Greece’s largest trade
union had brought a case to the Council of Europe alleging that the
last six years of austerity resulted in human rights violations,
stating that “successive measures … have eroded protection offered by
collective wage agreements, cut the minimum wage, and imposed
repeated and arbitrary cuts on salaries and pensions.” The arguments
used by the trade unions are consistent with the findings of Cephas
Lumina, UN special rapporteur on foreign debt and human rights, who
after a visit to Greece in 2013 warned that the “Troika bailout
conditions are undermining human rights” (see Update 86).

tinyurl.com/doubts-persist-Greece-IMF

====================================================================
HUMOUR Commentary

Bankspeak of the year 2016

Every year the Bretton Woods Project highlights some of the most
farcical remarks of Fund and World Bank staff. After two-years of
focusing on IMF managing director Christine Lagarde (see Observer
Winter 2016, Winter 2015) this year’s light is shone on World Bank
president Jim Yong Kim, in recognition of his stellar performance
throughout the year. If only the detrimental impact of his
performances were limited to the sleepless nights it caused his PR
and Civil Society Liaison colleagues.

As has been widely publicised throughout Kim’s first term, staff have
expressed grave concerns about Kim’s leadership style (see Observer
Autumn 2016). Perhaps emboldened by his renewed coronation in
September, president Kim allowed what many staff would claim are his
true colours to shine through during the October World Bank annual
meeting CSO town hall. The meeting affords members of communities
affected by Bank projects and civil society organisations, many of
whom have serious concerns and travelled thousands of miles, the rare
privilege of an audience with the head of the Bank and Fund.

Things got off to a bad start with the audience being ‘treated’ to a
20 minute monologue by Kim and Lagarde. Once the audience was finally
allowed to speak, Kim continued by dismissing concerns raised by
community members. He even addressed the concerns of one particular
activist with: “you’re welcome”. When asked to respond to concerns
raised by US Congresswoman Gwen Moore’s letter concerning the
potential conflicts of interest arising from the Bank’s involvement
in water privatisation, Kim quickly brushed off the speaker and
simultaneously insulted Ms. Moore by questioning her autonomy: “Look,
I know Gwen Moore very well… I know that she didn’t actually write
the letter herself.” Addressing a question on the much publicised
failures of the Bank’s resettlement policy, Kim, ever empathetic and
understanding of the plight of the population the Bank purports to
support, proceeded to demean people forced to occupy land without
formal tenure. He said “unlike any government… we resettle even
squatters. So guess what happens when we announce that a project is
going to happen in an area? People move in.” It seems Kim has
concluded that his former civil society self, of whom he seems to be
quite fond as featured in The Guardian’s ‘hard-hitting’ journalism
How the World Bank’s biggest critic became its president, was clearly
mistaken in questioning the wisdom of Bank policies. Apparently his
enlightened leadership changes everything, including the nature of
the Bank’s already problematic attitude toward consultation. Perhaps
Kim should consider writing the sequel to “How to make friends and
influence people”?

tinyurl.com/bankspeak-2016

====================================================================

IFI Governance news

World Bank appoints new General Counsel

In November 2016, the World Bank appointed Sandie Okoro as World Bank
Group Senior Vice President and General Counsel. Okoro was formerly
with HSBC, one of the largest banking and financial services
organisations in the world. The General Counsel is the World Bank
Group’s principal adviser and spokesperson on all legal matters, and
also serves as legal adviser to the Bank’s board, management and its
accountability mechanism, the Inspection Panel.

In his 2015 report, Philip Alston, the former UN special rapporteur
on extreme poverty, noted that in practice, legal opinions by the
General Counsel provide the basis for the Bank’s executive directors’
interpretations of the Bank’s Articles of Agreement, including of its
mandate. Jessica Evans of NGO Human Rights Watch, commented: “Human
rights defenders will judge Okoro’s performance by her willingness to
fill what former World Bank Legal Counsel Roberto Danino called ‘a
gaping hole in the dynamic interpretation of the Bank’s statutes’ and
develop a human rights policy suitable to the institution’s role.”

tinyurl.com/WBgencounsel

====================================================================
ACCOUNTABILITY news

IMF managing director found guilty of “negligence”, remains at IMF

Summary
-IMF managing director found guilty by French court of negligence
-No fine or sentence was imposed
-Lagarde remains in place at IMF

