International Finance Corporation Research Articles

Letter to the Editor: Botnia Fray Bentos and the environment of Uruguay River basin. The reports of EcoMetrix-World Bank

The pollution load caused by Botnia Fray Bentos S.A., a Mega Kraft Mills with ECF bleaching, is analysed on the basis of two reports of EcoMetrix at the request of the International Finance Corporation, World Bank. The first report evaluates the first six months of mill operations, from November 2007 to April 2008. The second report covers the 12 months of 2008. Regardless of the opinions expressed by EcoMetrix, from the numerical values shown in the reports it is clear that Botnia has discharged huge quantities of dangerous pollutants into the Uruguay River and into the atmosphere. This pollution load, according to the background known, will cause serious and irreversible damage to the flora, fauna and health of the inhabitants of the basin within a few years. Since the findings of EcoMetrix are in contradiction to the logical analysis of the same values that the consultant presents, a detailed discussion of the criteria and limits (standard) used in the reports is unavoidable.

Letter to the Editor: The pollution load caused by ECF Kraft Mills, Botnia-Uruguay: first six months of operation

The pollution load caused by Kraft Mills with and without bleaching is analysed. Particularly, the mill emissions of Botnia Fray Bentos S.A. over the first six months of operation are reviewed just as they are presented by the EcoMetrix report dated July 2008, at the request of the International Finance Corporation, World Bank. Regardless of the opinions expressed there, from the numerical values it is absolutely clear that Botnia has discharged great quantities of solid, liquid and gaseous dangerous pollutants into the Uruguay River and into the atmosphere. This pollution load, according to the background known, will cause serious and irreversible damage to the flora, fauna and health of the inhabitants of the basin within a few years.

Effective Governance through Decentralized Soft Implementation: The OECD Guidelines for Multinational Enterprises

Botnia S.A./Metsä-Botnia Oy's construction of the Orion pulp mill in Uruguay raised concerns regarding violations of national, regional, and international law with regard to social and environmental protection. On 18 April 2006, the Center for Human Rights and Environment (CEDHA), an Argentinean non-governmental organisation, submitted to Finland's National Contact Point (NCP) a “specific instance” regarding the possible non-compliance of Botnia S.A. (a Finnish enterprise) with the OECD Guidelines for Multinational Enterprises (OECD Guidelines for MNEs, Guidelines) when building the envisaged pulp mill in Uruguay. According to the Center for Human Rights and Environment, Botnia S.A. violated the OECD Guidelines for MNEs especially with respect to Chapter II “General Policies”, Chapter III “Disclosure”, Chapter V “Environment” and Chapter VI “Bribery”. Specific instances concerned with related issues were filed by the Center for Human Rights and Environment with the Swedish and Norwegian NCPs against Nordea, a leading financial services group of the Nordic and Baltic Sea area, for possible financing of Botnia S.A.'s pulp mill project and against the Finnish state bank Finnvera for providing export guarantees to Botnia S.A. Other fora that have in the meantime become involved in the issue are the International Court of Justice and member institutions of the World Bank Group, the International Finance Corporation and the Multilateral Investment Guarantee Agency.

Harnessing International Finance to Manage the Amazon Agro-Industrial Explosion? The Case of International Finance Corporation Loans to Grupo Maggi

