WASHINGTON - The World Bank and International Monetary Fund (IMF) came under fire last week for failing to adequately promote transparency in extractive industry operations in resource-rich countries where the two institutions work.
Global Witness and the Bank Information Centre (BIC) carried out an assessment covering 57 countries where the two international financial institutions (IFIs) provided funding and other support to extractive industries (EI) -- such as oil, gas and mining -- from June 2003 until April 2008.
The assessment found that while the IFIs have contributed to some improvement in transparency of these operations in some countries, "the approach is neither consistent across countries nor comprehensive."
"Our study found that while the World Bank and IMF raise the issue of transparency in many resource-rich countries, disclosure of revenues is not always mandated, disclosure of contracts is largely lacking, and meaningful civil society participation often goes unaddressed," said Corinna Gilfillan, head of Global Witness's U.S. office.
The focus on transparency arises from an ongoing problem in countries with vast fossil fuel and mineral resources, known as the "resource curse". When transparency is absent in these countries, corruption, theft, and mismanagement of the revenues generated by natural resources are common.
Global lenders such as the World Bank and IMF say they support EI activities with the expectation that profits will benefit the larger society, helping toward achievement of poverty alleviation goals (in the case of the World Bank) and establishment of sound financial management and economic stability (in the case of the IMF).
The assessment released last week examines transparency in three areas: public disclosure of revenues and contracts related to EI operations, and the extent of outreach to, and involvement of, civil society.
Generally, more stress was placed by the IFIs, particularly the IMF, on revenue transparency than the other two.
Civil society involvement is widely seen as a factor facilitating transparency; for example, by crying foul if bidding on contracts is limited to one or two well-connected bidders or the government diverts revenues from their intended purpose.
However, the report notes, civil society is not well developed in many of the countries where extractive industries are most active.
Both the Bank and the IMF, which were ranked separately, scored lowest in the area of civil society engagement, which is included in only around 25 percent of World Bank programmes and "overwhelmingly absent" in IMF agreements.
Neither IFI uses benchmarks to establish accountability criteria in the area of civil society involvement.
BIC and Global Witness recommend that the World Bank dedicate more resources to building civil society capacity and to holding governments and private sector clients accountable by making civil society participation a "project requirement and performance indicator" of its lending and other operations.
The two groups point to a recent case demonstrating the problems that arise when accountability and transparency are not enforced: the Chad-Cameroon pipeline.
In September 2008, after many years of debate and considerable controversy, the World Bank pulled the plug on support for the Chad-Cameroon oil pipeline due to tensions over failed promises to spend oil profits on programmes for the poor. Instead, the government of Chad used most of the revenues to bolster its military.
The pipeline was one of the Bank's biggest investments in Africa -- 140 million dollars -- and had long been featured as a test case for using oil wealth to benefit the poor.
In Peru, where World Bank lending supports mining, the goal of transparency is stated in the Country Partnership Strategy, but no benchmarks for achievement were included.
Peru is the site of another controversial project, the Camisea gas pipeline, which faces strong opposition from indigenous groups in the country's Amazon region and international supporters.
Throughout Latin America, the report notes, efforts to promote transparency were nearly nil, although in sub-Saharan Africa 60 percent of IFI operations included either programme benchmarks or technical assistance to improve transparency.
These efforts paid off in the Republic of Congo (Brazzaville), the second country example covered in the review, where oil represents the foundation of the national economy.
In Republic of Congo, both IFIs "consistently emphasised" the need for transparency regarding oil revenues, as well as broad stakeholder involvement, according to the report.
The standards developed by the two institutions have resulted in greater transparency in revenue management, and could serve as a model for replication in other resource-rich countries where the IFIs operate, BIC and Global Witness suggest.
The Congo example "demonstrates that leverage provided by debt relief and lending programmes was and continues to be a key tool for promoting revenue transparency in recipient resource-rich countries."
The key lies in the degree to which commitment to greater transparency is incorporated by IFIs into programme requirements, and to which staff and leadership demand strict adherence.
The report includes detailed recommendations, as well as annexes describing World Bank and IMF involvement in promoting extractive industry transparency in the three focus areas (contracts, revenues and civil society participation) in 57 countries.