Will the World Bank cut back on social, environmental and human rights protections?

This week, the World Bank holds its annual meeting. Amid the delegates rushing in and out, the Bank is expected to discuss a number of organizational changes ushered in by President Jim Yong Kim. As usual, a large number of civil society events critical of the Bank are planned, including a protest outside the Bank’s headquarters. This year, the protests have a specific focus: backsliding on the Bank’s commitment to environmental, social and human rights safeguards in Bank-financed projects.

Ever since the 1970s, affected communities and activists have complained that some development projects, despite the promise of raising living standards or incomes, have done more harm than good. Starting with the Narmada Dam in the late 1980s, communities began targeting financing of these projects by international financial institutions (IFIs). Pressure to avoid or minimize these harmful collateral effects has over the last quarter century led to an expanding set of guidelines, operational procedures (OPs), and impact assessment requirements for IFIs. These were joined over time by monitoring and redress mechanisms of various sorts, all aimed at improving the quality and outcomes of projects and programs as well as avoiding controversy, bad publicity and legal challenges from dissatisfied local communities or workers. For example, in 1993 the World Bank created the Inspection Panel; the regional development banks soon after created their own accountability mechanisms. The World Bank’s private sector arm, the International Finance Corporation, created a Compliance Advisor Ombudsman; the US Overseas Private Investment Center has an Office of Accountability.

In all these cases, the performance of the lender is measured against a set of internal guidelines and operating procedures. The most common complaints involve failure to do an adequate environmental and social assessment, or to comply with involuntary resettlement rules and those involving indigenous peoples. Other current safeguards involve dam safety, pesticides, and cultural heritage. In 1997, the World Bank grouped ten Operational Policies as specific safeguard policies – six environmental, two social, and two legal policies.[1]

The safeguards system for IFIs created in the 1980s is being pulled in two directions. On the one hand, growing lending in infrastructure and natural resource-related sectors has made it even more imperative that those providing the funding have some way of assessing, and avoiding or reducing, harmful effects on local communities, water and land. In particular, investments in Reduced Emissions from Deforestation and Forest Degradation (REDD) projects in countries with tropical forests have raised concerns that indigenous and forest communities will be the losers in a global market for forest carbon. To the extent that other actors, especially multilateral and bilateral aid agencies, fund similar projects, they become subject to the same pressures. Indeed, UNDP and several bilateral aid agencies now have – or are developing – their own safeguards. Combined with this, social, environmental and human rights assessment and monitoring, and accountability for unanticipated effects of private as well as public projects is becoming a key demand of civil society in forums ranging from the negotiation of the post 2015 Sustainable Development Goals to the UN Working Group on Business and Human Rights. Businesses, private banks and bilateral aid agencies are all, to one degree or another, developing their own safeguard, assessment, and due diligence systems.

On the other hand, the IFIs have to contend with the rise of new financial and political actors.   Sovereign wealth funds and Chinese and Brazilian development banks now provide alternative sources of development project finance, often without any environmental or human rights strings attached. According to the Economist, these banks’ lending “already dwarfs the $52.6 billion the World Bank disbursed last year. In 2013 BNDES of Brazil doled out $88 billion. Its Chinese equivalent made loans worth $240 billion.” (“An Acronym with Capital,” July 19, 2014) Last July, the BRICS countries created a New Development Bank (NDB) and Contingent Reserve Arrangement (CRA) as potential alternatives to the World Bank and IMF. The NDB has an initial capital of $50 billion and the CRA of $100 billion. The Bank must figure out how to compete in this new landscape.

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World Bank and the Negative Pledge Clause

World-Bank-HeadquartersDuring tumultuous fiscal years of the past few decades, the World Bank, acting in its capacity as lender of last resort, granted unsecured loans to debt-ridden sovereign nations. Instead of taking a lien over the state’s assets, the World Bank protected its interests via a broadly-worded Negative Pledge Clause embedded in Section 6.02 of the Loan General Conditions. This clause ensures that any lien created on any public assets as security for external debt that results in a priority for a third-party creditor will equally and ratably secure all amounts payable by the borrowing state. In short, should such a lien be granted, the World Bank shares in the amounts paid out to the third party creditor, thus preventing the creditor from enjoying senior creditor status and undermining the value of any later-granted lien.

