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1616 P Street, NW Washington, DC 20036 (202) 387-3500







JUNE 16, 1988


National Headquarters 257 Park Avenue South New York, NY 10010 (212) SOS-2100 1405 Arapahoe Avenue Boulder, CO 80302 (303) 440-4901 5655 College Avenue Oakland, CA 94618 (415) 658-8008 1108 East Main Street Richmond, VA 23219 (804) 780-1297 128 East Hargett Street Raleigh, NC 27601 (919) 821-7793

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Mr. Chairman, I appreciate the opportunity to appear before this Subcommittee today. I am Bruce M. Rich, Senior Attorney with the Environmental Defense Fund (EDF) and Director of EDF's International Project. The Environmental Defense Fund is a public interest advocacy and research organization with over 70,000 members nationwide. In its 20 year history EDF has initiated or joined many of the key legal actions that have tested and established the scope of the National Environmental Policy Act. EDF's International Project has been involved for several years in research and advocacy efforts to promote environmental reforms in the lending activities of the World Bank and three other multilateral development banks (MDBs).

In my statement this morning I will try to summarize the efforts the U.S. has made over the past several years to promote environmental reforms in the MDBs, review what environmental progress the the MDBs have made as well as the measures and reforms they still need to take, and in light of these needed reforms discuss the proposed application of NEPA to our participation in the MDBs.


U.S. Efforts to Promote Environmental Reforms in the MDBs

Since June, 1983 the Congress has held, at my count, 22 hearings on the environmental performance of the MDBs; ten of these were special oversight hearings called specifically to build, initially, a public record on the need for environmental reform in the multilateral banks, and, more recently, to monitor the progress of that reform. At least six different Subcommittees of the Congress have been involved in sponsoring these hearings, including all of the Subcommittees with responsibility for authorization of, and appropriations for U.S. participation in the MDBs.

As a result, a public record of thousands of pages has been established over the past five years on both the environmental deficiencies of the multilateral banks and on the ways in which the United States could effectively promote needed reforms within them.

A direct consequence of these hearings was the enactment of legislation in late 1985 which directed the Treasury Department to vigorously promote a number of fundamental environmental reforms within the MDBs, and to report regularly back to Congress on the progress of the banks in implementing these measures. This legislation, though it was technically part of the Foreign Operations Appropriations bill for FY 1986 (which was passed as part of a larger Continuing Resolution in December, 1985), was based on a longer series of environmental reform recommendations for the MDBs issued by the House Banking Subcommittee on International Development Institutions and Finance in December, 1984. The recommended environmental reforms contained in this legislation were strengthened and expanded in the Foreign Operations Appropriations bills enacted for FY 1987 and FY 1988, and were also incorporated into authorizing language passed late last year. (Section 537 of

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the FY 1988 Foreign Operations Appropriations bill and Title XIII, Sections 1301.-1307, of the Multilateral Investment Guarantee Agency Act, both enacted as part of House Joint Resolution 395, approved December 22, 1987, P.L. 100-202)

Since 1985, this legislation has directed the Treasury Department to promote in the MDBs four fundamental reforms through our Executive Directors on the Boards of those institutions: first, the MDBs were to greatly increase their professionally trained staff in the environmental sciences and in related social sciences such as anthropology and sociology; second, the banks were to be urged to change their operational procedures so that ministers of environment and public health would be regularly and systematically consulted in the identification, preparation and implementation of projects; third, the MDBs were to undertake operational reforms so that non-governmental organizations, local community groups, and organizations representing indigenous and tribal peoples would be systematically and regularly involved in borrowing countries in the planning and implementation of all projects that would effect communities and constituencies such groups represent; and fourth, the MDBs were to be urged to undertake a shift in lending priorities so that they would finance a much greater proportion of smaller scale, environmentally more benign and economically more efficient projects and programs.

Because of these hearings and legislation, the Treasury Department, and more recently the State Department and U.S.A.I.D., became actively involved in trying promote environmental reform in the MDBs. My colleague Larry Williams of the Sierra Club has described in his statement the role of U.S.A.I.D., for instance, in developing an "early warning system" to provide information to the Treasury Department from A.I.D. missions on upcoming MDB projects that may have serious environmental implications.

Clearly, however, environmental reform in the MDBs will be best served, and in the final analysis, will only take place if the MDBs themselves undertake the responsibility to environmentally assess their projects, rather than domestic agencies of donor governments such as the United States. The multilateral banks must also identify and finance many more alternative projects that by their nature further economic development without destroying the natural resource base on which all future development depends. EDF and several other other national environmental organizations represented at this hearing have identified the four fundamental reforms of the MDB environmental legislation referred to above as prerequisites and priorities for the the MDBs in achieving these goals.


