MAC: Mines and Communities

The following is a comment piece in the Financial Times by the EIR's 'Eminant Person'. In it he draw

Published by MAC on 2004-07-18

The following is a comment piece in the Financial Times by the EIR's 'Eminant Person'. In it he draws attention to the forthcoming decision on the EIR, which will be the Board's decision on the Bank's Management response. Further down is a Reuters article about this - the Management response to the EIR can be viewed here - all comments should be made to the bank before 18th July 2004.

World Bank must reform on extractive industries

By Emil Salim

Financial Times Comment

June 16 2004

The two-year review I led on behalf of the World Bank to examine the impact on the developing world of investment in extractive industries was inspired by the moving address by James Wolfensohn, the bank's president, to its governors in September 2003. He told them: "The demographics of the future speak to a growing imbalance of people, resources and the environment. If we act together now, we can change the world for the better. If we do not, we shall leave greater and more intractable problems for our children . . . This is a time for courage and action for a new vision of the future."

Next week, the bank's executive directors will make important decisions on the recommendations of the Extractive Industries Review report - based on the most comprehensive review yet on the impact of investment in oil, gas and mining on developing economies.

Having overseen the review, I came to the conclusion that the World Bank must radically alter its approach to supporting extractive projects - and even stop supporting some altogether.

The reason for this conclusion was clear. The bank is a publicly supported institution whose mandate is poverty alleviation. Not only have the oil, gas and mining industries not helped the poorest people in developing countries, they have often made them worse off. Scores of recent academic studies and many of the bank's own studies confirmed our findings that countries which rely primarily on extractive industries tend to have higher levels of poverty, child morbidity and mortality, civil war, corruption and totalitarianism than those with more diversified economies.

Does this mean extractive industries can never play a positive role in a nation's economy? No, it simply means that the only evidence of such a positive role we could find took place after a country's democratic governance had developed to such a degree that the poorest could see some of the benefits. Before the fundamental building blocks of good governance - a free press, a functioning judiciary, respect for human rights, free and fair elections and so on - are put in place, the development of these industries only aggravates the situation for the poorest.

Moreover, large multinational oil, gas and mining corporations, most of which are wealthier than resource-dependent developing nations, do not need the World Bank to assume part of their financial risk. As a development institution, the bank should use scarce international public funds to build up the preconditions of good governance and transparent institutions to ensure that private investment benefits poor countries, rather than disappearing in corruption and mismanagement. Based on our review, the bank is not giving these governance issues enough priority - they cannot be addressed while large sums of money are simultaneously lent to countries with poor governance.

The other action required is for the World Bank Group to strengthen environmental and social requirements for investment in extractive industries. The failures of the market to incorporate environmental and social impact into the industries' cost structures have shifted the burden to the public and it is usually the poor who bear the brunt of degradation in these areas.

With poverty alleviation as its core mission, the World Bank should require high standards for delivering social and environmental protections and benefits. The development of extractive industries should go beyond resource depletion to ensure sustainable livelihoods and address cleaning up after extractive investments and restoration of the land. The bank should require clean technologies and champion investments in renewable energy technologies. Its decisions must also be informed by the indigenous people directly affected by projects, ensuring they have all the information and the ability to negotiate a fair deal.

All this requires a will to elevate the position of the poor and vulnerable to strike a better balance with that of the strong and privileged. Next week, the bank's executive directors will make important decisions on the acceptance of the EIR report. I do not expect them to strive for a compromise among all stakeholders over the review's recommendations. Rather, I expect a firm commitment to represent the interests of the world's poor and to inspire and lead governments, industries and civil organisations to pave the path for sustainable development.

This is exactly the kind of challenge that Mr Wolfensohn spoke of in his speech and one that requires a new vision for the future.

The writer is a former Indonesian environment minister and led the World Bank Extractive Industries Review

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