Hand in Hand: Economic Development and Environmental Protection

U.S. Senator Robert W. Kasten Jr.

Senator Kasten (R-Wis.) served two terms in the House of Representatives and is in his second term in the Senate. He has led the legislative fight to promote environmental reform of the multilateral development banks.

[18 ELR 10047]

The multilateral development banks (MDBs)¹ spend more than $20 billion annually to promote economic development in less developed nations, and leverage billions more. The MDBs are the world's largest institutions financing economic development.

The project selection processes of these banks, however, often promote nonsustainable development projects. All too often, the MDBs' predisposition to promote the outlay of capital takes precedence over the need for in-depth assessment of economic and environmental impact. It is essential for these influential institutions to realize that economic development is dependent on environmental protection. For long-term sustainable economic development to occur, basic environmental resources must be protected. Development gains that lack environmental safeguards all too often cannot be sustained, and result in systematic economic collapse.

Recognizing the critical link between environmental protection and economic development, the Foreign Operations Subcommittee of the Senate Appropriations Committee has waged a five-year struggle to enact legislation reforming the MDBs. In addition, numerous citizen groups have lobbied for extensive changes in the MDBs' decisionmaking process.² Recently, there have been indications that congressional oversight and citizen efforts may finally be having some effect.

Environmental Protection and Sustainable Development

The potential for economic growth in developing nations is based largely on the ability to utilize environmental resources, just as we have seen in our own country's history. We learned firsthand the economic costs of senseless waste of environmental resources. Our education came the hard way, and our experiences ranged from the ravages of the timber boom at the turn of the century to the Dust Bowl of the 1930s.

When we cut over huge areas of forests, timber and associated resources were seriously depleted. Forest soils were exposed and often deeply eroded, valuable wildlife populations were devastated, and watersheds were disrupted. In response to concerns about water supplies threatened by upland soil erosion and the long-term availability of forest materials, the United States created the National Forest System.³ As a result of the loss of productive capacity in the Dust Bowl days, similar actions were taken to conserve agricultural lands.⁴

When productive soils are eroded, valuable timber stands cut, or waterways clogged or fouled, the economic impact on developing countries is severe. In fact, the consequences of the loss of basic environmental resources may be far worse for developing nations than for more affluent nations like our own.

The recent famine in Ethiopia, for example, was made far worse by development projects incompatible with Ethiopia's climate and ecology. Western agricultural techniques were introduced on a massive scale. Unfortunately, these forms of agriculture often could not survive Ethiopia's cycle of rains and drought. Traditional agricultural practices were abandoned, and the resulting massive soil erosion devastated the land's productive capacity.

Ethiopia and much of Africa previously had survived the historic cycle of drought because their agricultural production techniques were adapted to the local ecosystem. Once these productive techniques were abandoned, food production capacity collapsed. The result of the widespread adoption of new agriculural practices was a famine of unprecedented scale sweeping much of Africa.

The Role of the MDBs

The MDBs are the largest development lending institutions in the world. Together, the World Bank, Inter-American Development Bank, African Development Bank, and Asian Development Bank lent $22.34 billion in 1986 alone. These loans catalyze the lending of two to three times that amount from other sources. In effect, approval of a project by an MDB often serves as the critical checkpoint for the investment of additional outside funds. Reforming the lending policies of the MDBs, therefore, will have a significant [18 ELR 10048] impact on non-MDB funding sources for development projects.

The MDBs do not yet adequately consider possible environmental consequences in selecting loans for funding. The most notorious example of this problem is the World Bank-financed Polonoroeste project. This project was intended to provide for the development of the Brazilian province of Rondonia by opening the region to vehicular transport and establishing new rural villages in previously uninhabited areas. Unfortunately, it set off the deforestation of an area roughly the size of Wisconsin, an epidemic of a strain of malaria that is particularly resistant to treatment, and the impoverishment of thousands of people.

