Virginia Journal of International Law Summer, Va. J. Int'l L. 777

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1 Virginia Journal of International Law Summer, Va. J. Int'l L. 777 Environmental Reform at the World Bank: The Role of the U.S. Congress Ian A. Bowles * and Cyril F. Kormos ** * Vice President for Conservation Policy Programs at Conservation International, a Washington D.C.- based nonprofit organization which supports conservation of tropical forests and other endangered ecosystems in more than twenty countries. Prior to joining Conservation International in 1991, Mr. Bowles served as Legislative Assistant in the U.S. House of Representatives where he worked on issues related to foreign affairs and international development assistance. ** M.Sc., International Political Economy, London School of Economics; J.D. expected 1996, George Washington University Law School. Mr. Kormos is a Research Associate at Conservation International. The authors would like to thank the following people for taking time to be interviewed for this Article: Glenn Prickett, Chief Environment Advisor for the U.S. Agency for International Development; E. Patrick Coady, former U.S. Executive Director of the World Bank and Conservation International Senior Fellow; Bruce Rich, Environmental Defense Fund; Larry Williams, Sierra Club; Lawrence Summers, Deputy Secretary of the Treasury; Congressman Barney Frank; World Bank advisor and former Congressman Matt McHugh; Tim Rieser of Senator Patrick Leahy's office; Alec Echols of the National Fish and Wildlife Foundation; Robert Gustafson of Congressman John Porter's office; David Wirth, Associate Professor of Law, Washington and Lee Law School; Alex Shakow, Judy Maguire and Robert Goodland of the World Bank; Chad Dobson, the Bank Information Center; Charles Dallara, former Assistant Secretary of the Treasury; Jeff Morrelli, former staff person for the House Committee on Banking; Mark Murray, House Committee on Appropriations; Jonathan Sanford, Congressional Research Service; Abby Sutherland, Bretton Woods Committee; Brian Crowe, Mark Rentschler, David Joy and Mike Kaplan of the Treasury Department; and Susan Levine of the Overseas Private Investment Corporation. All were generous with their time and many provided valuable comments on early drafts. SUMMARY:... Donor countries continue to provide financial support to the Bretton Woods institutions in the hopes of spurring development and opening new markets, but their assistance has not been without increasingly vocal calls for reform of lending practices, particularly with regard to the environmental impact of international projects.... It begins with a brief summary of the congressional and executive branch frameworks for interaction with the World Bank and other MDBs.... As a result, the MDBs were forced to enter into a dialogue with NGOs and to consider the possible negative effects on congressional funding that might result from alienating these groups.... For example, the legislation amended the IFIA to reemphasize the need for greater cooperation between the World Bank and NGOs and to instruct the U.S. executive director to push for procedures that would give NGOs and affected parties access to information on projects before submission to the Executive Board.... As the above account of congressional legislation concerning environmental reform of the MDBs indicates, there has been a progression from hearings in the early 1980s to the enactment in the late 1980s and 1990s of a large body of policy guidance and a number of limitations on the ability of the U.S. executive directors at the MDBs to vote in favor of individual projects....

2 TEXT: [*777] I. Introduction More than fifty years ago, the world's major economic powers met at the Bretton Woods Conference and created the World Bank n1 and the International Monetary Fund (IMF). Since their [*778] creation, these institutions' influence on the economic affairs of industrialized countries has diminished significantly, but their impact on the economies of developing countries has become pervasive. n2 Donor countries continue to provide financial support to the Bretton Woods institutions in the hopes of spurring development and opening new markets, but their assistance has not been without increasingly vocal calls for reform of lending practices, particularly with regard to the environmental impact of international projects. n3 In the early 1980s, a number of U.S. environmental groups, n4 working in collaboration with developing country partner organizations, actively began to publicize the adverse environmental impact of World Bank lending. They charged that World Bank and IMF policies promoted the unsustainable use of natural resources, failed to provide for sufficient public access to information and did not allow local community participation in project development. What has unfolded over the last ten years is a fascinating story of how public activism spurred the U.S. government to demand significant changes in the lending procedures of the world's largest development institution. n5 This Article examines the particular role Con- [*779] gress has played in promoting environmental reform of the World Bank. n6 Congressional activism toward the World Bank raises a number of questions: What are the appropriate roles of the legislative and executive branches in directing U.S. policy toward multilateral institutions like the World Bank? To what extent does the change of political parties in