The World Bank and Corporations Fact Sheet

Every year the World Bank and its regional counterparts such as the
Asian Development Bank, the Inter-American Development Bank, the
African Development Bank, and the European Bank for Reconstruction
and Development, collectively known as Multilateral Development
Banks (MDBs), lend $45 billion to the so-called "developing" world.

This money in turn leverages support by bilateral aid agencies,
private finance and other sources for projects and programs whose
total cost is estimated at well over $130 billion.

The ostensible goal of this "development finance" is to alleviate
poverty in the Third World by stimulating economic growth. Yet in
many respects these loans, which have integrated vast human
populations and expanses of natural resources into the world
economy, deliver far greater benefit to the governing elite of
stratified Southern societies, to transnational corporate
contractors and investors, and to the globalization agenda of the
donor governments of the industrialized North.

It is well documented that a broad array of MDB-financed projects
and economic policy proscriptions have contributed to a deepening
spiral of social and ecological poverty throughout the South. Such
destruction has prompted a series of international campaigns aimed
either at reforming or halting individual projects, as well as at
reforming or closing down the MDBs themselves.

MDB policies have consistently served corporate interests in
five key ways:

1. Corporate Contracts

The first and most obvious way that the transnationals benefit from
MDB and bilateral aid is through contracts. In what is essentially
a quid-pro-quo relationship, large corporations based in the
countries that provide the MDBs with capital receive lucrative
contracts for MDB financed projects.

  • Overall, net disbursements by the World Bank (i.e., the
    balance of gross disbursements minus repayments to the Bank for
    previous credits) totaled just over $7 billion in 1993. But the
    borrowing countries paid out nearly an equivalent amount of money
    in contracts--$6.8 billion, to corporations from the 24 rich OECD
    nations--leaving only marginal positive cash flows into the coffers
    of recipient countries.
  • The International Development Association, an arm of the
    World Bank designed to lend money to the poorest of the poor
    countries, doled out more money to British corporations for
    contracts in 1993 than it committed in future loans to Bangladesh,
    one of the most impoverished nations on earth.
  • Switzerland, home to only six million people and some of the
    world's largest transnationals, got more money than Mali or the
    Philippines.

2. Infrastructure

The second way in which multilateral and bilateral aid has
benefitted corporate interests is by building infrastructure such
as roads, electrical grids, dams and power plants, that often serve
to lay the groundwork for further transnational investment.
Unfortunately, such infrastructure has also repeatedly led to
social and environmental debacles.

For instance:

  • World Bank infrastructure lending in the transportation
    sector has also supported corporate expansion, promoting the growth
    of the auto industry in the Third World rather than more accessible
    and ecologically sound rail transport. In 1993, for instance, 74
    percent of the Bank's $3.2 billion in transportation loans went to
    road and highway construction.

    These policies exacerbate the already significant contribution that
    road vehicles make to local air pollution and global climate
    change.

  • Lending for energy infrastructure has similarly catered to
    corporate interests while virtually ignoring environmental
    consequences and failing to promote alternatives.
    • The World Bank spends 40 percent of all its energy
      loans on oil and gas development, 15 percent on coal, and most of
      the rest on electrical transmission and fossil fuel powered
      generators.
    • MDB support for alternative energy development such as
      solar and wind power is virtually non-existent. Less than 3
      percent of all Bank energy lending goes to renewable energy and
      energy efficiency projects.
    • These policies amount to subsidies for transnational
      oil and coal corporations, and make a signficant contribution to
      greenhouse gas emissions.

3. The Greenwash Route

The third way in which the World Bank and other MDBs support
corporate interests is through their new found environmentalism.

As they have come under increasing fire for their socially and
environmentally destructive behavior, these institutions have moved
to address their critics. Parallel to the corporate response to
environmentalism, the MDBs have taken a series of steps to absorb
the ecological question into their agenda.