Incredibly, before making the decision to fund the construction of this project, the World Bank was informed by its own experts that the project was likely to be a disaster. It was clear before the first dollar of this loan was delivered that much of the targeted land would not be capable of supporting agriculture. Even with this knowledge, the Bank went ahead and provided nearly half a billion dollars to finance the construction of this road into the heart of the world's largest remaining rain forest. The Bank eventually suspended the Polonoroeste project after critics such as myself began to bring attention to the project's devastating impacts. The suspension of funds marked the first time a World Bank project was stopped for environmental reasons.

Sadly, this example of environmentally catastrophic MDB decisionmaking is not unique. Examples abound all over the developing world; India, Indonesia, Thailand, Botswana, and many other nations have experienced the environmental ravages of irresponsible development lending practices.

Changes in U.S. Law

In 1984, as chairman of the Foreign Operations Subcommittee of the Senate Appropriations Committee, I began trying to change U.S. law to reform the lending policies of the MDBs. The Foreign Operations Subcommittee, which oversees the financing of U.S. foreign assistance programs, was convinced that taxpayer funds were being squandered by programs that destroyed the basic natural resources of developing nations.⁵

Through the annual appropriations process, we have written provisions into U.S. law requiring the MDBs to integrate fundamental principles of environmental science into their project reviews.⁶ As a condition for U.S. support, the MDBs must now place environmental criteria on the same footing as economic criteria in evaluating potential projects. Extensive specific institutional reforms have been called for, ranging from the protection of biological diversity to the protection of indigenous peoples. The Subcommittee has not tried to replicate this country's extensive environmental law framework and regulatory structure. The reforms can be summarized, however, as instituting the principles of environmental science into the project planning cycle. The primary goal should become the promotion of environmentally sustainable development projects rather than projects that promote the short-term exploitation of natural resources.

In addition to reforming the MDBs, substantial effort has been devoted to reforming U.S. institutions that have related responsibilities. Among the most notable reforms are the creation of the "Early Warning System" and negotiations with other MDB sponsor nations to call for similar environmental reform. The Agency for International Development now routinely tracks projects that have been submitted to the MDBs for potential funding through the use of the Early Warning System process. The system is designed to identify environmental problems associated with potential projects before they are considered for funding. The information gained through this process is used to reshape potential loans to minimize adverse environmental impacts. If the problems persist, the information is used to shape U.S. voting instructions on loans coming before an MDB's board of governors and is shared with other voting members. In this way, hard data on the environmental impacts of proposed loans get to the decisionmakers who can block funding of inappropriate projects. This system has already resulted in a substantial positive change in the type of loans submitted to the boards of the MDBs.

The State Department, as a result of this legislative effort, has committed substantial energy and personnel to negotiations with other nations to promote the adoption of environmental reforms. As a result of the U.S. lead, several nations are considering legislative or administrative steps to promote environmental reform of the MDBs. For example, this spring Sweden is expected to consider legislation reforming their participation in MDBs. This legislation is based on the Kasten initiative adopted in this country. These initiatives are not limited to other sponsor nations, but also include efforts in borrower nations to promote the environmental reform of the MDBs.⁷

We are beginning to make headway in reforming these institutions. Treasury Secretary Jim Baker⁸ supports efforts to reform MDB policies. Other donor nations are now joining our call for environmental safeguards as a precondition for development lending. Private environmental groups and government officials in developing countries are showing strong support for this initiative.

On May 5, 1987, largely as a result of pressure from Secretary Baker and the Senate Foreign Operations Subcommittee, [18 ELR 10049] World Bank President Barber Conable announced sweeping environmental reforms at the Bank.⁹ This reorganization is the most important reform yet adopted by an MDB to institutionalize a commitment to environmental protection. In his speech announcing these environmental reforms, Mr. Conable indicated that the World Bank would now place environmental criteria on an equal footing with economic criteria in reviewing development lending proposals. Specifically, Mr. Conable indicated that the Bank will now have an Environmental Department; environmental assessments will be conducted in 30 developing countries over the next five years; a special program will be conducted in Africa to address desertification and deforestation concerns; funding for environmentally conscious forestry projects will be doubled by fiscal year 1989; and the possibility of a special project to improve the Mediterranean region's environment will be explored.¹⁰

Conclusion

We must win the battle to conserve the developing world's environmental resources. When tropical forests, semi-arid savannas, wetlands, or waterways are damaged, we all lose. Given the world's growing interdependence, we now recognize that destroying the opportunities of other nations has negative repercussions for our own welfare.

