New IDB Policy on Indigenous Peoples: Was it Worth the Wait?

This August the Inter-American Development Bank (IDB) will finally catch up to the rest of the pack by putting into effect its first Operational Policy on Indigenous Peoples (OP-765). Joining the World Bank, the Asian Development Bank, the United Nations Development Programme, and numerous private banks, the IDB finally takes its place among the other international financial institutions that have adopted policies over the last decade and a half which recognize the undeniable link between indigenous peoples' rights, sustainable development and poverty reduction. Indigenous peoples and their advocates are now asking themselves if the resulting policy was worth the wait.

Taking heavy fire for the devastating impacts on indigenous peoples caused by mega energy projects like the Camisea gas pipeline in Peru, the Caña Brava hydroelectric power plant in the Brazilian Amazon, and the Yacyretá hydroelectric dam project along the border of Argentina and Paraguay, in 2004 the IDB publicly announced that it would draft, in consultation with indigenous peoples, a non-binding “strategy” for development that would address indigenous rights and concerns. In one loud voice, indigenous peoples scoffed at the Bank and insisted that they would only consult on the drafting of a binding policy that would obligate the Bank and its borrowers to respect their rights. In the face of a strong and organized indigenous advocacy, the Bank folded.

From the Spring of 2004 until the Summer of 2005 the Bank reportedly conducted over 40 “consultation meetings” with indigenous peoples. These consultations were largely based on a “profile" of the intended policy (a narrative outline of sorts) and not on the actual policy text. These efforts were widely criticized by indigenous peoples. They claimed that relevant information was not provided sufficiently in advance to permit an informed dialogue. They claimed that their comments were not incorporated into the working documents and that members of the Bank-established “Indigenous Advisory Council” were marginalized from the final drafting process. Notably, when the Bank finally produced an actual policy text it was the subject of only one face-to-face consultation with indigenous peoples that took place in Costa Rica in August of 2005.

Under this cloud of criticism, on February 22 this year the Bank's Executive Directors adopted a text and a new policy was born. In its own words, the policy proposes to usher in a new era of “development with identity of indigenous peoples” and to “safeguard indigenous peoples and their rights against adverse impacts and exclusion in Bank-funded development projects.” The policy contains several positive elements that demonstrate the advances that indigenous peoples (and their allies within and outside of the Bank) have made in terms of sensitizing Bank directors and staff about their needs and rights. For instance, the new policy includes a clear recognition of collective rights, a prohibition on forcible resettlement, and a prohibition on the financing of projects that exclude communities on the basis of ethnicity or fail to respect the rights of uncontacted indigenous peoples to live as they choose. The policy also recognizes the relevant jurisprudence of the Inter-American system, applies to all Bank-supported operations and activities (not just specific projects) and requires some form of prior agreement with indigenous peoples in cases of: (i) significant potential adverse impacts, (ii) commercial development of indigenous culture and knowledge resources; (iii) operations specifically targeting indigenous beneficiaries, and (iv) resettlement.

Several problems, however, remain in the Policy and will require close monitoring. These include: the non-applicability of the policy safeguards to land and resources where indigenous claims are still pending or in dispute; the limited recognition of indigenous juridical systems and customary laws; the omission of independent mechanisms to verify Bank and Borrower compliance; the absence of express language providing for indigenous peoples' participation or control over decisions to create or designate protected areas; the failure to more broadly require indigenous free, prior and informed consent whenever a Bank-funded activity affects their lands, territories and resources; and the presence of a loophole (buried in two footnotes) that allows the Borrower to essentially satisfy its consultation and negotiation requirements by simply showing that the indigenous peoples in question are not interested in consultations or have agreed that more negotiations and agreements are needed in the future.

Perhaps the policy's greatest weakness is that it contains so many nuanced terms, qualifications, and standards -- particularly for the consultation, negotiation, and consent processes and the evaluation and assessment phases. These are then coupled with only promises in the policy that the Bank will later provide the guidelines, procedures, monitoring, and verification mechanisms necessary to operationalize and implement the Policy.

Consequently, the effectiveness of the new policy will largely be determined by the manner in which the Bank staff and its Borrowers interpret its provisions and implement the same based on various guidelines, procedures and mechanisms that have still not been developed or drafted. The Bank says that it is engaged in this drafting now and that by the end of August they will produce a source book of best practices, some internal IDB guidelines, and an internal implementation plan. The extent to which these critical documents will be made public during their drafting stage or count with the involvement of indigenous peoples in their elaboration is still unclear.

So, was the policy worth the wait? Unfortunately, we will have to wait and see.

By Vanessa Jiménez, Senior Attorney with the Legal and Human Rights Programme of the UK-based Forest Peoples Programme.

