World Bank should draft new policy to advance human rights
Pointing to adverse effects of World Bank policies and financing, a UN rights expert has advocated a reorientation towards integrating human rights promotion into the Bank’s operations.
by Kanaga Raja
GENEVA: A United Nations human rights expert has called on the World Bank to embark on an inclusive process for drafting a new and separate human rights policy, which should embody a commitment to integrate human rights into its work.
Calling for a fundamental rethink, the rights expert proposed a change of paradigm that would require not only amending the Bank’s Articles of Agreement of 1944 but also ensure clear directives from the Board of Governors that mainstream human rights into the Bank’s activities.
In his report to the UN Human Rights Council, the Independent Expert on the promotion of a democratic and equitable international order, Alfred de Zayas (of the United States), also called on the World Bank to cease promoting labour market deregulation, including through its funding conditionalities, and instead help to reverse the rise in income inequality by supporting social dialogue and collective bargaining.
He further said the World Bank Board of Governors should issue a clear directive that the International Centre for Settlement of Investment Disputes (which is part of the World Bank Group) must refrain from interfering with the ontological functions of the State, which are to regulate in the public interest, including through environmental, health, social and labour legislation. “The International Centre for Settlement of Investment Disputes should not lend its services to litigation that puts those functions of the State into question. Rather the International Centre for Settlement of Investment Disputes should discover its vocation to serve in an advisory capacity.”
The Human Rights Council held its regular thirty-sixth session here from 11-29 September.
“Progress cannot be measured only by increases in Gross Domestic Product (GDP) but must also encompass the enhanced enjoyment of human rights and a higher standard of living,” de Zayas said in a UN news release.
“The World Bank should stop financing projects that adversely impact people’s human rights, and should instead seek to combine economic growth with the promotion of food security, clean water, health care, education and employment, as well as the equitable distribution of wealth,” he added.
In his report to the Human Rights Council, de Zayas said that while international financial institutions can advance human rights and development, some of their policies have resulted in the erosion of the enabling human rights environment in some countries, especially through the promotion of neoliberal policies that weaken the public sector and hinder States in the fulfilment of their human rights treaty obligations in the fields of education, healthcare, labour standards and an adequate standard of living.
Moreover, by financing enterprises that evade taxes, the World Bank abets the diversion of public resources away from public services. Increased Bank support for public-private partnerships enhances the private sector at the expense of communities, especially when investments go awry and result in greater costs to governments.
Henceforth, he said, international financial institutions should take a human-rights-based approach to lending, consult stakeholders, conduct impact assessments, take action to counter reprisals, combat corruption and accept legal responsibilities by waiving “absolute immunity”.
The Independent Expert believes that, since the World Bank and the International Monetary Fund (IMF) have association agreements with the United Nations, they must support the UN General Assembly, the Economic and Social Council and the UN Conference on Trade and Development (UNCTAD) in advancing the purposes and principles of the UN as set out in the UN Charter, and in advancing human rights and sustainable development, while respecting the sovereign equality of States and the principle of non-intervention in the domestic affairs of States.
It bears repeating that the member States of the World Bank and IMF are also parties to numerous UN human rights treaties, notably the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights, and that they must ensure that the policies of financial institutions and the projects they support do not have adverse effects on human rights.
Bearing in mind that States have an obligation to ensure that investors and transnational corporations do not violate human rights, States should use their leverage to strengthen the human rights regime whenever they negotiate deals with governments to finance specific projects.
In that regard, the Independent Expert recalled the commitments made in 2015 by States at the UN summit for the adoption of the post-2015 development agenda and the adoption by the UN General Assembly of the Sustainable Development Goals. The Addis Ababa Action Agenda of the Third International Conference on Financing for Development, adopted in 2015, also calls upon all development banks to establish or maintain social and environmental safeguards systems.
According to the Independent Expert, his report does not aspire to tell the World Bank what it already knows or what its experts are busy trying to address. It hopes to formulate realistic recommendations, applying a human-rights-based approach.
