BANGKOK - The 10-member Association of
Southeast Asian Nations (ASEAN) is awash with
ideas for major infrastructure investments - from
proposals for a deep-water port and massive
industrial complex in Dawei, Myanmar, to
construction of an East-West highway system
traversing the Greater Mekong Sub-Region, to
laying tracks for bullet trains to speed trade and
travel between Southeast Asia and China.
Some of the multi-billion dollar projects
will be domestically or privately financed; others
will require significant support from multilateral
development lenders such as the World Bank. But as
the Bank and the International Monetary Fund open
their annual meetings today in Japan, it's unclear
whether it will commit to the strong safeguards
needed to ensure the quality and effectiveness
of its future lending in
Southeast Asia and beyond.
The World Bank
is poised to begin a two-year process to review
and update the environmental and social
protections required of all its borrowers. The
review comes amid ongoing concerns by many
borrowing nations over the time and resources
required to implement existing safeguards and the
rise of alternative lenders such as China who
attach fewer strings to their
government-to-government loans.
Civil
society organizations and other stakeholder
groups, meanwhile, have raised questions about the
effectiveness of those same safeguards on various
World Bank-financed projects, ranging from
hydropower projects in Laos to road networks in
Indonesia. As the World Bank moves to review its
policies and mitigate future lending risks, the
question remains: who will safeguard the World
Bank's own safeguards?
The question is
particularly pressing today with growing demand
for financing from international financial
institutions. As their economies begin to slow
amid global economic tumult, Southeast Asian
governments in particular are seeking more
growth-promoting loans for major infrastructure
investments, including projects to facilitate the
implementation of the ASEAN Economic Community due
to take effect in 2015.
The Asian
Development Bank (ADB), a regional multilateral
development bank that, like the World Bank,
focuses on poverty reduction and lends primarily
to governments, underwent an intense years-long
internal debate and consultative process on its
own safeguards policy when I
served beginning in 2007 on the institution's board of directors.
The shared hope was that the mandated review would
help to streamline the ADB's own bureaucracy and
long project development lead times, while also
ensuring necessary environmental and social
safeguards.
Developing nations such as
China and India, both key ADB members, pushed for
greater flexibility, calling for use of so-called
"country systems" that effectively would allow
borrowing countries to apply their own
environmental and social standards to ADB-financed
projects.
The United States and other
developed nations, while acknowledging the goal of
greater country ownership of development efforts,
in contrast emphasized the need for strong
protection of the environment and of people who
might be impacted by ADB-financed projects. They
also called for a better understanding of how
"national standards" actually worked.
What
to do, though, when a country's national standards
- and how they are applied or implemented - differ
from those of the ADB or World Bank? In Indonesia,
for example, a multilateral lender requirement
that cash compensation be made to those who are
resettled as part of an ongoing integrated water
resources management project has come into
apparent conflict with the government's definition
of who should be considered a legal settler.
Other multilateral loans have been vexed
by rigid government interpretations of who should
and should not be considered "isolated" or
"vulnerable" in state-led development projects.
Similar divergent interpretations and applications
of national standards have impacted on indigenous
persons and forestlands that lie in the way of
important road, water and power projects.
Asia's borrowers have often argued that
lenders should trust a country's own
interpretations and rule of law rather than
subject them to time-consuming international
requirements for environmental and social impact
studies and reviews. At the same time, ADB and
World Bank staff are also acutely aware that China
and other potential lenders with less demanding
standards and requirements can provide less
cumbersome, alternative financing.
Blindly
accepting national standards with little
consideration of how such standards are actually
applied, however, threatened a serious weakening
of the ADB's built-in lending protections. To his
great credit, ADB president Haruhiko Kuroda
committed publicly in 2009 that there would be "no
dilution" of standards for protecting the
environment and the people affected by ADB
projects in light of its safeguard review.
His much noted "no dilution" commitment
came amid competing demands by a range of ADB
shareholders and stakeholder groups, and in the
face of the rising competition from China's and
other's relatively no-strings-attached lending
practices.
New World Bank president Jim
Yong Kim should make a similar "no dilution"
commitment as the World Bank begins to review and
update its own safeguard requirements, as well as
its policies on investment and procurement.
Harmonization of standards with borrower country
norms, including in Southeast Asia, should be
upward towards best international standards and as
strong as those that were ultimately agreed at the
ADB.
There is understandable concern that
the World Bank's safeguard review may instead lead
to a lowering of environmental and social
standards and a "dilution" of existing mandatory
protections as part of an effort - misguided
though it might be - to help the World Bank better
compete with other financial institutions. Such a
move towards lower standards would in the long run
be to the detriment of the region and the
institution.
The World Bank's safeguards
review is an important opportunity to ensure the
highest international standards for global
finance. Done right, the outcomes of the review
will include robust new safeguard policies -
encompassing principles, clearly defined rules and
responsibilities, and specific due diligence
procedures - and a Southeast Asia region where no
person is worse off due to the World Bank's
lending.
In pushing for harmonization of
environmental and social safeguards, there is
always a lowest common denominator risk among
countries willing to sacrifice long-term
sustainable growth for near-term borrowing and
procurement opportunities. The World Bank will
undoubtedly play a key role in shaping future
infrastructure investment projects and related
policies in Southeast Asia. And those decisions
will inevitably impact reviews at other financial
institutions, influence emerging legal frameworks
and standards, and serve as de facto benchmarks
for bilateral aid agencies, international
investors and governments alike.
As all
international financial institutions rightly focus
on improving their efficiency, impact and reach,
it is equally important that their lending
safeguards remain strong and inviolate.
Doing so will help to ensure that neither
vulnerable individuals nor the natural environment
are worse off as multilateral lender investments
in infrastructure and other projects in Southeast
Asia, and indeed around the globe, move forward in
the years ahead.
Curtis S Chin
served as US Ambassador to the Asian Development
Bank under Presidents Barack Obama and George W
Bush (2007-2010). He is currently a senior fellow
and executive-in-residence at the Asian Institute
of Technology and a managing director with the
RiverPeak Group.
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