Focus on the Global Southc/o CUSRI, Chulalongkorn University, Bangkok 10330, THAILAND

Tel : 662 218 7363/7364/7365/7383 • Fax : 662 255 9976E-mail : admin@focusweb.org • Web page http://www.focusweb.org

May 2002

An Overview of the ADB'sDecision Making Processesand Policies

Good Governanceor Bad Mangement

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C o n t e n t s

A Master-plan for Market Expansion:The Asian Development Bank and GovernanceBy : Shalmali Guttal

Providing What Justice, and to Whom?:The ADB's Access to Justice Programme for PakistanBy : A. Ercelawn and M. Nauman

The ADB's Uncivil Engagements:The Experiences of Chashma AffecteesBy : Mushtaq Gadi

The Sri Lanka Southern Transport Development ProjectBy : Heather and Cyril Mundy

Hijacking Development in Madhya PradeshBy : Raghav Narsalay

BOT, Governance and the ADBBy : Andrew B. Wyatt

The ADB - “Governing” The Pacific?By : Aziz Choudry

The Citanduy River Diversion Project: Some Critical ThoughtsBy : Susi Pudjiastuti and P. Raja Siregar

Disclosure, or Deception?: Multilateral Institutionsand Access to InformationBy : Shalmali Guttal

Governance and the ADB: Complicity and Conflict of InterestBy : Jenina Joy Chavez

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In its 1999 policy on governance, theAsian Development Bank (ADB) states, “Theterm ‘governance’ means different things todifferent people.”i In relation to the ADB, this iscertainly true. The ADB’s forays into goodgovernance over the past few years clearly showthat what governance means to the ADB is quitedifferent from what it means to millions ofpeople in the Asia and Pacific region, who areunfortunately under its financial (andgovernance!) umbrella.

For most people, precepts of goodgovernance would imply publicly accountablesystems of rights, entitlements, laws, rules,distribution and use of resources, decisionmaking, and so on, that are based on universalprinciples of equality, equity, and justice, butwhich at the same time, allow for the culturalspecificities of a society or nation. For theADB, however, governance is about putting intoplace the required policy environments andstructures in its Developing Member Countries(DMCs)—who are also its debtors—to ensurethe success of ADB financed programmes.

By its own admission, the ADB’sapproach to governance is “economic” ratherthan “political;” i.e., the Bank regards goodgovernance from the perspective of “efficientmanagement of public resources” and “sounddevelopment management.”ii Accordingly, goodgovernance is about “effective management” of

the development process and encompasses thefunctioning and capability of the public sector,and the rules and institutions that provide aframework of conduct for government, publicenterprises, private business and corporations.Although its policy states that “governance isabout the institutional environment in whichcitizens interact among themselves and withgovernment agencies/officials,”iii the policyneither discussed, nor recognises a meaningfulrole for citizens in governance processes,frameworks and mechanisms.iv

The ADB does, however, articulate inconsiderable detail what governments—as“economic development managers”—must do inthe area of good governance. The ADB claims a“legitimate and direct interest in governanceissues” because of its involvement in theeconomic development of its DMCs. Itsframework for governance both, arises from andsupports, its development ideology.

Getting it rightThe ADB is a market fundamentalist in

its economic and development approaches. Itspoverty reduction strategy is based onunshakable beliefs in the wonders of rapideconomic growth, financial liberalisation,privatisation, deregulation and increased market“openness.” By adding the phrase “pro-poor” to

*Shalmali Guttal is the Coordinator of the Micro-Macro Issues Linking Programme atFocus on the Global South (s.guttal@focusweb.org).

A Master-plan for Market ExpansionThe Asian Development Bank and Governance

By Shalmali Guttal*

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its usual range of operations, it seeks to justifyits efforts towards private sector and marketexpansion. For example, the stated purpose of aconference in March 2002 on privatisedinfrastructure development was to: helpdisseminate information on “pro-poorinfrastructure development by the privatesector,” showcase lessons on “pro-poor contractdesign regulation and reform processes,” anddiscuss current thinking on “pro-poor reformpolicy in infrastructure development.”Appropriately, the conference was titled “PrivateSolutions for the Poor.” It is extremely unlikelythough, that the poor themselves were present atthe Conference.

The Bank’s governance policy—which isconsidered an integral component of its povertyreduction strategy— is in effect, a master plan ofstrategies, directions and actions that borrowinggovernments must follow in order to ensure thesupremacy of market processes, structures andmechanisms in all aspects of social andcommercial life. This is no secret and the ADBis makes its ideas on the correct place forgovernment, the public sector and privateenterprise in economic development quite clear:

“In a market-oriented economy, thegovernment has the obligation to see thatmarkets function efficiently and that the playingfield is level for all participants.....Marketregulation by the government should ensure thatthe operating rules do not discriminate betweenindividual participants or interest groups.”v

The ADB’s approach to governanceposes serious threats to preserving autonomyand sovereignty in national policy making.While the Bank claims that its principal activityis project lending, it argues that weakimplementation capacity and poor sectoralpolicy frameworks in borrowing countries cannegatively impact technically sound and well-designed projects. Therefore—the Bankargues—it undertakes programme or policybased lending to complement its projectfinancing activities. Such program loans cover arange of activities, from local and sectoralstudies to developing plans and strategies for thereforms of entire sectors (for example, judicial,administrative, transportation, agriculture,education, etc.). According to the ADB:

“These efforts at helping DMCs ‘getpolicies right’ are now commonplace in theBank, and have led it to take greater interest in

the capacity of borrowing governments forpolicy formulation and implementation. Whilethe policy objective in a particular DMC sectormight be clear enough, knowledge of theinstitutional framework and its capability will behelpful in the design of reform measures.”vi

In other words, “good governance”provides the ADB with an effective andlegitimate window though which it caninstitutionalise the reforms needed to firmlyestablish market capitalism among its DMCs.This involves writing new laws and regulations,developing new administrative and managementsystems, creating new positions and roles withingovernment, institutionalising new decisionmaking processes and in fact, doing whatever isrequired to ensure that the DMCs stay firmly onthe path of market-led economic growth.

Hiding behind the CharterThe ADB’s charter prohibits it from

“interference” in the political affairs of itsmembers and from being influenced by thepolitical character of its members. UnderArticle 1 of the Charter, the purpose of the Bankis to foster economic growth and cooperation inthe region, and the Charter clearly gives primacyto “economic considerations” in the carrying outof the ADB’s purpose and functions. By its ownadmission, however, the term “economicconsiderations” has been “widely interpreted”and ADB programs extend to any area that isdeemed to have “economic effects.”Accordingly, the Bank’s governance agenda toohas extended into such diverse areas as theenvironment, education, health, judicial systemsand women’s empowerment.

On the other hand, the ADB is not quiteas willing to recognise the politicalconsequences of restructuring national policyenvironments that form the core of itgovernance programmes. While it is true thatsocial and environmental programmes haveeconomic effects, all programmes, economic orsocial, also have political effects.

Numerous examples can be found in theregion where the access and rights of people andcommunities to crucial resources andopportunities have either been severelyrestricted, or lost altogether as a directconsequence of ADB supported projects andprogrammes. Policy prescriptions such as

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enhanced cost recovery for health, educationand public utilities, water user fees in irrigationsystems, the rationalisation (downsizing) of civilservice sectors, creating “flexibility” in labourmarkets, and the privatisation of public sectorenterprises, have resulted in thedisempowerment and marginalisation of largenumbers of people across the region. TheADB’s strategy of “pro-poor growth” hasencouraged governments to freeze minimumwages and withhold the rights of workers toassociation, benefits and protections. Incountries such as Pakistan, India, Thailand andthe Philippines, protests against ADB projectsand programmes have resulted in social unrestand divisions, and at times, even politicalharassment of those who protest.

Since the ADB’s framework ofgovernance does not discuss the politicaldimensions of governance, it shows littleinterest in the fact that its own projects andprogrammes may violate the constitutionalrights and democratic spaces of citizens. Toooften, reform regimes imposed by the ADB haveacted as barriers to the accountability ofgovernments to their own citizens, and to theprotection of broad based public interest. Thetransformation of public sectors to servecorporate and market interests in the guise of“efficient management of public resources”undermines the obligations of governments toprovide appropriately and sufficiently for theircitizens. It also creates new vulnerabilities,especially among those who are already incomepoor and politically marginalised. Not only hasthe ADB not accepted its culpability in theseconsequences, but also, it has consistentlyhidden behind the privileges that its Charterprovides and assumed a politically neutral face.

The ADB has taken much of its contentand operational strategy regarding goodgovernance from its sibling institution, theWorld Bank. Inspired by the World Bank’s“global experience with project and adjustmentlending,” the ADB feels confident in positioninggood governance as “sound developmentmanagement” necessary for “ensuring adequatereturns and efficacy of the programmes andprojects financed.”vii

The World Bank’s Charter also prohibitsit from engaging in political activities anddirects that decision-making be based oneconomic considerations alone. But given the

emerging track record of poor management andproject quality, negative project and programmeimpacts, and allegations of corruption innumerous World Bank financed initiatives, theWorld Bank is indeed a poor role model ofgovernance for any multilateral institution.

Reconstructing the public domainThe ADB has identified four elements of

good governance for its purposes:Accountability, Participation, Predictability andTransparency. All four elements areoperationalised by policy and sectoral reformprogrammes that promote private sector needsover public interest priorities. For example,“The litmus test [for Accountability] is whetherprivate actors in the economy have procedurallysimple and swift recourse for redress of unfairactions or incompetence if the executiveauthority.” And, “Access to accurate and timelyinformation about the economy and governmentpolicies can be vital for economic decisionmaking by the private sector.”viii Predictabilityis about developing legal frameworks, especiallyto support private sector development.

The ADB claims that its “bread-and-butter business” is assisting the public sector inDMCs. This assistance is geared primarilytowards the reform of public enterprises, with aconcomitant process of reconstructing an“appropriate” role for the State in a market-friendly economy. Maximising profits,minimising costs, preserving markets, market-friendly economic reforms, promoting marketmechanisms in the provision of services,competitive operating environments, enhancedcost recovery, divestiture and privatisation, arethe main concerns that guide the ADB’sassistance to the public sector, and theoperationalisation of the ADB’s elements ofgood governance.

The ADB’s governance policy is vehiclefor entrenching sectoral reform andreconstructing the public domain. It is alsofundamentally contradictory. While the Bankclaims to eschew involvement in politicalaspects of governance, its core mandate-promoting economic development-is a deeplypolitical phenomenon. Economic developmentplans determine the distribution of a society’swealth, opportunities and challenges, who gainsand loses, and how power is realigned or

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entrenched. It is both delusional and self-serving for the ADB to project that the politicaland economic dimensions of governance can beseparated in policy and reality.

The ADB’s policy on good governanceoffers no prescriptions for its own institutionalgovernance. Accountability, Participation,Predictability and Transparency are thebuzzwords for governments, but appear not toapply to the ADB’s own conduct or operations.ADB insiders have revealed that the institutionis increasingly plagued by poor andirresponsible performance by Bank staff andManagement, and a lack of clarity about its ownoperational policies and procedures. Questionshave been raised in meetings of the ADB’sBoard of Directors about the appropriateness ofBank conduct in formulating, processing andimplementing projects. Controversiessurrounding a number of ADB projects andprogrammes—from the Chashma Canal Projectin Pakistan to reform programmes in the PacificIsland States-reveal that the ADB’s commitmentto good governance is at best a lie and at worst,antagonistic to nationally meaningful andaccountable governance structures andmechanisms.

Evidently, there is a lot for the ADB tolearn and acknowledge about the implications ofits specific version of governance. The ADB iswell advised to clean its own house anddemonstrate its accountability to citizens andtheir governments before imposing its version ofgovernance on the people of the region.

i Governance: Sound Development Management.

Asian Development Bank, August, 1999. Page 3.

ii Ibid. Page 20.

iii Ibid. Page 3.

iv It could be argued that the ADB alludes to

citizens in its language on private sector actors;

however, the policy contains no meaningful

discussion about a country’s citizenry as a force

discrete from economic actors.

v Governance: Sound Development Management.

Asian Development Bank, August, 1999. Page 5.

vi Ibid. Page 16.

vii Ibid. Page 7.

viii Ibid. Pages 8-13.

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The Asian Development Bank (ADB)proposes to assist Pakistan in improvinggovernance through loans of $350 million and agrant of $0.9 million. These loans and grantsinclude $20.9 million for technical assistance, ofwhich 4 million dollars will go for training,workshops and public awareness campaigns (i.e,slush funds and disguised kickbacks). TheGovernment of Pakistan (GOP) will contribute$25 million to a national Fund. Of this, a LegalEmpowerment Fund can get up to $5 million,which may be used by “approved” civil societygroups for advocacy efforts, although notpresumably against donor boondoggles.

The loan commenced in December 2001and ends in December 2004. The FederalMinistry of Law, Justice and Human Rights, willbe the executing agency through a specialProgramme Management Unit.

In view of the substantial addition toalready unserviceable indebtedness, and/orbecause of a record of systematic plunder andsquander in externally determined “assistance”programmes, all donor projects need sustained,critical watching. Such monitoring has becomeall the more necessary after the United States(US) has signalled to donors that Pakistan’sruling elite must be generously rewarded.

In preparation for this project, over $4million have been, and are being spent spentthrough Technical Assistance (TA) grants since1997 (TA 2979-PAK, 3015-PAK and TA 3433-PAK, 3640-PAK).

This paper provides an initial review of

the ADB Loan Document (RPP: PAK 32023) forthe Access to Justice Programme (AJP). Arequest for full documentation has been made tothe Minister for Law and Justice, Mr. KhalidRanjha (the former Minister was Shahida Jamil).

In the meantime we rely on the documentmade available by Mr.Hamid Sharif at the ADBoffice1

Supposedly, the request for donorassistance for a Justice programme came fromthe Federal Government, rather than beingimposed upon Islamabad by the ADB. Is it thena mere coincidence that the text of the letterfrom the Finance Minister reads like the loandocument? Or is because the same types ofconsultants drafted both documents?

The right rhetoricThe loan document states the rationale of

the programme as follows: “Vulnerability, justice, and entitlements

are closely linked. Vulnerability is a function ofinsecurity of access to key sets of material,social, political, and environmental assets.Justice is a function of the relationship betweeninstitutions responsible for deliveringentitlements (public goods and services)predictably, affordably, and accountably, and theability of citizens to secure and sustain theiraccess to key sets of assets. The pro-poorrationale of this Programme assumes that effortsto limit the vulnerability of the poor to thevagaries of systems of administrative, political,

Providing What Justice, and to Whom?The ADB’s Access to Justice Programme

for PakistanBy A. Ercelawn and M. Nauman*

*A. Ercelawn and M. Nauman are with the Creed Alliance in Pakistan(awarakhi@yahoo.com, darvesh@super.net.pk)

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civil, and criminal justice are at least asimportant as macroeconomic performance inpoverty reduction.”

This rationale requires recognition thatlaw is about the power to regulate social andeconomic relationships. Hence, changing thebalance of power is intimately related topromoting justice as the acknowledgement andrealisation of rights. But the documentcompromises the notion of justice by definingthe programme as a way to merely “influencethe exercise of political, administrative andjudicial power so as to improve the accessibilityof public entitlements for all citizens, inparticular the poor, women, and minorities.”

The ADB asserts that “poverty reflectssocial and political processes that are mediatedthrough a range of institutions. “ But how aboutthe economic arrangements enforced by thestate? Or more generally, the creation ofinstitutions that favour property over labour?Does it really matter that social and politicalprocesses would be made more benign withoutaltering the institutions themselves?

The ADB’s analysis, however can onlylead it to assert that “the vulnerable poor areespecially affected by their relations with adysfunctional and predatory local state”(original emphasis). It is such an anemicapproach, or perhaps self-serving naivet?, thatresults in the absence of any efforts in the loanprogramme to support the mobilisation of thepoor themselves for collective action in defenceof their rights.

Just markets“In addition, the present legal framework

and the performance of judicial institutionssignificantly constrain market-based economicgrowth, and in particular hinder foreign directinvestment as well as the growth of small andmedium-sized enterprises.”

And, “....the informal legal system isinsufficient for adequate market-based economicgrowth, and constrains significant foreign directinvestment as well as the growth of small- andmedium-sized enterprises.”

The attached Poverty Assessment isilluminating in this regard.

Serious businessThe loan document claims that the “the

AJP is to assist the Government to improveaccess to justice so as to, (i) provide security andensure equal protection under the law tocitizens, in particular the poor; (ii) secure andsustain entitlements and thereby reduce thepoor’s vulnerability; (iii) strengthen thelegitimacy of state institutions; and (iv) createconditions conducive to pro-poor growth,especially by fostering investor’s confidence.”

The Programme will contribute to theseaims by supporting five inter-related governanceobjectives: “(i) providing a legal basis forjudicial, policy, and administrative reforms; (ii)improving the efficiency, timeliness, andeffectiveness in judicial and police services; (iii)supporting greater equity and accessibility injustice services for the vulnerable poor; (iv)improving predictability and consistencybetween fiscal and human resource allocationand the mandates of reformed judicial andpolice institutions at the federal, provincial andlocal government levels; and (v) ensuringgreater transparency and accountability in theperformance of the judiciary, the police andadministrative justice institutions.”

Will the AJP then also permit financialsupport to groups endorsing or supporting thereferendum for sustaining reforms with Chief ofArmy, General Musharraf as President?

Guiding rulesThe AJP objectives are marked by the

absence of explicit reference to the nationalconstitution, or even international conventions,such as the UN Conventions on Social,Economic and Political Rights and the ILODeclaration of Principles. This is self-servingsince the State and its financiers cannot be heldaccountable by objective, substantivebenchmarks. Also worrying is the equation oflaw with justice in a country with a record ofincomplete translation of the Constitution intolaws, of laws that endorse exclusion anddiscrimination, and more generally, of laws thatpermit the State to not acknowledge and protectpeople’s rights.

What are we to make of the emphasis onsecuring assets? Are rights and justice to bethought of as little more than economictransactions? In which case, the prevailing

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system of bargains between state agencies andthe poor through local negotiations of propertyrights for life and livelihoods is already on theright track.

The first sentence and paragraph of theIntroduction to the main Programme proposal isrevealing in the narrowness of Bank conceptionsof justice — “governance has emerged asPakistan’s foremost development priority.” Nota word about participatory democracy is to befound in this section, as through progress onrealising social and economic rights can happenwithout the fundamental right of association inall its meanings.

It is considerable number of pages laterthat issues of political justice are taken up in theloan document. This disjunction betweenpriority and treatment is not accidental, since theproject only pays lip-service to addressing thepolitical implications - as institutions forcollective voice and response — of promotingjustice for the poor.

The language is revealing in defining thegoal of the AJP as “an efficient, citizen-orientedjudicial system” and uncomfortably resonant ofthe Bank’s aim of economic reforms towards anefficient and consumer-oriented system. Torepeat, justice is about rights and people ratherthan laws and citizens. Until this distinction isaccepted, dangerous confusion will persist aboutthe nature of reforms needed to promote therealisation of rights through reforms in thejustice system. Over the past half-century itshould be more than obvious that the Stateacknowledges few rights and permits even fewerentitlements.

The shallowness of ADB’s analysis isalso reflected in the statement that “the mostserious constraints are found in the politicalculture, and in sanctions bearing on thejudiciary, police and administration.” Of coursethese are important factors. But central to theplight of the poor are the inequitable andoppressive economic and social arrangementsthat underpin the Pakistani State, and which willsurely worsen as the State embracesglobalisation at the behest of Washington andManila.

Negotiating, or managingcontradictions?

Some degree of tension naturally prevailswithin and between the Programme rationaleand Programme objectives. How are these to beresolved when promoting justice to the poorcollides with making the country investor-friendly or market-friendly? What ifenvironmental conservation implies a differentgrowth model, one that is poor-friendly but notstatistics friendly? In every sector, numerousillustrations can be given of serious adverseimpacts upon the poor and the environment as aresult of the drive for (naturally profitable)privatisation and of the obsession withinfrastructure. What then of justice as commonlyunderstood? Moreover, as the Kirthar caseillustrates, “enforcement of environmental laws”becomes a travesty of justice when laws aremodified in favour of foreign investors as aconsequence of unrelenting pressure by theADB and the World Bank for privatisation ofthe energy sector.

Accountability of “judiciary, the policeand administrative justice institutions” is alsoincluded as an objective. It is then puzzling whyvirtually the same institutions have been madethe implementing agencies. Set a thief to catch athief?

Also notable is the absence of anyreference to the obligations of a just state - aconstitutional mandate in Pakistan — toeliminate the private oppression and exploitationof people that is engendered through denial ofsocial, political and economic rights. As anextreme example there is bonded labour; morecommon is the denial of even a decent livingwage. More broadly, we have the exclusion ofwomen from ‘public space’ but inclusion asproperty rights of men.