the executive and legislative branches affect Congress-World Bank dynamics? What are the effects of drafting specific and directed, rather than vague and open-ended, legislation? Are the various policy goals and reforms sought by Congress always compatible? This Article attempts to answer some of these questions in light of environmental reform of the World Bank. Section II reviews relevant congressional legislation and related actions n7 concerning the World Bank since Section III attempts to answer some of the legal aspects of the questions posed above, including the debate about the proper role of the legislative and executive branches under the World Bank Articles of Agreement, the constitutional issues related to foreign assistance, and the predominant use of appropriations, not authorization, legislation as a vehicle to dictate U.S. policy toward multilateral development banks (MDBs). Section IV examines six specific changes in the World Bank and discusses the role Congress may have played in their evolution. It also discusses the efficacy of different types of legislation in effecting change at the World Bank. Section V concludes by considering the costs and benefits of congressional activism on environmental reform of the World Bank and speculates about the role of political parties and nongovernmental organizations (NGOs) in changing World Bank policies. II. Congressional Legislation on Environmental Issues and MDBs This Section reviews congressional legislation related to environmental issues and the World Bank. It

3 begins with a brief summary of the congressional and executive branch frameworks for interaction with the World Bank and other MDBs. It then summarizes [*780] the different types of legislation available to Congress to influence World Bank policies. Finally, it reviews the actual legislation, beginning in 1983 and including a short discussion of some of the historical events in the early 1980s that set the tone and pattern of congressional involvement in these issues. Congressional involvement in MDB issues is divided between authorizing and appropriating committees. n8 The authorizing committees are charged with the enactment of legislation to authorize U.S. participation in and annual appropriations to the MDBs. Although the purpose of the authorizing committees is to provide policy guidance and the purpose of the appropriating committees is to allocate budgetary resources, these roles have become somewhat blurred, particularly in the foreign affairs arena. n9 Congress has not enacted a comprehensive foreign assistance reauthorization act since n10 Thus, most of the relevant MDB legislation has been enacted by the appropriations committees in consultation with the authorizing committees. n11 The use of annual appropriations to enact authorizing legislation creates two distinct types of law: appropriations law that applies only during the fiscal year for which it is enacted and law that amends the U.S. Code and remains permanent until repealed. Although Congress authorizes U.S. participation in the MDBs and provides funds for this purpose, the Secretary of the Treasury formally represents the U.S. government at the MDBs in his capacity as a governor of the banks. The MDBs are independent international organizations and are run by their own independent management. Their boards of executive directors, which are in continual session, supervise daily operations and oversee all loans. The President appoints the U.S. executive director who reports to [*781] the Secretary of the Treasury through the Assistant Secretary for International Affairs. A. Types of Legislation Congress has three principal types of legislation available to influence MDBs: policy guidance, voting restrictions and the power of the purse. n12 In general, policy guidance states congressional findings and U.S. government policies. For example, in 1988, Congress enacted legislation that stated, "United States assistance to the multilateral development banks should promote sustainable use of natural resources and the protection of the environment, public health, and the status of indigenous peoples in developing countries." n13 Other forms of policy guidance give instructions to the U.S. executive directors of the MDBs to pursue certain policies through the "voice and vote" of the United States n14 and to provide benchmarks against which to measure future progress. n15 The second type of legislation consists of voting restrictions for U.S. executive directors. The "Pelosi Amendment," for example, requires the U.S. executive director at the World Bank to abstain from any vote on an action that "would have a significant impact on the environment" unless the board of directors and affected groups have been provided with an Environmental Impact Assessment (EIA) at least 120 days in advance of the vote. n16 Similar voting restrictions have also been used for political reasons and for retribution against countries with poor human rights records. n17 The use of conditions is the third major type of legislation used by Congress in this context. As an example, for fiscal year 1993, Congress conditioned the release of $ 30 million it had appropriated for the Global Environment Facility (GEF) on receipt of certifica- [*782] tion by the Secretary of the Treasury that certain policies and procedures had been established. n18 Conditional appropriations are uncontroversial in the domestic context because the Constitution gives Congress the power of the purse.