In mid-December 2016, IMF managing director Christine Lagarde was
found guilty of “negligence” by a French court on charges relating to
her time as French finance minister in 2008. Lagarde waived her right
to immunity to stand trial but lost an appeal in July to avoid the
trial altogether (see Observer Autumn 2016). A special tribunal ruled
Lagarde was guilty of criminal charges linked to “negligence in
dealing with public funds” when she was finance minister, as she sent
a dispute to an arbitration authority that awarded €400 million ($418
million) in damages and interest of public funds to a French business
tycoon. The tribunal opted not to impose a fine or a sentence;
Lagarde could have faced a €15,000 fine and up to a year in jail.
Lagarde will not appeal the decision. Speaking at a news conference
in Washington DC on the day of the verdict Lagarde said “I’m not
satisfied with it, but there’s a point in time when one has to just
stop, turn the page, and move on”.

The lack of punishment caused a wave of criticism by politicians and
civil society. A petition on the website change.org, signed by more
than 250,000 people, argues that there seems to be a separate justice
system for the powerful, who are dispensed from ordinary justice and
sanctions. The petition demands that the law should be applied to
Lagarde, in the same way as the law applies to ordinary citizens, and
that the former minister must anwser for her acts before an ordinary
correctional court and face the consequences.

The same day as the conviction, the IMF executive board issued a
statement reaffirming “its full confidence in the managing director’s
ability to continue to effectively carry out her duties”. In an
article in the New York Times (NYT), the board’s view is
characterised as a desire to maintain continuity at the Fund during a
period of political changes taking place in Europe and the US, and
that there was consensus that “Lagarde’s transgressions occurred when
she was not at the Fund – in contrast to those of her predecessor,
Dominique Strauss-Kahn”, who stepped down in June 2011 after
allegations of sexual assault and attempted rape against a New York
hotel worker (see Update 76). Nicolas Véron, of the Belgian Bruegel
Institute, told the NYT that “It would be complacent if not
delusional to say there will be no impact on the institution, …. the
only question is how big is the impact – and how does it compare with
the need for stability.”

Bhumika Muchhala of NGO the Third World Network commented “Given the
current political pandemonium, the IMF board doesn’t want to ruffle
any feathers. And importantly, Lagarde is loyal to the European
Central Bank’s austerity agenda giving her the trust of the European
financial and political elite establishment, and in real politik that
is much more precious to the Fund than making amends for past foils,
no matter how corrupt or scandalous.”

A December Devex article cited un-named experts saying that “the
scandal emphasised ongoing issues within the institution”, which
“could bolster calls for leadership reform at the institution”,
calling into “question the existing governance arrangement that has
seen a European lead the IMF and an American lead the World Bank
since the Bretton Woods institutions were forged more than 70 years
ago.” Lagarde’s initial appointment contradicted promises for “an
open, transparent and merit-based selection process, irrespective of
nationality and gender” (see Update 76). According to James Boughton,
former historian of the IMF and senior fellow at the Center for
International Governance Innovation; “When Lagarde finishes her term,
the IMF is going to have to cast its net a lot wider to find its next
managing director.”

tinyurl.com/IMFLagardetrial

====================================================================
GENDER news

Will IMF’s response to UN report on women’s economic empowerment
change its policies?

Summary
-UN High Level Panel on women’s economic empowerment publishes
flagship report
-Civil society concerned macroeconomic perspectives are lacking
-IMF pledges to conduct gender impact analysis of macro policy

In September 2016, the UN High Level Panel on Women’s Economic
Empowerment published its flagship report, Leave no one behind: A
call to action for gender equality and women’s economic empowerment.
Launched in March 2016 (see Observer Spring 2016), the Panel was
established by Ban-Ki Moon, then UN Secretary General, in an effort
to catalyse progress towards closing gender gaps in economic
opportunities and outcomes, and the achievement of the Sustainable
Development Goals by 2030. Members of the Panel include Christine
Lagarde, managing director of the IMF, and Jim Yong Kim, president of
the World Bank, among other government, private sector and civil
society representatives.

The report identified seven primary drivers of women’s economic
empowerment (WEE), leading to the establishment of seven working
groups corresponding to each driver. The working groups will make
recommendations for action to be published at the March session of
the Commission on the Status of Women in New York. While the drivers
included recognising, reducing and redistributing unpaid care work,
which carries significant macroeconomic dimensions in particular, the
report did not explicitly recognise an enabling macroeconomic
environment as a major driver of WEE.