“Concentration of power at the federaland provincial levels has limited broaderparticipation which has led to overrepresentationof feudal and business interests.” How wouldbalanced representation substantively affectjustice for the poor? It seems that the ADBshares the frivolousness of those who believeand would have us believe that an enduringfreedom to `do your own thing’ reflectssubstantive justice.

It is absurd to state that “no adversesocial impact is anticipated” or that “no adverseenvironmental impact is anticipated,” from the

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Programme when a key objective is to promoteproperty rights in markets and of investors, i.e.to privilege capital over labour, rather than tonurture community and people.

Gender issuesPredictably, the project includes attention

to gender aspects of injustice. But is thisattention substantive? Consider the assertionthat “in most aspects of their lives the poor relyon informal justice and dispute resolution forumthat in some respects have been more effectivethan formal mechanisms.” Any serious observerwould agree that jirgas and panchayats are quiteeffective, but only in oppressing women byexclusion of participation and blatantindifference to their rights.

Implementing agenciesThe Federail Ministry of Law, Justice

and Human Rights will be the executing agencyfor the loans and technical assistance, through aspecial Programme Management Unit.Implementing agencies will be the Federal LawCommission, Ombudsman, Judicial Academy,and the Ministry of Interior. Provincialimplementation will be done by the Dapartmentsof Law, Home and Planning & Development,involving the Ombudsman, High Court, andPublic Safety Commission.

The Ministry of Law, Justice and HumanRights is not renowned for even comprehending,let alone acting upon, rights. Their support to thedilution of the National Policy & Plan forBonded Labour is the most recent illustration ofodious conduct and wholly incompatible withthe mandate of the ministry.

Also of note is that the Federal Ministryof Interior and the Provincial Home Departmentare central to implementation, despite theirignoble records of repression rather than justice.Similarly, the provincial Planning &Development Department is the co-ordinationlink, in spite of a public record of suppressingpeople’s rights through project boondoggles anddisplacements.

Since the Programme rationale includeseconomic and environmental rights, glaring alsois the absence of any institutions directlyinvolved with labour or environment, at eitherfederal or provincial levels. This is not

accidental since implementation details showmuch of the project rationale to be mererhetorical.

“A National Programme Review and Co-ordination Committee (NPRCC) will review andco-ordinate overall progress, and correspondingProvincial Programme Review Committees(PPRCs) will operate at the provincial level. Thechairperson of NPRCC will be the secretary ofMOL. NPRCC will comprise one representativeof each of the provincial high courts, to benominated by their respective chief justices; thesecretaries of the ministries of Law, Finance,and the Interior; the director general/secretary ofthe National Public Safety Commission; thesecretaries of the provincial law departments;one representative nominated by the PakistanBar Council; the director general of FJA: onerepresentative of the Law Commission; onerepresentative of the Federal ombudsman; andone representative of civil society nominated bythe Federal law minister. Each PPRC will beheaded by the chairperson of the P&D or theadditional chief secretary (development) of theP&D. A PPRC will comprise the secretaries ofdepartments of Law, Finance, and Home; thehigh court registrar; the provincial inspectorgeneral of police; the secretary of the provincialPSC; two representatives of subordinate courtsto be nominated by the chief justice of the highcourt concerned; and one representative of civilsociety appointed by the governor. NPRCC andthe PPRCs will be assisted by the outputs of theTA grant, which will focus on programmemonitoring and evaluation. Under the TA, civilsociety participation will be encouraged togetherwith public surveys.”

When the State is the problem, there islittle point in packing implementation andoversight mechanisms with State functionaries.For example, the Environmental Protection Act,and the Bonded Labour Abolition Act do notfunction because the highest state officials willnot allow it to be enforced. In fact, even theexistence of widespread agricultural bondedlabour is denied at the highest levels in theprovince of Sindh.

Furthermore, public debate andtransparency are prerequisites of seriousreforms. Does anyone really believe that theseare likely to be fostered by the proposedimplementation arrangements?

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What benefits? To whom?The Bank claims that “AJP will deliver

benefits in three domains. Actions in the firstdomain, policy and legal provisions, will secure(i) greater judicial independence, transparency,and accountability; (ii) better citizen-staterelations; and (iii) more durable publicinstitutions responsible for the delivery ofjustice.”

These reforms in policy and law arelikely to yield lukewarm benefits that will makelittle positive difference to the range of therights of the poor.

“Actions in the domain of institutionalperformance will result in: (i) greater judicialindependence, fostering the predictable, timelyand impartial rule of law conducive to investorconfidence; (ii) a dramatic decline in politicalinterference in police services; (iii) enhancedinstitutional arrangements for holding publicservants and officials accountable for violationsof citizens’ rights and entitlements; and (iv)greater public engagement in planning andmonitoring the performance of judicial andpolice service delivery.

Accountable to whom? Engagement bywhom? The usual coterie of publicrepresentatives, uniformed or otherwise, givelittle reason for optimism that accountability tothe poor for their rights can somehow be securedwithout direct, collective action by the poorthemselves.

Combining claims in the first and seconddomains suggests that greater judicialindependence is largely to be confined topromoting investor confidence. This isespecially ominous in light of the frequentexpressions of making labour and environmentallaws as investor friendly, i.e. turning the entirecountry into an export processing zone wherecapital can operate with much impunity. Hasanyone at the ADB bothered to think about thedecades it would take even with high economicgrowth to wipe out existing income poverty?

The loan document further claims that:“Actions in the third domain,budget/expenditure management, will result ingreater consistency between allocations ofhuman and fiscal resources and institutionalresponsibilities for the delivery of justice atfederal, provincial, and local government levels.The AJP will contribute to the Government’s

efforts to transform the performance of thejudiciary and the police such that the citizenrywill regard these institutions as the important forthe assertion and protection of their rights, whilethe poor will feel confident to use them toreduce their vulnerability. While the benefits ofthe improved rule of law are indispensable toimprove economic performance, the AJP willdecrease vulnerability for the poor in substantialways including (i) alleviating the vulnerabilityarising from everyday harassment, underperformance, exclusion, and denial of basicrights by public officials; (ii) easing thevulnerability of informal sector activities to rent-seeking activities of officials responsible forlicensing and regulating people’s access toeconomic and environmental assets; (iv)improving the accountability of public officials,and improving the accessibility and affordabilityof public goods and services on which the poorrely disproportionately.”

If realised, these claims are ofrevolutionary performance. Certainly a firstreading of the document belies these claims.

What are we to make of the assertion, “The vulnerability of the poor is significantlyexacerbated by their weak literacy in law andthe inability to enforce the law.” Is this aquestion of inability, or design/intention? Or,that “it is apparent that patterns of adult literacygreatly affect the capacity of the poor to accessthe opportunities created by reformed publicinstitutions.” What types of rights and servicesare we talking about? Since literacy is currentlylargely absent among the poor, whom then is theAJP really going to serve?

If the poor are admittedly non- or notfully literate, how and through whichintermediaries would they benefit from thefollowing programme actions? “Freedom ofInformation (FOI) law will be passed, and thepublic will be informed of its meaning and uses.Publication of laws efficiently through theofficial gazette will be reviewed, and webpublication of all laws will be achieved duringthe AJP period. A law will also be enacted toensure that all regulations and circulars havingthe effect of law will be published in the officialgazette. The Ministry of Law (MOL) and theDepartment of Law (DOLs) will be assisted inthe timely publication of the official gazettes,including publication on the web. In addition, toenhance the public’s understanding of the law,

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simplified explanations of all new laws will bepublished in Urdu. Over the AJP period,simplified Urdu explanations of major enactedlaws such as the Civil and Criminal Procedurecodes and the Penal Code will be published.”Whether simple or complex, documents in andof themselves are irrelevant to those who arenon-literate!

“To provide quick relief against unlawfulimprisonment, a study on the law of habeascorpus will be initiated and recommendationimplemented to increase access to justice insuch cases.” Does unlawful include privateimprisonment? There is no evidence that theAJP intends to deal with the current situation inSindh, where the High Court has essentiallydenied the application of habeas corpus tobonded labour

Safeguards and risksThe loan document considers that,“Three factors present particular risks to

the reform process, each of which is onlymarginally within the capacity of the AJP tomitigate: (i) the fiscal crisis will make itextremely difficult for the Government toadequately and predictably resource the reformsover the next decade; (ii) implementinggovernment commitments to reform will dependon corresponding constituencies being createdamong provinces and local governments and onthe facilitation of broad coalitions and allianceswith civil society; and (iii) the window ofopportunity for reforms, through to October2002, is vulnerable to uncertainty, within bothPakistan and the region. While the AJP design,in particular the TA loan, will assist inameliorating risks relating to (ii) above, theother risks are beyond the capacity of the AJP tomitigate. Furthermore, the heightened sense ofinstability and uncertainty created by the presentregional crisis will undoubtedly impact on thelaw, order, and security situation within Pakistanthat it is the purpose of this programme toimprove.”

Quite refreshing is the reminder that “thelessons from experience with conventionaljustice reform is it they must extend beyond thejudicial domain. However well designed andrun, judicial systems are unlikely to be well usedby the poor.” But then there is a sudden shift inlanguage towards a managerial approach -

“access to justice in private life, economiclivelihoods, and public goods and services areprofoundly affected by the administration andpolice as well as the judiciary.”

“Second, programmes in support ofreforms can provide short-term incentives forpolicy reform, but they cannot supplant orprecede prior domestic political commitments.”How then are the poor to be mobilised to pressfor such political change in the State?

“Third, reform programmes must assistgovernments to articulate these commitmentsinto long-term budgetary arrangements thatprovide for independence of the judiciary anddevolve spending powers to the appropriateadministrative level of authority. Fourth, reformprogrammes must work with governments, civilsociety, and the private sector to define, embed,and extend institutional arrangements toarticulate policies/laws and enabling resources.”But one would imagine that justice calls forcreating new arrangements rather than merelydefining or extending them. How are the poor toparticipate in these partnerships? What kind ofjustice would we have if profits are the soleincentives offered to the private sector tocollaborate?

Coalitions and alliances of the poor withcivil society are necessary (even if insufficient)for promoting justice. It is then rather odd thatthe Bank does not require the project design tobe focussed on facilitating such coalitions andalliances. Is it any wonder that mobilisation ofthe poor does not figure anywhere in thedocument as a “safeguard” intrinsic to therealisation of the project objectives?

But then even the provision of justice ischaracterised by the ADB project as servicedelivery.

Accountability for what, and towhom?

The project will use part of the TA grantfor “independent” monitoring. Since theprogramme is executed by the Ministry of Lawand Justice, which itself deserves scrutiny, theprocess of monitoring is fatally compromised tobegin with. Tragically, nothing seems to havebeen learnt from past projects such as the multi-billion Social Action Programme scandal, wheremonitoring consultants kept parroting taskmanagers only to belatedly acknowledge that

13

there were serious problems in the Programme.“Through the TA grant, ADB will help

the PMU to establish monitoring procedures tomeet three purposes: (i) monitor the progress ofthe implementation of the reforms; (ii) ensureindependent audit procedures; and (iii) providestrategic information, based on lessons fromexperience, to manage the reforms. Monitoringwill focus on three aspects of the reform: (i)Budgetary Commitments and ExpenditurePerformance. (ii) Implementation ofInstitutional Arrangements. (iii) Performance ofthe Access to Justice Development Fund.”

It is assumed, both arrogantly anddangerously, that public monitoring of thesubstance of the reforms is not required. If forexample, the Government of Sindh decides toside with the Sindh High Court in persuadingbonded tenants to seek relief in the dormant andinadequate provincial Tenancy Tribunals ratherthan in the Federal Bonded Labour Act, shouldwe be delighted at this successful managementof implementation of injustice?

“MOL, in co-operation with theImplementing Agencies and TA grant and loanconsultants, and ADB will conduct evaluationsby an independent authority jointly appointed byADB and the Government at the end of year 3 ofAJP implementation.” Not surprisingly,accountability remains confined betweengovernment and donors despite much rhetoric ofgood governance.

Whose designs?It is a cruel joke to claim that a project

addresses the needs of justice by the poor andthen to exclude them in designing the project.This is the reality despite the claim that “reformproposals have been indigenously driventhrough multi-layered stakeholderparticipation.”

In view of its shallow moorings butenormous power, the ambition of the ADB isdangerous. “The AJP is the first phase of ADB’slong-term assistance to Pakistan for access tojustice reform. Legal, judicial and policereforms, like any institutional change, areinherently complex and require time to changeinstitutional culture, incentives, and behaviour.In this first phase, the AJP aims to integrateaccess to justice issues into the largerdevelopment debate in the country, set the

policy and legal framework for sustainablejudicial and police reforms, and initiate a set ofactivities to address some of the most pressingissues in the sector.” When such activities are setby the ADB, they are likely to ensure everythingbut justice.

Bribery and co-optation“An institutionalised and multipurpose

legal empowerment fund (LEF) will be created,as an integral component of the AJDF, with itsown governance structure that reflects civilsociety representation. The LEF will providenew options for Pakistan’s most vulnerablecitizens and will allow for civil societyinitiatives and public-private partnerships toempower the vulnerable poor. The feasibility ofestablishing a public defender system will alsobe examined to provide legal support to thevulnerable poor.”

No word about public prosecutors toaddress the glaring deficiencies of the FederalAttorney General or the Advocate Generals atthe provincial levels - perhaps because thelessons from Ombudsmen here and elsewhere isthat success in achieving justice requires thesincere and vigorous mobilisation of new civilsociety associations.

“Civil society groups will be able toaccess the LEF to raise awareness about andprovide assistance for enforcement ofenvironmental rights.” Whose rights, and towhat? Will the AJP finance peoples’ actionsagainst the environmentally damagingexpansion of commercial fisheries that the ADBitself or donors such as the European Union(EU) are supporting? As another illustration,can the LEF be used to put brakes on theChashma canal project funded by the ADB?How will the LEF be constrained if the ADBfunds expansion of the Karachi water supplybefore it first addresses problems of marinepollution?

Quite consistently, civil society is to beinvolved in oversight only through nominatedrepresentation at the federal and provinciallevels.

“By engaging stakeholders (within stateagencies and civil society) in the reform processand demonstrating to the public that a positivedifference can be made in the delivery of justicethrough improved procedures, greater

14

transparency, automation, etc., thesecomplementary activities will instil confidencein the reform process.” Since the document issilent on how such engagement will be fostered,one should safely assume business as usual in allits senses.

No role for the poorThe ADB considers that the programme’s

“focus on accountability, sanctions andperformance through legal empowerment willraise sensitive cultural, social, and politicalissues. According to this empowerment-orienteddefinition of access to justice, awareness andliteracy involve building people’s appreciationof their rights and the law; their ability to act onlegal knowledge or to assert their rightsindividually or collectively; and their capacity tomobilise for change. This approach will focuson disadvantaged populations who most needlegal knowledge and ways to use it.”

But then how are the poor assisted by thisProgramme to act?

Protecting the environment“Consistent with its institutional focus,

the AJP is to support the enforcement ofenvironmental laws through the establishment ofenvironmental tribunals already provided for inthe law, and by ensuring that any conflict ofinterest is removed by different persons headingenvironmental protection agencies (EPAs) andthe provincial environment departments so thatEPAs can effectively promote the publicinterest.”

How does the AJP intend to deal withgross environmental abuse such as changinglaws to accelerate commercial exploitation ofprotected natural parks, as was done for Shelland Premier by the Sindh Government and itsagencies in Kirthar Park? What does the AJPrecommend that citizens do when the North-West Frontier Province (NWFP) governmentprevents the Forestry Commission fromfunctioning as intended by law?

Where the money will goThe programme expects the Federal and

provincial governments to spend over $ 400million as follows: Judicial Reform - $149 m;

Police Reform - $237 m; Fund - $25 m.Additional expenditures are to come from localgovernment. The AJP loans and grants of $350million are to “defray” these outlays.

Administered by the Law Commission(for a lawful commission of 3%) the Access toJustice Development Fund (AJDF) will includea Judicial Development Fund (JDF) of $16. 7million; the Legal Empowerment Fund (LEF)using between $3.75 - 5 m; the Fund forInnovations in Legal Education (FILE) of $1. 75- 3 m; the research and development fund of$1.75 m; and the Federal Judicial AcademyFund of $1.75 m. From the AJDF, $ 2 millionmay be used to establish centres of legaleducation. Another subsidy to the rich?

The judicial reforms in the loanprogramme say absolutely nothing of realconsequences to the poor. One would haveexpected the agenda to include reform of labourlaws towards universality and towards betterenforcement such as through a Minimum WageTribunal. Instead, the programme will providededicated full-time benches for commercialcases in the Lahore and Karachi High Courts.

In view of the emphasis onenvironmental justice, it is odd that judicialreforms include the setting up and actualfunctioning of the long-promised EnvironmentalTribunals only in Balochistan and the NWFP.Does the ADB really believe the Sindh andPunjab Governments that such tribunals arealready operational in these provinces? Or is itconsidered too dangerous to establish tribunalsin Sindh and Punjab?

The ADB promises among other benefits:“enhanced institutional arrangements forholding public servants and officials accountablefor violations of citizens rights and entitlements;and greater public engagement in planning andmonitoring performance of judicial and policeservice delivery.” The document fails to explainwhat these “enhanced” arrangements are to beand how they will be attained. These are not idlequeries. Consider, for example, the currentdifficulties in acknowledgement of employmentstatus faced by informal sector workers andsharecroppers, with the consequent depredationupon their rights to life and livelihood.

Similarly, the loan document does notdiscus how meaningful public engagement willbe carried out. Most likely, these engagementswill involve elite negotiations with sham “publicparticipation.”

15

to substantively overhaul projects for whichlarge loans have been approved and subsequentvested interests created within the Bank as wellas in Pakistani society.

Market-friendly rightsFor purposes of the poverty analysis, the

programme document looks at broad expectedoutputs “in terms of their anticipated impacts onthe labour market, prices of goods and services,public expenditures, and access to public goodsand services.” The attached tabular presentationis illuminating. Justice, did we hear anyone say?

In the Sindh Rural Development Project,the ADB proposed to buy the freedom of bondedlabour from their creditor landlords, rather thaninsist upon compliance with the exisitinglegislation that declares all such debts illegaland requires prosecution of the creditors.Perhaps this is what the ADB would call a“market solution” to injustice.

Role of the lawSince much is made of justice as

adherence to law, it is useful to recall the odiousrole played by the ADB in funding, andcontinuing to fund — despite documentedobjections — projects and agencies who haveblatantly and consistently flouted national lawson land acquisition. The unnecessarydisplacement of people and their livelihoods - inscale or timing — has been the hallmark ofprojects such as the Chotiari Reservoir in Sindh(under the National Drainage Programme); theChashma Link Canal in Panjab; and the Ghazi-Barotha Hydropower project in Panjab andNWFP. It should be apparent from these andother examples - such as urban cleansing byeviction of squatters to provide space forshopping plazas - that for the poor, claims toresources are threatened most by the State.

It is perverse to term a programme thatmakes the world safer for capital and itsinterests, but tramples on all other moral orders,as promoting access to justice for the poor.

Beyond remedyAs a programme to advance justice by

promoting people’s rights, this the ADBsupported AJP is considered to be seriouslyflawed in design and implementationarrangements. An appropriate popular responseneeds to be carefully formulated after widepublic discussions about the implications of theProgramme.. Our past experience (e.g. with theKorangi Waste Water Project) is that it isillusory to expect the ADB and the Government

1 hsharif@adb.org; www. adb.org/Documents/

RRPS/PAK/rrp_32023. pdf .

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POVERTY IMPACT ASSESSMENT (Appendix 4, AJP Loan Document)

Type of Effect

Channel Direct Indirect Macro Impact on(short-term) (Medium-term Non-Poor

LaborMarket

Prices

PublicExpenditures

Access toPublic Goodsand Services

Minimal effect jobsin the judiciary andpolice through thecreation of newpositions.

Service charges forlegal fees are to beincreased butconsumers arewilling to pay forbetter serviceespecially if hiddenchanges areabolished.

Despite budgetaryconstraints increasegovernmentexpenditure forjudiciary and policeadministration.

Due to thetremendous backlogof cases andentrenched practicesin the legal/justicesystem thesignificantimmediate effect isnot anticipated.

Income losses forrent seekersfacilitating servicesunder currentsystem.

Employmentgeneration in privatesector as investmentincreases.

Other sector mayreceive relativelysmaller budgetaryallocation givenbudgetaryconstraints.

A significantimprovement in thetimeliness andquality of legalservices is expected.

Improvement ofbusiness confidence.

Increased businessefficiency of formalbusinesses isexpected to lowerprices of domesticgoods and services.

Overall fiscal deficittargets agreed uponwith IMF will bemaintained.

Spillover effect toimproved deliveryof public foodsacross as theefficiency andeffectiveness ofjudicial and policeservices permeatethroughout thepublic sector.

Skilled and educatedlabor is expected tobenefit fromincreased foreigninvestment thatcreates employmentopportunities.