4 n19 Congress is free to determine the amount of funding it provides for any given program, to set conditions for disbursements or even to earmark part of its contribution. In the international context, however, the legal validity of such actions is less certain. n20 B. Review of Relevant Legislation This Section provides a summary of relevant actions taken by Congress in an effort to change MDB environmental policy. House and Senate reports have been included along with enacted legislation in order to show not only the evolution of congressional concerns about MDBs' policies on the environment, but also their influence on the MDBs' actions. 1. Early Congressional Action: n21 Until the early 1980s, the World Bank was relatively free from outside pressure and interference on environmental issues. The U.S. government had not incorporated environmental considerations into its policies and Congress had failed to provide any meaningful oversight. n22 Congress and the executive branch viewed the World Bank as an important economic tool for promoting capitalism worldwide, and although the United States had vigorously encouraged a wide range of policy changes in the World Bank, n23 it paid little attention to the potential environmental impacts of Bank lending. n24 Congressional policy began to change in 1983 as Con- [*783] gress opened an environmental flank in its battles to direct the World Bank. As a result of lobbying by a number of environmental groups, the House held a series of hearings between 1983 and 1984 to address the impact of MDB lending on the environment. n25 Congress had not previously addressed this issue, despite a growing body of criticism from the academic and NGO communities concerning the potentially disastrous environmental effects of large-scale development projects. These hearings, therefore, served as an important legislative catalyst. In response to graphic testimony from the environmental community and indigenous rights groups, n26 the House produced the Patterson Recommendations, a series of draft recommendations that laid the groundwork for a decade of congressional policy guidance and benchmark recommendations, despite the fact that they were never enacted. n27 The recommendations focused primarily on access to information and on accountability. n28 Most importantly, they created a basis for further [*784] congressional action and signaled an important degree of substantive engagement in these issues. n29 Similarly, the Senate began to address environmental concerns in 1983 and Brazilian and U.S. environmental NGOs had become increasingly concerned with the Polonoroeste project, a massive rural development program in Rondonia, Brazil jointly funded by the World Bank and the International Development Bank. n30 In a 1984 letter to World Bank President A.W. Clausen, the NGOs raised specific concerns and claimed that Polonoroeste was a potential environmental disaster. n31 When the chief of the World Bank's Brazil Division responded on behalf of Clausen, he declined to address the NGOs' specific concerns and insisted that environmental priorities had played a key role in planning the project. n32 Disturbed by the World Bank's poor response, the NGOs took their concerns to Senator Robert Kasten. n33 Senator Kasten asked Clausen to respond in full to the NGOs' concerns and indicated the bank should give the NGO letter the same attention it would have received if it had been from him. n34 The Senator also warned then-secretary of the Treasury Donald Regan that the Bank's failure to

5 respond to NGO concerns regarding the Polonoroeste project could only erode the already weak support for MDBs in the Senate. n35 Ultimately, the World Bank provided a detailed response and suspended loan payments to the Polonoroeste project but not without further meetings and interventions from Kasten. n36 This episode is important for two reasons. First, it demonstrates that members of Congress were willing to dispense with the standard protocol of working through the Treasury Department and, [*785] instead, personally investigate World Bank loans on the behalf of environmental NGOs themselves. As a result, the MDBs were forced to enter into a dialogue with NGOs and to consider the possible negative effects on congressional funding that might result from alienating these groups. Secondly, the debate marked the other major trend in congressional action on MDB and environmental issues - the use of specific project cases to set precedents. In future years, such cases would often be used as the basis for U.S. demands for changes in the way MDBs addressed environmental issues. n37 In 1985, Congress began drafting legislation addressing the MDBs and the environment in earnest, and passed the first major piece of legislation on this issue. The House identified five factors that had prevented effective and sustainable development in the past. n38 First, there had been a lack of coordination between donor countries and international NGOs. Second, there was an overreliance on topdown project planning at the expense of grass roots participation. There was also a lack of environmental or natural resources impact assessment during the initial project stages. Fourth, borrower countries were unable to assess adequately the environmental and natural resource capacities of their countries when requesting loans. Finally, there was an inadequate exchange of information concerning hazardous technologies and chemicals. n39 The House stressed that unless projects were designed better from their inception, the "U.S. will continue to find itself in the position of trying to remedy an ecologically and culturally disastrous situation after the damage has already been done." n40 Likewise, the Senate expressed concern "that the MDBs have not adequately considered the potential unacceptable environmental consequences of many of the projects that are selected for funding" n41 and stressed that the health of local ecosystems in developing countries was vital to regional and global ecology. n42 In addition, the report stated that projects that were not environmentally viable would not be economically viable either, and warned that poorly planned projects were ultimately counter-productive [*786] and set back development efforts. n43 The Senate report also emphasized that simple policy statements on the part of the MDBs would not be an acceptable substitute for action, and that the Senate Committee on Foreign Relations was including bill language instructing the U.S. executive directors to encourage MDBs to hire professionals responsible for evaluating the environmental impacts of proposed and ongoing projects. n44 In its first major piece of legislation to address environmental concerns with respect to MDBs, Congress instructed the U.S. executive directors to promote change at the