In response, the UK-based Gender and Development Network (GADN) urged
the co-chairs of the Panel in an open letter in November to consider
enabling macro-economic environments as a driver of WEE and for the
creation of an eighth working group to explore this “pivotal” area,
emphasising the importance of a discussion on how to create the
necessary fiscal space to fund WEE measures. GADN also highlighted
that the IMF and World Bank’s presence on the Panel provides a unique
opportunity to further this agenda.

In December, the Panel’s Secretariat responded that UN Women, another
Panel member, will convene the proposed working group on “the broader
economic environment, including macroeconomic issues and decent
work”. Jessica Woodroffe of GADN, a contributor to the eighth working
group, expressed “hope that the working group can demonstrate the
value – and feasibility – of policies that promote gender equality,
and that the rest of the Panel will support these findings.” She
added: “It will not be possible to achieve women’s economic
empowerment without major changes in the way that macroeconomic
policy is designed and implemented”, citing the 2015-2016 UN Women
report as an important resource on macroeconomic policies that
enhance women’s economic empowerment that should be used by the
Panel.

IMF commits to gender impact analysis
---------------------------------------------------------------------

In September, Christine Lagarde made five commitments on behalf of
the IMF in response to the report. Four of these involve continuing
work it is already pursuing. As its fifth pledge, the Fund committed
to “undertaking further research on the links between gender
inequality and growth, and the impact of [macroeconomic] policies on
gender inequality”. Francesca Rhodes of Oxfam GB commented that this
commitment is “particularly welcome, given criticisms that
macroeconomic policies commonly prescribed by the IMF undermine
gender equality’’, and expressed hope to “see the IMF, as key shaper
of global macroeconomic policy, engage meaningfully with the
recommendations of the panel on this topic”. Jim Yong Kim did not
make any new commitments on behalf of the World Bank, instead citing
the 2016-2023 Gender Strategy already in place and other existing
gender work, which has recently been the subject of criticism by the
Independent Evaluation Group (see Observer Summer 2016).

tinyurl.com/HLPIMF

====================================================================
FINANCE news

IMF reconsiders new loan as Mozambique defaults

In mid-January, the government of Mozambique announced it will
default on a $60 million interest payment, Africa’s first sovereign
debt default since Cote d’Ivoire’s in 2011. The balance of payments
crisis came after the IMF halted its loan programme with Mozambique
in April 2016 in response to the government admitting to holding
about $1.4 billion in undisclosed loans. The Fund’s reaction prompted
other donors to freeze disbursements and stop budget support.

In a December 2016 report a Mozambican parliamentary commission found
that the government guarantee to repay the undisclosed loans was
illegal, in particular because the loans were not approved by
parliament. The report supported calls in June from a group of 26
civil society organisations in Mozambique for the government not to
pay the loans. Sarah Jayne-Clifton of UK-based NGO Jubilee Debt
Campaign (JDC) argued in January that “the hidden loans to Mozambique
have been devastating for the people of this southern African
country”.

Despite these concerns, the IMF announced in early December that
“discussions on a new IMF-supported programme will continue in the
first part of 2017”, after insisting the country agrees to an
independent, international audit of its foreign debt, which is now
taking place. Tim Jones of JDC stressed that “a new IMF programme
should only be agreed when all those responsible for the undisclosed
debts are held to account, including criminally, meaning both
officials in Mozambique who signed-off on the loans as well as the
banks which facilitated the irresponsible lending”. He continued:
“the burden of payment must not fall on the Mozambican people”.

tinyurl.com/IMFMozambique

====================================================================

CONDITIONALITY news

IMF approves new Jordan loan

In August 2016 the IMF board approved a three-year $723 million
Extended Fund Facility arrangement for Jordan, with about $72.3
million available for immediate disbursement. The loan programme was
agreed in the context of what IMF staff described as the “substantial
strain on Jordan’s public finance” resulting in part from the
country’s Syrian refugee population. A November editorial in the
Jordan Times expressed concerns that the IMF’s loan conditionalities,
in particular subsidy cuts and VAT increases, seemed to be
“disregarding Jordan’s commitments under various international human
rights conventions”, citing expected price increases in basic goods,
such as heating fuel and food, that disproportionately impact the
poor. Despite these criticisms Jordan’s King Abdullah reshuffled his
cabinet in January to “press ahead with unpopular IMF-mandated
reforms”, according to the news agency Reuters.