Impact relativelyless on non-poorwho have access tojustice and policeservices throughtheir position ofpower or financialstrength.

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The Asian Development Bank (ADB)makes frequent assertions about bettering thegovernance aspects of the development projectsit finances. Participation, transparency andaccountability are considered major mechanismsto improve overall project management andaddress adverse social and environmentalimpacts. A number of policies, albeit formal,legalistic and procedural in character, prescribethese elements as pre-requisites for attaining thegoal of good governance in terms of projectplanning and implementation, programming andstrategy development.

However, there is now significantaccumulated evidence available to demonstratethat the ADB’s claims do not match reality. Itswritten words seldom translate into deeds. Bankstaff usually find it difficult to even ensurecompliance with the ADB’s own already weakand contested policies regarding projectpreparation, planning, implementation andmonitoring. The Bank frequently finds that ithas to negotiate decisions in deeply politicalinstitutional contexts, and thus needs to increaseits political leverage and make strategic poweralliances to protect its institutional interests.Unfortunately, project-affected communitieswho lack voice in decision-making and access topower alliances remain marginalized in thisprocess.

The fact of non-compliance with its ownpolicies has led Bank staff to engage in a set of

informal practices to address thesecontradictions. The public is tactfully deniedaccess to relevant information. Decisions andagreements that are considered pragmatic arekept secret to avoid unpleasant andunpredictable consequences. Meetings withproject-affected communities (affectees) andrepresentative of civil society organizations(CSOs) are not generally recorded, and often,they are mis-represented. Participation isreduced to token representation. The risk ofopposition and resistance by affectees and CSOsis deterred through prolonged, laborious andunclear engagements with Project and Bankstaff, without any indications or assurancesabout the outcomes of these engagements. Thesuccess of these engagements depend largely onseductive and imaginative speech. Generalfeatures of such engagements include promises,complaints about ADB’s lack of leverage,criticism on dysfunctional national policies andlaws, and sympathy for the suffering of theaffectees by ADB and project staff. On theother hand, Bank staff always display uneasinessand reluctance when issues of rights andcompliance with institutional policies are raisedwith them.

The policy violations based on informalpractice coupled with the lack of effectivemechanisms for internal accountability yield avariety of “uncivil” engagements by Bank staffwith the project affectees. Although these

The Asian DevelopmentBank’s Uncivil Engagements

The Experiences of Chashma Affectees1

*Mushtaq Gadi is with the Sunghi Development Foundation in Pakistan (mushtaq_gadi@hotmail.com).

By Mushtaq Gadi*

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uncivil engagements are not recorded, theyoverwhelmingly determine the relationship ofthe Bank’s staff with project affectees. Moreoften than not, these engagements appear to bemore of a game for Bank staff than a genuinerecognition of the fundamental rights andresponsibilities of the affectees.

The experiences of affectees and civilsociety organizations involved in the campaignof Chashma Right Bank Irrigation Projects(CRBIP) are a testimony to the uncivilengagements practiced by the ADB.

Information maneuveringThe formal engagement of Chashma

affectees with the Bank was started in February2001. The first demand from the Chashmaaffectees and NGOs was to allow full access toall project related information, and particularlyto the report on resettlement surveys and theenvironmental management plan. However,Bank staff refused to share any of thisinformation and pleaded that the Bank’s newpolicy on information disclosure does not applyin the case of CRBIP since the Project wasapproved in 1992. Similar answers was givenwith regard to compliance with the Bank’sPolicy on Involuntary Resettlement.

Surprisingly, after almost two years, theProject Management Consultants handed overthe resettlement survey report and action plan torepresentatives of the affectees during theChashma Stakeholders’ Workshop held inMarch 2002. After going through the report,surprise was replaced with utter shock.

The document was extremely revealing.We learned that the resettlement survey and planwas prepared in accordance with the guidelinesfor incorporation of social dimensions in BankOperations2. These guidelines make itcompulsory to consult with the affectees andconcerned NGOs. Moreover, consultations withthe affectees and NGOs was also included in theterms of reference for the resettlement surveyand plan. It was further revealed that the ADBhad asked the consultants to take into accountthe Bank’s Policy on Involuntary Resettlementwhen preparing the resettlement plan forChashma affectees. Bank guidelines mandatethat irrigation projects which cause involuntarydisplacement should include resettlementcomponents and be given high ranking in terms

of environmental impacts. Most shamefully, thereport on resettlement survey and plan wasprepared in the same month when theengagement of Chashma affectees was startedwith the Bank. The affectees were kept in thedark and denied their right to know about theseplans (the right to know is accepted in theBank’s own guidelines). This was clear violationof the Bank’s own policies.

Apparently, the violation of the affectees’right to know was necessary in order to conceala series of policy violations in other areas. Infact, the Bank was not fully prepared to followits own guidelines and policies. It was thereforethought better to conceal Project relatedinformation as long as agreement between theBank and WAPDA was not reached. Theagreement was negotiated three months laterwhen the WAPDA refused to implement theresettlement plan. Consequently, a seconddocument was prepared in May 2001 whichstated clearly that the affectees should eitheraccept nominal cash compensation orconstruction of flood protection embankment.Again, the second document was also not sharedwith the affectees.

Consultation: choose betweenforced eviction or lifeimprisonment

“Flood protection bund is a sub-jail forus. Our women, children and elderly people faceproblem for toilet. In our village, we are 170persons at present; naturally we will grow andbe in need of more houses soon; but thepremises is too small to build a single room;imagine living within 18-20 feet highembankments at 50 degree temperature. Theprotection bund could be breached any time andwe would be buried inside the bund. You peoplewould be responsible for our death”.

The above are the views of an affectee,expressed during the Chashma Stakeholders’Workshop.

“ We can not do anything to solve yourproblem. We don’t have the funds forresettlement. Moreover, the law does not permitus to provide resettlement for affectees. It is upto you whether you want to live there or migrateto the other areas.”

“ We admit that there is a severe problemof flooding in the riverine belt caused by the

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project. We are also ready to extend thedistributaries and flood carrier channels up tothe Indus River. However, the local communitywill have to cooperate with the WAPDA andshould provide the land to the government freeof cost”.

The above are the views of the projectdirector expressed during the ChashmaStakeholders’ Workshop

The life of more than thirty thousandpeople living in the west side of Chashma RightBank Irrigation Canal is under the severe threatof project induced flooding. A number of mightyhill-torrents from the west side hit the canal andcreated flooding because of failure in gettingsafe and timely passage.

The first social survey and resettlementplan for the villages facing the threat of projectinduced flooding was prepared in February2001. The resettlement survey and plan wasmeant to consult with the affectees about theoption of resettlement or construction of floodprotection embankments around the endangeredvillages. All villages except one opted forresettlement in the east side of the canal. Thesurvey report indicates that the opinion in thevillages that opted for flood protectionembankment was also divided. However, theseconsultations proved to be symbolic, and viewsof the affected communities were totallydisregarded in the decision-making process.Consultation with the affectees was one sidedand there was no institutional mechanism toinvolve the affectees in decision-makingprocesses.

In May 2001, the decision was madeagainst the implementation of resettlement plan.It was agreed between the WAPDA and Bank toeither pay the nominal cash compensation orprovide flood protection embankments to thesevillages. This was the same month when theBank showed its readiness to send a specialreview mission followed by a stakeholders’workshop in response to the concerns ofChashma affectees and NGOs. During thenegotiation, the Chashma affectees and NGOsdemanded once again access to the resettlementsurvey and other project-related documents. Thedemand was rejected on the basis of policyrestrictions. In fact, it was considered incorrectto share this information before making the finaldecision.

The entire situation was a two-prongedstrategy jointly formulated by the Bank andWAPDA. On one hand, Bank staff continued toengage the affectees and NGOs in consultationswithout sharing vital project information ordisclosing decisions that had already beenagreed on. Bank staff pretended that they wereserious in their intentions to follow their policiesand guidelines. On the other hand, WAPDAcarried on coercive operations against theaffectees to compel them to choose betweenforced eviction and the construction of floodprotection embankments. The strategy wasindeed a fine combination of tactical thinkingand use of force.

Last year, the implementing agencies andlocal police tried to forcefully evict the affectedvillagers. They were asked to accept thepayment for only houses. It was said that thecompensation for land would be paid later, afterthe completion of legal processes. However, thevillagers are still living in their ancestral placesdespite the fact that they would be under thethreat of flooding during the monsoon in thecurrent year.

The people in the village who opted forflood protection embankments feel that they arenow living in a jail. Imprisoned by the highembankments, they can now only view the skyor stars. There is no facility for the drainage ofrainwater-which is enough to flood the entirevillage. New construction in the village isimpossible because of the closed embankment.Mobility has been seriously constrained. It isparticularly difficult for the elderly to walk upand cross the embankment. Most importantly,these earthen embankments provide minimumprotection. They can be breached any time bythe force of floodwaters.

Making the impossible happen:Inaccurate data, changes projectdesign, flooding and displacement

When the project was started in 1992, itwas claimed that there would be nodisplacement. Four years later, it revealed thatnine villages would be displaced due to theproject induced flooding. The figure went up totwelve villages when the resettlement surveyand plan was prepared in February 2002. Thefigures on displacement continue to rise. In arecent document, the WAPDA indicated that

20

about twenty-three villages would be under thethreat of flooding. However, the affectees areconvinced that this recent assessment is still notrealistic. Rather, the number will continue toincrease because of fundamental structural flawsin the project design are being deliberatelyignored.

The reason why the Bank, WAPDA andforeign engineering consultants failed to assessthe flooding and subsequent displacementaccurately is interesting. The project is animpossible endeavor that was made to lookpossible on paper through hyper-scientific andengineering imagination, using inaccurate dataabout peak flood flows and rate of siltdeposition. In addition to divergent local views,information and figures of other national andinternational agencies also contradict theestimates made by the project’s engineeringconsultants.

Most interestingly, one of the major aimsof the project is to protect local communitiesfrom the risk of seasonal floodwaters by thevarious hill-torrents. Almost half of the projectbudget was allocated to construct floodprotection structures. Indeed, this objective wasmisplaced. Local communities have neverconsidered the water of hill-torrents asfloodwaters. Rather, they have used this waterfor irrigation purposes for generations. A verysophisticated hydraulic system was developedby the local communities to control and use thisseasonal water for irrigation purposes. TheChashma project failed to achieve this objectiveand instead, created a situation in which a largenumber of local people are facing the severethreat of project induced flooding.

The Bank and its consultants have notonly used wrong data, but also used misplacedobjectives to justify the project. The planningand preparation of the project were based moreon the will to profit, than the need to addresslocal problems.

Multi-stakeholder dialogue:Imposing consensus

Multi-stakeholder dialogues andconsensus building are two preferential terms inthe Bank’s discourse on engagement withsociety. The Bank benefits from this discourse inmany ways. Compliance with its policies ismade conditional to consensus building among

stakeholders. Efforts towards multi-stakeholderdialogues and consensus building help the Bankto buy time to speed up the process of projectcompletion. Most importantly, the rules ofstakeholder dialogues and consensus buildingprocesses are purposefully structured to imposedecisions that have already been made on thevulnerable affectees.

Our experiences of a recently heldChashma Stakeholders’ Dialogue are ampleproof of the sophisticated manipulative skillsand methodical tactics of Bank staff in imposingdecisions on affectees. In response to theaffectees’ demand for an independent projectreview, the ADB agreed to send an internalspecial review mission. Based on the affectees’concerns about the independence of the reviewprocess, the Bank suggested involving externalconsultants to document stakeholders’ concernsand facilitate the dialogue on conflictual issues.The process took almost seven months toculminate into the stakeholders’ workshop.During the workshop, the WAPDA refused toagree with the major demands from theaffectees regarding resettlement, justcompensation for loss of livelihoods, full accessto information, etc. The delegation from theADB refused to comment on compliance withBank policies in relation to these issues. Theaffectees also came to know that “consensus”was already reached and agreed upon betweentwo powerful stakeholders. This led theaffectees to boycott the workshop. The entireprocess proved to be an important learningexperience for the affectees, who trusted theBank and entered into the stakeholder dialoguewith the hope to achieve something from thepromised “win-win” solutions.

Report on the Chashmastakeholders’ workshop:Secondary displacement

The affectees were shocked when theyreceived the report on the stakeholders’workshop. There was no reporting on the areaswhere major disagreements had occurred. Theviews and opinions of affectees on issues criticalto them were not considered worth documentingin the report. The report on one-day field visitwas entirely missing. The Chashma affecteesconsidered this technique a kind of secondarydisplacement in which the views and opinion of

21

affectees were systemically displaced from thediscourse and text. Despite several protest lettersagainst this attitude, the consultants hired by theADB refused to report on the areas ofdisagreement and to include the views ofaffectees in the main report. Clearly, displacingthe voices of affected peoples from mainstreamdiscourse is essential for powerful institutionssuch as the ADB to ensure that they controlknowledge about development.

Conclusion: Rethinkingengagement

Civil society organizations and peoples’movements have serious concerns about theapproach and practices of InternationalFinancial Institutions (IFIs) on governance andrights. They are becoming increasinglyconvinced that the policies of these institutionson information disclosure and structures ofdecision-making are not able to ensurecompliance with universally recognized,fundamental human rights. On the other hand,these institutions claim to evolve “constructiveengagements” with key stakeholders to create anenabling environment for resolving theproblems and addressing the concerns ofaffectees.

Like many other cases, the experiencesof Chashma affectees show that the rhetoric ofconstructive engagement has never become areality in actual practice. Rather, a set ofstandard, informal practices and strategies aredevised to impose consensus on politicallymarginalized groups of local affectees. Insteadof constructive engagement, a variety of uncivilengagements are developed and used to achievethe IFIs’ own institutional objectives.

There is serious need to documentexperiences of such uncivil engagements indifferent projects to facilitate future dialogueand strategy development among projectedaffected peoples and supportive CSOs. Equallyurgent is the need within civil society to debatethe issue of engagement with institutions such asthe ADB and other IFIs from the perspectives ofgood governance and rights.

1 The project referred to in this paper is the third

stage of the Chashma Right Bank Irrigation

Project (CRBIP) which started in 1992. Additional

financing for the project was provided by the ADB

in 1999. Major concerns of affectees are project

induced flooding and subsequent displacement of

more than thirty thousand people, irreparable

disruptions of local livelihoods, massive losses of

productive assets including land, trees, houses and

other structures, and adverse environmental

impacts. This paper will focus on the governance

related aspects of the project.

2 Guidelines for the incorporation of social

dimensions in Bank’s operations were approved in

1991 and hence applicable in this project.

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The Sri Lanka SouthernTransport Development Project

By Heather and Cyril Mundy*

*ggama@mail.ewisl.net

We have been told that in the Charter ofthe ADB it is clearly laid down that the Bankshould ensure it is a socially minded lender.However, we are seeing the complete oppositeof this in Sri Lanka, in the Southern TransportDevelopment Project that is supported by theAsian Development Bank (ADB).

The Sri Lankan road system is very poorand there is certainly the need for a network offast roads to improve communication andmovement of freight. The first is a link betweenthe capital Colombo and Matara, a deprived areain the South of the island. Funding for this linkis being provided by the ADB and the JapanBank for International Cooperation (JBIC).

In line with the ADB policy, a highwaywas designed which minimised the destructionof houses and ensured the road had the bestbalance of income and costs, both social andfinancial. This design was handed over to theexecuting agency the Road DevelopmentAuthority (RDA) to manage the environmentalclearance and come up with a detailed design. Inthe process of doing so the RDA changed theroute of the proposed highway link. The RDAacted in secret, and partly staged a cover upexercise. The change of the proposed route wasconcealed from the public and possibly the ADBas well. The RDA design seems to be a result of

political and financial influence. The ADB failedto monitor the RDA as a result, none of the“Elements of Good Governance” as given byADB in their Operations manual OM Section54/BP were practised by the RDA.

All the ADB documentation, the Reportand Recommendation of the President to theBoard of Directors on a Proposed Loan (RRP),Summary Environmental Impact Assessment(SEIA) all refer to the originally designed route.None of the variations of the RDA have beencovered by any of the above studies. Thechanges in the route causes significant socialdisruption, for instance in one village alone 138houses out of five hundred houses will bedestroyed. Most of these houses are parts ofextended families. The splitting of these closefamily ties by moving people elsewhere is verydisruptive to the community. Moreover, thereare no places to resettle the families, so largecompensation have been promised to silence thecritics. The promise of compensation isuntenable— Under ADB guidelines peopledisplaced have to be provided with alternativeswhich provide an equal or better standard ofliving. Many of the people in the village arefarmers and will not be provided withalternative lands to cultivate. They are too oldto be retrained. The people have been promisedonly 1/8th of an acre in compensation, atpresent most of the villagers have productive

23

home gardens and vegetable plots in addition totheir paddy fields. The promised land will notbe able to sustain them in the same way. There isalso an obligation to re-locate people within theadministrative divisions that they now live in.This impossible as there is not sufficient land forthis in the local area. Children’s schooling willbe disrupted and family ties severed. In areaswhere compensation was paid, early on, it wasderisory, recent values that have been offered insome areas are also very low.

After our pleas to the RDA and theGovernment of Sri Lanka (GOSL) fell on deafears for many months, we sent a petition in July2001 signed by 188 families representing 745people to the JBIC and the ADB. The ADB didnot even acknowledge it. In December 2001 wewere told that the Resident Mission had sent itto Manila, who have not acknowledged it up tonow! We were not aware that this project wasbeing run by Manila and feel the ResidentMission concealed this fact from us. Not muchof “Transparency” by the ADB!

The ADB were advised in detail of thechanges and results of these changes on thepeople by various groups along the route. TheADB were pressured to ask the RDA forclarifications. The RDA’s clarifications wereclearly unsatisfactory and falsified. For instancethe RDA claimed that they conducted 4000meetings with people affected in one year,which means the RDA should have conducted12 meetings day every single day of the year,including weekends, holidays!! The ADBaccepted the clarifications given by the RDAand referred the RDA’s letter to thecomplainants, with a covering letter statingADB’s acceptance of RDA’ clarifications.Further letters were sent by societies in thevillages of Gelanigama and Akmeemana to theADB asserting the RDA’s responses were notfactual. The ADB Management’s lengthy replyreiterated the ADB’s acceptance of the RDA’sclarifications.

In December 2001 the ADB sent a teamof representatives to meet the people , this wasin response to a inspection request made by theaffected people. The ADB representatives metthe people and in their discussions the team hadindicated their displeasure over RDA’s handlingof the project. However, when the minutes ofthis meeting were received from the ADB office,

the organisations realised that some of thecomments of the people and of therepresentatives were conspicuous by theirabsence. When the local organizationGelanigama asked the ADB to include thestatements, the request was denied. The idea ofgetting an inspection request to investigate theproject is in itself a very uphill task. The detailsrequired for the Inspection request is often hardto obtain, moreover, the manual and guidelinesfor such a request are in English and couched inlegal jargon, which makes it extremely difficultfor non-english speaking farmers tocomprehend and adequately address.

We did our best and sent in a request withall the details we could find. We have notreceived any information from the inspectionadministration or the ADB management. Tomake matters worse, the ADB claimed thewhole issue is sub-judicei and therefore cannotbe discussed. However, the investigation is not alegal case and therefore, by virtue which, allevidence and information should be considered.It is clear therefore, that the ADB is not willingto hear evidence that could expose the flaws ofthe project. The ADB’s claim to transparency,accountability and good governance seem tohave vanished into thin air.

The RDA is now in a race to beat theInspection Committee. Get the project to a pointwhere the Inspection Panel, if there is one, cando nothing. All the land acquisition is to be donebefore the Board ratifies the InspectionCommittee’s decision. The route then becomesa fait accompli!

The ADB Management is happy to helpthe RDA, it asks for extensions for its reply.The Inspection Committee also gets extensionsfor itself. The ADB Directors will not respond toletters, they will not even meet the complainantsto understand the problem and delay the RDA.

The indications on the Panel request sofar are that the RDA continues to misguide theADB and Management, who in their turn arecontent to pass them on. The ManagementResponse to the Inspection Request cannot beseen or verified by the affected people. Perhapswe will see it after the Board has made itsdecision on the Inspection Panel.

24

The decision is due mid April 2002. It issurprising, that having written the firstcomplaint in July 2001, it takes the ADB morethan a year to make a decision?

Other affected groups have sent in theirInspection Requests, ten in all. One organisationmay receive a decision in early May, the othershave been pigeon-holed by the InspectionCommittee waiting for them to review therequest ‘as soon as practicable’ which has beenmore than four months.

All the good words about transparencyand good governance come to naught if theManagement and the Board cannot show thesethemselves. They certainly have not beeninterested in trying to get the GOSL to followthem.

i In a legal case the matters under review by the

court cannot be talked about outside Court with

those concerned as this would possibly affect

justice being done. For this reason discussions of

legal matters are considered ‘sub judice’ and

cannot be discussed.

