Not banking on much

ADB's priority is business, not helping out

Published: Monday 15 May 2006

Not banking on much

-- India will play host to the Asian Development Bank (adb) at its 39th annual governors' meeting scheduled for May 3-6 in Hyderabad. Over 3,000 people will participate in official events and thousands more will protest what they see as flawed advice and harmful projects peddled by this public institution. Since adb will soon change the way it deals with the environmental and social dimensions of its projects, this meeting becomes even more important.

An annual meeting is an opportunity for member governments to take stock of adb and see whether its funds are used for intended purposes. It is also a time when adb's 'real owners' -- the Asian, North American, and European taxpayers -- can hold it accountable. Groups worldwide are looking to India, as one of adb's largest borrowers, to measure it against the values of social and environmental justice, accountability and transparency. How adb does will depend on whom you talk to. That's why it's important that voices outside the official venue are heard.

The Hyderabad meeting comes at a time when adb is fighting for survival in countries like India. It was recently told by officials from Pakistan, India, the Philippines and China that if they were to continue to borrow from it, the bank would have to provide better service, reduce the 'cost of business', and allow for greater flexibility in procedures and lending. This threat, coupled with competition from other sources, has adb worried. Surprisingly, it is not happy that some Asian economies are robust enough to borrow from private sources. As a development bank, shouldn't it congratulate itself for helping members graduate from its ranks?

adb has responded to criticism of its business model in a number of ways, all focussed at cutting transaction costs and making itself more attractive to borrowers. In doing so, civil society groups feel, adb will cut corners when it comes to upholding environmental and social standards. It has funded projects that hurt people and their environment. In the Chashma irrigation project in Pakistan, local groups suffered loss of life and material damages from flooding caused by faulty project design. In the Colombo-Matara Highway case in Sri Lanka, adb changed project location without conducting mandatory environmental and social due diligence. This was followed by lack of resettlement, compensation and environmental mitigation. After a four-year struggle, the adb board had to intervene.

So how is adb planning to respond? It has launched a review that proposes to streamline operations and consolidate the three policies that are meant to protect people and their environment. Collectively called "safeguard policies", these comprise the environment policy, involuntary resettlement policy and indigenous people's policy.

In initiating this review, adb acknowledges that despite having good policies on paper, implementation and supervision have been problems. Civil society groups worry the bank will buckle under pressure from member governments to 'fast track' project preparation in an effort to make itself more attractive as a lender. They fear adb will lower standards, make their application more flexible and adopt national policies and systems to govern its projects. The rationale given by adb for using national laws and systems is that it will reduce transaction costs for member governments and enhance chances of better plans and better implementation. Use of national systems will also allow it to lend more.

Civil society groups are sceptical. In a letter sent to the adb president in March 2006, civil society groups stated that "as a public institution with a development mandate, adb should strengthen its environmental and social standards and hold adb management accountable for policy implementation". These groups believe sound environmental and social planning should not be seen as a hindrance; indeed efforts taken upstream to embed safeguards in the project cycle will minimise future problems. This issue becomes even more urgent given the lack of accountability for safeguard compliance at adb . Although internal compliance systems have noted safeguard policy violations in many projects, areas of non-compliance -- and the harm they caused local communities -- have still not been satisfactorily addressed.

Hyderabad will thus be an opportunity for adb to walk its talk on good governance and accountability. It should begin by showing how it has dealt with the challenges of non-compliance and pledge to design more robust systems.

The author is Asia manager, Bank Information Center, Washington

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