ABSTRACT One of the major global trends linked to the process of globalization is the expansion of agro-industry into the humid tropics. Although agro-industry is an important source of income for Brazil, it is also leading to the displacement of local populations and extensive clearing of native vegetation. In this context, we focus on a second trend resulting from globalization in which financial institutions have demonstrated increasing concern with environmental and social responsibility, notably through the inclusion of environmental and social conditions in loans to the agricultural sector. In this article, we provide an assessment of the potential for this type of economic instrument to help reduce the negative impacts of agro-industrial expansion, and how the different actors who are shaping this debate (non-governmental organizations, industries, the finance sector, government) can best help to realize this potential. We evaluate this broader question through the lens of two International Finance Corporation loans to Brazil's Grupo Maggi, the world's largest independently-held soybean exporter. We identify four areas in which private sector self-regulation can improve to realize environmental and social performance goals: (a) Financial institutions and firms can increase the clarity, quality, timeliness, and regularity of monitoring and reporting; (b) Civil society can develop a more sophisticated approach to distinguishing between companies and initiatives that essentially maintain the status quo and those that are trying to improve; (c) Civil society can help to develop simple, standard measures of environmental and social performance of agricultural lands for use by financial institutions and firms in establishing environmental and social management systems; and (d) Governments can develop strong regulations that capitalize on voluntary regulation mechanisms' flexibility and efficiency, as well as developing incentive systems for producers and firms that demonstrate high social and environmental performance in their operations.

Transforming China's Banks: the IFC's experience

China's progress in fixing its banking system has surprised observers. Successful experiments, some of them involving foreign investors, have emerged in China to deal with the problems of the banking system. The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has played an active role in piloting some of these approaches in close cooperation with the regulator and other strategic investors. In the period 1995–2000, IFC's strategy was to work with one or two banks to help improve their governance and skills. The idea was to create some model banks which could be emulated by others and used by the regulators to introduce modern banking practices. Once the corporate governance and business practices of these banks improved, then the IFC was able to attract foreign banks to invest in these banks. These investments encouraged other foreign banks to consider taking minority stakes in the smaller banks. The success of these experiments gave confidence to the Chinese authorities to open up the big state-owned banks for foreign investment and encouraged big international banks to invest large sums of money to take minority stakes in the big banks. While progress in reform has been remarkable, the real and sustainable transformation of the Chinese banks is far from over and will be a lengthy process. Significant challenges such as improving corporate governance and credit risk management remain. Despite the significant opening of the banking system to foreign direct investment, foreign ownership in the Chinese banking system remains low by international standards. Even with existing limitations on foreign ownership, foreign strategic investors are contributing to the transformation of Chinese banks and their role remains highly relevant for the continued reform of the Chinese banking system.

Bridging the research gap between the Northern and Southern shores of the Mediterranean

Bridging the research gap between the Northern and Southern shores of the Mediterranean

Next generation access to finance: Gaining scale and reducing costs with technology and credit scoring

A conference brought together over 350 participants - representing microfinance practitioners, technology solutions firms, telecommunications companies, regulators, donors and investors and development professionals - from more than 60 countries to hear the latest on innovations in payment systems, mobile banking and credit scoring technologies and the potential of these technologies to contribute to increased access to finance for low-income consumers and businesses. ‘Next Generation Access to Finance: Gaining Scale and Reducing Costs with Technology and Credit Scoring’, took place in Washington D.C., 17-19 September 2007, and was jointly sponsored by the International Finance Corporation (of the World Bank Group), CGAP (a global consortium of microfinance donors and resource centre) and VISA International (a payments service provider).

The ‘New Conditionality’ of Socially Responsible Investing Strategies: The Politics of Equity Financing in Emerging Markets

Since the early 1990s, private capital flows have become an important source of funding for ‘emerging markets’. According to the International Finance Corporation (IFC), a sister institution of the...

Equitable Liens and Engineering, Procurement and Construction Contracts in the Oil and Gas Industry

This article considers the judgment of Colman J, sitting in the Commercial Court in London, in the case of International Finance Corporation v DSNL Offshore Limited and Others.1 The decision is important in itself, since it represents the first time that an English court has recognised the existence of an equitable lien in relation to a contract for work and materials. However, it also represents an interesting case study of the way in which the English courts are willing to apply pragmatic solutions to disputes arising in the context of international energy projects.

The World Bank Group: Championing Sustainable Development Norms?

