Dear Member of Congress,
We are writing to ask that you urge the conferees on the FY 2006 State and Foreign Operations Appropriations Bill to adopt the strongest possible measures to reform the World Bank and the regional development banks. We urge that they accept all of the Senate provisions for multilateral development bank (MDB) reform and the House provision withholding 25% of the funds from the World Bank until the Secretary of the Treasury certifies that the Bank’s procurement system has achieved the specified requirements for a fair, accountable and transparent procurement system. We further suggest that the conference combine the Senate and House provisions to better support each other by withholding 25% of the funds from each MDB until all of the reforms endorsed by each house of Congress have been adopted at each institution.
Officials of key countries that borrow the bulk of the money from the MDBs continue to undercut international standards designed to address key issues from corruption to climate change while the MDBs do too little about it. The climate impacts of World Bank financing, for example, were analyzed in Tug of War, and other papers by Jim Vallette, of the Sustainable Energy and Economy Network (see, www.seen.org):
Since 1992, when the Climate Convention was signed, the World Bank has invested over $28 billion dollars in dirty fossil fuel (oil, coal, gas) projects.
In recent years the top beneficiary of World Bank energy loans has been none other than Halliburton.
The World Bank invests 17 times as much in fossil fuels today as it does in renewable energy projects.
The World Bank is a key player in both fossil fuel finance and carbon trading in the South. They are profiting from fossil fuel extraction and combustion finance in the global South and now from carbon trading.
Every dollar in World Bank finance catalyzes another $4-6 in private finance. Therefore, $28 billion in World Bank fossil fuel finance from 1992-2005= $112-$168 billion in additional private finance.
Worldwide carbon dioxide emissions from consumption/flaring of fossil fuels, 2000: 23.6 billion tons. Estimated lifetime carbon dioxide emissions from World Bank group fossil fuel projects, 1992-2004: 46.7 billion tons.
The MDBs continue to subsidize irresponsible practices by their biggest borrowers that hurt U.S. and foreign workers and honest corporations alike. For example, on August 17th the New York Times (p. C6) and Bloomberg News reported that China, one of the Bank’s top borrowers, and the world’s biggest coal producer with one of the worst mine safety records had temporarily closed 7000 coal mines for failing to meet safety standards. Yet MDB loans to China and other countries for coal mining and old-fashioned highly-polluting coal-fired power plants continue while their pollution is directly traced to toxic residues of several kinds in North America. On Monday August 22d in the Washington Post (on pages A1,12, and 13) several experts were quoted saying that kickbacks and bribery are normal procurement practices in China. Russia and Indonesia have similar problems while India is beginning to reject Bank pressure to sell off public assets given inadequate competition and regulatory capacity for the sales and their aftermath (New York Times 8/17/05 p. C6).
In 2001, the World Bank undertook a three-year review of extractive industries to determine their effect on development. A 3-year consultation led by the World Bank with government, industry and civil society, concluded in January 2004 that its lending for fossil fuels and mining did not alleviate poverty, but made it worse. The review team reported its recommendation that the Bank end coal financing immediately, end all lending for oil by 2008, and rapidly increase financing for renewables. In August 2004, the World Bank’s board voted to ignore this advice.
Corruption compounds the problem by undercutting both competition for energy efficient choices and enforcement of environmental and other standards across the board. Bribing domestic or foreign officials is a violation of both U.S. and international law but the World Bank and the U.S. Treasury department have yet to account for over a hundred million dollars skimmed from its loans by borrowing officials while its staff reported as much to World Bank headquarters according to Chairman Richard Lugar. His Senate Foreign Relations Committee (SFRC) held a series of hearings documenting corruption in the MDBs. This led the Senate to recommend over a dozen steps to increase MDB accountability and better control corruption based on the committees’ unanimously adopted version of S. 1129, including:
staff incentives for project quality,
stronger whistleblower protection,
mutual debarment of those engaged in corruption in MDB-supported projects,
transparency of revenues from natural resource extraction in borrowing countries,
independent forensic audits of MDB projects where fraud is suspected.
Section 6074(c) in the Senate bill, (also included in the 2005 Consolidated Appropriations Act), calls upon the MDBs to require governments to disclose and audit all payments and revenues for natural resource extraction as a condition for receiving assistance in the that sector. This complements two other provisions on extractive industry transparency (“publish what you pay”) in the Senate bill.
Other committees are discovering problems as well. The Joint Economic Committee of Congress is conducting its own investigation into alleged irregularities in the handling of World Bank finances and weaknesses in internal controls and board oversight. The Senate Banking Committee has held two hearings since the spring of 2004 that included testimony on concerns about World Bank finances, including testimony by the head of the Congressional Budget Office raising concerns that we should not underestimate the losses the U.S. Government may risk given the state of the Bank’s finances.
Years of language and reports alone, however, have failed to achieve adequate reforms. This was demonstrated again in reports from the Government Accountability Office (GAO), the Government Accountability Project, and the Treasury Department as recently as December 2001, June 2003, July 2004, and March 2005 respectively. These found the all of the multilateral development banks unable to meet modern auditing and internal control, whistleblower protection, and accountability standards.
Therefore, to send a stern message, the House has approved a provision withholding 25% of US new contributions to the World Bank pending a pledge not to let China and other borrowers run their own procurement instead of applying global standards and procedures (which must also be improved to gain the funds) to procurement funded by World Bank loans. We believe that the good that the MDBs can do in development and debt relief will not be assured until these reforms are carried out in full.
On behalf of our organizations, and reflecting the concerns of the scores of institutions and jurisdictions now boycotting World Bank bonds, we again urge you to support combining the House and Senate MDB reform provisions in the strongest form possible for all of the multilateral development banks in the final FY06 State, Foreign Operations, and Related Agencies Appropriations Act.
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