banks. n45 Specifically, Congress directed the executive directors to promote an increase in environmentally trained staff to review projects and to promote institutional changes to facilitate cooperation between the borrower country and MDB staff. n46 The legislation also encouraged MDBs to involve both borrower country government officials and conservation or indigenous peoples NGOs in planning and strategy sessions. n47 Congress mandated the U.S. executive directors to call for more lending for environmentally beneficial projects, n48 to advocate the establishment of training programs for natural resource planning and program development n49 and to push for a special board meeting to discuss ways of improving environmental performance. n50 Moreover, the legislation targeted U.S. government agencies, requesting that a "thorough evaluation" within the U.S. government be conducted to address problems associated with development projects as well as the adequacy of existing measures to cope with these problems. n51 It also called for a report from the Treasury Department outlining MDB progress on implementation [*787] of the various measures in the legislation. n52 Finally, the bill directed the Secretary of the Treasury and the Secretary of State to

6 initiate discussions with the representatives and ministries of other donor or lending countries. n53 Many of these provisions were restated the following year in the 1986 legislation. The House and the Senate remained critical of the MDBs' inattention to environmental concerns, with the Senate striking a more critical tone than its counterpart. The House expressed concern over the "considerable new evidence that these institutions are continuing to finance large-scale, ecologically and culturally disruptive projects without adequate consideration of the alternatives that may be environmentally more beneficial and, in some cases, economically less risky." n54 As a result, the report included a general provision, later enacted, that addressed "management, staffing and program reforms." n55 The report also included in the general provision the requirement that the Department of State improve the early warning system n56 so that alternatives which would eliminate or reduce potentially adverse environmental impacts could be discussed. n57 The Senate Committee on Appropriations, however, reduced MDB funding because the MDBs had failed to address the Senate's specific environmental concerns. n58 The Senate expected to see "documentary evidence" of environmental reform at the banks [*788] and was "appalled at the lack of fundamental principles of environmental science utilized to make final recommendations on selecting projects for funding." n59 Finally, the report indicated that in the future the committee would be concerned particularly with protection and conservation of wetlands. n60 In 1986, Congress enacted legislation n61 addressing MDBs and the environment which not only restated portions of the 1985 legislation, n62 but also included important new provisions. Despite its thoroughness, however, it was never codified, and its statutory authority only extended to the funds appropriated for fiscal year n63 One new provision required U.S. executive directors to encourage borrower countries to "fully inform local communities and appropriate non-governmental organizations" of project planning to allow them to participate in the process. n64 It also charged them with promoting the implementation of plans for sustainable management and rehabilitation of natural resources n65 and stressed the need for more efficient energy consumption in borrower nations. n66 The legislation recommended that the MDBs establish a project review period lasting a minimum of four weeks between staff recommendations to the board and board action. n67 It also laid out several requirements for the U.S. Treasury Department and AID missions. n68 Finally, it directed the U.S. executive directors to attempt to obtain changes that would "eliminate or mitigate" the environmental impacts of destructive development projects. n69 [*789] 2. Amending the International Financial Institutions Act: Although the House and Senate reports essentially reiterated the importance of the previous years' provisions, Congress took an important step toward the formation of a more permanent body of statutory policy guidance addressing MDBs when it amended the IFIA. The House expressed cautious optimism with ongoing institutional reforms at the MDBs, n70 and its report cited several "positive steps," including the addition of new environmental staff at several banks and a "consultative meeting" held by the Inter-American Development Bank (IADB) with borrower country agencies, NGOs and IADB staff to discuss ways to promote more environmentally friendly lending. n71 The report also noted, however, that funding for major projects continued without adequate environmental safeguards. n72 In response to the continued lack of environmental safeguards, the report encouraged U.S. executive directors to continue to press for additional environmentally trained staff and for smaller-scale projects, and it stated that AID should continue its work on an early warning system. n73 Senate Report 236 n74 continued in much the same tone as the previous year's report. n75 Perhaps most

7 importantly, the Senate report stated that "MDB management would be well advised to give some thought to the fact that the distribution of funds to these institutions has been shaped largely by the unequal action of the various MDB's in responding to the reforms called for" in legislation enacted in n76 [*790] In its amendment to the IFIA, n77 Congress criticized the performance of the MDBs n78 and set out detailed instructions to U.S. executive directors and relevant U.S. government agencies to work toward MDB reform. n79 For example, the amendment established the early warning system requiring AID, U.S. embassies, the Department of the Treasury, the Department of State and any other relevant agencies to review loan proposals "well in advance" of approval, to conduct an investigation when "there is reason to believe that any such loan is particularly likely to have substantial adverse impacts" and to make the results of the investigation public unless the information is classified for national security reasons. n80 It also mandated the creation of a "system for cooperative exchange of information with other interested member countries on assistance proposals." n81 Finally, the amendment called for more staff to assess sociocultural and environmental impacts of loans, for greater participation by borrower countries' NGOs and indigenous peoples, and for full availability of documents relating to the impact of MDB loans. n82 [*791] In addition to the above changes, the amendment changed the IFIA's policy