It is well documented that international organizations diffuse norms, but how and why do they do so? I compare how the World Bank and the Inter national Finance Corporation attempt to spread sustainable development norms through their compliance, mainstreaming, and diffusion efforts. I propose that international organizations spread norms in different ways as a result of their roles within their respective social environments. The International Finance Corporation champions sustainable development by spreading core practices throughout the project finance industry, while the Bank attempts to do so through core and noncore activities. The different approaches raise questions about the capacity of each organization to champion environmental norms: the Bank's multiple activities mixes its environmental message as opposed to the International Finance Corpora tion's single (recently lessened) environmental voice. Keywords: World Bank, environment, norms, international organizations, International Finance Corporation. How do international organizations (IOs) champion new norms? It is well documented that IOs diffuse norms to states.11 argue that IOs dif fuse norms through everyday practices, but they may also champion ideas through separate endeavors. I examine how the World Bank and its affil iate the International Finance Corporation (IFC), a lender and investor in pri vate sector projects in developing countries, diffuse sustainable development norms in different ways.2 I propose that IFC champions sustainable develop ment norms by spreading core practices throughout the project finance indus try, while the Bank attempts to do so through both core and noncore activities. The different approaches raise questions about the capacity of each organiza tion to champion environmental norms: the Bank's multiple activities lead to a mixed environmental message versus IFC s single (though recently less ened) environmental voice. Arguably, the different approaches are best under stood by situating each institution in its social environment, or observing how it interacts with IOs, states, and nonstate actors. I propose that the Bank continues to have difficulties in consolidating core sustainability norms as witnessed through its compliance, mainstreaming, and

Geomoney: An option on frost, going long on clouds

The paper adopts a cultural economy approach to explore the emergence of a market in so-called weather derivatives, referred to in the paper as a form of ‘geomoney’. These are specially designed financial products that allow firms to protect their profits against the impact of changing weather conditions. The paper approaches the emergence of this market, and the issues its growth raises, in three interlinked stages. Weather derivatives are located amongst the hybrid collective that is contemporary finance and are analysed through the conceptual apparatus afforded by a cultural economy approach to finance. The paper employs this analytical line to examine the assumptions and models that enable the weather to be turned into a risk and then be transported and traded within capital markets. Through specific examples of weather products together with a discussion of the International Finance Corporation’s recent involvement in this market, the paper suggests something of the ‘world making’ capabilities of finance theory and the politics of finance often hidden beneath the mathematical models. The paper concludes by highlighting not only the usefulness of a cultural economy of finance to geographers but, in light of the examples discussed, the need for cultural economy to recognise and to engage critically in its analysis the politics that such a conceptual approach to the making of financial markets exposes.