Including the Negative Pledge Clause in the World Bank loan agreements helps mitigate the World Bank’s risk of providing unsecured loans by ensuring that a developing nation will not give a later creditor priority over its assets. However, the barrier that the Negative Pledge Clause constructs around a state’s ability to engage with other creditors is so formidable that the clause can end up preventing the state from attracting commercial investment for project financings. As currently drafted, the Negative Pledge Clause dissuades commercial lenders from investing in exactly the kinds of projects that might further development and enrich a nation (thus strengthening the nation’s ability to pay back its debts). This is not only unfortunate for the developing countries involved, but also challenges the raison d’être of the World Bank, a multilateral institution designed to promote development.

When it comes to promoting development-friendly projects, the World Bank and developing nations should share a similar goal: encourage infrastructure projects that enrich poor nations, making such nations more likely to repay their prior debt obligations and lessen their future dependence on developing-bank funds. However, in order for a developing nation to become a full member of the world economy, it must be able to act and grant security like other commercial borrowers. Unfortunately, the current Negative Pledge Clause, while established for some important and legitimate reasons, has worked to stifle such development.

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The Right to Development & The Arab Uprisings (Part II)

Neo-liberal Development, Human Rights, and the Arab Uprisings             

Rather than consider the state’s failure to empower, include, and provide, adherents of neoliberal development framed the Arab Uprisings as a revolt against government bureaucracy and rent-seeking. While there may be truth in that, by de-linking the gains of national economic and political elite from an international neoliberal development project, stakeholder states and IFI’s mistakenly exculpate themselves. 

Fittingly, Robert Zoellick, President of the World Bank, attributed Bouazizi’s self-immolation to his frustration with “red tape.” Zoellick advised that Arab states should “quit harassing people and let them have a chance to start some small businesses.” (128) However, at the time of its Uprising, Egypt ranked as the eightieth easiest state in which to start a small business. Either the irony or the dispositive evidence was missed on Zoellick. Myopic focus on institutional governance fails to scrutinize the privileged access to economic opportunities in developing states that thwarts development, democracy, and human rights.

Over the course of three decades of authoritarian rule, the Mubarak regime, comprised of Mubarak himself together with its incumbent economic and political elite, amassed a tremendous amount of the country’s wealth for their personal benefit. The state has acquired thirty-five billion USD in loans, eighty-five percent of which is publicly guaranteed, and none of which benefits the general population. In the course of repaying its loans, more loans flow from Egypt to the West than the other way around. Since the ouster of Mubarak, no attention has been given to remedying this condition. To the contrary, from the democratically elected Muslim Brotherhood and now, within the military regime that has ousted it, these neoliberal policies have become further entrenched. States and IFI’s pledged 15 billion USD to post-Mubarak Egypt within three months of his ouster. However, according to Professor Adam Hanieh of SOAS University, 

“This investment…is premised upon a profound liberalization of the Egyptian economy. They will only be undertaken concomitant with measures such as a deepening privatization (undoubtedly in the form of PPPs), deregulation (initially likely to be connected to the opening up of more sectors to foreign investment), the reduction of trade barriers (connected to access to US and European markets), and the expansion of the informal sector (under the banner of cutting ‘red tape’). They will necessarily involve, furthermore, a rapid expansion in Egypt’s overall indebtedness – tying the country ever more firmly to future structural adjustment packages.” (134)

Although its protests did not develop into sustained mass mobilization, in Jordan, the demand for human-centered development reverberated clearly. While Jordan’s economy ranks thirty-eighth freest in the world and the fourth freest in the Middle East, the majority of its citizens are poor and have weak purchasing power. Its most economically vulnerable population constitute the working poor and do not benefit from these trade privileges. The exclusive concern with growth rates is misplaced in Jordan where trickle-down effects have been dispositive and only a select economic and political elite has access to profitable investment arrangements.