25

* Raghav Narsalay is a Research Associate with Focus on the Global South, India

(focusweb@mantraonline.com and focusind@yahoo.com)

IntroductionSince the beginning of the nineteen-

nineties, the Asian Development Bank (ADB),has played a central role in deepening neoliberalideology at the sub-national level bystrategically extending what are known as‘policy loans’ to national and sub-nationalentities in India. By adeptly using politicalprocesses at the sub-national and national levels,the ADB, with active support from differentstate-level governments, has carved out a rolefor itself in pushing policy reforms, especially inthe states of Madhya Pradesh, Gujarat andKerala.ii

Given this evolving role of the ADB inthe Indian context, it is critical to analyse howthe ADB uses its macroeconomic framework topush the macroeconomic and sectoral reforms atthe sub-national level. Also important would beto review as to whether the ADB becomes anagent to facilitate the political objectives of theState and elite local private interests and viceversa.

The Macroeconomic Frameworkof the ADB - some critical issues

To quote from the ADB’s CountryAssistance Plan (2000-2002):

“ADB’s current country operationalstrategy (COS) for India is designed to supportefforts to achieve higher growth andemployment generation by improving the supplyside efficiency of the economy. This is done

mainly through support for efforts to reducebottlenecks in key infrastructure sectors,including measures to improve policy,institutional and regulatory frameworks andthrough support for financial sector reform andcapital market development.”

The above paragraph shows that the ADBwants to generate employment and growth inIndia by reducing bottlenecks in keyinfrastructure sectors. Is this approachparticularly India-specific? Not at all. In fact,the ADB has been implementing this strategy inalmost all the countries where it is operational.Which then raises the question, why is the ADBkeen in pushing such a strategy everywhere?

ADB furthering interest of the State at the costof people’s interest

For the ADB, creation of keyinfrastructure is about building dams, hugeelectricity generation plants, ports and otherforms of large infrastructure. Creation of suchinflexible, hard projects helps not only the ADB,but also helps the State to promote a false,development-friendly image before its people.Furthermore, actualization of these projectscreates a space for the State and the ADB to addnew contours to the definitions of ‘nationalpride’ and ‘national security’. The State and thepolitical and economic elite are then in aposition to use these notions to roll out projectsthat may snatch away the rights of localcommunities over their natural resources andlivelihood opportunities under the garb of

Hijacking Developmentin Madhya Pradeshi

By Raghav Narsalay*

26

serving and safeguarding the larger publicinterest. Rolling out such projects then providesan opportunity for the State to seek externalfunds and for the ADB to lend, and oils themachinery that furthers private and institutionalinterests.

Constructing linkages between thecreation of infrastructure projects and generationof employment also provides a rationale for theADB to argue that the generation ofemployment and increase in economic growthreduce poverty (which is not necessarily true).And thus, the ADB claims the right to befunctional in the area of poverty reduction. Likethe World Bank, the ADB then claims to have anexpertise in designing and promoting economicreforms that purportedly lead to greater povertyreduction in the Asia Pacific region.

Through its self-proclaimed expertise inthe area of poverty reduction, the ADB gets alicense to automatically demand much greaterand well-defined policy space from the nationaland sub-national governments in the sphere ofeconomic reforms, encompassing areas such aseducation, health, sanitation and other essentialservices. Many a times, it gets much more thanthe demanded space. This happens mainlybecause the State also finds it politicallyworthwhile to accept costly ADB financing tohelp the State to defuse the intensity of itsimmediate political concerns at the national andinternational levels. In sum, by accepting ADBfunds, the State, at the national level, can keeppushing the neoliberal reform process byshowing that it is not abdicating itsresponsibility of providing the required financialresources to enhance the quality of basicservices. And at the international level, the Statecan continue to build a pro-reform image.

Furthering the private interests of developedcountries

There is also another reason why theADB is keen on pushing such a strategy acrossthe Asia-Pacific region. By showing linkagesbetween key infrastructure development andeconomic growth, the ADB and its majordeveloped country donors generate definitivedemands for goods and services provided bylarge international suppliers (from the donorcountries) not only in the area of technicalassistance, but also in the procurement ofexpensive goods and services required to

construct such infrastructure projects. Forexample, by instituting processes such asinternational competitive bidding for purchasesabove certain amounts, the ADB effectivelydistorts the level playing field for domesticproducers and service providers from hostcountries.

In addition, similarities between thereform approaches of the ADB and otherbilateral aid agencies at different levels allowthese institutions to complement each others’efforts in deepening the neoliberal framework ofreforms at the macroeconomic, as well as atsectoral levels.

The ADB’s agenda for MadhyaPradesh - is it at all adevelopmental one?

An examination of the macroeconomicframework of the ADB vis-á-vis developmentalconcerns of its host countries clearly shows howthe ADB creates an incentive structure for theState and other private interests to collaboratewith it in the garb of furthering public interest. Itwould therefore not be surprising to see thishappening in the state of Madhya Pradesh aswell.

Mapping the processIn 1997, Madhya Pradesh was shortlisted

as the second state for ADB assistance (the firststate was Gujarat). During December 1997, theBank cleared two packages in the area oftechnical assistance, viz. “Support for theGovernment of Madhya Pradesh Public FinanceReform and Institutional Strengthening”iii and“Strengthening Local Government in MadhyaPradesh”iv.

Technical Assistance included ‘teach-ins’for officials working with public institutions andthe State Government on the benefits ofundertaking a public sector reform programme.As expected, these teach-ins concentrated onconvincing the officials about the usefulness ofthe ADB-strategy for the state of MadhyaPradesh and making them adopt the necessarylanguage that would guarantee an ADB loanunder the rubric of ‘poverty reduction’.

These observations are verified from toneand language of the letter written by the ChiefSecretary of the Madhya Pradesh Government inAugust 1999 to the then Finance Secretary of

27

the Government of India requesting him to“forward this letter to the Bank for the purposeof seeking Bank financial assistance for theProgram”v. The letter clearly reveals the fact thatthe Government of Madhya Pradesh had notentered into any critical consultation with peoplebefore putting forward such a proposition to theADB.

Although the ADB boasts about itsgovernance policy, it completely overlooked thisfact and in fact found it fit to come out with the‘Report and Recommendation of the Presidentto the Board of Directors on a Proposed Loanand Technical Assistance Grant to India for theMadhya Pradesh Public ResourceManagement”vi in November 1999.

Problems with the ADB President’s ReportIt would have been surprising if there

were no striking glitches in the Bank President’sReport, which is based on a process that did notinvolve peoples’ participation in any stage of itsformulation. Following are some of theshortcomings regarding the President’s Report:

1. The document is marred withinconsistencies right from the beginning. Fore.g., the “Objective and Scope” and the“Classification” of a project are important tounderstand the basic categorization of an ADBloan. Consistency in language describing the“Objective and Scope” and “Classification” inADB documents provides understanding onwhether a loan would prioritize social concernsover economic imperatives. But thisconsistency is absent in the President’s Report.In the Report, while the “Objective and Scope”prioritize social sector reform over economicgrowth, economic growth becomes the primaryobjective and human development becomes thesecondary objective in the section on“Classification.” It is hardly surprising thatthese inconsistencies are reflected (and used bythe ADB to its own benefit) in theimplementation of the public sector reformpackage.

2. The President’s Report mentions that,“Reconnaissance, consultation and fact-findingmissions were fielded between December 1997and April 1998.” However, reports from anumber of local organisations, socialmovements and trade unions in the state indicatethat the consultation process carried out by ADBstaff was limited to government staff and actors

from the private sector.3. The Report mentions that the ADB is

trying to learn from the sub-national experiencesof other organisations like the World Bank.vii

But this does not seem to be the case, especiallysince this document was released three yearsafter the initiation of the Structural AdjustmentProgramme (SAP) by the World Bank in thestate of Andhra Pradesh. Research conducted byFocus on the Global South and the Centre forEnvironment Concerns in Hyderabad clearlyshows how the World Bank initiative— which issimilar to the one being pushed by the ADB inMadhya Pradesh— has actually deepened thecycle of indebtedness in Andhra Pradesh.

4. If the State Government continues totake loans from bilateral and multilateral donorsto finance its social sectors but is unable to raiserevenue through taxes, then its chances offalling into a debt trap are extremely high. ThePresident’s Report does not discuss this issueand therefore, it does not discuss strategies bywhich the State can address such risks.

Based on the above shortcomings and theprocess by which the Report was formulated,one can conclude that the President’s Report isanti-people. Furthermore, the language and theinconsistencies within the document imply thatthe ADB is deliberately promoting confusionabout the unfolding economic reform process inIndia.

The ADB’s entry into the powersector of Madhya Pradesh

The President’s Report (the documentdiscussed in the section above) clearly makescrucial links between the reform of publicfinances and power sector reform. Although theReport mentions that this particular observationis based on the lessons drawn from Gujarat,these links have also been highlighted in theletter sent by the Chief Secretary, Governmentof Madhya Pradesh to the Finance Secretary,Government of India. This letter also reflectsthe interests of the State Government in toeingthe ADB line regarding the power sector reformprogramme.

28

What are the objectives of the power sectorreform programme?

Overall objectives of the reform include:1. Achieving commercial efficiency and

improving viability of the sector;2. Increasing operational efficiency through

enhanced competition, managerial autonomyand higher accountability; and

3. Creating an enabling environment for privatesector participation.

Some problems with power sector reformsTransparency and Financial viability being putat stake

Once again it is important to note that theprogramme of power sector reform has beenformulated in a very secretive manner. There hasbeen no public debate to discuss the nature ofreforms that the power sector actually requires.The concerned trade unions have never beeninvited for discussing the relevance and the needof such a package before its formulation. Inspite of carrying out its plans in such a mannerthe ADB continues to talk about goodgovernance initiatives that have been introducedas a part of this exercise.

The energy sector policies that theMadhya Pradesh Government is promulgatingon the advice of the ADB have not onlylegitimized prohibitively expensive powerproduction by private corporations, but havealso given tacit support to financing privatepower projects that are anti-people. Forexample, the Power Finance Corporation, whichhas received funds amounting Rs. 15 bn.(around US$ 350 mn.)viii from the ADB and theWorld Bank will give a foreign currency loanworth about Rs. 11 bn. (around US$ 200 mn.) toa private power generation project-theMaheshwar Power Project in the NarmadaValley— to produce power at the rate of Rs. 7 toRs. 10 per KWH. This is several times higherthan the power that is supplied by the MadhyaPradesh Electricity Board (MPEB).

Furthermore, the Energy Reforms Billthat has been passed in Madhya Pradesh at theinstance of the ADB has meant that marginalfarmers (farmers having land less than 1.22hectare) have stopped receiving electricity atconcessional rates, which was promised to themby the State. For many poor families, this hasmeant the loss of the only (single point)electricity connection in their households. The

State Government is undertaking these actionsin connivance with the ADB under the name ofrectifying commercial losses but is relegatingthe welfare dimensions associated withelectricity distribution to the background. TheMadhya Pradesh Electricity Board (MPEB),which actually distributes the generatedelectricity to households, is taking suchdraconian measures even when it knows thatsmall and marginal farmers and poor householdsare not responsible for the commercial losses ofthe MPEB.

How have mass movements andother social formations acted?

In the past two years, civil societyorganisations and mass movements in Indiahave realised that ADB is also playing a key rolein entrenching neoliberal policies at the nationaland the sub-national levels. As a result, anumber of organisations and movements havestarted to critically analyse the documents andactions of the ADB at all levels.

Specifically in the case of MadhyaPradesh, mass movements and other socialformations have already started criticallyevaluating and mobilising against the process ofreforms institutionalised by the State andsupported by the ADB. On January 17, 2001,nearly 150 people from people’s organisationswere jailed while marching on the streets ofBhopal (Capital city of Madhya Pradesh) toprotest against the anti-people policies of theADB and the World Bank.ix

Especially in the area of power sectorreforms, movements in Madhya Pradesh areparticularly angered by the fact that the ADB isnot concerned that the money that it has lent toPower Finance Corporation is being channeledto the controversial Maheshwar Hydel PowerProject (the Maheshwar Power Project has beenseverely criticised not only by peoples’movements but also by expert teams for itsdemographic and socioeconomic non-viability).x

Awareness campaigns are beingorganised at the local level to make peopleunderstand how the State Government, incoordination with the ADB, is unfolding areform programme that would only end updeepening their debt burden.

29

In conclusionIn summary, one can conclude that ADB

has deliberately continued with the same set oferrors that it has committed in other parts of theworld. The ADB is assisting and endorsing statereform packages and private sector developmentthat are anti-poor, and serve the interests of localelite and transnational players at the cost of locallabour, capacity, resources and industry. TheADB’s operations in the state of MadhyaPradesh confirm its unwavering commitment tosupport for hard and inflexible infrastructuredevelopment, no matter what its cost to thepeople.

The ADB has cleverly used the languageof poverty reduction to gain entry into the socialsectors of various states. It continues to workclosely with the State and local elites toinstitutionalise economic reforms that serve theeconomic and political interests of a smallcoterie. By serving the short-term politicalinterests of State Governments, the ADB hascreated an incentive structure withindevelopmental processes that institutionalizeswhite-collar corruption and poor governance.And finally, under the name of povertyreduction, ADB supported reform programmesare steadily pushing people into a debt trap.

However, civil society and socialmovements in India are getting increasinglyvigilant about the role being played by the ADBin deepening neoliberal ideologies at thenational and sub-national levels. The primarytask before them now is to mobilise the peopleto mount a unified challenge to the policies andoperations of the ADB.

i Madhya Pradesh is a state of the Indian republic.

It was formed in 1956 and is in the centre of

India. It is the country’s largest state, covering

more than 4,00,000 square kms. As per the ADB

documents the state covers around 13.5 per cent

of India’s total geographic area. The ADB

documents also state that more than one third of

the state’s 77 million people belong to socially

and economically disadvantaged groups

consisting of scheduled tribes and scheduled

castes, the highest proportion in India. The state

has the poorest per capita income of Rs. 7,500

(around US$ 150) per annum amongst all the

states in India.

ii Madhya Pradesh, Gujarat and Kerala are three

states in India

iii TA No. 2943-IND worth US$ 780,000

iv TA No. 2944-IND worth US$ 700,000

v Letter from K. S. Sharma, Chief Secretary,

Government of Madhya Pradesh to P. G.

Mankad, Finance Secretary, Government of

India, Dy. No: L-10544, Date: 29/8/1999

vi RRP: IND 29051

vii The World Bank in 1996 initiated a structural

adjustment programme at the sub-national level

in the Indian State of Andhra Pradesh. This was

the first time that the World Bank had decided to

get into structural lending at the sub-national

level in the Indian context.

viii 1US$ = INR 49

ix For more on this kindly refer to:

www.destroyimf.org/news/bhopaldemojailed.html

x For more on this kindly refer to, “Maheshwar

Hydroelectric Project: Resettlement and

Rehabilitation” (June 2000); An independent

review conducted for the Ministry of Economic

Cooperation and Development (BMZ),

Government of Germany; Printed by the

Narmada Bachao Andolan

30

*Andrew Wyatt is a Senior Research Associate at the Australian Mekong Resource Centre in Sidney, Australia(A.Wyatt@geography.usyd.edu.au)

“The demand for private capital hasincreased considerably in the Region, influencedby the financing needs of large infrastructuredevelopment programs ... ADB is in a uniqueposition to assist in mobilising internationalprivate capital for its DMCs. It has considerableregional experience accumulated over decadesand, through policy dialogue with membergovernments, has assisted in the formulation ofpolicies designed to encourage privateinitiatives.” (Asian Development Bank,2000b:1)

“In addition, ADB will develop sectoraltemplates for appropriate risk-sharingarrangements that would allow the private sectorto earn reasonable rates of return ...” (AsianDevelopment Bank, 2000a : 15)

A key area of ADB policy advice hasbeen in the development of and support forprivate infrastructure. Through consistentsupport for numerous Technical Assistancestudies, forums such as the GMS SubregionalElectric Power Forum, and workshop seriessuch as the Workshop on Economic Cooperationin Central Asia, the ADB’s policy advice reachesdecision makers, planners and implementersfrom ministerial level all the way down to thetechnocrats. As such the ADB has considerablepower to influence and shape policy anddirection of developments such as foreignprivate capital flows and private infrastructure.

The ADB defines governance as “themanner in which power is exercised in the

management of a country’s economic and socialresources for development”. Whilst the ADB’sfocus in this definition is that of its DevelopingMember Country (DMC) government’sperformance, I contend that the DMC’s are notthe sole determinate of DMC economic andsocial development performance. This is readilyapparent since the ADB wields considerablepower to shape and direct policy. In terms ofgovernance, the ADB should therefore also beunder scrutiny in terms of the policy andstrategy advice it gives.

In this paper I wish to critically examinethe ADB’s continuing promotion of privateinfrastructure development support, one of twoprimary areas of the ADB’s Private SectorOperations (PSO), despite increasing evidencethat the ADB’s advice in private infrastructuredevelopment is leading to unsustainable andhighly risky developments for its DMCs. Inparticular, continuing ADB support for andmobilisation of project finance intoinfrastructure through project delivery systemssuch as Build-Operate-Transfer (BOT) andBuild-Own-Operate (BOO) and relatedmobilising mechanisms such as Partial RiskGuarantees (PRG) which the ADB has recentlyreviewed and expanded (Asian DevelopmentBank, 2000c) are of considerable concern.

All this, despite the cautionary words ofindependent private sector analysts andstakeholders such as Kent Rowey (1997, pg.22),a partner and head of project finance atFreshfields,

BOTs, Governanceand the ADB

By Andrew B. Wyatt*

31

“It is often assumed that the use offinancing techniques such as BOT and BOO inAsian private infrastructure programmesrelieves the host country from the liabilitiesassociated with financing, building andoperating infrastructure projects. This is amisconception. The reality is that many of therisks of the project remain with the hostgovernment under the support contracts theyenter into.”

Another industry insider, Levy, pointsout, “Most of the public/private infrastructurepartnerships created in the 1970s and 1980shave yet to yield the hard evidence of a series ofsuccessfully completed projects since few of thetypically 20 to 40 year concession agreementsare near maturity.” (Levy, 1996: ix)

Levy’s observation is in stark contrast tothe ADB’s premature claims for the success ofBOT type investments in infrastructure (see forexample, Asian Development Bank, 2000a) andindeed, Rowey’s words on the cusp of the Asianfinancial crisis were to prove prophetic indemonstrating the enormous risks that the ADB’s DMC early adopter’s took.

Key issues in project financing andBOTs

Project financing utilising limited or non-recourse financing in BOT type investments is ahighly complex business that many DMCpoliticians and government bureaucracies havehad difficulties in coming to terms with. It issimple enough from the viewpoint that theharnessing of private capital flows into muchneeded physical infrastructure is meant to avoidincreasing public debt in the face of a crisis inpublic funding globally. This rationale has beenthe single most enticing feature of BOT typeinvestments. But all is not as it seems.

The limited or non-recourse nature of theproject financing insulates parent companieswho are investing in the project from the projectrisks and makes financiers extremely nervousabout the risks that will come into play sincethey have no recourse to the parent balancesheets should things go bust. As a result,financiers and developers spend considerableeffort to ‘correctly’ allocate risks, shift it onto aparty least capable in analysing theconsequences, or to insulate from risk through

government provided guarantees.As capacity and understanding has built

within the DMCs over the last decade, there hasbeen resistance against a number of aspects ofproject financing in infrastructure as greaterawareness was gained of the compromises DMCgovernments have had to agree to. For this veryreason, in Vietnam where BOT type investmentsand project financing has been legislated forsince 1993, not a single power sector project hadreached financial closure by 2000, and only 3water sector projects had received investmentlicences. However, in many DMC’s, withintechnocrats and politicians overseeing thesedevelopments there is a sense of “what else canwe do?” Certainly, there are no other viableoptions being presented by the ADB and itsmultilateral partners such as the World Bank.

Here I will focus on a couple of areasthat I contend are leading the DMCs into highlyunsustainable and risky developments.

In its seminal study of energy sectordevelopment in the Greater Mekong Subregion(GMS) in 1995, ‘Subregional Energy SectorStudy for the Greater Mekong Subregion’, theADB pointed out to its DMC governments that “To facilitate project financing, the capacitycharge will normally have to be denominated ina hard currency” and “investors will often insiston provisions such a high capacity charge or asubstantial minimum take provision, making itclear that the utility will be required to takeelectricity over the full useful life of the powerstation” (Asian Development Bank, 1995a :607-611). These conditions are not restricted tothe energy sector but are also called for insectors such as water supply and transportationwhere the investors obtain a profitable return ontheir investments from the revenue stream theproject will generate, eg. water tariffs andmotorway tolls.