“In that regard, the Bank’s Articles of Agreement should be amended to integrate the promotion of human rights, and directives should be issued by the Board of Governors to mainstream human rights.”
A revised mission statement that reconciles the economic and financial priorities with human rights is desirable. Even the words written on the great wall at the entrance of the Bank (“Our dream is a world free of poverty”) serve as a call for action, he said.
The report noted that the World Bank acknowledges that “sustainable development recognizes that growth must be both inclusive and environmentally sound to reduce poverty and build shared prosperity for today’s population and to continue to meet the needs of future generations. It is efficient with resources and carefully planned to deliver both immediate and long-term benefits for people, planet, and prosperity”.
To that end, in 2016 the Bank adopted the Environmental and Social Framework, comprising: a vision for sustainable development, which sets out the Bank’s aspirations regarding environmental and social sustainability; an environmental and social policy for project financing, setting out mandatory requirements for projects it supports; and 10 environmental and social standards, setting out mandatory requirements for borrowers and projects.
There is no shortage of opinions about the impact of the World Bank on the international order. Some observers contend that the Bank and IMF have a greater impact on world affairs than all the resolutions of the UN General Assembly and the Economic and Social Council combined, said the rights expert.
Whereas the Bank has the word “development” in its name, the question must be answered as to what development means for the purposes of the Articles of Agreement. (The World Bank is technically made up of the International Bank for Reconstruction and Development, and the International Development Association.) Hitherto, both in doctrine and in practice, the Bank has understood development to mean growth in terms of GDP, increased trade and greater consumption.
Observers have been proposing a different understanding of “development”, as a more equitable distribution of wealth, food security, clean water, sanitation, healthcare, housing, education and employment.
Rights violations from Bank projects
Notwithstanding the positive developments, both the Bank and the IMF continue pressing for increased reliance on purely market-based solutions, following the perspective of “market fundamentalism” that the economist Joseph Stiglitz often decried.
In 2016, said de Zayas, there was increased cooperation among multilateral development banks, with a focus on mega-infrastructure projects, a reliance on public-private partnerships as a way to circumvent constrained fiscal space, and a continued effort to impose so-called labour flexibilization and other obsolete conditionalities on States.
“As Naomi Klein recalls in her seminal work, The Shock Doctrine, the main problem remains the commitment of international financial institutions to the philosophy of laissez-faire economics, reflecting Milton Friedman’s Chicago school and characterized by the almost religious belief that privatization and deregulation will advance GDP, notwithstanding its endemic boom and bust cycles and its minimization of social costs.”
For many years, civil society has signalled human rights abuses committed by companies benefiting from World Bank financing, with numerous publications documenting those abuses. Among the most egregious violations are land-grabbing, brutal evictions, involuntary resettlement, forced labour, child labour, sexual abuse, massive pollution, destruction of the environment, reprisals against human rights defenders, corruption and money-laundering.
The Independent Expert’s report noted that ahead of the Bank spring meeting in April 2016, Oxfam released a report entitled “The IFC and tax havens”, in which it revealed that 51 of the 68 companies in which the International Finance Corporation (IFC, which is part of the World Bank Group) had invested in sub-Saharan Africa in 2015 used tax havens.
In fact, UNCTAD estimates that developing countries lose $100 billion annually in tax revenue, from which lost revenues and uninvested earnings yield a total development finance loss in the range of $250-300 billion.
“It is time for the Bank to blacklist projects with companies that fail to pay their taxes,” said de Zayas.
According to the rights expert, there is ample evidence that projects financed by the Bank cause harm to millions of people.
A 2015 report by the International Consortium of Investigative Journalists states that from 2009 to 2013, the Bank pumped $50 billion into projects graded the highest risk for “irreversible or unprecedented” social or environmental impacts. The report also indicates that the Bank and IFC have financed governments and companies accused of human rights violations, including murder and torture. In some cases, they continue to finance those borrowers notwithstanding the evidence.
“Among the vulnerable groups that have suffered as a consequence of major prospecting, mining, logging and hydroelectric enterprises are indigenous peoples whose lands have been taken away or devastated though industrial activity, without consultation and without their free, prior and informed consent.”
