August, 2001
It has been a bad summer for the World Bank Group arm which insures private investments. An NGO report charged the World Bank Group's Multilateral Investment Guarantee Agency (MIGA) with failing to support poverty alleviation or environmental protection and called for it to "be shut down". This was swiftly followed by a vote in the U.S. House of Representatives to take money intended for MIGA and re-allocate it to anti-tuberculosis programmes.
"MIGA has a history of supporting disastrous projects that destroy the environment and harm local communities," said Carol Welch, Friends of the Earth US Deputy Director of International Programs. "In a world where assistance to poor countries is limited, tax dollars should not be supporting secretive public institutions that promote environmental havoc around the world."
The report - Risky Business: How the World Bank's Insurance Arm Fails the Poor and Harms the Environment - was published in July by Friends of the Earth (US), Urgewald (Germany) and Campagna per la Riforma della Banca Mondiale (Italy) complains that MIGA has supported projects including Coca-Cola plants, breweries, a Marriott hotel and casino, a Citibank office building, a gas pipeline across fragile ecosystems, and several large mines that have caused significant environmental and social problems.
MIGA guarantees corporations' investments against political risk. Risks insured include government actions which threaten investments (for example nationalisation or currency controls), as well as political or social instability. Since it started in 1985 MIGA has provided more than $7 billion in political risk insurance for projects in 75 countries. More MIGA facts and figures.
The report gives an interesting example of how MIGA insurance works in practice. Last year the Indonesian government postponed construction of a power plant in the wake of the Asian financial crisis and the country's democratic transition. U.S.-based Enron Corporation made a successful claim alleging government interference in its investment which MIGA had backed with a $15 million insurance policy. MIGA paid Enron $4 million, with $800,00 from the government of Indonesia and the rest paid by reinsurers. MIGA then announced that it would not provide political risk insurance for any further projects in Indonesia, prompting the government to agree to reimburse the whole $15 million insurance claim. The report comments "in the end Indonesia will have paid MIGA at least $15 million, with nothing tangible to show for it".
The report makes clear that "one of MIGA's main comparative advantages is a strong 'deterrence' factor. The existence of a MIGA guarantee comes with the implicit and explicit backing of the World Bank Group and all of MIGA's member nations. This makes it far less likely that a government will take or promote actions that could cause a claim to be paid, and potentially damage its reputation with other investors or cause problems with the Bank or threaten Bank loans."
MIGA plans to extend its coverage to new categories of risks. A recent MIGA report indicates that these may include "coverage for environmental risks, kidnap and ransom, strikes, consumer boycotts, intellectual property rights and weather, provided that these will contribute to increasing foreign direct investment flows." The NGO report comments that this could mean "using public funds to further shelter corporations from the outcomes of harmful business practices". It questions whether investors should be protected against problems caused by environmental damage near their operations, arguing that "such coverage may protect MIGA's multinational corporation clients from some of the few ways that communities and workers have available to protest against poor corporate citizenship". Companies' poor labor or environmental practices may lead to strikes, or consumer boycotts. The MIGA-backed Freeport McMoRan mine in Indonesia is given as an example.
Whilst MIGA has made some changes in its social and environmental policy framework, the report concludes that "MIGA has not given any concrete sign of becoming more transparent or accountable, or changing its operations to cover risks for investments in fields of new environmentally friendly technologies, renewable energy, clean production and the transfer of adapted technology for local indigenous enterprises to facilitate their development."
As private sector insurers now provide similar services to MIGA, the NGOs argue that donor governments should not continue to support the Agency, and instead channel their scarce aid resources through institutions which are poverty-focussed.
Moina Varkie, MIGA's Marketing Manger, complained in a letter circulated to many NGOs that the NGO report contained "many factual errors" and that "hasty and unsubstantiated conclusions were drawn". She also cited a World Bank report which found "a clear causal link between efficient financial systems and growth, macroeconomic stability and poverty reduction".
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