guidance section. n83 Under the new policy, U.S. participation in international financial institutions was "predicated on the implementation of programs to promote environmentally sustainable economic growth and sustainable management of natural resources." n84 The U.S. executive directors had to promote a requirement under which all MDB lending and adjustment programs would include environmental impact analyses and legal protection for indigenous peoples. n85 The amendment also sought greater policy-based lending for natural resource management and conservation of biologically important ecosystems, such as wetlands. n86 Congress ordered the Treasury Department to report on the feasibility of reducing developing country debt through an increase in "debt for conservation initiatives." n87 Congress also required the Secretary of the Treasury, along with the Secretary of State and the Administrator of AID, to "initiate discussions" to improve the environmental performance of MDBs. n88 Finally, the amendment enhanced the early warning system by requiring AID, the Treasury Department and the State Department to share information obtained through the early warning system with interested borrower or donor countries. n89 Congress did not take much new action in 1988 with regard to the MDBs and environmental concerns, although it did amend the [*792] IFIA again. The House n90 and Senate n91 reiterated that compliance with legislation enacted in previous years remained critical. The Senate report considered "implementation of environmental legislation to be vitally important to the future operations" of the MDBs. n92 Funds appropriated for the World Bank for fiscal year 1988 had been approved in large part because the World Bank had announced in May 1987 that it would undertake various reforms. n93 The Senate report expressed "particular concern" with the slow pace of implementation for these reforms. n94 The Congressional amendment to the IFIA n95 required the U.S. executive director to the World Bank to initiate discussions with other executive directors at the World Bank, the International Finance Corporation and the IDA to provide "advice and assistance" to countries interested in facilitating debt-fordevelopment swaps. n96 It also mandated them to discuss financing human welfare and natural resource programs in Sub-Saharan Africa n97 and to encourage other executive directors to consider a borrower country's history of compliance with agreements surrounding debt-for-development swaps as an important factor in awarding loans. n98 3. A Landmark Year: 1989

8 Congress took significant steps with regard to the environment, through both authorizations and appropriations legislation, making 1989 a landmark year. In general, the 1989 appropriations process was complicated for two reasons. First, President Bush vetoed the first version of the Foreign Operations, Export Financing and [*793] Related Operations Act. n99 Second, Chairman David Obey n100 resisted administration pressure and adamantly refused to make any funds available to the World Bank. n101 Chairman Obey claimed that developing countries were using World Bank loans - and therefore American taxpayer dollars - to repay commercial debt, and he objected strongly to this practice. n102 Although funds were ultimately restored in the House-Senate conference at the Senate's request, the withholding of appropriations by the House was an important political gesture. n103 Chairman Obey probably did not intend to reduce dramatically World Bank funding, yet his decision signaled serious discontent even among supporters of MDB funding. Even though the episode was unrelated to environmental considerations, it reinforced the message that Congress was monitoring the MDBs carefully and that its appropriation of funds for MDBs was by no means an automatic process. The 1989 House report addressed energy conservation and efficiency, stating that MDBs can and should work to overcome the "technical, institutional and political constraints in developing countries [which] often discourage investments in end-use efficiency and renewable energy." n104 Although the report commended the World Bank for its decision to triple annual lending to the forestry sector, it noted that despite rhetoric, the Bank had not invested a great deal in sustainable tropical forestry projects. n105 Moreover, as a result of the secrecy of the World Bank forestry project negotiations, local citizens were often unaware of the impact forestry projects would have on their livelihoods and could not provide the input essential to project success. n106 The report also emphasized the need for greater participation by local NGOs in all project planning and stated that systematic consultation with [*794] these groups should become an "integral and mandatory part of the project cycle." n107 With respect to the IMF, the House stated that the IMF's economic stabilization prescriptions could dramatically affect the environment as developing countries turned toward rapid development of natural resources to address short-term balance of payments problems. n108 The report questioned the wisdom of IMF policies that placed pressure on debtor countries "to forgo needed long term environmental, social and public health investments to meet short term adjustment criteria" and requested the Secretary of the Treasury to report on ways in which the social and environmental impacts of IMF lending agreements could be evaluated. n109 Finally, the report expressed "support for debt-for-nature swaps as a small but creative and promising contribution to the overall debt problem in the developing world." n110 In the actual appropriations legislation, Congress stated "it is the policy of the United States that sustainable economic growth must be predicated on the sustainable management of natural resources." n111 The legislation included elaborate directions to the U.S. executive directors that focused primarily on the expansion of programs addressing global climate change. n112 It instructed the [*795] Secretary of the Treasury to report annually to Congress regarding MDB environmental progress. n113 In addition to addressing a range of key environmental issues through appropriations legislation, Congress enacted important authorization legislation, the International Development and Finance Act (IDFA) of n114 The IDFA contained the Pelosi Amendment, which prevents U.S. executive directors of MDBs from voting in favor of any proposed action unless an EIA has been conducted at least 120 days before the loan comes before the board of directors for a vote. n115 The EIA must be made available to the board of directors, the rest of the Bank, affected groups and local NGOs before the U.S. executive director can support the project. n116 The amendment also requests the U.S. executive director to lobby the bank for public access to the assessments in member countries and to consult with the executive directors of other member countries regarding the development of procedures for systematic environmental assessment of loans. n117 Although its sponsors originally intended to require public availability of EIAs, the amendment, as enacted, allows the U.S. executive director to bypass the