From 2013 the IMF has begun researching the relationship between
growth and increased female labour force participation. The Jordan
loan programme is the first to draw from that research and contain
explicit gendered conditionalities, specifically calling on Jordan to
increase female labour force participation, including by publicly
subsidised nurseries. Salma Nimms of the Jordanian National
Commission for Women commented on the process that “there is no
transparency by the government regarding its negotiations with the
IMF and the resulting agreement. Thus, there is no public knowledge
until now about the specific commitments within the agreement or how
women could benefit from it.” In January, the IMF announced that the
$12 billion loan programme with Egypt will also contain gendered
conditionalities, including spending EGP 250 million ($13 million) to
improve the availability of public nurseries to increase female
labour force participation as a structural benchmark.

tinyurl.com/IMFJordan

====================================================================

LAND news

World Bank’s agriculture initiative criticised

In mid-January, 157 organisations and individuals sent a letter to
World Bank president Jim Yong Kim calling for the termination of the
Bank’s Enabling the Business of Agriculture initiative (EBA, see
Bulletin May 2014, Observer Autumn 2013). The initiative was launched
in 2013 as Benchmarking the Business in Agriculture, inspired by the
Bank’s much criticised Doing Business model (see Bulletin Sep 2014,
Observer Summer 2014). According to the Bank, EBA “examines and
monitors regulations that impact how markets function in the
agriculture and agribusiness sectors”, however, the letter argued
that “this is a dangerously misguided effort, as national
policymaking should prioritise locally adapted solutions based on the
experiences and demands of farmers, pastoralists, fisherfolks, and
rural communities.” Rather than benefitting farmers, the letter
concluded that the reforms promoted by EBA will instead “increase the
profits of a handful of private companies.” A letter was also sent to
the EBA project donors, including the UK’s Department for
International Development. Moreover, US-based think-tank the Oakland
Institute launched a report further outlining problems with the EBA.
Frederic Mousseau of the Oakland Institute commented: “The EBA has
become the latest tool to push pro-corporate agricultural policies,
notably in the seed sector where it promotes industrial seeds that
benefit a handful of agrochemical companies.”

tinyurl.com/WB-EBA

====================================================================

PRIVATE Sector news

World Bank arbitration mechanism ICSID rules in favour of El Salvador

In October 2016, the International Centre for Settlement of
Investment Disputes(ICSID), a World Bank arm for investor-state
dispute arbitration, announced that the 2009 case brought by Pac Rim
Cayman against El Salvador was without merit (see Observer Autumn
2015, Summer 2014).

It ruled that El Salvador would not have to pay the company the $250
million it sought and ordered the company to pay the country $8
million to cover most of its legal costs. In 2009, the company, now a
wholly-owned subsidiary of the Canadian-Australian company
OceanaGold, sued El Salvador for the loss of potential profits after
El Salvador decided not to issue it a mining permit because the
company failed to meet regulatory requirements. The role of ICSID and
other investor-state dispute settlements, which allow foreign
investors to sue states in international tribunals if they feel
unfairly treated, have been heavily criticised, particularly in Latin
America where Bolivia, Ecuador and Venezuela have withdrawn from
ICSID (see Bulletin Dec 2013).  In an October 2016 interview with The
Guardian newspaper Manuel Pérez-Rocha of the Institute for Policy
Studies in Washington noted that “the fact that it took more than
seven years to release the ruling, and that a country with so many
economic difficulties like El Salvador has had to pay millions for
its defence, is immoral and shows the complete discretion with which
these tribunals, sponsored by the World Bank and its infamous ICSID
arm, operate.” Reacting to the news in a press release, the
Salvadoran Roundtable against Metallic Mining, La Mesa, lamented that
“Irrevocable damage has already been done to communities in El
Salvador”.

tinyurl.com/El-Salvador-ICSID-win

====================================================================

IFI GOVERNANCE background

This Inside the Institutions looks at the World Bank’s Independent
Evaluation Group (IEG), including how it is structured and the
different elements of the evaluation process. The IEG is one of four
branches tasked with ensuring the accountability of the World Bank
Group (WBG). As an independent arm of the Bank, the IEG’s overriding
goal is to help the WBG build on its successes and avoid
unnecessarily repeating past mistakes. To achieve its goals the IEG
undertakes a diverse set of evaluations, which enables it to provide
the World Bank’s shareholders, Bank management and operational staff
with insights and feedback to allow crucial mid-way adjustments to
policies, processes, projects and programmes.

tinyurl.com/WB-IEG

====================================================================

IFI GOVERNANCE  background

Recommended resources on the World Bank and IMF 2016

A selection of the best books, reports, papers and electronic
resources written about the work of the World Bank and IMF from 2016
can be found online.

tinyurl.com/WBIMFresources2016

====================================================================

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