Asia is gearing up for increased infrastructure financing to support the drive for stronger economic growth. That’s good news for narrowing the perennial gaps in energy and transport blocking growth in many economies in the region. But, unless accompanied by protective safeguards, these projects risk damaging the environment, climate and communities ― and hindering growth.
This must be a top concern for both the established lenders, such as the World Bank and Asian Development Bank, and the two new development banks: the Asian Infrastructure Investment Bank ― planned to be established in Beijing later this year ― and the New Development Bank of BRICS countries. That is because the human and economic cost of disasters from environmental and social neglect is high.
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Vinod Thomas |
Recall the 2010 BP-Amoco Gulf of Mexico oil spill in the United States which cost $25 billion in damages and clean up. From Bangladesh and India to China and Korea, there have been costly accidents in recent decades, involving buildings, bridges and boats. In the second half of the 20th century, discharges from factories and mines severely hurt people’s health in Minamata Bay in Japan and the island of Marinduque in the Philippines.
New road projects in forest areas of Brazil, Indonesia, Russia and many other countries contributed to massive deforestation, which in turn has a deleterious effect on global warming. The Sardar Sarovar Dam on the Narmada River in India eventually displaced over 200,000 people, while China’s Three Gorges Dam displaced six times as many.
The gain from safeguards would be several times higher than their cost, which is usually 3-4 percent of the project cost. For example, the environmental benefit of pollution abatement is three to 10 times the cost, according to some estimates. The benefit of preserving biodiversity may be in avoiding a trigger for an ecosystem collapse.
In recognition of these risks, development banks have, for decades, required safeguards in their loans. The scale of the needed response can be huge but necessary: the Ertan 1 hydropower project on China’s Yalong River successfully resettled 46,000 people.
Development banks must continue to improve safeguard policies, including support for ensuring the adequacy of countries’ safeguard systems. ADB revised its safeguard policy in 2009 and the World Bank is now doing the same, which could influence others. The original World Bank proposal was widely criticized for weakening the obligation for safeguard compliance. World Bank President Jim Yong Kim has assured that the revision will not mean a “dilution.” Earlier in May, ADB President Takehiko Nakao and Liqun Jin, secretary-general of the Multilateral Interim Secretariat of the AIIB, jointly stressed “the importance of safeguards policies on environmental and social impacts of projects.”
The vital question for established banks and newcomers alike as well as the countries is twofold: what is a desirable scope of safeguards, and how to get good compliance. There’s a growing consensus on the question of the “what,” but the “how” remains highly problematic.
In particular, growth concerns press for greater flexibility in how safeguards are implemented. By citing a need to alleviate the burden for borrowers and executing agencies, it is tempting for alterations or new proposals to relax requirements for mitigation when approving a project and table them later instead. But rather than diluting safeguard policies this way, development banks should adhere to delivering sound safeguards while seeking greater efficiency and speed by reforming internal procedures.
Indeed, sound economics argues for enforceable actions to rectify market failures that cause spillover damages from public and private investment. At the start of projects ― and not just those supported by development banks ― there has to be a binding mitigation plan based on established and clear rules, and compliance with the plan ought to be verified by an independent party and disclosed publicly.
Development banks and countries must aim for better environmental and social impacts from safeguards as they expand infrastructure investment. That includes support for commitment, capacity and systems in countries to strengthen these defenses and their efficiency.
By Vinod Thomas
The writer is director general of independent evaluation at the Asian Development Bank and former director general and senior vice president of the World Bank’s Independent Evaluation Group and chief economist for Asia. ― Ed.