Hard currency, usually in US dollars areusually demanded in order to pay back levels ofdebt that may reach as high as 80% of projectcost denominated in same currency. Investorsand their bankers therefore avoid the risk ofcurrency fluctuations. The minimum off-takeprovisions are often known in the industry as“take-or-pay” guarantees. These are guaranteesthat governments have to enter into ostensibly tominimise network and regulatory risks that areunder the control of the government, but ineffect where a large element of the investors’

32

market risk is also covered.The consequences of these aspects of

project financing in private infrastructure havebeen devastating where project financing inBOT type infrastructure has been widelyadopted.

BOTs, contingent liabilities anddebt: The Philippines disaster

In the late 1980’s and early 1990’s undera power supply crisis, the Philippinesgovernment became the first country in Asia toenact a law specifically for the BOT process in1987. By early 1995, 19 BOT power plantprojects had come online and by 2002, therewere over 45 contracts in place (Domingo,2002). In almost all of these contracts, thePhilippines government power utility theNational Power Corporation (NAPOCOR), hadguaranteed payments in US dollars and providedtake-or-pay commitments in its Power PurchaseAgreements (PPA) with the Independent PowerProducers (IPPs), most of whom were owned byforeign power companies. Without theguarantees, no investor would invest.

It proved to be a fatal strategy! The Asianfinancial crisis in 1997 left the Philippinesgovernment bearing the risks of power purchaseagreements denominated in US dollars and thedevaluation of their currencies during the crisisraised government purchasing costs andincreased retail prices. Compounding thesituation, the slow down in the economy andlowered energy demand left NAPOCOR in asituation where it was paying for electricitypurchases that it could not use.

David Husband (1999 : 105), Chairmanand Principal of Global Economics Ltd.,observed; “... developing countries that have hadsome success in attracting BOT/build-own-operate-transfer (BOOT) infrastructureinvestments, such as the Philippines, must beregretting the terms. While the PhilippineGovernment fast-tracked BOOT power projectsin the early 1990s to overcome crippling “brownouts,” it did so basically by assuming theentire foreign exchange risk. Foreign exchange-denominated payments of $600 million in 1997will rise to more than $1 billion in the next fewyears. Given that the peso fell by about 60percent against the dollar in the months

following the start of the Asian currency crisis inJuly 1997, the domestic revenue implications forthe Government of these payments have risen by60 percent.”

According to Fernando Roxas (1999:150), Group Manager of NAPOCOR, by 1999NAPOCOR was “... paying about P60 million(US$1.5 million) a month to the Department ofFinance for the provision of these guaranteescovering the BOT projects.”

These payments were directed to theprivate IPPs, but served to compoundNAPOCOR’s exposure to its US dollar debtsthat had been under control before the financialcrisis and have dragged the corporation - whicheven the ADB had admitted was under goodfinancial management between 1992 and 1997(Bello, 2001) - to its knees. With total debts ofUS$6 billion (Landingin, 2002), NAPOCOR istrying to raise US$1.65 billion in foreignborrowings just to service debt which maturesthis year (Batino, 2002).

The whole debacle leading to theindebtedness of NAPACOR also instigated theADB to push for the restructuring of thePhilippine power sector through the unbundlingand privatisation of NAPOCOR (see forexample, Bello, 2001; Landingin, 2002;Williamson, 2001).

Before the extent of NAPOCORs crisisbecame apparent, the ADB repetitively rolledout the Philippine model of energy sectorliberalisation through BOT type investments asa prime example of how successfully privatesector capital could be brought intoinfrastructure investment (see for example,Asian Development Bank, 1995b; AsianDevelopment Bank, 1997; Asian DevelopmentBank, 1999b). Despite the experience of thePhilippines, and that of Indonesia which has hada mirror experience, the ADB in its blind faith inthe benefits of liberalising private capital flowsand privatisation, continues to provide privatesector loans for infrastructure projects despitethe knowledge that government guaranteesdemanded by the private sector, such as take-or-pay guarantees, would lead to situations wherethe government would not be able to recoupcosts.

33

The beginnings of a BOT fiasco inVietnam?

One such recent example appears in HoChi Minh City (HCMC), Vietnam, a city of 6million people, but where the governmentowned HCMC Water Supply Company (HWSC)has only 300,000 connections. Here the ADBhas supported the development and co-financingfor the largest BOT water supply project inVietnam, the US$154 million Thu Duc WaterSupply plant. The project will increase HCMC’swater supply by almost a third of presentcapacity. It was a non-competitive negotiatedbid by a multinational consortium led by one ofthe largest multinational water companies in theworld, Suez of France who holds a 70% share inthe project. A 25 year concession was granted in1997 and the project company reached financialclosure in August 2001 with the ADB providingUS$106 million worth of co-finance togetherwith four other financial institutions, includingUS$31 million loan from the ADB’s ordinarycapital resources (Asian Development Bank,2001a).

In fact the city of HCMC to date hascontracted 3 BOT water supply plants includingThu Duc. The other 2 plants are; the US$38million Binh An water plant, owned andoperated by a consortium of Malaysiancompanies with IFC finance consisting of a loanof US$12.5 million and a syndicated loan of upto US$12.5 million for the account ofcommercial banks and financial institutions(International Finance Corporation, 1999); andthe Grand Imperial which received aninvestment licence in 1999 but whose presentstatus remains unclear. All three projects havedemanded and received government take-or-payguarantees that would insulate the privateinvestors from market risk. Binh An was thefirst to begin production in 1999 while Thu Ducis scheduled for commissioning in 2004.

However there are questions overwhether the city is able to fully utilise the waterit has contracted to take-or-pay from these 3three projects. Partly this has to do with the lackof distribution capacity, which is not yet inplace. Although the responsibility fordistribution remains within the government’shands, it is apparent that the ADB’s and IFC’sdue diligence process of ensuring the viability ofthese projects has not extended to thegovernment’s capacity to fully utilise private

sector production. In so doing, the ADB (andIFC) demonstrate a lack of accountability to itsDMC governments. According to ADB’s ownresearchers (McIntosh and Yniguez, 2000), thesituation at Binh An is such that the governmentowned HWSC is forced to pay the BOTcontractors for water it cannot sell to consumers.According to deputy minister for construction,Nguyen Tan Van, water off-take commitments atBinh An costs HWSC more than VND8 billion amonth, yet its revenue from Binh An’sproduction is just VND3 billion a month (NgocAn, 2001). Furthermore, as a result of theimplementation of these BOT projects, tariffs setby the HWSC are also set to rise fromVND1300 m3 in 2000 to VND9, 400 m3 by thetime Thu Duc comes on line in 2004 (ibid). It iscertain that consumers will not see anyreduction in water pricing any time soon.Because the take-or-pay guarantees and thewater tariffs that the government enters into withthe BOT companies are locked into contract forthe 20-25 year life of the concessions, there areno competitive pressures on the BOT companiesto reduce water pricing.

It is apparent that despite the disastrousexperience of BOT in the Philippines, the ADBcontinues to support non-competitive projectsand mechanisms that actually raise utility pricesand which leaves considerable risk withgovernments. One might argue that the HCMCgovernment had to ensure the on-timecompletion of the distribution networks and thatthis was a risk that it had control of, butquestions must be asked as to why the IFCinitially, and then the ADB concluded financingwhen the city was not yet in a position to fullyutilise new capacity. The result has been that themajor beneficiaries have been the multinationalcompanies investing in the projects and theirfinanciers, both of whom are guaranteed arevenue stream no matter what transpires, whilstthe government is left with liabilities that areadding to greater levels of borrowings.

Development strategy, BOTs andthe ADB: Lao export hydropowerat a dead-end?

The role of the ADB as a player indevelopment strategy has come under increasingcriticism in the Lao PDR in recent years. In theLao PDR, the ADB together with the World

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Bank has been at the forefront in advising theLaotian government on policy and strategy forthe development of a Laotian exporthydropower industry, but which under theADB’s GMS program also doubles as regionalinfrastructure. Since the inception of the GMS inthe early 1990’s, the ADB has provided regionalgovernments with the vision of aninterconnected electricity grid that would allowthe development of a regional energy tradingsystem (Asian Development Bank, 1995a). Thehub of this regional energy trading systemwould be Thailand where demand exceededsupply in the years before the Asian financialcrisis. To direct and support the development,the ADB continues to support various forumsthe most important of which is the yearlySubregional Electric Power Forum, involvingministerial and expert level delegations.Ostensibly these forums allow technocrats toexchange information, and to receive policyadvice and strategy from the ADB and otherresource persons from the World Bank andinternational authorities such as the TennesseeValley Authority of the USA with regards toenergy development cooperation and direction.Ministerial delegations then rubber-stampdecisions and agreements.

One of these development strategies firstflagged in the ADB’s 1995 Subregional EnergySector Study, has been the development of acompetitive trading system for electricity in theGMS. Since then the World Bank, who activelyparticipates in the GMS Subregional ElectricPower Forum, has carried out its own studies topromote the development of a competitiveelectricity market in the GMS (World Bank,1999) as has the ADB through its ‘Study on theRegional Indicative Master Plan on PowerInterconnection in the GMS’. Norconsult, aNorwegian engineering and managementconsulting company heavily involved inregional hydro feasibility and environmentalstudies carried out the latter. Both these studiespromoted the establishment of a Thai electricitytrading pool.

By October 1999, at the Third Meeting ofthe Experts Group on Power Interconnectionand Trade, the Thai’s announced their own studyon the establishment of the electricity tradingpool would be completed by year-end. This wasof concern to the Laotians who were at thatmeeting and they requested further information

(Asian Development Bank, 1999a). By 2001, atthe Sixth Meeting of the GMS Experts Group onPower Interconnection and Trade, the Laotian’swere growing increasingly desperate about thedevelopment of the Thai electricity trading pool.The Lao representative, HoumphoneBoulyaphol, Director General, Department ofElectricity, Ministry of Industry andHandicrafts, commented out of concern that “...in Lao PDR, a number of projects were on holddue to uncertainties in financing anduncertainties in the status of PPAs under apower pool system” (Asian Development Bank,2001b).

The Laotians had good reason to beconcerned. For almost a decade now, the Laogovernment, with advice from the ADB andWorld Bank had pinned their hopes on thedevelopment of a Laotian hydropower exportindustry as a key development strategy to pullLaos out of poverty. But public funds were notavailable to finance such large investments, sowith assistance and advice from the ADB andthe World Bank, Laos turned to the BOT formof investment. The ADB sponsored ademonstration project, the US$280 millionTheun Hinboun hydropower project. The WorldBank followed soon after with what it hopedwould also be a demonstration project, themassive US$1.2 billion Nam Theun 2hydropower project.

In 1994, the Theun Hinboun project wasestablished as a joint-venture BOT concessionbetween the Lao government electricitycompany Electricity du Lao (EdL) holding 60percent equity and the sponsors and privatesector partners, Nordic Hydropower (20 percent)- a joint-venture company owned by the utilitiesof Norway (Statkraft) and Sweden (VatenfallAB) - and MDX Lao of Thailand, a subsidiaryof GMS Power, one of Thailand’s leading IPPdevelopers (20 percent). The project movedquickly to financial closure with a 1995 powerpurchase agreement (PPA) with the Thaigovernment electricity utility, the ElectricityGenerating Authority of Thailand (EGAT).Under the terms of the off-take agreement,EGAT committed itself to purchase 95 percentof the output on a take-or-pay basis. The baserate tariff is 4.3¢/kWh (1994) escalated at 3percent a year for the four-year constructionperiod, and at 1 percent a year for ten yearsthereafter. The price would be renegotiated at

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the end of the ten-year period. The project cameinto operation in 1998.

By contrast, despite development of thetwo projects beginning at about the same time,the large predicted social and environmentalimpacts, international opposition, and the Asianfinancial crisis delayed the Nam Theun 2. Theproject is currently finalising the PPA withEGAT, which would then allow it to move tofinancial closure.

However, the Lao PDR currently has 14other priority private hydro projects lined up forPPA negotiations with EGAT. Of these, twoprojects, Nam Ngum 2 and Nam Ngum 3together with the Nam Theun 2 project are listedas priorities under the first tranche of a non-binding Memorandum of Understanding (MOU)signed between Thailand and Laos for the exportof 1600 MW of electricity to Thailand by year2007 (Worley and Lahmeyer International,2000). Under the GMS program the ADB hadbeen supporting the development of Nam Ngum2 and 3 through the provision of a TA for a500kV transmission line system that wouldenable power to be delivered to Thailand (ibid).It also received a request for financing from thedevelopers of both these projects.

Despite this, it is clear now that NamTheun 2 will be the last private power producerto enter into a PPA. As a result of thedevelopment of the Thai electricity pool, whichis slated for implementation in 2003, EGAT isrefusing to enter into any further PPAs thatwould require take-or-pay conditions as well aslong term fixed tariffs. Negotiations over thePPA for Nam Theun 2 dragged on for 3 yearsover this issue until EGAT was finally forced tonegotiate the PPA consisting of a much-reducedtake-or-pay period and tariff after political levelintervention. EGAT’s concern here has been thatthe Lao PPAs were uncompetitive, and thatEGAT and Thai consumers would eventually besubsidising the private producers in Laos.

Under these conditions, it is highly likelythat the Lao BOT export hydropower program isat an end even if regional energy demand shouldpick up. The establishment of a competitiveThai electricity market is being furtherreinforced by the increasing availability ofcheaper alternative sources of energy such asnatural gas from Myanmar and Malaysia, andinvestments in efficient gas turbine technologywith much lower up-front investment costs and

project development cycles. It is now becomingapparent that the only way Lao exporthydropower projects with the intention of sellinginto a competitive Thai market will proceed isunder what is known as mercantile financing.However it is highly unlikely that financierswould finance these high-risk mercantileprojects. First of all, there is no precedent for thefinancing of mercantile projects in developingcountries such as Laos with a relatively highpolitical risk profile. The ADB’s and WorldBank’s partial risk guarantees are specificallystructured for project financing and noequivalent mechanism exists for mercantilefinancing. Secondly, mercantile projects do notsell electricity based on take-or-pay guaranteesor fixed tariffs, rather they are required todispatch electricity on a daily basis and at dailyprices1. On this basis, knowledge of particularmarket conditions must be well established inorder for financiers to judge if debt repaymentscan be made. This is hardly the case since a Thaielectricity market does not yet even exist, letalone have a track record.

In Laos, private investors with sunk costsin BOT hydropower project development leftwithout a PPA and therefore unable to obtainfinancing for their projects are fuming. Mid-level government bureaucrats are beginning toquestion the wisdom of a development strategythat led Laos to invest a huge amount offinancial and human resources into the BOTexport hydropower program, with just 2completed operational projects2 to show for adecade of export hydropower development. Onthis front, the ADB has been extremely quiet,shelving plans to support the implementation ofthe 500 kV transmission line for Nam Ngun 2and 3. It has recently been requested to considerco-financing for the Nam Theun 2 project and itremains to be seen if it will again providesupport for a BOT export hydropower project inLaos that the Thai’s see as uncompetitive, andwhich in all likelihood, will be the last exportBOT hydropower project in Laos.

Rethinking ADB governanceGovernance must be analysed in much

broader terms if it is to be effective in deliveringsound management of social and economicdevelopment that benefits the ADB’s DMCs.The ADB must turn its focus on governance

36

onto itself and its powerful role as a policybroker or driver of development policy andstrategy.

In the case of private infrastructuredevelopment presented here, it needs to moveout of its mindset of liberalising private capitalflows and rhetorical claims of the benefits ofprivatisation and in particular, privateinfrastructure in the form of BOT projects. TheADB must be accountable for the policy adviceit provides and the development strategies that itdevelops for its DMCs, much of it lacking intransparency. In its development strategies, thereis often no consideration of independentresearch or options. It must take heed of thewarnings of independent analysts andresearchers without a vested interest in thebuilding of a BOT industry and criticallyexamine its premature calls of success in BOT.The claims of success are clearly based on thenarrow definition of achieving financial closureand commissioning new projects. It fails toanalyse the longer-term consequences of BOTinvestments to the DMCs and their publics thattake between 20 and 35 years to run the courseof its concession.

The case of BOT private infrastructureclearly demonstrates the short-term nature of itsstrategies and lack of accountability in terms oflonger-term development goals of its DMCssuch as debt and risk management. For example,very little research and policy analysis has beencarried out by the ADB on the long-termcontingent liabilities of the various BOT typeguarantees that governments take on which thispaper has just touched upon. These are criticalissues that concern the economic and socialsustainability of the ADB’s DMCs, which theADB continues to ignore. World Bankresearchers have recently begun to explore thecosts of such liabilities. In one of the firstattempts to account for the contingent liabilitiesof government guarantees in privateinfrastructure the World Bank found that the callon guarantees can potentially create majorbudgetary shortfalls and follow-onconsequences for future generations. Of threeprivate infrastructure projects in Colombia, theWorld Bank estimated that expected governmentlosses from government guarantees couldamount to as much as US$93.2 million (Lewisand Mody 1998). Clearly the Philippines is nowanother such case where there is ample evidence

of the huge public costs of the contingentliabilities inherent to BOT projects in adeveloping country context.

It is also clear from the case of privatehydro in the Lao PDR that regional privateinfrastructure in the form of BOT projects are incontradiction with moves toward thecompetitive energy market developments in theGMS that the ADB itself has been promoting asa part of the GMS’s longer term regionalinfrastructure development strategy. Havinginvested considerable financial and humanresources into the development and support ofBOT in the Lao PDR, the ADB and its DMC,the Lao PDR, finds many of these investmentsstranded, leaving investors and governmentofficials alike privately furious at the dead-endwhich the industry now faces.

The case of BOT developments in theselected DMCs presented in this paperdemonstrates the ADB’s considerable allocativepower and ability to influence and direct aDMC’s economic and social resources fordevelopment without recourse to criticalindependent analysts. It has done so andcontinues to do so with little accountability forthe unfolding disaster of BOT investments in itsDMCs. Its own governance credentials must beon the line!

References

Asian Development Bank, 1995a, SubregionalEnergy Sector Study for the GreaterMekong Subregion, Final Report, AsianDevelopment Bank, Manilla.

________, 1995b, Subregional Energy SectorStudy for the Greater Mekong Subregion,Final Report, Part II, Asian DevelopmentBank, Manilla.

________, 1997, Emerging Asia : changes andchallenges. Asian Development Bank,Manilla.

________, 1999a, Proceedings from the ThirdMeeting of the Experts Group on PowerInterconnection and Trade, GMS. AsianDevelopment Bank, Manilla.

________, 1999b, Second Workshop onEconomic Cooperation in Central Asia:Challenges and Opportunities in Energy.Asian Development Bank, Manilla.

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________, 2000a, Private Sector DevelopmentStrategy: Promoting the Private Sector toSupport Growth and Reduce Poverty.Asian Development Bank, Manilla.

________, 2000b, Private Sector Operations:Strategy, Policies, Modalities andProcedures. Asian Development Bank,Manilla.

________, 2000c, Review of the Partial RiskGuarantee. Asian Development Bank,Manilla.

________, 2001a, Private firm will improvedrinking water in Vietnam commercialcapital, ADB News Release, No. 082/01,No. 7 Aug, 2001.

________, 2001b, Proceedings of the SixthMeeting of the Experts Group on PowerInterconnection and Trade, GMS. AsianDevelopment Bank, Manilla.

Batino, C. S., 2002, Napocor loan requirementsto hit $1.65B , Philippine Daily Inquirer;April 17, 2002.

Bello, W., 2001, Privatizing power in thePhilippines: Cure worse than the disease.Focus on the Global South, Bangkok.

Domingo, R. W., 2002, Napocor reviews 12 IPPdeals, but no action yet , Philippine DailyInquirer; April 18, 2002.

Husband, D., 1999, GMS and the Energy Sector,in Asian Development Bank, SecondWorkshop on Economic Cooperation inCentral Asia: Challenges andOpportunities in Energy, AsianDevelopment Bank, Manilla.

International Finance Corporation, 1999, IFCinvests US$25 million in first privatewater treatment facility in Vietnam, IFCPress Release , No. 99/01.

Landingin, R., 2002, Philippines on roadshowfor Napocor deal , Financial Times, Feb14, 2002.

Levy, S. M., 1996, Build, Operate, Transfer:Paving the way for Tomorrow’sInfrastructure. John Wiley and Sons Inc.,New York.

McIntosh, A.C. and Yniguez, C.E., 2000,Privatization of Water Supplies in TenAsian Cities, Manilla: Asian DevelopmentBank.

Ngoc An, 2001, Warnings sounded over HCMCity plans to sell water supply projects,VNS News: Http:// Vietnamnews.Vnagency. Com.Vn/2001-03/19/Stories/

08.Htm, 20 March, 2001.Rowey, K., 1997, Project Pitfalls, Financial

Times, December 9 1997: 22.Roxas, F.Y., 1999, BOT in the Philippines, in

Asian Development Bank, SecondWorkshop on Economic Cooperation inCentral Asia: Challenges andOpportunities in Energy, AsianDevelopment Bank, Manilla.

