WASHINGTON, D.C. - More than 100 environmental, development, and indigenous groups are worried that the International Finance Corporation (IFC), the World Bank affiliate that supports the private sector, is watering down its strict social and environmental conditions for future loans and guarantees.

The groups, which have sent a letter to both the IFC and the World Bank to protest the proposals and schedule for their adoption, are charging that changes appear designed to make it easier for the IFC to support controversial projects in developing countries that are financed mainly by private banks.

"These flawed proposals seriously undermine the World Bank's duty to protect the environment and affected communities," said Hannah Ellis of Friends of the Earth, which is leading the effort to halt the proposals' adoption.

"It must ensure that any money it lends to private-sector projects meets internationally recognized standards," she added. "These new plans will weaken already inadequate safeguards and must be abandoned."

At stake is the future of the IFC's 10 "Safeguards Policies," which are designed to ensure that projects that it supports do not harm the environment where the projects are taking place or the people who live there. The policies, which are generally consistent with those used by the World Bank in assessing whether to support government-backed projects, were adopted in 1998 although some were developed by the World Bank earlier in the decade.

They cover a range of concerns, from the integration of pest management in agricultural projects; to what kinds of dams the IFC will help finance; to child labor, indigenous populations, and forestry. It bans outright, for example, any project designed to facilitate logging of primary tropical forests.

The policies have been widely applauded by environmental and similarly concerned groups, although they have sometimes charged that the IFC has failed to administer the policies in a consistent manner.

Consistent with these policies, the IFC also helped devise the "Equator Principles" to which some two dozen private international banks, including Citigroup Corp., Bank of America, and some of the largest European and Japanese banks have committed themselves. Equator Principles banks, which together provide about three-quarters of project finance for developing countries, have essentially agreed to apply these same principles in deciding whether or not to finance projects.

Now, however, the IFC has proposed substituting new "performance standards" for the "Safeguard Principles." Although the scope of these "standards" would actually be broadened, they would focus more on project outcomes and the setting of objectives on a case-by-case basis than on providing a more general policy framework on what the IFC will and will not support.

Although the IFC itself provides only about one percent of all project finance, it plays a key role in mobilizing the support of private lenders. As with the World Bank itself, the IFC acts as a kind of "Seal of Good Housekeeping" for the international financial community.

In addition, export credit agencies (ECAs) of industrialized countries, such as the U.S. Export-Import Bank, often look to IFC to determine whether projects should be supported. ECAs provide billions of dollars in loans, guarantees, and other support for private lenders every year.

The IFC insists that the proposed standards are actually tougher than the "Safeguard Principles," not only because they will include such issues as labor rights and community health policies some of which the Principles do not cover, but also because they will become part of the explicit terms of IFC loans and support.

"We have not diluted them; we have not watered them down," Rachel Kyte, director of the IFC's environmental and social development division, told Dow Jones after a meeting with major banks in London Thursday.

But the environmental and development groups disagree, noting that, as drafted, the new standards are "far too vague and allow for subjective judgment to determine the prevailing standard for any given project."

They also note that, if adopted, the new standards would result in a double standard between the IFC and the rest of the World Bank Group in which public-sector loans would likely be subjected to more stringent conditions than private-sector finance.

"Reasonable people must be able to understand and agree upon the bottom-line standards that will be expected of IFC-financed projects," said FoE's Janneke Bruil. "These decisions should not be left to the whims of individual staff."

The groups are also objecting at the speed with which the IFC intends to review and adopt the new standards. Normally, changes in World Bank policies usually require a year or more of review, including consultations with concerned "stakeholders," such as private banks, non-governmental organizations (NGOs) and representatives of civil society.

The IFC is currently proposing an accelerated process of only four months, even though much of the basic documentation, including proposed implementation guides, have not yet been released.

The groups' concerns have been echoed as well from within the Bank.

An internal paper developed by the Bank's legal department and environmentally and socially sustainable development council said the proposed IFC approach of using guidelines rather than strictly enforced standards "deviated from the clarity attached to the decade-long effort to distinguish mandatory from discretionary action," according to the Financial Times, which obtained a copy earlier this month.

The paper also objected that adoption of the standards would result in the perception that the IFC would apply "a generally weaker and more relaxed set of 'standards' for the private sector" than the Bank applies to public-sector project. That double standard, it warned could also make it more difficult for the Bank to take part in public-private projects - a major policy initiative of the Bank under President James Wolfensohn.

© 2004 OneWorld.net

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