To the Editor:
In "Saving the World Bank" (May/June 2005), Sebastian Mallaby argues that "excessive rules on the environment, corruption, and the protection of indigenous peoples" are scaring middle-income countries away from doing business with the World Bank. I think Mallaby's estimate of the costs incurred from these policies are greatly exaggerated, but admittedly even minor additional costs can encourage middle-income borrowers to turn to a cheaper source of capital, which is often private banks. But how should the World Bank respond to this dilemma? Should it lower its social and environmental standards, as Mallaby states, and externalize the costs to project-affected communities and the environment?
Interestingly, Mallaby does not base his claim that the bank's safeguards are excessive on any evidence from actual projects. Any visit to a large mining, pipeline, or hydropower project will show that rather than being beneficiaries, affected communities still pay a hefty price for these projects. And the new Millennium Development Account documents that scarce environmental assets are still being degraded at a rapid pace. In such a situation, the World Bank should not try to compete with private banks by lowering its standards. To avoid a race to the bottom, it should rather uphold global standards of responsible lending and encourage other financiers to follow suit.
Mallaby calls such a perspective utopian. Yet an alliance of environmental experts in civil society, governments, and the private sector has successfully strengthened the environmental standards of export credit agencies and private banks. Domestic banks in countries such as China and India are still competing for business based on the lowest standards. Yet as civil society in these countries gains ground, these institutions will also be pressured to respect global standards. The increasingly assertive role of China's State Environmental Protection Administration in large infrastructure projects is an encouraging sign.
Policy Director, International Rivers Network