9 disclosure requirement entirely if the Secretary of the Treasury "finds compelling reasons to believe that disclosure... would jeopardize the confidential relationship between the borrower country and the respective bank." n118 The IDFA also instructs the executive directors to undertake negotiations to create environmental departments at all MDBs which will "promote, coordinate and facilitate debt-for-nature [*796] exchanges" n119 and to assist in restructuring private debt. n120 In addition to addressing developing countries' debt, Congress included several provisions similar to those in the 1987 amendment of the IFIA. n Continued Criticism of Environmental Reform at the World Bank: Although the House and Senate remained critical of MDB progress on environmental issues, Congress voted to fund the ninth replenishment of the IDA in The House focused its critique on energy and forestry issues. n122 The House report argued for the consolidation of smaller, energy efficient projects to facilitate financing. n123 The report also maintained that it was not enough for MDBs to avoid harming tropical forests; MDBs must actively contribute to conservation and regeneration. n124 Finally, the House report stressed that it expected an annual report from the Secretary of the Treasury describing progress in these areas, and it specifically noted that this requirement existed above and beyond reporting requirements enacted the previous year. n125 Senate Report 519 proved to be more confrontational than its House counterpart. n126 The report stated that despite the numerous benefits MDBs could bring to the international community and to [*797] the United States, the banks had a weak constituency in Congress; public support for institutions that promoted environmental degradation and failed to address the "root causes of underdevelopment" was understandably low. n127 Unless MDBs became "much more responsive" to the problems of poverty, environmental degradation and population growth, the report warned that "the [Senate] Committee... [on Foreign Relations'] continued support for the MDB's cannot be taken for granted." n128 It acknowledged that there had been some improvements but maintained that MDB performance with respect to the environment remained "far from satisfactory" and that MDBs continued to fund destructive large-scale projects. n129 The report concluded, however, that additional legislation would not be particularly helpful in addressing environmental concerns. n130 The strong language in the Senate report notwithstanding, Congress voted to fund the ninth replenishment of the IDA and enacted yet more instructions for the World Bank's U.S. executive director. n131 For example, the legislation amended the IFIA to reemphasize the need for greater cooperation between the World Bank and NGOs and to instruct the U.S. executive director to push for procedures that would give NGOs and affected parties access to information on projects before submission to the Executive Board. n132 In addition to creating these new instructions to the U.S. executive directors, Congress consolidated and narrowed its executive director instructions from the previous year. n133 Finally, Congress imposed restrictions on the money it appropriated to the World Bank. It withheld twenty-five percent of funds for the General Capital Increase pending submission of a report [*798] from the Secretary of the Treasury detailing the changes the World Bank had implemented for fiscal year 1990 as well as the changes expected in fiscal 1991 with respect to energy, forestry conservation and family planning activities. n134 Although the reports were duly submitted and the money released, Congress had made it clear that release of funds was not automatic. n135 Until 1991, congressional involvement in World Bank environmental issues focused primarily on

10 reducing or eliminating negative environmental impacts. n136 That year, however, the World Bank, the U.N. Environment Program and the U.N. Development Program established the Global Environment Facility (GEF). It was a three-year pilot program chosen as the interim financial mechanism of the Conventions on Climate Change and Biological Diversity signed at the 1992 U.N. Conference on Environment and Development (UNCED or Rio Earth Summit). n137 The GEF represents the World Bank's most significant effort to proactively protect the environment. It posed, therefore, a different challenge for Congress: finding ways to bolster a program created to have a positive impact rather than mitigating or reducing programs that had a deleterious impact on the environment. The GEF is also notable because its creation was led, not by the U.S. government, but by European donors, in particular France and Germany. n138 Although the House report which accompanied the unenacted appropriations legislation recommended allocating $ 50 million in direct funding for the GEF, and stated that it expected AID to provide an additional $ 50 million to fund GEF-associated projects, n139 Congress failed to pass a full appropriations bill and thus did not fund the GEF. n140 Nonetheless, Congress later became [*799] a pivotal player in efforts to restructure and prepare the GEF to become an operational institution after the pilot phase. n Escalation in the Use of Conditions: In 1992, Congress once again passed a full appropriations act for foreign operations, n142 and both the House and Senate reports contained lengthy discussions on MDBs and environmental issues. House Report 585 devoted most of its attention to the GEF, criticizing GEF funding. n143 It noted that in many cases AID projects which were being used as credit for GEF appropriations were projects that would have received funding anyway. As a result, no net increase in GEF appropriations was taking place. n144 The report stated that "the Global Environmental Facility, appropriately restructured, will likely play an important role in providing funds to developing countries under the recently negotiated Framework Convention on Climate Change and the Convention on Biological Diversity" and accordingly, expressed "dismay" that the GEF direct contribution was only $ 50 million. n145 Finally, the report emphasized that MDBs were not systematically complying with the Pelosi Amendment's reporting requirements for financing "private-sector economic development projects" and requested that the U.S. executive directors push for better compliance. n146 