Multinational Corporations: Balancing Rights and Responsibilities

The lecture began at 4:15 p.m., Wednesday, March 28, and was given by Joseph Stiglitz of Columbia University; the discussant was Rachel Kyte of the International Finance Corporation. MULTINATIONAL CORPORATIONS: BALANCING RIGHTS AND RESPONSIBILITIES By Joseph E. Stiglitz * THE IMPORTANCE OF CORPORATIONS AND THE PROBLEMS THEY PRESENT An increasing fraction of commerce within each country is conducted by corporations which are owned and controlled from outside its borders and which often conduct business in dozens of countries. These corporations have brought enormous benefits--indeed, many of the benefits attributed to globalization, such as the closing of the knowledge gap, the gap between developing and developed which is even more important than the gap in resources, is due in no small measure to multinational corporations. More important than the capital which corporations bring (1) are the transfer of technology, the training of human resources, and the access to international markets. In recent years, especially following the collapse of the initiative to create a Multilateral Agreement on Investment (MAI) within the OECD, (2) there has been a proliferation of bilateral investment treaties (BITs) and investment provisions within bilateral free trade agreements. (3,4) (Some (such as Indonesia) have even passed laws providing similar investment guarantees, on their own.) These agreements are purportedly designed to provide greater protection for investors, thereby encouraging cross-border investment. There is, to date, little evidence that they have done so. (5) Part of the reason is that they may in fact curtail development strategies, in ways which are adverse to growth. As the ECLAC (The UN Economic Commission on Latin America and the Caribbean) concluded, countries often find that they have assumed obligations which, further down the road, will place limitations on their own development program. (6) This paper is concerned with a set of more fundamental issues. Even if it could be established that BITs lead to increased investment, and even if that investment could be shown to lead to higher growth, as measured by increased GDP (gross domestic product), (7) it does not mean that societal welfare has been increased, especially once account is taken of resource depletion and environmental degradation. These agreements are designed to impose restraints on what governments can do--or at least to impose a high cost to their undertaking certain actions. Some of the activities which may be constrained may be important for promoting general societal well-being--even if profits of particular firms are affected adversely. It is this possibility which has made these agreements a subject of such concern and debate. These agreements are, of course, not all identical; what they do is itself a subject of some controversy. Like any agreement, it depends on the interpretations of particular words, and the judicial processes through which these words are given meaning are one of the sources of dissatisfaction with the agreements. Different arbitration panels have interpreted even the same words differently, creating a high level of uncertainty, both among governments and investors, about exactly what these agreements do. (8) This article is focused not on any specific agreement but on the general thrust of these agreements, which goes substantially beyond protection against expropriation. Many of the agreements--including some of their most controversial aspects--are concerned with the far broader issue of what happens when changes in regulations or other government policies adversely affect the value of a foreign-owned asset. (9) The agreements do not, of course, stop governments from changing regulations, taxes, or other government polices; but they may require that the government compensate those that are adversely affected, and in doing so, they increase the costs of governments changing regulations and or other government policies. …

How sustainable is policy incoherence? A rationalist policy analysis of the Cameroonian electricity reform

Instead of being the milestone in Cameroon's economic reform program that the International Finance Corporation (IFC) claimed it would be, the 2001 privatisation of the Cameroonian electricity sector has turned out to be a millstone round the government, and country's neck. This paper documents and analyses the multidimensional incoherence embedded in the Cameroonian electricity sector reforms, initiated under the pressure of structural adjustment credit projects led by the World Bank. More specifically, 12 policy incoherencies are examined in the Cameroonian context. They range from a poor understanding of the electricity sector's problems, to pre-determined solutions and important shortcomings in the assessment of possible impacts. The results of these policy inconsistencies are analysed in terms the sector's sustainability, based upon the five key concepts introduced by Bruntland, suggesting that the reforms have failed to promote social, environmental or economic sustainability. Although this study concerns Cameroon, its relevance goes beyond this specific country, as similar policies are being implemented around the world.

Improving the mechanisms of global governance? the ideational impact of the World Bank on the national reform agenda in Mexico

Improving the mechanisms of global governance? the ideational impact of the World Bank on the national reform agenda in Mexico

Impact and Significance of State-Owned Enterprise Restructuring in China

The transformation of China's state-owned enterprises (SOEs) over the past decade has resulted in remarkable changes to the structure of the Chinese economy. Gaizhi, the Chinese term meaning transforming the system, has become a major phenomenon in most parts of the country and in many cases has involved privatization. The term gaizhi is used to describe any form of structural change to a firm, including public offering of shares, internal restructuring, bankruptcy and reorganization, employee shareholding, open sales, leasing and joint ventures. Unlike the mass privatization programs that occurred in Eastern Europe and the former Soviet Union, the Chinese government's gaizhi programs have been gradual and low-profile. However, the significance of the Chinese reform should not be underestimated. Based on a 683-enterprise survey conducted in 11 cities in 2002,1 this paper reviews the trends of privatization, discusses the forms of gaizhi, analyzes the issues emerging in the process of gaizhi, especially the handling of state and land-use rights and re-employment, and compares firm performance before and after gaizhi. The aim of this paper is to give the reader an overview of the restructuring process in China, and to analyze some of the key issues. Several key conclusions have emerged from the study. First, restructuring has become more oriented towards privatization over recent years. Privatization here means an increase in the share of ownership held by private investors. Second, the so-called loss of state assets has occurred mainly in the form of * We are grateful for the useful and constructive comments made by the two anonymous referees and to the editors of The China Journal for providing additional insightful comments and relevant references. We thank the International Finance Corporation for allowing us to use the survey data in this paper. The views expressed in this paper are ours. 1 The authors are principal researchers in this survey. The survey adopted a research strategy that combines structured questionnaires distributed to firms selected by random sampling with face-to-face interviews with government officials and enterprise management selected to provide insights into the privatization process and its outcomes. While the sampling provides quantitative data, the interviews reveal rich qualitative information regarding different government policies and various problems that have been encountered in gaizhi.

