Indian government spurns World Bank and turns to perceived lax OECD based ECA credits to ride roughshod over urban poor.

The article below from an Indian newspaper illustrates a problem highlighted by environmental NGOs over the past decade, namely that OECD based export credit agencies (ECAs), having moved in the 1970's to reduce distortion of trade based on subsidized interest rates and other financial incentives, continue to compete by reducing the compliance of large projects with environmental standards, thereby reducing overall project costs.

ECAs are public entities that provide government backed loans, guarantees and insurance to corporations from their home countries in order to promote national jobs through export sales. 

Under pressure from NGOs, OECD based ECAs in 1998 began a process to harmonize environmental standards. They agreed in 2003 to an OECD Recommendation which defines some standards against which sensitive projects will be benchmarked, and to publish information which would allow monitoring of each national ECA's compliance with the Recommendation.

ECAs, as part of the international finance community, support some US$145 billion in exports per year, US$60 billion of which is for medium to long-term projects, an amount similar to disbursements by the World Bank and other multilateral development banks. As "banks", they are part of a  "fraternity" which is notoriously secretive in its efforts to protect client confidentiality and therefore it's competitive edge. A review "a couple of years ago of practices across the [OECD] showed that the Working Party [on Export Credits] classified more documents as 'Confidential' than the institutional average."

One requirement of the OECD Recommendation on Common Approaches to the Environment and official export credit (Articles 12.3, 19 & 20) is that the OECD publish information annually on the environmental standards applied by national ECAs and their justification for deviations from international best practices. However, the OECD Secretariat's public reports in this area are completely silent about such deviations, although it is believed that ECA reports to the OECD do contain such information, subject of course to widely varying interpretations due to the extremely vague wording of the Recommendation.

This lax interpretation and practice in implementing environmental standards is common across international financial institutions (IFIs), although the World Bank is seen by many (if not all) NGOs as having better compliance mechanisms to protect communities affected by the large infrastructure projects that they support.

In the article below, we see that some governments use these different standards to reduce their borrowing costs by playing IFIs off against each other, to the detriment of affected communities, which thereby lose or see reduced their ability to influence the design and implementation of  projects which may force resettlement, the dumping of toxic wastes in their midst or the disruption of traditional livelihoods without adequate compensation. 

The OECD is facilitating a review process in 2006 whereby the Recommendation on Common Approaches to the environment and official export credits will be updated and enhanced. NGOs have made representations to OECD based ECAs in this regard and met with them on Monday May 29th in Paris to advocate for major changes and improvements in the Recommendation in the areas of transparency, participation and consultation, monitoring and compliance, inclusion of human rights standards and the adoption of binding and more comprehensive environmental standards and best practices.

Maharashtra spurns World Bank, looks for love in Tokyo

by Smita Deshmukh

Thursday, May 18, 2006 01:44 IST

http://www.dnaindia.com/report.asp?NewsID=1029896

WB loses most preferred status, Vilasrao woos Japan funds.

The honeymoon is over. World Bank will no longer be the state government's "most preferred bank".

Upset with the bank's "illogical" policies on rehabilitation and resettlement, the government has decided not to borrow money from the bank. The state's next preferred partner is Japan, along with some Indian financial institutions.

In fact, loan for several infrastructure projects in the city is likely to top the chief minister's agenda during his visit to Japan next month. He will hold talks with the Japan Bank of International Cooperation (JBIC).

The government has also decided against borrowing from the World Bank for the Mahatma Gandhi Pathkranti Yojana, which will relocate pavement dwellers in the city to low-cost houses. The government decision means the Mumbai Urban Transport Project (MUTP) will be the last big project with the World Bank's involvement.

"It was our oversight that we signed an agreement, which said those displaced can't be worst off. Technically, we are safe as the policy is not applicable to shopkeepers, something which the bank is not willing to accept," said a senior bureaucrat.

The government is miffed over the bank's policy of sending inspectional teams to rehabilitated areas. "The panel members ask questions from people who are eager to get more resources and report directly to the bank's board. There are many within the bank who are aware of the negative fallout of a policy like this, but are helpless," said another official.

"The bank wants us to deal with each case separately and on merit, which is tough when hundreds of people have to resettled. They (the bank) want us to allow their officials to be present during negotiations with the displaced people, which is totally unacceptable," the official said. Under such circumstances, the JBIC's policy of sticking to the local government's policies on rehabilitation is more acceptable.

As for the World Bank, the polices remain unchanged. Hubert Nove-Josserand, senior urban transport specialist of the bank, said, "We sent a consultant to Mumbai in March to assist in the monitoring of progress in all key  actions the bank is looking for in the resettlement plans."