By contrast, Senate Report 419 began by praising the Treasury Department's efforts to bring about environmental reform and noted with satisfaction that despite an unfortunate lack of support from other donors, these efforts were beginning to yield results. n147 In particular, the report cited the World Bank's new environmental staff and forestry policy paper as evidence of positive and much-needed change. n148 The Senate report concluded, however, that despite these positive signs, the World Bank had not done enough. "Renewable energy and energy efficiency projects" continued to represent too [*800] small a fraction of Bank energy lending. n149 More importantly, even though it conducted EIAs with increasing frequency, the World Bank continued to subsidize large infrastructure projects without "adequate concern for environmental and social consequences." n150 The report also noted the critical need for better "water and land resources" management and pressed the World Bank to develop a "comprehensive water resource policy." n151 In light of these continued problems, the Senate report called for enactment of benchmarks in "energy efficiency, tropical forest protection, environmental assessment, and resettlement of forcibly displaced populations" for all MDBs. n152 These benchmarks, the first three of which had been mentioned in the

11 House report the previous year, n153 were to be met by mid-1993; failure to meet them would provide "a clear basis to consider appropriate actions," such as withholding funds from MDBs in "future years." n154 Congress once again amended the IFIA in 1992, enacting the proposed benchmarks and, for the first time, making appropriations explicitly conditional on progress in conservation. n155 The amendment required the Secretary of the Treasury and the Secretary of State to initiate bilateral discussions with officials from member countries of the Organization for Economic Cooperation and Development (OECD) to obtain international support for the benchmarks. n156 The Secretary of the Treasury had to report to Congress in detail the results of these bilateral discussions n157 and the progress made by each MDB in meeting the benchmarks. n158 [*801] In addition to establishing benchmarks, Congress took the unprecedented step of conditioning the appropriation of $ 30 million for the GEF on the implementation of procedures allowing public access to GEF project information. n159 If the World Bank failed to implement these procedures by September 30, 1993, the funds would be redirected to AID for use in projects consistent with the GEF and the Global Warming Initiative. n160 Unlike the benchmarks, which were flexible in that Congress only required that the MDBs demonstrate progress in the areas mentioned, the GEF conditions involved the implementation of actual procedures, allowing no room for partial compliance. The use of conditions marked an important escalation in congressional involvement in environmental reform at the World Bank. Congress provided the United States' first contribution to the GEF in the form of an appropriation conditioned on specific, codified reforms. This aggressive approach helped frame the debate over reform of the GEF. n161 In fact, the World Bank failed to make the requisite reforms by its September 30, 1993 deadline, and the GEF funds were instead diverted to AID, as provided for in the statute. n162 Congress renewed its criticism of the MDBs the following year in its appropriations legislation, although on the whole it did not take much action on the issue. However, the World Bank's release of an internal document, the "Wapenhans Report," n163 in the same year as the Morse Commission Report n164 made the fiscal year 1994 appropriations process all the more controversial. The Wapenhans Report exposed numerous management flaws as well as a declining project success rate at the World Bank. n165 The release of the report [*802] also coincided with the negotiations for the tenth replenishment of the IDA, thereby forcing Congress to make some difficult decisions. Congress responded by maintaining legislative pressure on the MDBs and by escalating pressure on the World Bank in negotiations behind closed doors. n166 The negotiations resulted in an informal agreement by Congress to authorize the first two installments of the IDA's replenishment; Congress, however, would not authorize the third installment unless the World Bank demonstrated real progress in responding to concerns raised by the Wapenhans Report. n167 This compromise allowed Congress to continue its push for MDB reform, yet provided more time for the parties concerned to implement those reforms. The House n168 and Senate n169 reports continued the trend of previous years' reports. n170 In light of the Wapenhans and Morse Commission Reports, the House report called for independent oversight systems for the World Bank and the other international financial institutions. n171 It stressed that a new system of decentralized project implementation at the MDBs would be a prerequisite for institutional reform at the banks. n172 The report also recommended restricting funds from any institutions that did not agree in advance to make all documents available to the U.S. governor or representative. n173 This provision contained a substantial escape clause, however, that allowed documents to be withheld if the gov- [*803] ernor or representative certified to the Committees on Appropriations that the confidentiality of those documents was "essential to the operation of the institution." n174 Although this provision was never enacted into law, it indicated that members of Congress might consider more drastic measures in

12 the future. Although both the House and Senate reaffirmed the necessity for environmental reform, transparency reform and greater cooperation with communities affected by World Bank projects, many environmentalists had called for more drastic measures such as the total elimination of funding. The House report, however, stated that sustainable development could not take place "in the absence of functional national economies" and that "cutting off assistance would only lead to further economic decline and increased poverty further aggravating environmental damage." n175 The report also justified funding on the grounds that the congressional compromise on replenishment of the IDA contained provisions to improve lending practices, especially with respect to the environment. n176 The House thus sought a balanced approach to MDB funding. Its broad support for replenishment of the IDA signaled that environmental reform realistically could not take absolute precedence over all other considerations. At the same time, its threat to prevent authorization of the third installment served as a powerful means to keep MDBs on the path to reform. The Senate