World Bank

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World Bank

Affiliated with the United Nations, the World Bank was formally established in 1946 to finance projects to spur the economic development of member nations, most notably those in Europe and the Third World . The bank has been strongly criticized by environmental and human rights groups in recent years for funding Third World projects that destroy rain forests, damage the environment , and harm villagers and indigenous peoples .

The bank is headquartered in Washington, D.C. It is administered by a board of governors and a group of executive directors. The board of governors is composed principally of the world's finance ministers and convenes annually. There are 21 executive directors who carry out policy matters and approve all loans. The World Bank usually makes loans directly to governments or to private enterprises with their government's guarantee when private capital is not available on reasonable terms. Generally, the Bank lends only for imported materials and equipment and services obtained from abroad. The interest rate charged depends primarily on the cost of borrowing to the Bank. The subscribed capital of the bank exceeds $30 billion, and the voting power of each nation is proportional to its capital subscription.

The 1970s represented a period of extensive growth for the World Bank, both in the volume of lending and the size of its staff. The staff was pressured to disperse money quickly, and little real support for grassroots development ever materialized within the institution. Local populations were hardly ever consulted and rarely taken into account for the majority of the enterprises the bank funded during this period. As a result, billions of dollars of bank money was managed ineffectively by domestic public institutions that were often unrepresentative. The stated purpose of the loans was to promote modernization and open economics, but the lending network further supported the elite in the Third World and prevented the poor from playing a meaningful role in the policies that were so markedly reshaping their environments.

The international debt crisis during this decade also changed the bank, beginning its evolution into a debt-management institution when it lifted the restrictions on the non-project lending that had been established by its founders. In an effort to expedite its loan development, the bank underwent a major reorganization in 1986. It consolidated its activities under four senior vice presidents, but many consider the net results of these changes to be far from successful.

The most notable critics of the World Bank have been in the global environmental movement, but defects within the bank's operations complex have largely restricted their campaigns from effecting major changes. The bank has repeatedly withheld the majority of the information it generates in the preparation and implementation of projects, and many environmentalists continue to charge that it has become an institution fundamentally lacking the accountability and responsibility necessary for sustainable development .

The way the World Bank handled the controversial Narmada River Sandar Sarovar Dam project in India has been called a case in point. According to the Environmental Defense Fund, the history of bank involvement with the project reveals an institution whose primary agenda is to transfer money quickly, no matter what the cost in "systematic violation of its own environmental, economic and social policies and deception of its senior management and Board of Executive Directors." United States Executive Director E. Patrick Coady accused bank management and staff of a cover-up in relation to the Sandar Sarovar Dam, and he directly challenged the bank's credibility, noting that "no matter how egregious the situation, no matter how flawed the project, no matter how many policies have been violated, and no matter how dear the remedies prescribed, the bank will go forward on its own terms." Despite support from Germany, Japan, Canada, Australia , and the Scandinavian countries, Coady's accusations were ignored. Bank management continued to finance the dam until early 1993, when criticism of the project became so intense that India decided to finance the project itself. There was no plan to resettle the 250,000 people who would be displaced.

Many argue that the failures of policies at the World Bank are illustrated by other case studies in Brazil, Costa Rica, and Ghana. In Brazil, International Monetary Fund (IMF) stabilization programs have hit the poor particularly hard and depleted the country's natural resources . Although these structural programs were designed to manage Brazil's tremendous foreign debt, critics argue they have been socially, economically, and environmentally catastrophic. The "economic miracle" of the 1970s never materialized for Brazil's masses, despite the fact that the economy grew more than any other country in the world between 1955 and 1980. Due largely to ill-conceived IMF and World Bank advice, as well as ineffective leadership by the Brazilian government, development decisions in Brazil have leaned toward extravagant and poorly implemented projects. Many major projects have failed miserably, only adding to lost investments, and the environmental devastation caused by such projects has been enormous, with much of it irreversible, involving massive destruction of the tropical rain forest .

The Tucurui Dam project, for example, was part of the Brazilian government's plan to build some 200 new hydroelectric power dams , most of them in the Amazonian region. This project has destroyed thousands of acres of tropical rain forest and degraded water quality in the reservoir and downstream, further lowering the income and affecting the health of communities below the dam. For environmentalists, Tucurui is representative of the problems inherent in building large dams in tropical regions: "Opening of forest areas leads to migration of landless people, deforestation of reservoir margins, erosion and siltation causing destruction of power-generating equipment and reduction of its useful lifespan; spread of waterborne disease to human and wildlife populations; and the permanent destruction of fish and wildlife habitats, eliminating previously existing local economic activity and unknown numbers of species of plants and animals."

Ghana is usually touted by the World Bank and IMF as a particularly successful example of structural adjustment programs in Africa, but many believe that a closer examination reveals something different. The goal of the current adjustment program was to reduce the fiscal deficit, inflation, and external deficits by reducing domestic demand. A large portion of this plan was "to reverse the decline in agricultural production, restore overseas confidence in the Ghanian economy, increase foreign-exchange earnings, restore acceptable living standards, control inflation, reform prices, and reestablish production incentives for cocoa." Although cocoa production had increased 20% by 1988 as a result of incentives in agricultural sector reform, with the income for cocoa production increasing by as much as 700% in some cases, cocoa farmers make up only 18% of Ghana's farming population. Furthermore, in recent decades a growing inequity within the cocoa-producing population has been documented. Half of the land cultivated for cocoa today is owned by the top 7% of Ghana's cocoa producers, while 70% own farms of less than 6 acres (2.4 ha).

The timber industry in Ghana was also identified by the IMF and World Bank as an additional source of foreign exchange, and this led to the steady destruction of Ghana's forests. If timber production is maintained at its current rate and without appropriate environmental controls, many environmentalists and others believe that the Ghanian countryside will be stripped bare by the year 2000. The fishing industry is also threatened. Rising costs have caused the price of fish to increase while real wages have fallen. Ghanians receive 60% of their protein from the products of ocean fisheries, and decreased fish consumption in considered one of the leading factors in the rise of malnutrition in the country.

While mounting public pressure might cause the bank to reconsider some of its programs, reforms are possible only if supported by those nations controlling more than half of the Bank's voting shares. And no matter what direction is taken, many experts believe that internal contradictions will continue to trouble the bank for years, further lowering the morale of the staff. As long as the bank continues to place priority on its debt-management functions, it will likely fail to change its policy of making large-scale loans for questionable and destructive projects. Overall quality may be further diminished as developing nations continue to give up natural resources for the rapid earning of foreign exchange. Debt management could then force the bank to support large-scale, poorly-organized, and poorly-supervised projects, while the staff would be pressed harder to address wider development problems that could continue to be exacerbated by other aspects of bank lending.

The World Bank's dismal record of ignoring the interests of the poor and the environment clearly raises fundamental questions about the future of the institution. Environmentalists, human rights groups, and other critics of the Bank have offered the following suggestions for improving its operations. While there are obvious reasons for keeping some information confidential, they argue, the bank has abused this right. Greater freedom of information is necessary because participation with population groups in the development process is impossible without public access. Critics also argue for the establishment within the Bank of an independent appeals commission, maintaining that there is a clear need for a body that would hear and act on complaints of environmental and social abuses. It has been suggested that this commission could be made up of environmentalists, academics, church representatives, human rights groups, and others who would encourage the bank to emphasize sustainable development and eliminate environmentally destructive projects. And finally, it has been widely suggested that project quality should be the first priority of the World Bank, with the United Nations taking the lead in demanding this. In short, many believe the bank should no longer be allowed to function as a money-moving machine to address macro-economic imbalances.