In 2015, the International Consortium of Investigative Journalists determined that 3.4 million persons had been physically or economically displaced by projects funded by the Bank, including Ethiopian Anuak, who faced a violent campaign of mass evictions funded through the diversion of funds from a Bank-supported project.
Human Rights Watch has also highlighted instances in which the Bank failed to observe its own policy of protecting indigenous peoples’ rights. For example, it documented the forcible transfer of the semi-nomadic Nuer people in the Gambella region of Ethiopia, noting an operational link between World Bank projects and a government relocation programme known as “villagization”. The matter came before the Bank Inspection Panel, which indeed found that the Bank “did not carry out the required full risk analysis, nor were its mitigation measures adequate”.
Civil society has also drawn attention to labour rights violations in connection with World Bank projects.
The report noted that in the past, IFC has failed to properly measure the risks of oil and mining projects, such as in the case of the Chad-Cameroon pipeline. In that case, a law intended to earmark oil revenues for education, healthcare and other social needs was gutted in Chad and the Bank ultimately had to suspend its loan to the country.
The rights expert also pointed out that many civil society organizations have protested the Bank’s apparent commitment to the promotion of public-private partnerships, notwithstanding the challenges they pose to the regulatory space of governments, especially in the fields of clean water and sanitation, health services and education.
In fact, the year 2016 was characterized by an intensified push for mega-projects and public-private partnerships. “However, experience shows that public-private partnerships have not served developing countries well,” said de Zayas.
The report cited an example where it appears that the flagship health public-private partnership of IFC threatens to disrupt healthcare programmes in Lesotho. In 1999, the Queen Mamohato Memorial Hospital, a new hospital run by the private sector and financed through an IFC loan, was built to replace the old main public hospital in Lesotho. Lesotho finds itself locked into an 18-year contract that is already consuming more than half of the country’s health budget, while producing high returns to the private partner.
“That constitutes a dangerous diversion of scarce public funds from primary health-care services in rural areas, where three quarters of the population live. Not only are health public-private partnerships high risk and costly, they fail to advance the goal of universal and equitable health coverage,” said the rights expert.
In another case, in August 2016, the Minister of Education of Uganda announced the closure of 63 nursery and primary schools operated by Bridge International Academies, a private education services provider partly financed by IFC. The Minister stated that the decision was based on “danger from poor hygiene and sanitation on the life and safety of the innocent children”.
Elsewhere in Europe, after examining the use of public-private partnerships in Portugal, the Organization for Economic Cooperation and Development (OECD) warned that public-private partnerships “should be chosen only when they represent good value for money, not because they allow the government to escape budget restrictions by building up off-balance sheet liabilities.”
Worryingly, however, OECD has continued to endorse public-private partnerships, stating that “the government should consider expanding its remit to local public-private partnerships and water, sewage and waste sectors”.
De Zayas noted that in 2002, the Bank started the Doing Business project, with the mandate to rank countries on how their national regulations operate in favour of the “ease of doing business”. From its inception, he said, the project was criticized for promoting deregulation and the lowering of social and environmental standards.
The Bank responded by removing the project’s “employing workers” indicator from its scoring methodology, because it undermined labour standards and internationally recognized workers’ rights.
The Oakland Institute has decried that and other flawed benchmarks, including the “paying taxes” indicator, which rewards the reduction of all types of corporate taxes, including environmental and social taxes levied to protect citizens and the planet.
According to the rights expert, the most recent Doing Business report actually notes as “good reforms” the abolition of environmental protection fees for corporations in Spain and Vietnam, and praises the reduction of private sector taxes in a total of 28 countries.
Another example of incomprehensible interference in the necessary regulatory space of States is the bad score given to Tanzania as “punishment” for introducing a workers’ compensation tariff to be paid by employers, and the bad grade accorded to Malta for increasing employers’ maximum social security contribution.
The Independent Expert also addressed the issue of credit rating agencies, saying that every exercise of power, including economic power, must be subject to democratic controls, transparency and accountability.