Williamson, H., 2001, Manila seeks final drafton energy reform , Financial Times, May25, 2001.

World Bank, 1999, Power Trade Strategy for theGreater Mekong Subregion: Report No. 19067-EAP. World Bank.

Worley and Lahmeyer International, 2000,Hydropower Development Strategy forLao PDR: Draft Final Report, Volume A,January 2000, Vientiane: Worley andLahmeyer International.

1 A likely Thai model would be based on daily

dispatch contracts

2 Theun Hinboun and Houay Ho. The government is

in fact reported to be losing money on the Hoauy

Ho project after debt repayments are taken into

account (Worley and Lahmeyer International,

2000)

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*Aziz Choudry is the editor of GATT Watchdog in Aotearoa, New Zealand (azizch@spl.at)

The ADB -“Governing” The Pacific?

By Aziz Choudry*

“Good Governance” and the holding ofmulti-party elections are added conditionsimposed by the donors and creditors, yet thevery nature of the economic reforms, precludesa genuine democratisation.... Structuraladjustment promotes bogus institutions and afake parliamentary democracy, which in turnsupports the process of economic restructuring.‘Michel Chossudovsky, Professor of Economics,University of Ottawa, April 2000

“Small island nations are vulnerable andare practically of no consequence when it comesto combating the adverse effects of globalisationand what is emerging is a new order ofcolonialism. The uneven distribution of wealthand power points to the potential loss ofsovereignty by national governments as thecontrol of their respective economies becomesmore subject to global forces such asmultinational companies and the pressures of theselect global brotherhood”. Sani Lakatani,Prime Minister of Niue, January 2001.

The Asian Development Bank (ADB), inadopting a policy on governance in October1995, claims to be the first internationalfinancial institution to have a board-approvedofficial position on “good governance”.

“Good governance” is a seriouscontender for a prize for the best example ofOrwellian doublespeak. It has nothing to dowith democratization, humanitarianism orsupport for peoples’ rights. It is a euphemismfor a limited state designed to service the marketand undermine popular mandates. It is explicitlylinked to the kinds of structural adjustment

measures promoted by the Asian DevelopmentBank - measures for which there is little popularsupport and which are rapidly increasingeconomic inequalities.

It is a mystery as to where the ADBclaims to derive any authority to determine whatis good or bad governance. However, it is veryclear what the ADB means by “goodgovernance”.

The ADB’s concept of ‘goodgovernance’ “focuses essentially on theingredients for effective management”. Itspolicy document, Governance: SoundDevelopment Management says “the commonfeatures that stand out in respect of the high-performing economies are stability in broadpolicy directions, flexibility in responding tomarket signals, and discipline in sticking withmeasures necessary for meeting long-termobjectives despite short-term difficulties, allhallmarks of sound development management,i.e., good governance.”

Building upon the World Bank’sapproach, the ADB has identified four basicelements of good governance: accountability (ofthe public sector for delivering specific results),predictability (of legal frameworks for privatesector development), transparency andparticipation (of key stakeholders).

Jane Kelsey, Professor of Law atUniversity of Auckland, defines ‘goodgovernance’ as “shorthand for a limitedgovernment” whose role is “to facilitatemarkets, Western-style rule of law, individualliberty, private property rights, and passiveforms of electoral democracy.”

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The Asian Development Bank operates in12 Pacific Developing Member Countries(PDMCs). These are the Cook Islands, FijiIslands, Kiribati, Federated States ofMicronesia, Republic of the Marshall Islands,Nauru, Papua New Guinea (PNG), Samoa,Solomon Islands, Tuvalu, Tonga and Vanuatu. Italso has operations in East Timor, which is notyet formally an ADB member country.

Annually the ADB approves betweenUS$100 million and $150 million in loans and$15 million in technical assistance grants for thePacific region. It has also influenced thedirection of the Pacific Islands Forum (formerlythe South Pacific Forum). This body represents14 Pacific Island governments (Australia andNew Zealand are also members), and plays akey political role in getting assent andcommitment on economic, financial and tradepolicy measures. The Forum has increasinglyfocused on promoting the economic agendaalready being pushed by the ADB, the WorldBank/IMF, APEC and the WTO.

At the first South Pacific ForumEconomic Ministers Meeting (FEMM) in Cairnsin July 1997, the structural adjustment modelwas formally adopted in an action plan whichcovered economic reform, public accountability,investment and tariff policies, and multilateraltrade issues. The FEMM stated that “privatesector development is central to ensuringsustained economic growth, and thatgovernments should provide a policyenvironment to encourage this.” The theme forthe August 1998 South Pacific Forum Leadersmeeting was “From Reform To Growth: ThePrivate Sector and Investment as the Keys toProsperity.”

In its 1999 report, Pursuing EconomicReform in the Pacific, the ADB praised theFEMM Action Plan for being based on “marketfriendly policies widely accepted aseconomically sensible, albeit politically difficultto implement.”

In its 2001 strategy document, A PacificStrategy for the New Millennium, the ADB listsits areas of emphasis relating to governance inthe initial phase of the reform programmes since1995. These are: supporting legislative reformof the role of parliament and the public sector;strengthening good governance institutions;introducing fiscal discipline and output focusedbudgeting; downsizing the civil service and

strengthening its professionalism; promotingmore open and growth-orientated economicpolicies and; encouraging privatisation and alarger role for the private sector.

It states: “A core good governanceagenda of economic policy, public sector andgovernance reform has already been agreed tobroadly. The Pacific countries have alreadyagreed in principle to this agenda through thePacific Islands Forum. ADB has appropriatelyfostered and supported this agenda, which formsthe basis of most of the reform programmescurrently being financed by ADB in 10 of the 12PMDCs”.

The ADB co-sponsored the first PacificRegional Conference on Governance forParliamentarians in Nadi, Fiji, in March 2000.The Pacific Islands Forum has also adoptedeight principles of public accountabilitydeveloped at the 1997 FEMM, and the October2000 Biketawa Declaration on good governance.

The economic reforms, trade andinvestment liberalization, with their “goodgovernance” focus are also being advanced inthe region by bilateral aid donors such as theEuropean Union, Australia (AusAID) and NewZealand (NZODA).

There is increasing coordination amongthe various multilateral and bilateral donors tothe region. Australia in particular makes asignificant contribution to the ADB’s AsianDevelopment Fund. The World Bank also lendsabout $50 million annually to the Pacific (FijiIslands, PNG, Samoa, Solomon Islands, Tonga,and Vanuatu), with governance one of itsfocuses. AusAID argues that aid plays a vitalrole in encouraging ‘good governance and inpromoting sound economic policies’. Thisentails across-the-board intervention to promote‘the competent management of a country’sresources in a manner that is open, transparent,accountable, equitable and responsive to people’s needs and which enables all people tocontribute to and benefit from development’.

Sydney-based AIDWATCH notes thatAusAID’s direct and indirect expenditure onpromoting ‘good governance’ in recent yearshas exceeded the estimated total direct andindirect expenditure on health, and the total forinfrastructure. As members of the PacificIslands Forum, and with extensive trade,investment and economic interests in the PacificIslands, Australia and New Zealand play key

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roles in maintaining pressure on the region toimplement the reforms.

As well as being a key element of thestructural adjustment programme, goodgovernance - or rather the lack of it has beenfrequently used as a convenient explanation foreconomic crises and a way to blamegovernments rather than the policies set by thereform programmes.

Another excuse is lack of local “ownership” of the reform agenda. Introducingthe ADB’s new Pacific strategy at last year’sADB Annual Meeting in Hawaii, BasudevDahal, Director of ADB’s Office of PacificOperations said: “The challenge is to deepen thecommitment of government and civil society tothe reform programme”.

Predictably, the ADB speaks ofconsulting more widely with “civil society” andworking to “strengthen the interface andcollaboration” between Pacific membergovernments and NGOs/civil society groups.“[W]ider NGO involvement and consequentstronger ownership of Pacific developingmember country governments’ developmentstrategies and reform agenda has become apriority”. The ADB now emphasizes “povertyreduction” and “good governance”. It will tailorits activities towards “country-specificstrategies” in the Pacific. The buzzwords mighthave changed over the years. But the economicfundamentals that underpin its programmeremain unchallenged.

Indeed the “new” Pacific strategy offersmore of the same. “Emphasis will continue onimplementing fiscal discipline, strengtheningrevenue management, promoting an exportorientation, and encouraging privateinvestment.” It promises to promote “privatization of state-owned enterprises, privatesector participation in infrastructuredevelopment, liberalization of investment andtrade regimes, and greater competition.”

While its economic reform programmeshave meant cuts to public services like healthand education, the ADB envisions a greater rolefor NGOs in service delivery - not in setting theagenda. Through engaging selected NGOs in “dialogue” and “consultations” the ADB seeks tolegitimize its economic reforms.

To be critical of the “good governance”agenda of multilateral financial institutions isnot to ignore issues of corruption and conflict

that exist in some countries in the region. Toadvance the argument that a solution to theseproblems can be tackled by accepting the ADB’s“good governance” misunderstands the concept.Throughout the Pacific local communities andmovements like the Tongan Human Rights andDemocracy Movement are organizing tochallenge domestic problems in government,and issues of democratic rights.

The ADB claims that “with the adoptionof a strong governance reform agenda by thenew Government in late 1999, and supported bymultilateral and bilateral developmentinstitutions, PNG has quickly managed tosubstantially reverse its fast-declining economicperformance, and subsequently improve itsaccess to international finance.”

Yet it was precisely the structuraladjustment programmes, privatizations, and saleof state assets driven by the ADB, IMF, WorldBank and backed by the Australian governmentwhich sparked last year’s mobilizations againstthem in Papua New Guinea. Last June fouryoung Papua New Guineans were shot dead byriot police and many more injured after an anti-privatisation rally in Port Moresby, the capital.Where was the ADB’s celebrated “stronggovernance reform agenda” then?

Despite all of the good governancesloganeering by the ADB and other vehiclespushing the neoliberal agenda in the region,Pacific peoples have little or no input into thedevelopment of macroeconomic policiesaffecting them, promoted with little empirical orindependent research on whether or not they areappropriate or desirable for the recipientcountry.

What consultations there have been withcommunities and NGOs on the economicreforms have been little more than cosmeticexercises. In February 2002, the PacificNetwork on Globalisation (PANG), a network ofNGOs and individuals concerned withglobalisation and the Pacific, challenged PacificIsland governments about the lack of publicconsultation or parliamentary debate over tworegional trade agreements which had beenopened for signature at the Pacific IslandsForum Leaders Summit in Nauru last August.

Communal ownership of land, theexistence of the subsistence economy (some85% of people are engaged in the subsistenceeconomy in PNG, 80% in Vanuatu, and 55% in

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the Federated States of Micronesia (FSM)) andstrong communitarian values are celebrated asstrengths against the onslaught of corporateglobalisation by its critics in the Pacific. TheADB regards traditional values, the subsistenceeconomy, and especially traditional forms ofland tenure throughout the Pacific as little morethan impediments to private sector investmentand growth.

According to its 1999 Reforms in thePacific - an assessment of the ADB’s assistancefor reform programmes in the Pacific, itsreforms had led to the slashing of public sectoremployment - by 57% in the Cook Islandsbetween March 1996-October 1998, by 37% inFSM between 1996-January 1999, and 33% inthe Marshall Islands between October 1995-March 1999.

Social services spending cuts and theintroduction of user-pays have seen the declineof health services, especially in rural areas, andimposed barriers to the affordability ofeducation. Unemployment, especially for youth,has worsened as the private sector in PacificIsland countries cannot absorb the availablelabour. Public sector “rightsizing” has beenaccompanied by a sudden increase in thenumbers of consultants.

At a Public Service International Oceaniaregional conference in Auckland in March 2002,delegates of public sector unions fromthroughout the Pacific said that radicalrestructuring of the state sector had haddisastrous effects. Most said that as aconsequence of privatization, deregulation andglobalisation, living standards had lowered, andemployment rights had been eroded throughindividual contracts. As a result of job lossesthrough restructuring, emigration has soared inseveral Pacific Island countries.

Convenor of PSI Oceania, Paul Slape, ofthe Australian Services Union, said:

“In many smaller Pacific nations,government has been the main employer.Without the private infrastructure in place,restructuring is simply leading to highunemployment and the erosion of labourstandards. It is undermining communities andbreaking down social cohesion.”

Pacific peoples have long histories ofstruggle against colonialism. Director of thePacific Concerns Resource Centre, MotarilavoaHilda Lini, from Vanuatu, says that while all

Pacific countries are governed by Westernsystems of governance, indigenous models ofgovernance are still highly relevant today.

“Governance in the indigenous concept islinked to a belief system that supervises andmonitors peaceful co-existence of everyone andeverything that share the multi-dimensionalnatural world that we live in....Individual rightsand freedom are practiced within the parametersof collectivity. Any disturbance to peace isfrowned upon and collective responsibility forpeace restoration is a crucial task....Truth andjustice are prerequisites for good governance,social security, economic self-reliance andpolitical stability,” she told ABC Radio inAustralia in January.

A joint church/NGO submission to Fiji’s1999 national budget asked “are we trying tomake Fiji into something it was never meant tobe - a poor copy of large nations, reliant on aneconomic model in which we will always bedependent or losers? In our current systemsome may profit but most are excluded orexploited. We believe that this system is notmade for us.”

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*Susi Pudjiastuti is an independent business woman in Indonesia (astuti@bdg.centrin.net.id);P. Raja Siregar is with WALHI in Indoensia (radja@walhi.or.id)

The Asian Development Bank (ADB) isproviding financing to the Government ofIndonesia for the Citanduy River DiversionProject. The supposed aim of the Project is topreserve the Segara Anakan Lagoon which has aunique and rich marine eco-system. However,the process by which the Project has beenformulated and negotiated raises seriousquestions about the ADB’s real motives insupporting and promoting the Project.

The Segara Anakan is a large Lagoon onthe south coast of the island of Java inIndonesia. It is situated on the north side of theNusa Kambangan island, between Cilacap inCentral Java and Pangandaran in West Java.

The Lagoon is connected to the IndianOcean via the Western Outlet and smallerconnections such as tidal Channels towardsCilacap. Two large rivers: the Citanduy andCikonde supply the majority of the fresh waterto the Lagoon. A small amount of fresh water isalso supplied by smaller rivers.

Since the first mapping of the Lagoon inthe early 1900s, its surface area hascontinuously declined. The main reason for thisis high levels of upland erosion. The fresh watersupplying rivers carry large amounts ofsediment and silt into the Lagoon. Otherimportant contributing factors are landreclamation and flood control measures.

The Segera Anakan has long been thefocus of many studies, proposals and projectsinvolving Government agencies, internationalinstitutions and Consultants. Over the years, avariety of proposals have been made for the

future use and management of the SegaraAnakan (ECI, page 3). The latest plans-basedon two studies (ECI 1994 and BBV 2000)-willostensibly save the Segara Anakan from beingtotally filled with sediment from thecontributing rivers by undertaking majorengineering interventions. The Project is beingfinanced and technically supported by the ADB.

This paper shows the problems andinconsistencies contained in the proposedengineering interventions and argues for a majorreview of the threats that Segara Anakan faces.

The plan and justification.The two latest studies about the Segara

Anakan were done by the ECI in 1994, and as afollow-up by Binnie Black and Veach (BBV) in2000. Both arrived at the conclusion that theSegara Anakan is filling-up because of thesediment brought in by large rivers. They alsoconclude that there has to be a dredging programand ultimately, the diversion of the Citanduy andCikonde rivers. Even in reaching theseconclusions, both reports contradict themselvesand omit facts recorded in other sources. Theyalso do not properly address many potentialproblems. The diversion of the Citanduy river isplanned for early 2002 without an initial trialprogramme of dredging, which was considered avital part of the plan.

In the ECI plan, the justification for thediversions of the rivers is that the Citanduy andCikonde carry among them almost 100% of thesediment load that is now deposited in the

The Citanduy River Diversion ProjectSome Critical Thoughts

By Susi Pudjiastuti and P. Raja Siregar*

43

Segara Anakan. By diverting these rivers a largeproportion of this sediment can be deposited inthe sea. The economic justification for thiscourse of action consists mainly of threeelements: the benefit to off-coast fisheries; aproposed aquaculture project; and, improveddrainage for agriculture areas surrounding theSegara Anakan. It is argued that if the project isnot implemented. these benefits cannot berealized. for the following reasons :

• As the Segara Anakan fills in, manymarine species which use the mangrove andLagoon area as nurseries will be reduced innumbers and thus affect the coastal and Lagoonfisheries negatively. If the Lagoon is preserved,the fisheries can be kept at the present level andeven improved.

• The increased salinity of the SegaraAnakan makes a large aquaculture project insidethe area feasible.

• Direct diversion of the large rivers willimprove drainage and decrease flooding upriver.

It has to be noted that the reportconcludes with the fact that if any one of thesethree benefits cannot be gained fully. the projectloses the economic viability. A special focus ofthe project seems to be the aquaculturecomponent. The ADB claims that it issupporting the Project in order to reducesedimentation in the Segara Anakan Lagoon andthat the Project is categorised as anenvironmental project. However the Project hasa component focussed on aquaculture byopening 200 hectares (ha) to shrimp ponds.

The ECI report provided the followingtimetable of activities: from 1994 to 1999,initial annual dredging were to be performed inthe Lagoon. to restore and preserve the shapeand size of the Lagoon. After this dredgingphase (five years) it was to be determined if theenvironmental requirements and implications ofdredging could be addressed. In 1998 and 1999the Citanduy diversion was to be constructed,but only after it was proved that the mangroveforests could be managed satisfactorily and thedredging program met all the necessaryrequirements. After that the Cikonde diversionwould be made. After all these interventions, theReport estimates that salinity will be highenough to start the 200 ha aquaculture project.

Uptill now, no work has been done ondredging. It appears that now work shall startdirectly on the Citanduy diversion, without the

initial dredging stage.There are serious doubts about the

positive environmental and economic effects ofthis project as it is planned and proceedingtoday. These doubts justify an independent andcomprehensive review of the Project goals,justifications and implementation means.

Environmental impactsThere is no doubt that the Project will

have a major environmental impact on theSegara Anakan Lagoon and it’s surroundings.There is concern that these changes will lead tothe destruction of the Lagoon environment as istoday. Many indications of major negativeimpact can found in the ECI and BBV reports :

1. NutrientsOther than sediments, the large rivers

also contribute freshwater and nutrients to theLagoon. Both freshwater and nutrients areneeded for the Lagoon to function as it doesnow. The Citanduy alone carries about 75% offreshwater and nutrients into the Lagoon.

The ECI Report mentions on page 9: “Itis possible to save the Lagoon from theincessant sedimentation and at the same time todestroy its productivity as it now exists. Theirony is that the sediment filling the Lagoon isaccompanied by the nutrients that make theLagoon so productive. “ However, the Reportalso attempts to argue that even without theCitanduy input, the nutrients would be sufficientfor the Lagoon: “... much of the nutrientsrequirements of the biotic system of SegaraAnakan is stored within the system itself “ andthat freshwater input “ merely contribute readilyavailable nitrogen and phosphorus, currentlyexceeding requirements” (page 19). The truth ofthese claims is questionable since even nutrientsalready in the system will one day be exhaustedif no there is no regular re-supply! In addition,the Report mentions that there is no observationof effects on mangroves that would indicateexcess amounts if nutrients available (page 33).

2. SalinityWith both rivers diverted, the salinity in

the Lagoon will rise considerably. At themoment water in the Lagoon can be consideredbrackish at most times with salinity in most partof the Lagoon at no more than 20 ppt in that

44

wet season, and no more than 10-15 ppt in thedry season (BBV, page 42). After diversion, thesalinity will double or even triple in places,rendering the Lagoon a seawater area. It mayalso be that the salinity will rise to even higherlevels because of increased water temperaturesand subsequent evaporation.

The possible negative impacts of thisincreased salinity on the Lagoon and it’shabitants is not directly mentioned in thereports. However there are some notable itemsmentioned which need further clarification to beable to asses the environmental and economicimpacts of increased salinity

On page 25, the ECI Report mentionsinteractions of species inside the Lagoon. Itgoes on to say that “ for instance, many types ofshrimp have evolved optimal growth rate atlower salinity levels at certain stages in theirlife, making them dependent on the innercreek.” This could mean that one of theconsequences of the river diversion is that manyof the shrimp species now present in the Lagoonwill not be able to live there any more. This willhave negative impacts in both, theenvironmental and economic sense.

The report discussed extensivelylaboratory results which suggest that “ latejuvenile stages of certain shrimp species cannottolerate very low salinities, whereas youngjuveniles demonstrate larger tolerances .” Itwould be interesting to know if this affectscommercially valuable shrimp species as well.

