Saving What Remains


July 22, 2012

Until recently the concept of sustainable development was foreign to the principal organizations funding development projects, the World Bank and the International Monetary Fund (IMF). The World Bank, a multilateral development bank that lends money to help countries develop economically through financing infrastructure and new industries, has historically funded numerous projects that resulted in the destruction of rainforests. The IMF shares a similar record.

The bank has traditionally funded "mega-projects" because they are easier to administer than a number of small projects. Because of the size of these projects, World Bank loans to developing countries are usually substantial, sometimes in the billion-dollar range, adding further debt pressure. In 1987 the bank granted loans exceeding US$15 billion to tropical countries. Some developing countries lack heavy-equipment industries, so a portion of the loan is often returned to the contributing countries in the form of payments for industrialized products and materials.

The influence of the World Bank is powerful, and other organizations follow its lead by sponsoring similarly destructive projects. The bank primarily used economic rate of return as its means of selecting projects, and virtually ignored the social and ecological costs. The result has been many socially and environmentally damaging projects like the Brazilian Tucuri Dam, which displaced 25,000 people and submerged 900 square miles of rainforest; the Polonoroeste road-building project, which promoted the colonization of the rainforests of Rondonia, Brazil, by one million peasant farmers; and the Indonesian transmigration program.

However, in recent years, the World Bank and such organizations have designed a number of useful and successful projects that are less damaging, while promoting economic returns as well. Today these institutions staff environmental consultants to raise concerns over the impacts of new projects.

The Global Environmental Facility (GEF), established in 1990 by the World Bank, UN Environmental Program, and UN Development program, has committed billions of dollars to setting up national parks, promoting sustainable forestry, and establishing conservation trust funds in developing countries. In 1994, the World Bank inspection panel was established as a independent body to create a legal mechanism for individuals and organizations whose interests are adversely affected by bank-backed projects. Through it, investigation can be conducted to correct mistakes and ensure that the bank enforces its own policies. The panel was put to the test for the first time in 1995, when Latin America challenged a World Bank project, Planafloro—a loan of US$167 million to Rondonia, Brazil. The challengers cited mismanagement and social/environmental degradation from a previous loan as their reason for submitting their claim. In 1996, the World Bank withheld a loan to Papua New Guinea after it failed to conform with its timber regulations (although the bank has since granted the loan). In 1999 the World Bank weakened the panel, but the same year the Office of the Compliance Advisor/Ombudsman (CAO) was established to address complaints by people affected by projects funded by the bank's International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA). In 2009 a complaint the the CAO led the IFC to halt lending to palm oil companies until safeguards were put into place.

The implementation of these reforms may prevent the bank from sponsoring further Tucuri-scale projects. The World Bank is increasingly funding small community projects that more directly benefit the local economy and are often less environmentally destructive. Because decisions are made on a local level, projects can be better adapted to local conditions.

In 2007 the World Bank launched the Forest Carbon Partnership Facility (FCPF) as a means to kick start the Reducing Emissions from Deforestation and Degradation (REDD+) mechanism.

Rainforest in Uganda. Click image for more pictures of rainforests. Photo by Rhett A. Butler

Review questions:

  • Why were past World Bank projects often destructive?
  • How has the World Bank changed its approach towards the environment?

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