Review may urge World Bank to halt mining finance

A report now being prepared by an outside review committee will recommend significant changes to the way World Bank agencies fund projects in the resource industries, The Northern Miner has learned.

The Extractive Industries Review report, commissioned by the World Bank and prepared by a secretariat headed by former Indonesian environment minister Emil Salim, proposes a series of measures to tighten the World Bank’s monitoring of projects it finances in developing countries’ resource industries. It further recommends that the agencies not enter any new agreements for project financing or assistance “until the new safeguards are in place.”

The recommendations cover the World Bank and its equity-investment arm, the International Finance Corporation. They also cover the Multilateral Investment Guarantee Agency, the World Bank agency that provides political risk insurance for projects in the developing world.

The review recommends a series of safeguards it hopes will ensure that resource projects in developing countries provide economic and social advancement for the poor. It points to the “paradox of plenty” — the observation that many resource-rich countries are economic and social basket-cases, a view also commonly known as the “commodity curse.”

Concluding that “most of the factors that explain [the paradox] result from institutional and policy failure,” the review committee calls for the Bank and its agencies to monitor governance in countries where it supported resource projects, and to keep a close track on resource revenues going to governments.

The report will also recommend that World Bank agencies need “integrated strategies” to ensure resource industries meet sustainable-development goals, and that the agencies “should support significant sector expansion only where it can address” sustainable-development and governance issues.

The review also says the World Bank Group needs to strengthen the implementation of existing policies, particularly in evaluating the impacts and benefits of the resource projects it finances. The review’s clearest recommendation is that distribution of economic benefits from resource projects be evaluated.

The report also finds that the World Bank has fallen short in addressing human-rights and community consultation issues in its funding for resource projects. The review committee noted that the Bank has better access to stakeholders and should use that advantage to promote human rights and community consultation.

The World Bank commissioned the review after a group of non-governmental organizations petitioned the Bank to cut all its financial support to extractive industry projects. The groups advanced the view that development of mineral resources, on balance, increased poverty and misery in developing countries.

The review committee was headed by Salim, who is also a member of the Earth Council, a Costa Rican-based non-governmental organization headed by policy entrepreneur Maurice Strong. The review was done in consultation with an advisory board that included representatives from the mineral industry, non-governmental organizations, and academia. One of the representatives was American political science professor Michael Ross of the University of California. A proponent of the “commodity curse” theory, Ross prepared a report for Oxfam America contending that resource development is bad for poor countries.

The International Council on Mining and Metals, an industry group that grew out of the Mining, Minerals and Sustainable Development initiative and was represented on the Review’s advisory board, submitted a brief that charged that the draft report presented “an unbalanced picture of industry performance” and contained too many recommendations. Similarly, the Prospectors & Developers Association of Canada submitted recommendations that the World Bank remain involved in resource financing but that it give priority to projects in countries where resource revenues will be effectively redistributed or spent for the benefit of local populations.