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World Bank reaches compromise on China loan

By Abid Aslam, Asia Times, 29 June 1999

WASHINGTON - The World Bank has struck an unusual compromise on a politically troublesome financing package for western China.

The bank's executive board late Thursday approved $160 million for the China Western Poverty Reduction Project, a six-year effort to lead 1.7 million people from destitution to food self-sufficiency and bigger incomes. However, representatives of the bank's 182 shareholder governments withheld $40 million for the project's most contentious element - a plan to move 58,000 Chinese peasants to a Tibetan and Mongolian autonomous area bordering Tibet, which China annexed in 1959.

The freeze on resettlement funds was meant to allow the bank's independent Inspection Panel to investigate allegations that the lender broke its own rules designed to safeguard communities, the environment and the public's right to know. The proposed transmigration generated intense criticism from the Dalai Lama's office, human rights and environmental groups and a number of leading bank shareholders.

Tibetans in Qinghai province, site of the mass relocation, warned that the proposal was tantamount to a death sentence against them because it would yield further marginalization and conflict over natural resources. The bank itself admitted that the Tibetans' share of the local population would fall from 22.7 percent to 14 percent as a result of the project and that Mongolians would dwindle from 14.1 percent to 6.7 percent. Bank officials noted, however, that Chinese authorities had promised to respect minority rights.

The fact that this component of the project will not start, nor will any monies be drawn for it until the (inspection) results are known, should allow critics and supporters alike the space and time for full and open consideration of all issues, said bank President James Wolfensohn.

But had the Bank dodged a bigger bullet by concentrating solely on the resettlement component? Bank failures to disclose information to the public and to conduct proper environmental assessments apply to the project as a whole and not just the transmigration plan, said Dana Clark, senior attorney at the Center for International Environmental Law. Those failures were among policy violations alleged in a formal inspection request submitted last week by the Washington-based International Campaign for Tibet (ICT), acting on behalf of communities in the project area.

The bank skirted environmental assessment rules by wrongly describing project plans - which featured a dam, roads and irrigation - as ecologically insignificant, then hid its findings from the public until project appraisal was complete, the document charged. It added that the proposals lacked a mandatory Indigenous People's Development Plan and would increase farmers' dependence on toxic pesticides in breach of a bank mandate to promote relatively benign integrated pest management.

This was a completely flawed project proposal, yet for the most part it was approved, Clark said.

Whatever the shortcomings of Thursday's decision, the Inspection Panel process will give us more of an opportunity to make our case, ICT President John Ackerly noted. We fully expect to pursue it very aggressively and hope that they will scrap the project altogether, he added.

That is very unlikely, said a bank official. Rather, the panel's involvement is meant to ensure that the resettlement component can go forward in a manner agreeable to all. According to the inspection request, however, policy violations are not merely procedural, and they are not easily solved. They undermine the integrity of the entire project.

The resettlement plan's suitability and probity remain to be ruled upon by the bank watchdog but agency managers defended the proposal as the best hope for Qinghai's villagers to escape destitution. Poverty can be reduced at project sites in Inner Mongolia and Gansu province simply by improving conditions where people already live but in Qinghai, that option does not exist, said Jean- Michel Severino, bank vice-president for East Asia and the Pacific. There is nowhere else for these people to move, and to stay would mean continued malnourishment, even starvation, he argued.

That's just absurd, Ackerly retorted. It's no coincidence that they have chosen an autonomous prefecture as the move-in area, he argued, referring to the government in Beijing, which has denied charges of using population transfers to consolidate its power in minority areas. The bank has simply chosen to ignore this, Ackerly added.

This week's vote followed two postponements and multiple warnings that China would re-evaluate its relationship with the bank if the project was defeated, agency staff revealed. The government in Beijing is the Bank's largest borrower, accounting for some $2 billion per year in loans, and has bitterly criticized the agency's decision last year to increase its standard loan fees.

The United States and Germany voted against the project, according to agency officials and independent sources. Austria, Canada, France and the Nordic countries abstained. All other members, most of them represented in blocs, voted yes.

(Inter Press Service)