Syria stands out as the exception among its Arab neighbors only for resisting a similar developmental shift until the late 1980s. In 1986, the Syrian regime shifted its social and political alliances from labor to business. In a context of economic stagnation, this shift also marked a slow but gradual reduction in state subsidies for basic goods upon which a significant cross-section of the Syrian population was reliant. By the 2000s, combined with the deleterious effect of policies driven by a new business class with ties to the government, this resulted in greater absolute poverty and social polarization as well as a dramatic increase of the informal sector. According to Professor Bassam Haddad, Director of the Middle East Studies Program at George Mason University,

“the most lucrative new economic opportunities were monopolized by regime loyalists, relatives, or partners…The striking proximity of policy makers to policy takers made rent-seeking and structural corruption extremely efficient, producing a plethora of tailored policies that weakened, fragmented, and taxed the national economy.”  

All the while, the Syrian Regime steered this shift in the name of ‘investment,’ ‘growth,’ and ‘modernity.’ Together with the most severe drought that has caused the forced internal migration of more than 1.2 million Syrians since 2003, social polarization and discontent reached extraordinary levels by the late 2000s, tipping the balance in favor of a mass-based Uprising in rural areas. While this may explain the origins of the conflict, it hardly explains how the Uprising has turned into internal conflict and a regional proxy war, which I will not discuss here.

Remedies

I do not mean to suggest that failure to adhere to the interdependent development approach has caused mass mobilization across the Arab world; that would be rather simplistic. The anecdotal case studies above do, however, illustrate the gravity and enduring relevance of human-centered development. They also show how other states and international institutions are implicated in national struggles. Both lessons are instructive for practitioners, organizations, and analysts concerned with development, democracy, and human rights in the Arab world.

On a national level, states must be able to subvert international economic prerogatives that conflict with their own national goals. By limiting democratization to unfettered markets, IFIs impede the ability of governments to freely determine the use and distribution of their own resources. Worse, they provide incentives for political-business elite networks to benefit from these exclusive arrangements while publicly-backing loans that avoid personal risk. The overlap of local interests and global neoliberal prescriptions has economic and political elite to benefit tremendously even as they professed a commitment to nationalist ideals. (i.e., Syria continued to boast its socialist constitution until 2005 while adopting state/crony capitalism in the best form.) Uncritical approaches to national sovereignty, self-determination, democratization, and participation that are not linked to equitable distribution fail to account for this deleterious pitfall. Equitable distribution must be part and parcel of any developmental formula in countries where inequity has become a recipe for either authoritarianism or chronic instability. Such reform must be internalized within national development agendas as well as within the IFIs themselves, which facilitate these hazardous arrangements. 

Above all, the case studies are a stern reminder of the inextricability of civil, political, and social, economic rights. It is much easier and much simpler to attribute the upheaval in the Arab world to a lack of democratic governance, free and fair elections, an independent judiciary, and police accountability. However, it would be short-sighted to extricate these coercive measures from an international economic system that precludes democratic participation with equity and is contingent upon a truncated state. Under these terms, development must occur in spite of popular will rather than on its behalf. It is telling that after Ben Ali’s ouster from Tunisia, Tunisians opted to loot luxury villas, shops, and supermarkets identified as belonging to the family rather than attack police stations.Human rights practitioners and organizations should bear in mind that expansion of political and civil participation for individuals within government must be interlinked with more meaningful economic self-determination.

These prescriptions are not new. The UN Convention on the Right to Development captured them twenty-three years ago, the Vienna Convention on Human Rights reaffirmed them three years later. Self-determination of individuals, collectivities, and states cannot be overestimated in alleviating these conditions and making central the person and society, not just the person himself. Human rights advocacy should take its cue from those local and regional movements that are viscerally and daily affirming this principle.