How Transnational Environmental Advocacy Networks Socialize International Financial Institutions: A Case Study of the International Finance Corporation

Environmental organizations, characterized here as transnational advocacy networks, use various strategies to “green” international financial institutions (IFIs). This article goes beyond analyzing network strategies to examine how transnational advocacy networks reconstitute the identity of IFIs. This, it is argued, results from processes of socialization: social influence, persuasion and coercion by lobbying. A case study of the International Finance Corporation (IFC), as a member of the World Bank Group, is used to analyze how an IFI internalized sustainable development norms. The IFC finances private enterprise in developing countries by providing venture capital for private projects. Transnational advocacy networks socialized the IFC through influencing its projects, policies and institutions via direct and indirect interactions to the point where the organization now sees itself as a sustainable development financier. This article applies constructivist insights to the greening process in order to demonstrate how socialization can reshape an IFI's identity.

Indigenous Peoples, Energy and Environmental Justice: The Pangue/Ralco Hydroelectric Project in Chile's Alto BíoBío

In recent months, the reservoir of the Ralco dam, one of a series of dams along the Alto BíOBío River in Southern Chile, has destroyed a pristine mountain ecosystem and permanently and irreversibly disrupted the semi-nomadic lifestyle and world view of the Mapuche/Pehuenche people.1 At the same time, the communities affected by the dam will attempt to reconstruct their lives and culture using resources and rights provided by a ‘friendly settlement’ reached by them with the Chilean Government and approved by the Inter- American Human Rights Commission (IACHR). This is the aftermath of a decade- long struggle by indigenous communities and environmental groups in defence of their rights against the project sponsor Endesa (a formerly public but now privatised company), the Chilean Government and the World Bank's International Finance Corporation (IFC).

The Promotion of Investment Alliances by the World Bank

This article will examine how World Bank policies that influence national healthcare systems have been facilitated through investment alliances between members of the World Bank Group, specifically the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), regional development banks and multinational and national company interests. The data used in this article was gathered from the information and publications available through the websites of the World Bank Group, regional development banks, multinational companies and private equity investors. Some of the loan documents available through the websites of the World Bank Group and regional development banks were consulted. The financial complexity of many of the investments in new healthcare systems provides a challenge for future regulatory systems in healthcare. The involvement of a range of private sector interests in healthcare also poses problems for continued development of health knowledge within publicly funded systems.

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Baku-Tbilisi Ceyhan Oil Pipeline (BTC) Project and Turkey: Investments, Future Developments and Environmental Impacts

Baku-Tbilisi-Ceyhan Oil Pipeline (BTC) is one of the world's major energy projects. The Turkish section of the BTC pipeline will be approximately 1.070 km in length and will terminate at a new storage and export terminal (BTC Marine Terminal). It is expected that 30% of the pipeline cost will be financed by the investors with the remaining 70% will come from the U.S. Exim Bank, Japan's Exim Bank, the International Finance Corporation, and the EBRD. Unfortunately for Turkey, the costs of constructing a Baku-Ceyhan pipeline are enormous: the Turkish government puts the price at $2 billion, while the Azerbaijan International Operating Company (AIOC)'s estimates range far higher, at $3.5 billion.