Progress to Date of the MDBs in Achieving Environmental Reform

Despite the continued pressure of the United States, and, increasingly, of other donor nations, progress of the MDBs in implementing environmental reform has been for the most part not only slow, but inadequate. I will dwell mostly on the World Bank, since it is the most important by far of the MDBs and has also taken the lead among the multilateral banks in admitting that

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with respect to the environment that "if the World Bank has been part of the problem in the past, it can and will be a strong force in finding solutions in the future." Little more than one year ago the President of the Bank, Barber Conable, publicly announced a number of environmental reforms the Bank would undertake: the creation of a new Environment Department with greatly increased staff, compared with the Bank's old environment unit; financing a number of environmentally beneficial activities, including doubling the Bank's forestry lending; and greater involvement with non-governmental organizations.

Regrettably, there is so far less than meets the eye to these reforms. The need for increased environmental staff was the most urgent reform, because although the World Bank has had for a number of years environmental guidelines and policies, lack of environmental review staff made the systematic implementation of these policies impossible. Formerly, the Bank with more than 6000 employees had an environmental unit with at most five or six staffers, only three of whom were involved even part time in attempting to review more than 300 new projects a year and hundreds of ongoing ones.

To address the problem of environmental review and assessment of projects, the Bank established environmental review units of approximately five professionals each for each of its four operations regions -- Latin America, Africa, Asia, and Europe and the Middle East. We have discovered, however, that these environmental assessment units have not been given either sufficient budget nor the institutional authority to intervene in projects unless requested to do so by project officers and Bank country directors. These operations staff have little institutional incentive to involve the environmental assessment units, since this involvement can only risk slowing down the processing of projects and loans, which is what advances the careers of the staff, not the environmental quality of projects.

In addition, the Bank established a new, central environment department, with about 28 professional staff, which is mainly involved in research, and longer term planning and strategy. The work of the central environment department -- which includes research such as revamping the Bank's cost/benefit analysis so it can quantify and incorporate some environmental concerns..could have a longer term impact on the whole nature of the Bank's lending, but so far it appears to have had little tangible effect.

The promise of a greater proportion of environmentally beneficial projects has also had little manifestation in the actual mix of projects the Bank has financed over the past year. There have been isolated instances that are encouraging--such as the identification of proposed national environmental policy loan for Brazil that may total over $100 million. The promise of doubling the Bank's forestry lending in coming years, however is seen by many environmental organizations in the Third World as a threat, since many Bank forestry projects in the past have had adverse environmental and social impacts. I have included for the record a recent article from the British journal New Scientist, which describes some of these problems. Finally, with respect to greater involvement of non-governmental organizations, particularly in developing countries, we have heard an escalation of rhetoric in this regard over the past year, but have seen little change in practice.

Again, there have been isolated examples of greater consultation, but recently--for example with respect to a number of World Bank energy projects in India--dismaying reluctance to meet with representatives of poor people directly, and adversely, affected by Bank projects.

The Inter-American Development Bank, while continuing to suffer from understaffing and other institutional weaknesses in the environmental area, has undertaken over the past year several actions in Brazil that must be praised as outstanding examples of how MDBs can play a positive a role in involving non-governmental organizations and local community groups to promote environmental concerns in projects that affect such groups.

For example, in the past year the IDB has taken decisive action to bring its road construction project in the Northwest Brazilian state of Acre into compliance with environmental protection clauses in the loan. It has taken unprecedented steps to ensure the participation of Indian and rubber tapper communities most affected by the project, including securing an agreement of government agencies to allow Indian communities in the rainforest areas affected by the road to participate in surveys of their land requirements and to be legally empowered to decide on the form of reserve to be created for them. This process means that for the first time in any multilateral bank project, the communities most vulnerable to the negative effects of a project will have a real say in how the project proceeds, and in the measures intended to benefit them. With this action, the IDB has set a standard for active involvement of of non-governmental organizations and local community groups in all multilateral bank operations.

However, the IDB still has only two professionally trained ecologists (and one ecologist in the IDB's Brazil Field Office) in a staff of over 1800 to attempt to environmentally assess more than 80 new and hundreds of ongoing projects a year. Although representatives of the national environmental groups testifying at this hearing recently had an encouraging meeting with the IDB's new president, Enrique Iglesias, it is much too early to say whether he will be able to implement in the IDB his desire to give environmental matters a much higher priority. The Asian Development Bank is similarly lacking in environmentally trained staff--there are currently three professionals in its environmental unit. The ADB has extensive environmental guidelines but inadequate environmental staffing and information from non-governmental organizations in ADB borrowing countries indicate to us that systematic implementation of these guidelines is far from a priority. The African Development Bank, given its limited resources, has tried to be responsive to environmental concerns, but it is difficult to say whether the environmental quality of its projects has been any better.

The bottom line, and the only one that counts, is the overall environmental quality of the majority of the projects the MDBs are funding and planning. Unfortunately, what EDF and the other organizations represented here today are continuing to uncover is more and more evidence of poorly planned, tragically misguided projects which are destroying the natural resource base on which the rural poor in developing countries depend for their physical survival. In project after project we are discovering that the MDBs' institutional weaknesses and lack of commitment of priority and resources to

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