Also in the ECI Report (pages 18 and20), there is mention of growth reduction in themangroves under high salinity conditions. Thetype of mangroves that grow well in theseconditions will also change, in effect, changingthe entire ecosystem of the Lagoon. The BBVReport even mentions tested flow scenarios for a“ No mangrove scenario, in case that themangrove loss around Segara Anakan results inthe loss of storage volume that presently exists“ (page 20).

Further, the ECI Report mentions (page33) that one of the indirect uses of the SegaraAnakan is the prevention of saline waterintrusion, by maintaining a fresh water wedgeon top of the salt water on the coast. It goes onto say that “ increased penetration of salinewater (...) may cause far-reaching socio-economic and ecological impacts. ”

Of course, the increased salinity is a very

welcome condition for the proposed aquaculturecomponent. This component seems to beextremely iimportant to the ECI consultantssince they write in many parts of their report(pages 48, 54, 94, 96, 101, 107 and 109) thatwithout the aquaculture component, the entireproject will not be feasible from the perspectiveof Internal Rates of Return (IRR). The plan is todevelop a concentrated site with a maximum of200 ha of brackish water ponds since a greaterarea “ is judged to have a negative impact on theother functions and services of the Lagoonmangrove complex “ (page 48). However, toimprove the outcome of the economic analysis,this area could be increased by up to 70 percent(page 101).

The report also mentions the following:“Aquaculture, especially for tiger shrimp, hasfailed in other parts of Indonesia. Special skillsare needed to manage tiger shrimp ponds. It isplanned to provide the necessary resources sothat failure is avoided in the Segara Anakan”(page 109). This is very correct! Almost allblack tiger shrimp farming in Indonesia hasfailed because of intensive cultures andsubsequent overuse and overstocking haveresulted in diseases. Pollution has made manyponds unusable for many years to come!Furthermore, these failed ponds mostly haddirect access to the open sea whereas the SegaraAnakan ponds will contribute to pollution in theLagoon and eventually poison themselves.Small shrimp pond projects on the south coastwork well if they are managed according totraditional methods, but there is no reason tobelieve that a large 200 ha site in the SegaraAnakan would be operated and managed in anenvironmentally friendly and sustainablemanner! It must also be stressed that the EU isgetting extremely strict on medications that arepermissible in shrimp farming.

Economic senseTo evaluate the economic sense of the

diversion project, the assumptions guiding theproject and providing the economic rationaleneed to be evaluated.

A big question of concern is the urgencywith which the river diversion stage, with itsassociated costs-is being implemented.Dredging and management requirementsmentioned in the ECI Report have not yet been

45

implemented (page 106). In addition. accordingto estimates in the ECI report, the Lagoonshould at the present time already be filledcompletely (page 14, surface prediction for theyear 2000). However, the Lagoon still exists,even if smaller in size than in 1992.

An indication of what is happeningcomes from the BBV Report where it ismentioned that already almost 93 percent of allsediment carried by the rivers flow out to sea,and due to a changed Lagoon size and coastalshape this amount of sediment may beincreasing. Untill an equilibrium state isreached (BBV Report, pages 45 and 1), theactual sediment deposition is 500.000 m3 peryear (1999) as opposed to 1.000.000 m3estimated by ECI in 1994 (BBV, page 7). If infact it is true that there is an equilibrium stagethat has almost been reached at this time, theremay be time to think about other measures toprotect the Lagoon than an expensiveengineering intervention.

If a reduction in fish catches in andoutside the Lagoon is taken as an indication thatthe Lagoon is losing it’s productivity as itbecomes smaller, it must be pointed out thatmuch more productivity loss in fisheries can beattributed to the use of destructive fishing gearby lagoon and offshore fishermen. This isdescribed in detail in the 1990 report on “Coastal Resources Management Project “ bythe ASEAN-US cooperative Program on MarineSciences (pages, 20, 28). Another importantfactor is the rapid destruction of mangroveforests around the Lagoon by human activity(ASEAN page 19, ECI Report page 21 and 30).

The assumed economic benefits of theProject through aquaculture must be related toenvironmental issues. As it is unlikely that theblack tiger farming will be successful in thelong term, this should not be counted as aproject benefits. In addition, marine farm priceshave collapsed following the September 2001WTO attacks and European Union importrestrictions. The ECI Report (page 102)mentions that a 10 percent fall in both farmedand captured fish prices will push the IRR belowthe required 12 percent. Certainly these priceshave fallen much more than 10 percent and areexpected to remain low.

In looking at offshore fisheries data, it isquestionable to use pre-1980 data of 5.000 tonsof shrimp and 15.000 tons of fin-fish catches as

a base for calculations (ECI Report, page 53).Since the trawl ban was implemented in 1980,catches have diminished significantly (ECIReport, page 47) and now average about 7.500tons of fin-fish and 2.000 tons of shrimp. Theuse of the pre-1980 data casts doubts on theneutrality of the ECI report in its assessmentt.

Also needed is an evaluation of theeffectiveness of much cheaper methods topreserve the Lagoon, some of which have fewerlong-term impacts on the environment. TheASEAN report mentions only agitationdredging and enhanced flushing as methods topreserve the size of the Lagoon (ASEAN, page44). The BBV report also mentions that theCikonde diversion alone would already have alarge effect an the sediment deposits in theLagoon, without having to construct the muchmore expensive and environmentally destructiveCitanduy diversion project.

Without doubt, an extremelyenvironmentallyy friendly alternative would beto spend money on preventing the rivers fromcarrying such large amounts of silt in the firstplace, which means an effective upriver erosioncontrol program. The ECI report (page 108)devotes a single paragraph to recommend afeasibility study about upland erosion control,but states this is not feasible basin-wide. Buthow would they know this without the necessaryfeasibility study?

Local participationDiverting the Citanduy rivers will

generate result in a large proportion of sedimentbeing carried out to the coastal area in Cilacap,West Java, where villagers and fisherfolk live.This will affect their environment andlivelihoods. Therefore fisherfolk in Cilacap areopposing the project.

The ADB has discussed the project withlocal people in Cilacap who would be eligible towill receive some benefits. However, no broadbased public consultations and discussions havebeen carried out anywhere. The fisher folk inPangandaran, West Java, who will also beaffected sedimentation from the river’s diverionhave not been consulted at all. At present, theyare also opposing the Project.

The Project will require the appropriationof land that is in the route of the river diversion.Affected land owners and users are supposed to

46

be compensated by the Project for loss of land.The project has finished the study phase and isin the process of preparation andimplementation. However, iimplementation hascurrently stopped because of disagreements overland compensation. The owner of 130 ha ofland in Cilacap, whose land will be directly inthe new route of the river, has refused thecompensation price offered by the Project.

Meanwhile, villagers in the SegaraAnakan area have been informed by ADBconsultants that diverting the river is the bestoption to reduce sedimentation in the Lagoon.The fact that fisher folk in Cilacap refused theProject has created potential for conflict amongvillages in the two areas and villages in SegaraAnakan consider those villagers in Cilacap to bejealous of the benefits of the Project in theLagoon area.

Alternatives to considerThe following proposals are made:

• A study must be conducted by anindependent and neutral entity, supported andaccepted by all parties. Current data shouldbe gathered and an assessment made on allpossible solutions to Segara Anakan problem.

• Upland erosion control should be consideredseriously, at it not only saves the SegaraAnakan Lagoon, but also benefits the entireupland watershed areas of the Citanduy andCikonde rivers. Financing should be madeavailable for these measures..

• Until the erosion control has had positiveeffects on the filling of the Segara AnakanLagoon, maintenance dredging (eitherconventional or agitation) can be performedto maintain the size of the Lagoon, or to evenenlarge the Lagoon back to a suitable size.

• The encroachment of commercial farmingand aquaculture on the mangrove and Lagoonareas must be stopped.

• Fisheries in the Lagoon must be regulatedand destructive fishing gears outlawed. No-catch zones, seasonal restrictions, andminimum net mesh sizes should beconsidered. This must go hand-in-hand witheducation measures for the fisher folks andincreased Marine Research of the Lagoon andoffshore fisheries.

• The Lagoon should be designated a naturereserve so that disturbances from human

activities are reduced and the nurseryfunction of the Lagoon can thrive. Togetherwith Nusa Kambangan, the Segara Anakancould from a unique and valuable naturereserve for the Southern Java coast. Thiswould eventually be beneficial to localpeople and communities as a productive fishand shrimp nursery, bird habitat and refuge,and an attraction for visitors from otherplaces.

There is a serious question why the ADBand the Government of Indonesia have chosento divert the flow of the Citanduy river to reducesedimentation, instead of considering anotheroption that has proved to be succesful, namelyforest rehabilitation. Forest rehabilitation inupland areas, which had already been completedup to 50 percent, has significantly reducedsedimentation in Segara Anakan. Despite itssuccess, forest rehabilitation was eventuallydiscontinued because of corruption andmismanagement.

Benefits from the Project will not go tothe local communities or those living up ordownstream from Lagoon area. The realbeneficiaries of the Project will be theconsultants, project executors (local and nationalgovernment officials, commercial shrimpbusinessmen, and the ADB itself.

47

* Shalmali Guttal is the Coordinator of the Micro-Macro Issues Linking Programme at Focus on the Global South(s.guttal@focuseb.org). This paper is based on her presentation at the Conference, “Access to Information” held inHua Hin, Thailand, from March 4-6, 2002

Multilateral institutions such as the AsianDevelopment Band (ADB) and the World Bankpride themselves on their information disclosurepolicies, and hold them up as evidence of theircommitment to transparency and accountability.The discussion on information disclosure,however, needs to be located in the largercontext of rights and governance. Today, thepublic’s right to know is considered indisputableby most proponents of democracy, andarticulated in the Universal Declaration ofHuman Rights and International Covenant onCivil and Political Rights. Most of us wouldagree that meaningful public participation indemocratic processes requires informeddiscussion and debate. Unless a public is fullyempowered with all the relevant and requiredknowledge, its participation in a given situationis cosmetic at best.

By Governance, I refer to acomprehensive and transparent system of rules,processes, and procedures that ensure theprotection of peoples’ rights to knowledge anddecision-making, and accountability andresponsibility for decisions made and actionstaken. Policy decisions have economic, socialand political consequences, and it is crucial toexamine whether those who bear the greatestcosts of decisions have been involved in makingthese decisions.

In this context, both the ADB and theWorld Bank fail in their practices on informationdisclosure and access to information. Bothinstitutions are completely unaccountable to thepublic, highly non-transparent in their policyformulation and decision-making, and

irresponsible in their stated commitment topromote public participation, and equitable andfair access to information.

The politics of informationdisclosure

Access to information is primarily apolitical issue, and embedded in power relationsand the exercise of power. It involves notsimply the ability to access information thatexists, but also, the generation of informationthat would influence the ability of the public toparticipate in making decisions that shape thefuture directions of their societies and countries.The capacity to generate information and toenshrine this information in social andinstitutional memory as “knowledge” is indeed apowerful one. Both the World Bank and theADB have these capacities and have used it totheir full advantage in the name of informationdisclosure.

The information disclosure policies ofboth institutions are comparable in somefundamental shortcomings.

1. Irrelevance to decision-makingThe most obvious flaw in the information

disclosure policies of the World Bank and theADB is that they have little to do withinfluencing key policy decisions made by theinstitutions. It does not matter how much paperor how many megabytes they make available;the most important decisions in both institutionsare made according to the economic andpolitical interests of their more powerful

Disclosure, or Deception?Multilateral Institutions

and Access to InformationBy Shalmali Guttal*

48

members and not according to broad basedpublic interest.

Equally important here is the issue ofhow decisions within these institutions aremade. Again, public debates or public interestpriorities have little meaning here. It is widelyacknowledged that a significant reason for whydeveloping countries have been disadvantagedby multilateral institutions is that they have beenmarginalised from the formal decision-makingsystems of these institutions.

In the World Bank, formal decision-making power is based on the size of capitalsubscriptions. Here, the United States (US),with a 17.6 percent voting power has the formalclout to veto decisions that it does not favour.The only contender on the horizon to the US’spower in the World Bank is Japan, whose capitalshare and voting power the US has been able tolimit to eight percent. Formal power is furthersupplemented by informal mechanisms. TheWorld Bank President is always a US citizenand the Bank’s location in Washington DC hashelped to ensure that (US approved) US citizensaccount for a quarter of senior management andhigher-level professional staff. According to aUS Congressional Research Service analysis,the advantage of the World Bank andmultilateral development banks to the US (andother rich lenders) is that they are able todemand performance standards of theirborrowers that the US and other lenders may bereluctant to impose on a bilateral basis.

What Japan has lost in the World Bank, ithas claimed in the ADB. According a number ofADB insiders, the ADB operates by the rules of“Japanese culture.” Decision- making is “consensus-driven” (in the Japanese way) andtakes place through informal discussions inhallways among select members of seniormanagement and the Board. The ADB too hasspecific key senior positions reserved for thenationals of its more powerful capitalsubscribers. Sole and final authority on alldecisions rests with the President of the ADBwho is also the Chairman of the ADB’s Board ofDirectors-and most important, is Japanese.Although members of the Board are expected toconsult with the national capitals they representfor major policy decisions, senior managementhave no such cumbersome requirements. Theirprimary concern is to ensure that no policy orissue goes to the Board unless they are confident

that it will receive majority approval from theBoard. And if this approval is not possiblethrough informal “consensus-building,” seniormanagement is likely to delay the process bybringing additional steps into the formaldecision-making process.

In sum, decision-making in the ADB andthe World Bank is controlled by exclusive,closed circles of top leadership and seniormanagement, and guided by multiple levels ofself-interest. The present information disclosurepolicies of the two institutions are not going tochange this situation.

2. Selective disclosureAnother fundamental flaw in the

information disclosure policies of the twoinstitutions is that they only disclose what isconvenient to them and advance theirinstitutional interests. What is more importantthan the information they disclose is what theydo not disclose.

The World Bank’s recently revisedinformation disclosure policy continues to focuson providing people with information aboutdecisions already taken, rather than makingavailable the information needed for the publicto participate in decision making. In the newpolicy, key documents such as tranche releasememoranda, the Bank President’s reports, draftsof Country Assistance Strategies (CAS) for mostcountries, and the draft and final documents formost structural adjustment lending will not bemade available to the public. The Bank’s Boardwas apparently divided on the question oftransparency in structural adjustment lendingand these divisions are reflected in thecomplicated agreement that was eventuallyreached. Final versions of some documents forlow-income borrowers will be made available,while documents pertaining to middle-incomeborrowers will be left to the “discretion” ofborrowing governments to disclose.

According to the Bank InformationCentre (BIC), a US based policy researchorganisation that has monitored the WorldBank’s information disclosure processexhaustively, under the new policy the WorldBank has essentially abdicated responsibility forits own transparency by pushing such disclosuredecisions onto borrowing governments. It hasthus clearly chosen to deny the public its right toaccess key documents regarding structural

49

adjustment lending.Also under the new policy, the World

Bank’s Board of Directors will continue togovern in total secrecy. Again according to BIC,the Board has yet to acknowledge that the publichas a right to know how they are beingrepresented within the Bank. Almost noprogress has been made regarding disclosinginformation about project lending. While theWorld Bank claims that it is interested inincluding project-affected communities indecision-making, it refuses to make importantdocuments about project design andimplementation, and financing agreementsavailable to the public until after decisions havealready been made.

The ADB on its part proudly touts itswebsite, and the number of reports it haspublished and made available on the website asevidence of its commitment to informationdisclosure. However, according to a sourceclose to the ADB, what is not on paper is thereal issue. What is available on the website or inpublished form is not pertinent to the ADB’sdecision-making processes. Too many decisionsare made through closed, informal discussionsthat should in actuality be open to the public.Much of this information and access to suchdiscussions are also not equally shared withinthe ADB itself; delegates from poorer and thusless powerful countries are as likely to be keptout of the loop as the general public in the ADBborrowing countries.

ADB secrecy is amply demonstrated incase of the Samut Prakarn WastewaterManagement Project in Thailand. Despiterepeated requests by project-affectedcommunities and members of the Thai Senate,the ADB did not disclose the project profile,procurement documents or even initialenvironmental and social impact assessments ofthe project. Project-affected communities andsupporting non-governmental organisationspresented substantial data to the Bank about thepotential negative impacts of the project. Theyalso pointed out how the project violated bothThai laws, and many of the ADB’s ownoperational policies (such as Anticorruption,Governance, Confidentiality and Disclosure ofInformation, and Environmental AssessmentRequirements). However, the ADB continued tomaintain that it saw no evidence of wrongdoingor negative impacts, but at the same time, it did

not disclose the information on which its ownassessment was based.

By October, 2001, the Samut Prakarnproject went into the ADB’s inspection process,which itself was racked with non-transparency,conflict of interest and antagonism between theBank’s senior management and staff, InspectionCommittee, Inspection Panel, and the ThaiGovernment. An inspection report wassubmitted by the Inspection Panel team to theADB without the Panel having visited theproject site or having direct consultations withproject-affected communities. Even so, theinspection report finds that the ADB violated anumber of its important policies and procedures.The project should have been re-appraised at amuch earlier stage, before a supplementaryfinancing loan for the project was made. But ittook the ADB several months to make this andother related documents available to the generalpublic. The Requestors of the inspection (theaffected communities in Samut Prakarn) werenot contacted by the ADB management aboutthe inspection report until several months afterthe report was submitted to the ADB. To date,what the ADB has made public is a summary ofits conclusions about the Inspection Committee’s recommendations. The nature of deliberationswithin ADB Board regarding its responsibilityand culpability, however, remain secret.

In the meantime, project constructioncontinues and affected communities cannotexpect any compensation from the ADB for lostlivelihoods and a degraded environment. Theposition and response of the ADB in the SamutPrakarn Wastewater Management project is notsimply a violation of its own informationdisclosure policy; it is a fundamental betrayal ofthe public’s right to know. And this is oneinstance of the ADB’s commitment toinformation disclosure that the public iswatching very closely.

3. Dubious qualityGiven the high degree of secrecy that

governs the information disclosure policies ofthe World Bank and the ADB, it is difficult totrust the quality and integrity of the informationthat it does disclose.

The recent draft water resources sectorstrategy prepared by World Bank staff wasfound wanting by members of the World Bank’sBoard. Quite a few World Bank financed

50

infrastructure projects have been marked withscandals of corruption and bribery, whichoccurred even as senior Bank staff reported thatall was well. One of the Bank’s own internalreports in 1999 indicated that the Bank hastolerated corruption, legitimised false statisticsand was complacent about the state of humanrights in many of its borrowing countries. TheBank’s close involvement with the Suhartoregime in Indonesia—to which it funneled US $30 billion in 30 years—has been welldocumented. Bank management was foundviolating its own rules on environment andresettlement in the China Western PovertyProject. The Meltzer Commission reportreleased in February 2000 found that the failureof Bank projects is 65-70 percent in the poorestcountries and 55-60 percent in all countries. Insum, the Commission concluded that the WorldBank was irrelevant to the achievement of itsstated mission of global poverty alleviation. Notsurprisingly, none of this information was madeavailable to the public by the Bank itself.

The information provided by the ADBabout its own policies is out of date withdevelopments within the institution. Forexample, long pending reviews of itsInformation Disclosure Policy and theInspection Policy have yet to be conducted.Preliminary problems with both policies thus farhave been kept secret, as have debates betweensenior management and the Board about thequality of ADB programmes and projects. TheADB’s lawyers have advised Board members tonot make public statements about the possibilityor state of project inspection processes (as in thecase of Thailand and Sri Lanka). TheOperational Manual for ADB Staff has not beenupdated for at least five years. Operationalpolicies and procedures that should have beenreviewed years ago are still unchanged, whileother policies approved five years ago have stillnot been included in the Manual-at least not inthe version that is publicly available. There isthus a great deal of confusion among Bank staffas to which policies they should follow-those onpaper (but outdated), or those agreed on by theBoard (but not yet included in the operationsmanual).

Given that the information disclosurepractices of the ADB and the World Bank do notprovide complete, accurate, and reliableinformation to the public, nor do they facilitate

public participation in the development of theirrespective policies and programmes, whatpurpose do they serve? I would conjecture thatthe primary aim of these practices is to keep thepublic occupied with sometimes interesting, butlargely irrelevant information while the Banksget on with business as usual. This is notinformation disclosure in any meaningful sense,but rather, this is deception.

Struggling with governanceThere is ample evidence to show that

neither the ADB, nor the World Bank aresufficiently competent to sermonise to the worldabout transparency, accountability, goodgovernance and participation.

In order to bolster its image, the WorldBank attempted to engage the public in at leasttwo global initiatives, the Structural AdjustmentProgramme Review Initiative (SAPRI) and theWorld Commission on Dams (WCD). In boththese initiatives, the public-which includedmany long-time critics of the Bank-entered intowhat they hoped would be good faith processesof research and dialogue with a variety ofopposing interest groups. And despitechallenges and compromises, they stayed withthe programmes. The World Bank, on the otherhand, started to back-peddle as soon as itbecame clear that the two reviews weregenerating information that contradicted its self-created scorecards of success in structuraladjustment programmes and support for largedams. In the case of SAPRI, the Bank producedits own report, which ignored the findings of theresearch that its own staff was involved in. Andby so doing, it effectively closed off anysubstantive or meaningful discussion with thepublic about structural adjustment. In the caseof the WCD, the Bank more or less rejected theCommission’s findings and is taking refugebehind opposition to the report by some countrygovernments as an excuse to not implement theWCD recommendations.