While it is vital that indigenous interests in developing nations lead the effort to shape policies on their environmental resources, the wealthy nations of the world have an obligation to offer their expertise in the environmental sciences as well as financial assistance. We have an obligation to see that tax dollars are not squandered and that we do not support the repetition of mistakes we no longer tolerate in our own country. Instead, we must ask in every case, "How can we manage this resource to maximize its long-term, sustainable returns?"

If we continue to tolerate short-term environmental exploitation, we are wasting resources and condemning future generations to poverty. If the objectives of the environmental protection movement are to be achieved, the multilateral development banks must become leaders in the fight. The MDBs are the key source of development assistance funding; they hold the cards. If the World Bank actually implements the extensive reforms it has announced, it will be the true leader of an environment-conscious approach to development planning.

When the MDBs join the friends of the environment in real commitment to action on this issue, we will be well on our way to assuring future generations an environmentally responsible pattern of growth and prosperity.

1. The United States is a member of four MDBs: the World Bank, the Inter-American Development Bank, the African Development Bank, and the Asian Development Bank.

2. See, e.g., Rich, The Multilateral Development Banks, Environmental Policy, and the United States, 12 ECOLOGY L.Q. 681 (1985).

3. Forest Reserve Act of 1891, 16 U.S.C. § 471; Organic Act of 1897, 16 U.S.C. §§ 473-81.

4. Buchanan Amendment to the Department of Agriculture Appropriations Act of 1930, Pub. L. No. 70-768; Soil Conservation and Domestic Allotment Act of 1935, 16 U.S.C. §§ 590a-i, 590j-q.

5. Between 15 and 20 percent of U.S. foreign assistance funds are traditionally channeled through the multilateral development banks.

6. Relevant legislation resulting from comprehensive Senate hearings includes the Second Supplemental Appropriations Act, 1984, Pub. L. No. 98-396, 98 Stat. 1369 (for fiscal year 1985); the Foreign Assistance and Related Programs Appropriations Act, 1985, Pub. L. No. 99-190, 99 Stat. 1291 (for fiscal year 1986); and the Foreign Assistance and Related Programs Appropriations Act, 1987, Pub. L. No. 99-591, 100 Stat. 3341-214 (for fiscal year 1987).

Proposals in the currently pending Foreign Assistance and Related Programs Appropriations bill for fiscal year 1988 include a plan to cut U.S. funding for the Inter-American Development Bank (IDB) by 80 percent. This proposal has been suggested due to the IDB's failure to follow the other MDBs in instituting environmental reforms. The legislation has been approved by the Senate Appropriations Committee. H.J. RES. 395, S. REP. NO. 100-238, 133 CONG. REC. S17435 (daily ed. Dec. 8, 1987).

7. Voting blocks in the MDBs are determined by the proportional contribution each nation makes to each bank. A nation that contributes 10 percent of the capital to a bank controls 10 percent of any vote. As the U.S. does not contribute a majority of funds to any of the MDBs, a coalition with other contributors is necessary to block-any potential loan. The U.S. initiative to promote environmental reforms has been very successful to date, but it cannot be sustained without the support of other donor and borrower nations.

8. The Department of the Treasury oversees U.S. contributions to the MDBs. The Treasury instructs the U.S. Executive Director on each institution how to vote on potential loans. The Foreign Operations Subcommittee's changes in U.S. law are made effective largely through the Treasury.

9. Address by Barber Conable to the World Resources Institute, May 5, 1987; see also WORLD BANK ANNUAL REPORT 33 (1987).

10. WORLD BANK ANNUAL REPORT 33 (1987).