The Right to Development & The Arab Uprisings (Part I)

In mid-December 2010, a young street vendor set himself on fire after his ill-treatment by Tunisian police. Mohamed Bouazizi set himself ablaze in Sidi Bouzid and inspired an entire region to revolt against decades of authoritarianism. Mass protests in Tunisia led to the ouster of its autocratic head of state Zine Abidine Ben Ali. This revolutionary fervor then spread to neighboring Egypt, where eighteen days of protest removed Hosni Mubarak from the helm of power. Soon, these tectonic shifts inspired protestors in Yemen, Libya, Bahrain, and Syria to challenge their autocratic leaders who had, for decades on end, also denied them the right to freely determine their political, economic, and social conditions. The protests have since successfully led to the negotiated removal of Yemen’s Ali Abdullah Saleh from power. NATO military intervention, initially mandated by the UN Security Council to thwart a massacre in Benghazi expanded into a mission of regime change and ended the rule of Muammar Qaddafi in Libya. Today, protests continue in Syria, Bahrain and the transition processes have never ceased in Egypt, Libya, Tunisia, Bahrain, and Yemen.

The emergence of authoritarian regimes in the Arab world reflects a sordid history of colonial rule and post-colonial interventions that have created oppositional politics among states within the Middle East. The Middle East is rich in natural resources like gas and oil and has been one of the most penetrated regions by foreign interests. French and British intervention after the First World War derailed regional aspirations for unity and arbitrarily carved the Arab populations into several states. Each of these states later became independent from colonial rule and, ultimately, they became authoritarian.

Though devoid of political ideology, Arab regimes cultivated popular legitimacy by combining authoritarianism with a redistributive welfare state, in what political scientists refer to as “authoritarian populism.” Accordingly, states successfully “consolidated power by trading development for the political loyalty of key social forces, such as workers, peasants, and professionals, and others educated in the middle class.” Despite significant opposition, most Arab populations welcomed this social contract: in exchange for political and civil rights, the regimes would provide economic stability in the form of basic goods like subsidized housing and food as well as security to live free of internecine violence.

This contract, however, quickly began to unravel. GDP growth rates generally rose with the beginning of populist policies and public sector expansion only to begin falling in the 1980s as a result of a combination of repression, corruption, and mismanagement.  The contribution of human and physical capital dropped from 3.4% in the sixties to negative 1.5% in the 1980s and stagnated throughout the 1990s. As Arab authoritarian regimes have entered into the globalized economy through the neoliberal prescriptions window, they began to privatize public goods like water, electricity, housing, and education through Public-Private Partnerships (PPPs). By steadily retracting redistributive policies whilst maintaining authoritarian governance, Arab authoritarian populists breached their tenuous social contracts.  

By the 2000s, and as the gap between rich and poor expanded and as gender and other social-based disparities deepened within Arab countries, their aggregate economic figures oddly improved, but at the dire expense of equitable distribution. The IMF, for example, in 2010 praised Tunisia’s “‘sound policies and reforms’ for helping the country weather the global downturn.” The inverse relationship between aggregate and socio-economic development is not unique to the Arab world. In fact its ubiquitous nature among developing states, especially, reflects the principles first captured in the 1986 UN Declaration of the Right to Development and later reaffirmed in the 1993 Vienna World Conference on Human Rights. The missing ingredient was distributive equity.

Development as a Human Right

Drafters of the UN Declaration of the Right to Development were careful not to reduce development to purely economic aspirations. Instead, the document reflects a textured understanding of human and national development, which it defines as  

“a comprehensive economic, social, cultural and political process, which aims at the constant improvement of the well-being of the entire population and of all individuals on the basis of their active, free and meaningful participation in development and in the fair distribution of benefits resulting therefrom […]”.

The Declaration affirms the interdependence of development, democracy, and human rights. It suggests that in order to benefit from development, human persons must be free from structural abuse, so as to freely participate in their cultural, economic, social, and political development.