  • In the early 1990s, the Bank had initiated a "forest
    management and protection" project in the West African country of
    Guinea; the effort turned out to be an initiative to deforest two-
    thirds of the remaining pristine rainforest in the country.
  • A 1990 World Bank forestry conservation project in the Cote
    d'Ivoire put a half-million-hectare rainforest under the management
    of the same corporations that had pillaged the country's timber
    resources during two previous decades. This logging project, which
    was approved in 1990 under the Bank's supposedly "environmental"
    forestry policy, also set the stage for the potential displacement
    of over 200,000 people who depended on the forest.
  • A similar dynamic has taken place with the advent of the
    Global Environment Facility (GEF), a multi-billion dollar joint
    project between the World Bank, the UN Development Programme and
    the UN Environment Programme. For instance, a "model" GEF Natural
    Resources Management Project in the Congo, which was designed to
    integrate isolated rainforests into the global economy by opening
    them up to corporate logging under the pretense of protecting them.

4. Structural Adjustment

The fourth way in which MDB policies serve corporate interests is
through so-called "policy based lending" or structural adjustment.

From the 1980s onward, the World Bank/IMF attained a position from
which it could dictate macroeconomic policies and effectively wrest
sovereign control of entire economic sectors from Southern
governments. By 1996 about one-quarter of all World Bank lending
was in the form of structural adjustment programs.

These lending policies effectively deconstructed much of the Third
World nation state. They did so by conditioning loans designed to
resolve balance of payments crises on the privatization of national
industries, the removal of barriers to foreign investment in key
sectors, the "reform" of financial systems, the gutting and
privatization of social and environmental services, and the
redirection of economies toward an increasing export-orientation.

Together, all of these components of adjustment effectively pried
open previously protected markets to escalating transnational
corporate investment.

  • Structural adjustment also increased poverty and inequality,
    while heightening environmental degradation by intensifying the
    exploitation and export of natural resources.
  • Transnational corporations also assumed responsibility for a
    number of environmental problems as they bought up what had been
    state-owned power plants, chemical factories, mines and forests.
  • The World Bank's adjustment policies exacerbated the South's
    environmental crisis in no small part, as Philippine scholar Walden
    Bello writes, through an "ideological bias...against any
    disincentives that might stand in the way of the operation of
    market forces...This translated into opposition on the part of the
    economic authorities to effective environmental regulation by the
    state."

5. Underwriting Private Capital Flows

The fifth and newest way in which the MDBs serve corporate
interests is by either directly lending to or investing in
transnational corporate projects, and providing risk insurance for
their endeavors in the Third World.

By dismantling key sectors of the nation-states that the World Bank
and its sister institutions are chartered to lend to, the MDBs
have, in a sense, been working themselves out of a job. Undaunted
however, they are remaking themselves as privatized public
investors and bankers for the transnationals.

This shift has also allowed the MDBs to sidestep some of the
environmental and social controls that more than a decade of
activists' campaigns had forced upon them.

  • In 1995 the International Finance Corporation (IFC) an arm of
    the World Bank, was making nearly $3 billion in loans and equity
    investments for 213 corporate projects in 67 countries.
  • The IFC's support for and participation in these investments
    leveraged another $15 billion in financing for these corporate
    ventures.
  • The World Bank has also created a new entity, the
    Multilateral Investment Guarantee Agency (MIGA) to provide risk
    insurance for corporate investment in Southern nations.
  • And, with the new slogan "catalyst for private capital flows"
    the Bank itself has jumped into the private investment business.
  • Overall, the World Bank Group, as it is known, takes credit
    for supporting "about $25 billion of private-sector finance a year,
    or 10 percent of all investment by private enterprise in developing
    countries."
  • A quick glance at IFC lending also shows that many of the
    investments and loans it makes are in the most environmentally
    hazardous economic activities such as power plants, mining,
    chemical, petrochemical and oil refining, timber, pulp and paper,
    food and agribusiness, and the automotive industry.

The Future of the World Bank

Promoting private investment in the Third World is not necessarily
a bad thing. But when it comes at the cost of social equity and
ecological sustainability it is a questionable endeavor at best.

The World Bank Group and its regional cousins would best serve
their mandate of eradicating poverty and promoting sustainable
development by subsidizing, guaranteeing, financing and investing
in ventures that foster organic agriculture, solar and wind power,
public transportation, chlorine-free, tree free paper made from
agricultural byproducts, and the like.

If these global economic institutions are not able to promote such
transformations, it may be high time to close them down.


Source: All information from Joshua Karliner, The Corporate Planet:
Ecology and Politics in the Age of Globalization (Sierra Club
Books, 1997) now available in bookstores or from CorpWatch
.

AMP Section Name:World Financial Institutions
  • 194 World Financial Institutions

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