World Bank's friendship with corporate sector

 
Published: Sunday 15 July 2007

-- Every year, the World Bank channels about US $18-20 billion to developing countries in the form of loans and grants with the ostensible aim of reducing poverty and promoting economic growth. The bank always acts in tandem with its sibling agency, the International Monetary Fund, even in countries that no longer borrow from the fund.

However, not all the finances from the bank go to the governments. A significant amount is directly channelled to the private sector, especially large corporations, in the form of loans, technical assistance and mitigation of investment risks.

Backing the rich In existence for over 60 years, the World Bank has expanded from a single institution -- the International Bank for Reconstruction and Development (IBRD) -- to five institutions, each dealing with a particular area of operation. These include financing and support for relief and rehabilitation, physical and institutional infrastructure in sectors such as energy, transportation, extractive industry and telecommunication, restructuring of key sectors such as health, education, water and agriculture, development of private sector, and mitigating investment associated risks for private companies.

Despite recent scandals, the bank remains powerful. In most of its client countries, it is the only doorway to international trade, development finance and private investment capital. It derives its power and policy agendas from its wealthiest shareholders -- governments that comprise the G-7, which routinely use the bank to secure lucrative trade and investment deals for their respective transnational corporations (TNCs) in developing countries.

Corporate influence is manifested in and through the World Bank in several ways. Most obvious is the support extended to private corporations through three of the bank's specialised institutions the International Finance Corporation (IFC), Multilateral Investment Guarantee Association (MIGA) and International Centre for the Settlement of Investment Disputes (ICSID).

The IFC is the bank's private sector arm and the world's largest multilateral source of equity and loan financing for private enterprises in developing countries. It claims to support economic development, employment and poverty reduction by promoting open, competitive and efficient markets and supporting private companies in developing countries.

The IFC has developed a range of financial tools and services to enable private companies to manage investment risks and broaden their access to capital and developing company markets. The bank and IFC have also established the 'Rapid response knowledge initiative', which specialises in policy advice on business environment reforms and privatisation policy in developing countries. The initiative maintains a cyber-service called 'Private sector blog -- a market approach to development thinking' to promote its pro-market, pro-corporate ideology.

IFC mainly supports large, well-funded corporations and not small-scale, local entrepreneurs. Through the IFC, corporations get access to large, government-sponsored infrastructure, service delivery projects and investment opportunities that are relatively risk free. On the other hand, local communities have little say and no benefits in these investments as social and environmental safeguards are increasingly overridden by corporate demands for profits.

MIGA provides some of the most important services to private corporations by mitigating the political risks of private investment in high risk, low income and conflict-ridden nations. MIGA's forte is political or sovereign risk, which includes governmental actions that jeopardise corporate revenues.

MIGA risk guarantees protect corporate investors against losses resulting from government expropriation of assets and breach of contract, war and civil disturbances including insurrection, coups d'tat, revolution, sabotage, and terrorism. MIGA prides itself as a leader in the political risk insurance industry and collaborates with private and public insurers to "encourage private sector insurers into transactions they would not have otherwise undertaken" . MIGA's beneficiaries are generally TNCs in sectors such as water, energy, oil and gas, telecommunications, automobiles, agribusiness and luxury hospitality.

MIGA also provides "dispute mediation" services and in this, it is complemented by ICSID, which serves as a private, almost secret court to settle disputes between states and private investors. ICSID has been in the spotlight recently because of a US $50 million lawsuit brought against the Bolivian government by Bechtel and Aguas Del Tunari for cancellation of a water privatisation contract in the Bolivian town of Cochabamba.

A massive, coordinated international campaign against Bechtel forced it to accept 30 cents as its settlement. But the case directed the world's attention to the World Bank's system of closed door trade courts, majority of which protect the rights of corporate investors in crucial public interest sectors such as water, electricity, telecommunications, oil, natural gas and mining.

Corporate support disguised as 'development' Less blatant, though more insidious and pervasive, are the pro-corporate policy prescriptions that accompany World Bank financing for so called 'development' projects through IBRD and International Development Association (IDA).

Especially notorious are the World Bank- International Monetary Fund designed economic reform packages, which seek to establish small, efficient and corporate friendly governments that rule over corporate friendly capitalist economies.

Once called structural adjustment programmes (SAPs) and then renamed 'poverty reduction strategies', the reform packages are designed to open up the markets and economies of borrowing countries to foreign investors through trade and investment liberalisation, privatisation of public utilities, state marketing boards and state enterprises, and financial deregulation.

Reforms also demand that cross subsidies for the poor, and protection for workers and domestic producers and enterprises be eliminated, and publicly financed social programmes -- including those in health, education, water and sanitation -- be drastically cut.

Although the ostensible goal of the World Bank's 'development finance' is to alleviate poverty, increase employment and raise living standards by stimulating economic growth, its (bank's) projects and programmes deliver greater benefits to private corporations, contractors and consulting firms than to the poor.