In practice, centering human persons in national development means, ensuring active and meaningful participation; securing non-discrimination; fairly distributing the benefits of development; respecting self-determination and sovereignty over natural resources; and allowing human development to inform all processes that advance other civil, political economic, social
and cultural rights.


In 1993, the Vienna Declaration reaffirmed development as a human right (para. 10) as well as the interconnectedness of development, democracy, and human rights. Like the UN Declaration of the Right to Development, the Vienna Declaration is clear that human persons, not national economies are central subjects of development. Paragraph 10 reads, “while development facilitates the enjoyment of all human rights, the lack of development may not be invoked to justify the abridgment of internationally recognized human rights,” thus capturing the tension between state and individual rights and prioritizing the latter.

The Vienna Declaration emphasizes that democratization in this context “is based on the freely expressed will of the people to determine their own political, economic, social, and cultural systems and their full participation in all aspects of their lives.” (para. 8) In marked contrast, neoliberal prescriptions define democratization in pursuit of development as opening up the market without regard to human rights or agency. Its overreliance on trickle-down effects casts the state as an obtrusion to prosperity. Worse, policymakers who aimed to dismantle state regulation and control of natural resources took for granted how neoliberal prescriptions globally overlapped with the interests of local and political elite. The effect was a redistribution of state wealth and opportunities to new a new elite class of public and private actors without regard for equitable distribution of opportunities and resources. “Democratization” and “participation” therefore remained exclusionary in content and structure. 

Since the 1990s, international financial institutions (IFI’s) have strategically linked the function of markets with their international governance. It is in this context that the

“World Bank and other institutions have emphasized notions such as the ‘rule of law,’ ‘decentralization,’ ‘good governance,’ ‘separation of the legislative and executive,’ and so forth, which supposedly aim at reducing the rent-seeking capabilities of state officials, and guarantee greater transparency in economic affairs.” (127).

This developmental program in the Middle East, characterized by autocratic governance and marked by economic stagnation, has been intensely undemocratic and brutally indifferent to the dignity of individual persons and their collective formations. 

Losing Ieng Sary’s Assets

ieng sary

Ieng Sary at a pre-trial detention hearing

Most IntLawGrrls readers have seen by now media reports of the death of Ieng Sary, the former foreign minister of the Khmer Rouge, last week.   Many of these articles express concern about justice-related consequences for his victims, given that Sary was in the midst of trial at the Extraordinary Chambers in the Courts of Cambodia.  The focus has been on the trial process itself, and the harm has been portrayed as a loss of justice as victims will not have the opportunity to see Sary held guilty.

Though those concerns are important, the victims in Cambodia have another concern: the loss of Ieng Sary’s assets.  Ieng Sary was a very rich man, and was reportedly responsible for the Khmer Rouge’s finances during and after the 1975-1979 period during which the regime controlled Cambodia.  After the fall of the Khmer Rouge in 1979, Sary also benefited from the proceeds of lucrative timber and gemstone sales in the northwest of Cambodia.  He reportedly had access to a Hong Kong bank account containing (at one point) $20 million that the Chinese government sent to the Khmer Rouge.   After Sary was pardoned by the Cambodian government in 1996, his Khmer Rouge colleagues denounced him for stealing $10 million dollars, likely from this account.  At his death, he owned luxurious homes in Phnom Penh and Banteay Meanchey province. Had Sary been convicted of the crimes charged, victims might have been able to seize his assets and use them for reparations.  With his wife Ieng Thirith having been declared unfit for trial, these assets will no longer be accessible through the ECCC process.

Were the Cambodian government to request assistance obtaining these assets, the World Bank and UN Office on Drugs and Crime’s Stolen Asset Recovery Initiative might be able to track them down.  But most observers are skeptical of the Cambodian government’s willingness to do so, or their ability to then distribute Sary’s ill-gotten wealth in a transparent and fair manner.

(credit for photo above right)