In the meantime, the World Bankcontinues to impose structural adjustmentthrough a new programme-the PovertyReduction Strategy Papers (PRSP), which theBank claims are nationally owned andparticipatory. However, investigations into thePRSP process by civil society groups reveal thatPRSPs are plagued with the same flaws of

51

policy and conditionality imposition,inaccessibility of information and absence ofany serious learning from past Bank imposedreform programmes. In the same vein, the Bankhas entered into yet another global reviewprocess, this time of mining and extractiveindustry. But here, the Bank does show someinstitutional learning. The process is far moreclosed and exclusive than the WCD, and theBank is attempting to exercise greater controlthan before over the review structure andprocess. Sources close to the World Bank haveindicated that the Bank may be on a pathtowards “downward harmonisation” of projectand programme standards in an attempt toensure that it does not lose its infrastructure andborrowing clientele.

The ADB has its own problems ofinternal governance and non-transparency. TheSamut Prakarn Wastewater Management Projectinspection process has opened a can of wormswithin the ADB, highlighting problems of poorleadership, staff confusion, and lack ofresponsibility and accountability. Theinspection process has revealed theinconsistencies between the ADB’s statedpolicies, what is recorded on paper and actualimplementation. A particularly alarming internalby-product of the inspection process appears tobe a rush within the ADB to update the staffoperations manual towards protection fromfuture inspection processes. According tosources close to the ADB, the Bank may try toarbitrarily decide which of their policies andwhich parts of their policies are subject toinspection, and which are not. In the future,project managers are likely to be in a bind aboutwhether they should focus their efforts onfaithfully meeting project objectives, or onimplementing the “inspectable” policies andthereby protecting themselves from the risks offuture inspection processes.

Like the World Bank, the ADB may alsobe moving towards a general lowering ofprogramme and project standards by arbitrarilydeciding which of its policies and proceduresare “inspectable” and which are simply “goodpractice.” And whatever is deemed“inspectable” would still be shielded fromexternal accountability by the ADB’s immunityto local and national laws, as guaranteed by itscharter. Most likely, these trends will beaccompanied by a lot more irrelevant

information disclosed through paper andmegabytes, even as decision-making anddemocratic oversight in the ADB and the WorldBank become increasingly remote to the public.

Secrecy in public information disclosurepolicy is a violation of the social and politicalcompacts between a people and theirgovernment. Governments are-at least intheory-expected to be accountable to theircitizens for the decisions they make.Multilateral institutions-which are publicinstitutions—argue that they are directlyresponsible to the governments that constitutetheir clientele, and not to the general public.However, the policies and practices of theseinstitutions have severe and long-termconsequences that are not borne by governmentsalone, but by the populations in the clientcountries. And the less directly accountable apublic institution is to the public, the more openand transparent it needs to be in order to upholdits stated commitments to democracy, goodgovernance and social responsibility.

Experience to date shows that the ADBand World Bank have failed in this regard. Theyare in no position to preach the values ofopenness, transparency and accountability toanyone until they can fundamentally restructureinternal and external governance in their ownhouses.

Selected References:Asian Development Bank: www.adb.org

Aubugre, Charles: Still Sapping the Poor: A Critiqueof IMF Poverty Reduction Strategies.ISODEC, June, 2000.

Bank Information Centre: The Ongoing Struggle forWorld Bank Transparency-The Outcome of theInformation Disclosure Policy Review.November, 2001.

Bank Information Centre: The Asian DevelopmentBank’s Inspection Function. February, 2002.

Bank Information Centre: Testing ADBAccountability: The Case of the SamutPrakarn Wastewater Management Project inThailand. February, 2002.

Bello, Walden: Prospects for Good Governance:The View from the South. Focus on the GlobalSouth, October, 2001.

The Bretton Woods Project: website.The Halifax Initiative: Halifax Initiative Submission

to Consultation on Draft InformationDisclosure Policy.

The World Bank: website

52

Governance and the ADBComplicity and Conflict of Interest

By Jenina Joy Chavez*

When crisis struck East Asia in 1997, theinternational financial institutions (IFIs) andmultilateral development banks (MDBs)scampered everywhere to look for anexplanation. That is, everywhere but intothemselves. Not surprisingly, the most viableapology turned out to be governance, or ratherthe lack of it. Governments were corrupt andnontransparent, rules were unclear anddiscriminatory, private companies wereirresponsible and overextended - the system wasnot functioning the way it should. It matteredlittle that the system gave such incentives foroverextended “irresponsible” behavior of bothgovernment and the private sector, nor that therules were designed in the way most expedientand politically convenient. After all, the systemwas sponsored by the IFIs and the MDBsthemselves, and anytime at their beck and call, itshould be “all systems go”.

More than anything, it was governmentsthat received the ire of the good governancegurus. They alleged that corruption pervadedgovernments, and this spelled doom forcountries during the crisis and made it difficultto implement the necessary response. For formerUnited States Treasury Secretary Robert E.Rubin, the situation was so bad that he urged theIFIs “to cut off assistance when corruptionundermines the viability and effectiveness oftheir reform programs” because “scarceresources should not be wasted in countries thatare not prepared to confront and combatcorruption seriously”.1

Thus began the march of goodgovernance as the most important new pillar ininternational development discourse, secondonly to poverty reduction. Governance-related

reforms (civil service and judicial reform,regulatory and market governance), in somecases compiled in a comprehensive governancemasterplan or action plan, became one of thehottest initiatives coming from the IFIs/MDBs.

One would not have begrudged the IFIs/MDBs their claim of the moral high ground hadinstitutional memory been short. Fortunatelysuch was not the case. Most everybodyremembers that the IFIs/MDBs definitelyhugged the policy limelight during the darkestand most repressive era of East Asia. They have,for instance, stayed on and shored up theSuharto regime in Indonesia, even at a timewhen civil society was already appealing fortheir withdrawal of support. The World Bankand the International Monetary Fund had beenknown to manipulate certain country data tojustify their loan programs in the past. And theU.S. Congress appointed International FinancialAdvisory Commission (also known as theMeltzer Commission) reported in early 2000that more than half of World Bank projects werefailures.

The most damning revelation came withthe collapse of American electricity equipmentand supply giant, Enron Corporation. Enronregistered the biggest bankruptcy in U.S. historyto date, leaving on its trail more than US$140billion in debts. Not only did the most powerfulcountry in the world fail to arrest the situationbefore it exploded, it was also revealed thatEnron thrived with its financial support.According to the Institute for Policy Studies(IPS), a U.S.-based progressive policy thinktank, “since 1992, at least 21 agencies,representing the U.S. government, multilateraldevelopment banks, and other national

*Jenina Joy Chavez is a senior research associate at Focus on the Global South, Manila(J.Chavez@focusweb.org)

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governments, helped leverage Enron’s globalreach by approving $7.219 billion in publicfinancing toward 38 projects in 29 countries”2.

Closer to home, the governance discoursehas also been actively promoted by the AsianDevelopment Bank. The ADB has been cited bythe same IPS report as having “supported(Enron’s) Batangas Power Plant with a $26.4million loan”3. Official ADB documents showthat the loan was approved in 1993 from theBank’s Ordinary Capital Resources, and that theBank also made an equity investment to theplant in the amount of US$3 million4.

The irony of Enron is not so much that itwent bankrupt. But that, being a privatecorporation, it was subject to less nagging overgovernance issues than governments were. Theirony is that the private sector has long beenpitted against the public sector, hailed as thebetter of the two, and in the 1990s been therecipient of much direct support from theMDBs.

As the ADB says, not as it doesThe ADB prides itself for being the first

to have a Board-approved governance policy.This policy has four core elements -accountability, participation, predictability andtransparency. The governance activities theBank supports in developing members countries(DMCs) revolve around the followingobjectives: to (1) strengthen governance inpublic sector management; (2) improve publicenterprise management and public-privateinterface; (3) improve public expendituremanagement; (4) support public administrationreform; (5) enhance participation; (6)decentralise government services; and (7)reform the legal system.5

However, the ADB does not alwayspractice what it preaches. Internally, the ADB isvery centralised and hires personnel based oncriteria other than merit. A Department forInternational Development (DFID, UK) studypushed for institutional and management reformwithin the ADB. DFID claims that “the Bankremains a higly centralised organisation withmost decisions taken at its headquarters inManila”, that “in-country offices are...restrictedto project implementation, logistical support andliaison with the host government” and lack “

policy responsibility”, a situation that challengesthe“traditional merit of a Regional DevelopmentBank being closer to its borrowing memberscountries”6 DFID further sees the operation of“a quota system for professional staff (i.e., thenumber of staff of a particular nationalitydepends on the size of that country’sshareholdings)” and the reservation of certainposts for particular countries, an anomaly.7 Thisquota system is responsible for having the mostsenior management posts occupied by Japaneseand American nationals. The Presidency, theTreasury and Budget portfolios are reserved forthe Japanese, while the Americans take chargeof the General Counsel’s Office.

How the ADB handles projects andprograms in DMCs is itself not a source of goodexamples. Projects with implications onresettlement almost always fail to incorporatemeaningful participation (versus mereconsultation) with affected communities.Relevant information are not made available ontime, if at all. Although one wonders whetherthe production and/or possession of conclusivepieces of evidence (whether positive ornegative) is really more important to the Bankthan actually having a project or programimplemented come what may.

The latest scandal to prick the ADB’sgovernance veil was the Samut PrakarnWastewater Management Project. First broughtto public attention in Chiang Mai in 2000,Samut Prakarn was the first Inspection casebrought before the Bank. Being the first, onewould think that the Bank would put its bestfoot forward. Instead, a Board nervous about thedeluge of potential Inspection requests, and atotal lack of political will on the part of theBank, caused the Bank to repeatedly ignore oroutright violate its own governance guidelinesand proceeded with a poorly managedInspection process. Still, the InspectionCommittee found various violations of Bankpolicies, including participation, in the SamutPrakarn case8.

The project, however, is continuing. TheInspection Report is likely to gather dust. Andcivil society’s worst fear is coming true: theBank has started turning down new requests forinspection.

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Conflict of interestIt should not be hard to see why it is

difficult for the ADB to apply its owngovernance yardstick onto itself. There are justtoo many elements of the governance principlethat threaten the very foundations of the Bank.When an institution’s professional judgment iscompromised or appears being compromised byconsiderations other than those openly coveredin the assessment process, a situation of conflictof interest arises. In the case of the ADB, theconsiderations need not be personal or financial,but values that the institution feels the need toprotect. This includes financial viability, positivepublic projection, shareholders interest, andsurvival.

The Bank should be measured against anexpanded standard of conflict of interest becauseit is a public institution, one that has tremendousinfluence not only over how projects are donebut also over what policies are implemented inthe DMCs. Financial resources have long been aweapon of coercion. Because of this, the ADBshould be placed under very strict scrutiny.

Conflict of interest may be explicit orimplicit. It may surprise some people to knowthat in many instances, the conflicts of interestinvolving the Bank are more explicit than theBank itself cares to recognise.

Self-promotionSelf-promotion is the selective use and

disclosure of information and dispensation ofpolicy based on their potential contribution tothe Bank’s image. For the purpose ofscrutinizing the Bank, self-promotion can alsomean the use of official position to ensure thatonly positive things about the Bank or itsprojects are publicised officially, or to ensurethat criticisms in official documents are held atbay. The ultimate objective for self-promotion isto show that the Bank is doing everything rightall the time.

The ADB is guilty of self-promotion foronly hiring consultants who are to make positiveor favorable recommendations on controversialprojects. By extension, the Bank is self-promoting when it ignores importantinformation that negates its own consultants’reports, or withholds negative findings even ofthe consultants that the ADB itself hires. Forinstance, in 1993 it can be said to havecommitted self-promotion when it

commissioned a large hydropower consultancyfirm, Norconsult International, to assess theenergy potential for the Greater MekongSubregion (which at the time everybody knewthe ADB was grooming as a hydropower hub).Not surprisingly, the report that was producedread like a dam catalogue.9 But whenconsultants manage to come up withcompromising results, as in the case ofindependent fisheries expert Terry Warren, theADB manages to pretend no such reports exist.Terry Warren confirmed that the Theun-Hinbounhydropower project is responsible for negativeimpacts, including the loss of fisheries,riverbank erosion and damage to drinking watersupply.10

It is also self-promotion when the ADBexplicitly states in consultancy terms ofreference (TOR) that certain projects must beidentified for implementation even before thereis conclusive assessment that will support suchprojects. Such was the case with the TOR for theUS$2.5 million Basin HydropowerDevelopment Plan in the Xe Kong, Se San andNam Theun river basins in Cambodia, Laos andVietnam, where its was stipulated that the studyshould identify at least six hydropower projectsfor early implementation.11

Finally, it is self-promotion to extendfunds for “constituency building”, or the processof convincing DMC citizens about the virtue ofBank-financed projects or programs, usuallydone through massive media campaigns. Thispractice was first tried out by the World Bank12

and is being tried by the ADB in some of itssector restructuring projects.

Private sector operationsThe ADB recorded its first private sector

investment facility approval in December 1983.It was a less than one million dollar equityinvestment to the Korea DevelopmentInvestment Corporation. Direct support forprivate sector projects used to be done throughthe Bank’s non-sovereign window, but are nowcarried out by the Private Sector OperationsDepartment (PSOD).13 As of December 2001,the ADB has approved a combined total ofUS$2.66 billion in private sector investmentfacility, including direct equity, underwriting,loans and risk guarantees14.

The recent attention the ADB drums upfor its private sector operations and the spate of

55

private sector lending from its Private SectorGroup has led to accusations of conflict ofinterest on the part of the ADB. The conflictarises because other groups within the Bankpromote privatisation programs in DMCs.Uncannily, the biggest private sector loansapproved by the ADB in recent years have beenconnected to the buying up/operation of assets/utilities that have been privatised under ADBprograms. While the ADB itself acknowledgesthat there is a potential for conflict of interest,they are quick to claim that this is not a realproblem since the Private Sector Group has noreal influence over the Policy and StrategyDepartment of the Bank.15

Far from the ADB’s claim that theconflict of interest in this case can be avoided byfull disclosure or by assurances that differentdepartments do not confer with each other, thebroader development objective of assisting aDMC still “appears compromised”. Havingthese two groups, clearly with disparatefunctions and motivations, in a single institutionis problematic and in itself constitutes conflictof interest.

The Bank’s Private Sector Strategy,which aims to leverage private sector investmentin DMCs, does not help at all. The strategyadmits that DMCs have development needs farbeyond what the ADB can finance.16 This is acrucial question to the ADB’s ability tospearhead development in the region and animplicit declaration that private sector partnersare necessary for its continued relevance.

If the argument is that assisting privatesector groups helps client governments bypromoting production, why not channel theassistance through government instead? Theprivate sector can still be the ultimatebeneficiary. The argument that the governmentwill be inefficient in directing support (throughcredit, for instance) becomes tired. And anyway,given its questionable governance performance,who’s to say that the ADB will be better? Atleast the government has sovereign power tomake private corporations pay compensation fordamage they cause. When has the ADB ever runafter erring contractors?

Even in its private sector operations(PSO), the ADB calls on government to beinvolved in certain occasions. Private sectorloans no longer require government guarantees.The ADB usually covers these guarantees

themselves. However, if a guarantee exceeds aspecified limit (US$50M or 25% of project costfor partial risk guarantee, and US$100M or 50%of project cost for political risk guarantee), theADB requires a counter-guarantee from the hostgovernment.17

Finally, when the Bank has bothgovernment and private sector clients in a DMC,and where the Bank has Resident Missionoffices, statements by Resident Missionmembers remotely referring to the private sectorclient’s dealings with the host government canbe considered meddling and an occasion forconflict of interest. Similarly, if the Bank issilent on the design of a privatisation program orits regulatory instrument, especially when suchsilence means undue advantage may be capturedby the private sector client once the program orinstrument is approved, it is liable for conflict ofinterest.

These are not hypothetical occasions.The experience of the Philippines around themetropolitan water utility privatisation (wherethe ADB is also arranging a private sector loanto one of the winning concessionaires) is a starkreminder that the Bank can be a “persuasive”power when its interests are on the line. TheBank uncritically and insensitively madecomments about how it would be difficult forthem to arrange the loan facility for their privatesector client if the Philippine Government doesnot grant their petition for automatic currencyexchange adjustment.18

On the other hand, the Bank may choosenot to be explicit about not-so-perfect conditionsthat may hold in technical and impactassessment, as long as broad opening up orprivatisation objective is met. For instance, aTechnical Assistance activity attached to therestructuring of a major public utility might be astudy on pricing and regulatory practice in a“competitive environment”. The study would befine, except that in the real world a competitiveenvironment remains a pipe dream. Yet the ADBwill not place the emphasis on how thecompetitive environment can be achieved, norwould it reassess its role in the restructuring ifits design were found to be less-than-competition friendly. Such was the experiencewith the ADB around the Power RestructuringProgram.

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Policy ConditionalityThe conflict of interest in the ADB’s PSO

becomes more pronounced when viewed in thecontext of broad-based policy conditionality thatthe Bank imposes on its DMCs. The ADB hasbeen giving policy-based lending since 1978.However, it was after the programs’ secondreview in 1987 that policy-based lendingbecame more stringent.

In policy- or program-based lending,loans are usually released in three tranches, witheach tranche release conditioned on theachievement of certain benchmarks or theperformance of specified conditions. Forexample, the second tranche of a powerrestructuring program loan may be conditionedupon among other things the passage of a powersector restructuring law (such as in the case ofthe Philippines). And third tranche will bereleased upon the approval of a privatisationprogram for the national power company (alsoas in the case of the Philippines). Trancherelease conditions may number from as few asone or two to as many as a dozen or more.

Even without the PSO, the use of policyconditionality is already a big governanceproblem. What if DMCs would like toexperiment beyond the economic orthodoxy?Should not programs be evaluated on theirindividual merits and based on specific countrycontexts? Quite obviously, with the PSO, policyconditionality makes a clear case for conflict ofinterest.

Beyond governanceThe ADB’s poor performance record on

governance reeks of doublespeak. It inventsnew policies to exhibit a seeming freshness, butclings on to outdated structures. It co-optsprogressive language to project dynamism, butfortifies its support of old models. It packagesitself as working for the benefit of its clientgovernments, while becoming more and morebeholden to the interest of its private sectorclients.

This doublespeak highlights theopportunism of the Bank who wants the cloak ofsecurity provided by a multilateral publiccharacter, but nevertheless diminishes the publicinstitutions that make it possible.

1 Robert E. Rubin, Remarks delivered at the

conference Global Forum on Fighting

Corruption: Safeguarding Integrity Among

Justice and Security Officials, February 24,

1999. Available on the internet: http://

www.fas.org/irp/news/1999/02/99022403_clt.htm

2 Enron’s Pawns: How Public Institutions

Bankrolled Enron’s Globalization Game.

Sustainable Energy and Economy Network,

Institute for Policy Studies, March 22, 2002.

Available on the web: http://www.seen.org/PDFs/

pawns.PDF

3 Ibid.

4 Asian Development Bank. December 2001. Loan,

Technical Assistance and Private Sector

Operations Approvals.

5 Asian Development Bank. 2000. Promoting Good

Governance: ADB’s Medium-Term Agenda and

Action Plan

6 Department for International Development. 2000.

Working in Partnership with the Asian

Development Bank

7 Ibid.

8 Final Report of the Inspection Panel on the

Samut Prakarn Wastewater Management Project,

14 December 2001. Summary of Key Points

prepared by Shalmali Guttal, March 2002.

9 International Rivers Network. The Asian

Development Bank: Financing Destructive

Development in the Greater Mekong Subregion.

http://www.irn.org

10 Joy Chavez, “Will the ADB Pass the Reality

Test?”, Focus on Trade No. 63, ADB Special Part

II, May 2001.

11 IRN, Ibid.

12 http://www.challengeglobalization.org/

13 Asian Development Bank. 2002. Private Sector

Operations: Catalyzing Investment Across Asia

and the Pacific.

14 Asian Development Bank. December 2001. Loan,

Technical Assistance and Private Sector

Operations Approvals.

15 Jenina Joy Chavez. 2001. Taking Stock of the

Motives and Interests in ADB’s Private Sector

Operations, in Profiting from Poverty: The ADB,

Private Sector and Development in Asia.

16 Asian Development Bank. 2000. Private Sector

Development Strategy

17 Asian Development Bank. 2001. A Guide to

ADB’s Official and Commercial Cofinancing

Operations

18 Jenina Joy Chavez, Ibid.