“Major structural reforms needed,” concludes civil society after Counter Balance's 2-day November conference in Brussels on the European Investment Bank and its role in development.
Civil society was invited to the European Parliament on November 19, 2009, to present its findings and demands to host MEPs: Gabi Zimmer (GUE-NGL), Sven Giegold (Greens–EFA) and Thijs Berman (S&D). Civil society’s input was warmly welcomed by the MEPs as an invaluable source of information to support the necessary changes to the EIB's external lending mandate due to be debated at the parliament in 2010.
Civil society from the North and the South, experts on development finance, the IFIs, energy security and climate change, and development raised the question of the structural adequacy of the EIB to deal with development finance. Civil society is calling for a visionary transformation of the EIB's lending outside of the EU.
The EIB's current institutional and operational set up does not allow the EU's bankto align its practice to international commitments on development and to perform proper and effective development lending, well beyond just supporting controversial large scale infrastructure projects promoted by major European multinationals and private sector development through unaccountable financial intermediaries.
Thus public support should not be awarded as long as the EIB does not prove itself able to perform a social function in the public interest, or to achieve development goals in the case of developing countries.
“Change the EIB now to help the poor out of the crisis,” advocates Antonio Tricarico, coordinator of the Italian NGO Campagna per la riforma della banca mondiale (CRBM) and member of the Counter Balance coalition. “It is time for European countries and European institutions to act responsibly and to promote a major transformation of the EIB's lending to developing countries in the new mandate, to finally end the 'business as usual' approach.”
Land and Freedom
As Philip Moser , a legal barrister from Monckton Chambers in London, pointed out, it took a European Court of Justice decision to remind the EIB of its obligation to fulfill the EU development goals in its lending to non EU countries. Moser suggests that there could be clauses in all EIB contracts that include third parties rights so that should any members of the public be harmed by EIB funded projects then they can challenge in court the beneficiaries of EIB loans.
“There is an obvious confusion between development finance and the mission of the EIB to finance the private sector in developing countries,” notes Lidy Nacpil, International Coordinator of Jubilee South Network, Philippines . “In development, the first priority is to finance the establishment of the basic public services that we lack in our countries, not to finance projects that – in most cases – are not even part of our countries’ own national development plan. If the EIB is to be involved in development finance, it should only do so after checking with us what is a priority of development and reorient funding towards the public sector rather than giving supremacy to the private sector.”
The EIB states that “Outside the EU, EIB lending is based on EU external cooperation and development policies”. However the EIB still has too many multiple objectives. When these objectives conflict, EU commercial or strategic interests frequently override potential benefits to people living in poverty on the ground.
“Significant structural and procedural reforms are essential if the EIB is to continue operating in developing countries,” argues Nuria Molina, director of the NGO network EURODAD . “European governments – who are the shareholders of the EIB – have to concede that this one institution cannot do everything at once. They must spell out what the bank is to achieve, removing unneeded objectives so that there can be a real prioritisation.”
A renewed European financial institution should engage in selective lending in those sectors and operations which have a verifiable and evident positive development impact. For instance, renewable energy and energy efficiency rather than oil and gas development or large scale mining. This approach would also require a new legal framework for making European sponsors liable for eventual negative externalities associated with their projects on local communities and the environment.
“We do not want another World Bank,” emphasises Antonio Tricarico. “What we are calling for is a different approach to development finance which would bring effective positive and verifiable development outcomes to local communities in the global South, well beyond the existing models for which today the EIB is not equipped at all.” 'Development' has led both the World Bank and the European Investment Bank to finance projects that have caused considerable harm to local populations.
Bread and Roses
“The EIB currently benefits from a European Community guarantee and the use of EC grants,” explains Alex Wilks, former EURODAD director and expert in IFI models. “These are at the moment not used for sufficiently development-friendly interventions, more to support private sector operations with little social or environmental value-added.”
“Under constant external pressure from civil society, the EIB was forced to adopt better safeguards policies and improve its transparency and accountability mechanisms,” adds Anna Roggenbuck of CEE Bankwatch Network. Yet the development record of the EIB remains poor and the EU's bank has proved itself consistently not to be equipped to fulfil the requirements stated in the new lending mandate in order to comply with international environmental agreements and human rights laws.
Voices from the South
Saviour Mwambwa of the Centre for Trade Policy and Development in Zambia tells the tale of the Zambian copper mining sector, pushed to hand over its mines to the private sector and, as a result, workers labour conditions worsened with all time low wages and the refusal on the part of the new private owners to provide housing to workers – which the publicly-owned mines had offered – or to pay any taxes to the Zambian government. The mining workers are unable to make ends meet on their low wage: on average a mine worker earns €50 per month when an average Zambian family needs €280 per month to survive.
Major infrastructure projects are the EIB’s preferred investments traditionally, after the mines come the dams…
Frank Muramuzi, Ugandan National Association of Professional Environmentalists (NAPE), explains why Ugandan citizens have filed complaints both to the World Bank Inspection Panel and the EIB. The EIB has supported the Bujagali Hydropower Project – a 250-megawatt power-generating facility – because the World Bank was already involved in it. “In the case of Bujagali, the EIB thus fails to meet European development objectives, to assess the economic and environmental soundness of the project, to guarantee fair compensation to affected communities, or to ensure the implementation of mitigation measures,” says Muramuzi.
(see Video testimonial )
Changing continent, María José Romero of the Instituto del Tercer Mundo (IteM) in Uruguay adds more concerns to an already long list: “In the case study we prepared, the EIB participation in setting up a container terminal in the port of Montevideo in Uruguay demonstrates the EIB solely supporting a development model that benefits the export of primary goods.” This is the main criticism raised by Latin American organisations. A second case study focuses on public access to information on a €40 million Global Loan that the EIB approved for the Corporacion Andina de Fomento. Latin American civil society is calling for transparency in the attribution of these funds and that these funds stop supporting an outdated model of development based on export and exploitation of natural resources. There is a saying in the South: "We don't want anything about us without us".