“Many countries believe that inadequate or even deliberately false credit ratings and questionable rating processes were key contributors to the Asian financial crisis, and more recently to the global financial crisis of 2007/08.”
It is obvious that reforms are necessary, but it appears that the Bank is not yet tackling the impact of those institutions, whose ratings influence the Bank’s decisions to grant or deny loans. It is the view of the Independent Expert that the Bank has a responsibility to test the reliability of the ratings by private sector agencies, or develop its own rating mechanisms and institutions that can perform more objectively and effectively.
The way forward
The Independent Expert welcomed the many positive measures already taken by the World Bank to address systemic and extrinsic problems and encouraged the Board of Governors to strengthen Bank governance and accountability through enhanced and facilitated access to justice when abuses occur.
“Bearing in mind that multilateral development banks, including the World Bank, receive large injections of public money, their biased approach in support of the private sector in developed and developing countries must be transformed into a human rights-based approach that carefully weighs the needs of the populations concerned,” he however said.
The Independent Expert believes that a fundamental rethink is necessary and should result in an explicit definition of new priorities that puts the interests of billions of human beings who are deprived of the necessities of life ahead of those of foreign investors.
The rules of the game must be changed so that loans are not granted on purely economic considerations and that the loan conditionalities henceforth aim at advancing the well-being of the populations concerned.
The Independent Expert points to “the impressive rhetoric and the beautiful publications of the World Bank” and suggests that fewer resources should be devoted to public relations and the packaging of the product, and much more to risk assessment, monitoring and implementation.
To that end, the Independent Expert proposed a change of paradigm that would require not only amending the Articles of Agreement of 1944 (adopted at Bretton Woods, New Hampshire, and last amended on 16 February 1989) but also clear directives from the Board of Governors.
Pursuant to Article V, section 8(a) of the Articles of Agreement, the Bank should cooperate with international organizations having specialized responsibilities in related fields, including the UN Economic and Social Council and UNCTAD, which have proposed plans of action to advance development and human rights.
At present, Article IV, section 10 of the Articles of Agreement could be interpreted as an obstacle to that paradigm change. That obsolete provision stipulates that “the Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned”.
However, there is no reason to consider the promotion of human rights and environmental protection to fall under the scope of the prohibited “political activity” of the Bank, said de Zayas.
Bearing in mind that the Bank’s Articles of Agreement and the Agreement between the United Nations and the Bank were adopted prior to the adoption by the UN General Assembly of the Universal Declaration of Human Rights, and before the entry into force of the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights and many other human rights treaties, it is not unreasonable to expect that the human rights obligations of member States of the Bank should be advanced and not hindered by Bank policies, he added.
Article XIII of the Agreement between the United Nations and the Bank stipulates that the agreement is subject to revision and both parties are authorized to make supplementary agreements.
“That is a window of opportunity for the Bank to commit itself to certain key principles of the United Nations, including respect for the sovereignty of all States and non-interference in the domestic affairs of States.”
That requires acceptance of the fact that States, particularly developing countries, need flexibility and policy space to implement social policies aimed at ensuring food security, raising the standard of living, strengthening labour laws and ensuring access to water and education, which some privatization projects financed by the Bank have been known to undermine.
Any amendment to the association agreement should strengthen the cooperation between the Bank and the UN, particularly with UNCTAD, said the rights expert.
“In addition to amending its Articles of Agreement, the World Bank must take full responsibility for the outcomes of its investments and implement preventive and corrective measures to ensure effective participation by all stakeholders and protection of human rights defenders on the ground.”
If the Bank really has development at heart, it will change the conditionalities away from privatization, deregulation and lower corporate taxation and put the emphasis on reducing military expenditures, ensuring that progressive tax legislation is enacted and enforced, that tax havens are outlawed, and that a financial transactions tax is adopted and the revenues used to build “a world free of poverty” through international solidarity, de Zayas concluded. (SUNS8532)
Third World Economics, Issue No. 646, 1-15 August 2017, pp13-16