For a copy of the IDB Policy, see: http://www.iadb.org/sds/ind/site_401_e.htm (English) or http://www.iadb.org/sds/ind/site_401_s.htm (Spanish).

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CIFOR report: How investors ignore serious problems with pulp mills

In the last decade, financial institutions and investment banks have handed out more than US$40 billion for new pulp projects in the South. Analysts expect another US$54 billion to be invested in pulp mills in the South by 2015 much of it in Brazil, Uruguay, China, the Mekong Region and the Baltic States.

We might assume that given the large amounts of money involved, the banks would carry out careful analysis before investing. Not so, according to a new report published by the Centre for International Forestry Research (CIFOR) ("Financing Pulp Mills: An Appraisal of Risk Assessment and Safeguard Procedures", available at http://www.wrm.org.uy/plantations/FinancingPulpMills.pdf ). Inadequate research into proposed pulp projects "may lead to a new wave of ill-advised projects, setting up investors, forest-dependent communities and the environment for a precipitous fall," according to CIFOR.

Asia Pulp and Paper's default on the US$14 billion that the company and its subsidiaries owed affected financial institutions around the world, but as CIFOR's Chris Barr pointed out to the Financial Times, "the financial sector has been reluctant to look at what the lessons of APP's collapse have been."

CIFOR's report is based on eight years of research, looking at the financing of 67 pulp mills. The author of the report, Machteld Spek, is a financial analyst with more than 20 years' experience.

Spek notes that the importance of raw material supply is often underestimated when pulp mills are financed or in analysts' reports on pulp companies, despite the fact that it accounts for a large percentage of the costs of pulp production. When Indonesia's four major pulp producers started operations in the 1980s and 1990s they all predicted that within eight years they would obtain all their raw material from their own plantations. Today Indonesia's pulp industry "still relies on wood from the natural forest for 70 per cent of their fibre needs," CIFOR's report points out. However, this failure to secure raw material supplies did not affect the companies' abilities to continue raising finance.

Spek's report found that "Most financial institutions and ECAs still lack in-house capacity to assess a project's likely social and environmental impacts." Instead, they rely on information from companies and from multilateral agencies such as the World Bank's International Finance Corporation (IFC).

IFC has given loans to a series of environmentally and socially damaging pulp projects, including Arauco in Chile, Aracruz in Brazil and Advance Agro in Thailand. IFC is currently considering whether to finance two massive pulp mills in Uruguay.

IFC, of course, states that it does not finance projects without an environmental and social impact study. Spek's report explains why this not enough: "A structural weakness in the application of safeguard policies is that they are guided by Environmental Assessments that are typically commissioned by the project sponsor. At present, Environmental Assessments are often of mediocre quality that goes undetected in the absence of review by informed parties."

When IFC's board agreed to lend Aracruz US$50 million in November 2004, the Bank's environmental and social studies failed to alert the Bank's board to a serious, on-going land dispute between Aracruz and Tupinikim and Guarani Indigenous Peoples in the State of Espírito Santo. In May 2005, six months after IFC's board approved the loan, Tupinikim and Guarani people reclaimed just over 11,000 hectares of their land from Aracruz and built two villages on the land. In January 2006, Aracruz was involved in a violent police action aimed at evicting people from the villages. Aracruz's machinery was used to destroy the villages.

Shortly afterwards, IFC issued a statement saying that Aracruz had "opted to pre-pay the loan it had with the IFC," which "ends the relationship of the IFC with this client". Clearly Aracruz felt that the IFC's loan risked putting the company in the spotlight. But IFC's analysis and safeguards should have prevented the loan in the first place.

In Uruguay, the Spanish company ENCE and the Finnish conglomerate Botnia are separately planning to build two pulp mills with a total capacity of 1.5 million tonnes a year. IFC is considering loans totalling US$400 million to the two projects. IFC's involvement has helped encourage a series of commercial banks and ECAs to support the projects.

CIFOR's report comments that Botnia's environmental impact assessment produced as part of the process of applying for an IFC loan failed to deal adequately with issues of raw material supply, land use and infrastructure. Major protests in both Uruguay and Argentina have led to project documents receiving more scrutiny than would otherwise have been the case. IFC has recently drawn up an action plan which is supposed to address the weaknesses of the previous studies.

"The conflict over the Uruguayan pulp mills has brought into focus important social and environmental issues," comments CIFOR's director general David Kaimowitz. "One key issue that has largely been ignored, however, is whether the pulp mills will have enough wood. Not having a secure and sustainable wood supply poses huge financial risks."

By Chris Lang, e-mail: http://chrislang.org , www.chrislang.blogspot.com