And more comes from the Bahia Region of Brazil – Renato Cunha of Grupo Ambientalista da Bahia explains: “A €100 million investment is allocated to a Eucalyptus growing plantation and its factory. This project is causing serious problems in the region, such as social conflicts, difficulties with the food production, conflicts over land, unemployment, urban violence, as well as environmental effects such as the loss of biodiversity, deforestation and water-related problems. Eucalyptus requires a lot of water to grow and endangers both superficial and underground water reserves in the area. It also affects climate change, causing irregular rainfall and frequent forest fires.” Grupo Ambientalista da Bahia calls on the EIB to consult the local communities and to ensure that it invests in sustainable agriculture instead.
Testimonials from the ground remind us that neither environment protection nor human rights are top of the EIB's priority list when exercising its due diligence in assessing projects. Aino Pennanen of Amnesty International's EU Office underlines that human rights should be enforced as part of respect for EU laws.
The Inglorious Trilogy: Tax havens, hedge funds and private equity
Major lessons have to be drawn from the unfolding financial and economic crisis, the impacts of which are increasing poverty in the world's poorest countries. It is legitimate to question why private equity vehicles and other private financial institutions should be a major instrument for EIB lending to poor countries, when the same actors have been those mainly responsible for generating the current crisis. Counter Balance launched a campaign on the fact that the EIB enables tax havens in May 2009 and was invited by EIB officials to discuss the way forward in June 2009.
John Christensen, director of the Tax Justice Network’s International Secretariat, says: “Secrecy is a core feature of the global financial system. Jurisdictions compete with each other to provide it in order to attract financial flows. But this comes at a price. Financial secrecy provides cover for all manner of crimes and abusive practices: money laundering, tax evasion and avoidance, insider trading, terrorist financing, embezzlement, Ponzi schemes, illicit financial flows, fraud and much more.”
The Financial Secrecy Index launched by the Tax Justice Network shows just how entrenched the problem of financial secrecy is. The index is an important tool that highlights the desperate need for new rules in international finance that would make the disclosure of information between different tax jurisdictions automatic. According to the Financial Secrecy Index, the most secretive havens are: (1) USA (Delaware); (2) Luxembourg; (3) Switzerland; (4) Cayman Islands; (5) United Kingdom (London). The Tax Justice Network and Counter Balance thus call on the EIB to adopt the Financial Secrecy Index in its interim policy on offshore financial centres.
Eva Joly, an MEP in the Greens–EFA group renowned corruption hunter, and newly elected Chairwoman of the European Parliament's Committee on Development, insisted that in order to tackle tax evasion, governments were to ensure that companies pay taxes where they conduct their business activities. “Firms financed by the EIB should respect the rules of good governance and above all pay taxes in countries where they operate. We've seen so far the use of schemes leading to tax exemption and Zambia is a good illustration of a company financed by the EIB leaving no tax at all in the country where it operates. So we observe that countries where these investments are allocated are impoverished in reality because there is no sedimentation tax, only pollutions, worse living conditions for the people are left behind even though the purpose of development is obviously to help the poorest.”
Eva Joly announced that tailoring a new mandate for the EIB would be one of the top priorities on the agenda of the European Parliament's Development Committee in 2010.
Nick Hildyard from the UK NGO Corner House highlights “One year after the crisis, the banks, which we did not bail-out because they own us, are increasing their use of the financial instruments that caused the crisis: derivatives, securisation, hedge funds, and a new bubble is developing on Carbon trading which has nothing to do with fighting Climate Change and everything to do with making loads of profits. The EIB’s use of equity funds is as sound a decision as you doing drugs. How does private equity works? It strips the business, downsizing the work force; then it makes huge profit selling the bare assets that are left. There are alternatives to invest in, such as community banks for example.”
Therefore the Counter Balance coalition is calling for the EIB external lending to be separated from the existing EIB structure and completely reshaped.
European civil society calls upon the European Commission and the Council to rise to this challenge by promoting an innovative transformation of the EIB's external lending and to make the current mid-term review as transparent and open as possible, by consulting any stakeholder in the process and addressing major concerns already expressed by the European Parliament in recent years.
Anders Lustgarten of Counter Balance member group the Bretton Woods Project in the UK comments: "Under the guise of bringing development to Eastern Europe and Central Asia, the EU bank is looking to put tens of billions of public money into an energy grabbing scheme, the EU's little dark secret, that would only benefit huge Western multinationals and quite possibly feed Kazakh energy into European households. According to Manana Kochladze, a Georgian who works with CEE Bankwatch Network, “This creates greater energy insecurity for European households as the EU relies on politically unstable governments predominantly in the regions the pipelines must go through, most of which also display appalling human rights records. EU taxpayer’s money should not be invested in countries where human rights and environmental laws don’t exist.”
Energy researcher Antony Froggatt says: “The situation is clear. We, in the North, need to dramatically cut down on our energy consumption first and build our future energy security on energy efficiency and on producing renewable energy as the long-term replacement for fossil fuel use.”
Civil society believes that the upcoming mid-term review of the EIB external lending mandate and the legislative process involving the European Parliament and Council on extending this mandate represents a unique opportunity to reclaim the social and development function of a major European financial institution. This would be a major step in the direction of improving the democratic deficit and lack of accountability today existing within the European Union.
“If major institutional and operational reforms do not take place in the next months, we, civil society, are ready to call for a halt of EIB development lending in its current form,” concludes Antonio Tricarico from Counter Balance and Campagna per la riforma della banca mondiale.