The bank's push for trade liberalisation coupled with the removal of government support for domestic producers and enterprises provides foreign corporations unrestricted access to developing country markets in crucial sectors such as agriculture, services and industry.

By insisting that borrowing countries shrink labour and environmental regulations and establish corporate friendly taxation and property regimes, the World Bank virtually assures private investors a free ride at the cost of local communities, workers and the environment.

The bank's almost religious belief in commercialisation and privatisation has served corporations well. Regardless of the problem or sector (water, electricity, agricultural marketing, health, education, etc.) the bank demands that the governments step back and the markets step in.

Privatisation includes a range of measures from unbundling (breaking up) operations in public enterprises and outsourcing the unbundled operations to eventual sale of public enterprises either whole or in parts. Included in the package are private contracts for high-end 'technical assistance' and procurement of ancillary goods and services.

Although the World Bank insists that procurement and contracting are the responsibilities of the implementing agency (usually a government department), privatised assets and construction, consultancy and procurement contracts generally go to large corporations, contractors and consulting firms that are well versed with the bank's rules for bidding and procurement.

The 'symbiosis' between the bank and corporations is well demonstrated in the biotechnology and agrochemical industries. The World Bank's agriculture policies have been practically written by corporations such as Monsanto, Aventis, Novartis and Dow.

Even as the bank expanded its rhetoric about environmental sustainability in the 1990s, its projects advocated increasing farmers' access to agro-chemicals and genetically modified seeds. During this time, the bank also entered into business partnerships with nearly all leading pesticide and biotechnology companies through a staff exchange programme that involved 189 corporations, governments, universities and international agencies.

A marketing analyst from Aventis (now Bayer CropScience) spent nearly four years in IBRD to develop IBRD's position on agricultural biotechnology and strategies to leverage financing through IFC.

Novartis' (now Syngenta's) head of public affairs spent a year working on outreach strategies for the World Bank's rural development unit. Bank officials placed in Novartis and Rhone Poulenc Agro (now part of Bayer) in the late 1990s assisted them with biotechnology regulatory issues and rural development partnerships. The bank thus adjusted its agricultural strategies to satisfy leading biotechnology and agrochemical corporations, which in turn gained access to public policy making in developing countries.

Pro-corporate thinking is deeply embedded in the World Bank. Many of its presidents and senior staff come from the corporate sector and 'market solutions' feature prominently in the bank's strategies for addressing virtually any challenge whether deforestation, global warming or food and water scarcity.

The bank's development vision is a capitalist one in which the role of the government is to create an 'enabling environment' for the private (corporate) sector to flourish and for the market to sort out crucial issues of access and distribution.

In large hydro-power projects for example, the World Bank routinely assists host governments and private contractors in project preparation and mobilising project finance it hires private consulting firms to work alongside government departments to design projects and implement arrangements, mobilises project financing (through IFC) and underwrites loans (through MIGA or other partnering risk guarantors). The costs of environmental and social mitigation are left to the government and society, and the terms of project financing and guarantee generally favour private companies.

The World Bank is proud of its support for corporations and private investors, as expressed on the MIGA website
Our presence in a potential investment can literally transform a "no-go" into a "go". We act as a deterrent against government actions that may adversely affect investments. And even if disputes do arise, our leverage with host governments frequently enables us to resolve differences to the mutual satisfaction of all parties.

For several decades now, the bank has used development and poverty reduction as smokescreens to further corporate interests. It has used its position as a preferred creditor and aid coordinator in developing countries to create opportunities for private corporations, contractors and consultants to profit from structural needs and crises in developing countries. Clearly, dismantling corporate power over our public goods, services and commons will also require dismantling the World Bank.

i The World Bank is constituted of five institutions, which collectively form the World Bank Group International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and International Centre for the Settlement of Investment Disputes (ICSID). Information about all five institutions can be obtained from the World Bank website http//www.worldbank.org

ii The G-7 is made up of the United States, Canada, Britain, France, Italy, Germany and Japan

iii Anon 2007, 'Private Sector Development Blog, World Bank Group', < http//psdblog.worldbank.org/="">

iv Anon, 'Multilateral Investment Guarantee Agency', World Bank Group,

v Anon, 'Procurement - Information for bidders and consultants', The World Bank, http//web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/PROCUREMENT/0,,contentMDK20060540~menuPK84282~pagePK84269~piPK60001558~theSitePK84266,00.html

vi Brian Toker 2004, The World Bank and the "Next Green Revolution" Devastating IMF/World Bank sponsored environmental projects in the name of progress, Green Tide, Z Magazine online, Vol 17, No 4, April http//zmagsite.zmag.org/Apr2004/tokar0404.html

vii http//www.miga.org/sitelevel2/level2.cfm?id=1069

Shalmali Guttal is with Focus on the Global South. She can be contacted at s.gutall@focusweb.org

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