was equally critical of the MDBs and raised similar issues, including the lack of public access to information and the need for an independent appeals panel to review projects. n177 According to the report, "fundamental changes" at the World Bank would be crucial for the Bank to receive future funding. n178 Furthermore, the United States would not be obligated to contribute to the World Bank until it received a report from the Treasury Department detailing the World Bank's efforts at implementing [*804] the environmental reforms referenced in the 1992 benchmarks. n179 The report also noted that its 1992 report had called for the promotion of water projects to alleviate environmental and economic pressures for fresh water and requested information from the Treasury Department on the Bank's progress in this area. n180 The legislation Congress finally enacted included a minor modification in the second condition for GEF funding established by Congress in the previous fiscal year. For fiscal year 1993, Congress had stipulated that procedures allowing public participation must exist before funds could be given to the GEF. n181 In contrast, for fiscal year 1994, Congress delegated to the Secretary of the Treasury the discretion to release GEF funding if he determined that the GEF implementing agencies were "in the process of developing" clear procedures for public participation in GEF projects. n182 As a result, following the March 1994 GEF restructuring agreement, n183 the Secretary of the Treasury certified to Congress that its conditions had been met, and U.S. funds were released to the GEF for the first time. n184 Congress also included a number of instructions for the Secretary of the Treasury related to marshalling U.S. pressure for the creation of "an independent entity" with "the authority and functions of an inspector general" for each of the MDBs. n185 The 1993 negotiations surrounding the tenth replenishment to the IDA had several repercussions for appropriations in Most importantly, authorization of the third installment of the tenth replenishment was withheld pending further reform at the Bank. n186 Also, the Clinton Administration asked Congress to refrain from drafting any new legislation addressing the World Bank to ensure that the Bank would have time to implement the [*805] changes called for by Congress in previous years. Congress, however, did enact several provisions related to environmental concerns and once again amended the IFIA. n187 It added a provision entitled "Respect for Indigenous Peoples," which requires the U.S. executive directors and the U.S representative to the GEF council to push for policies protecting "the territorial rights, traditional economies, cultural integrity, traditional knowledge and human rights of indigenous peoples." n188 Congress also passed a temporary provision related to implementation of the Wappenhans Report recommendations under which only fifty percent of the funds appropriated for the IBRD would be released. n189 Release of the remaining funds was contingent on a determination by the Secretary of the Treasury that the World Bank was implementing the recommendations included in the "Next Steps," the follow-up to the Wapenhans Report; the "Resettlement and Development" policy action plan; and the

13 Bank's 1993 "Disclosure of Operational Information" procedures. n190 Congress enacted similar provisions with respect to the International Finance Corporation. n191 The Secretary of the Treasury did, in the subsequent year, make positive determinations in both cases and the funds were released. n192 In 1994, the House assessed MDB progress in implementing the various reforms. n193 The report supported the ongoing GEF restructuring, citing new procedures that provided access to information on GEF projects, better procedures for consultations with NGOs and affected communities, a new governance system mechanism allowing for individual projects, and an independent evaluation of the GEF's pilot phase as justifications for including a $ 98.8 million direct contribution to the facility. n194 Although House [*806] Report 524 endorsed the administration's efforts to establish more stringent project approval mechanisms, it noted that a "higher special voting majority and a lower number of countries required to put an individual project on the Council agenda would have been preferred." n195 In addition, the report endorsed the administration's attempt to make GEF resources available to other agencies beyond the three implementing agencies. n196 The report recognized that reforms in operations and management were finally being implemented. There were several positive changes, the most significant being the creation of the Public Information Center, which was designed to increase the availability of previously restricted documents, and the Independent Inspection Panel, which was designed to provide recourse for affected communities if World Bank policies and procedures were not adequately implemented in any given project. n197 The House report, however, called for greater emphasis on projects for "energy conservation, renewable energy, microenterprise, sustainable agriculture and forestry, public transport" and projects for reduction of environmental degradation. n198 This signaled that even if progress was being made at the World Bank management level, it had yet to be translated into tangible results on the ground. n199 In addition to this criticism, the House also recommended that despite the Bank's efforts in making information more readily available, Congress should continue to condition U.S. funding obligations on advance agreement by the receiving institution to provide all documents requested by a U.S. governor or representative. n200 [*807] The Senate report for 1994 presented a similar picture. n201 On one hand the report stated that the committee had done its best to fully fund the MDBs, stressing the need to compensate for the arrears caused by budget and policy considerations in previous years. n202 On the other hand, the report emphasized that the same policy problems which had caused Congress to reduce contributions were still at issue. Noting that the World Bank had wasted billions of dollars on "misguided projects or corrupt governments" and that poverty levels had actually increased in many areas, the report suggested that the fiftieth anniversary of the Bretton Woods agreement provided the bank with a good opportunity to do some productive soul searching. n203 Although the report recommended that the United States continue to play a leadership role - and thus continue funding - in pushing the World Bank towards further reform, it stressed that it did not intend to make out a "blank check." It therefore made further World Bank funding conditional upon a determination by the Treasury Department that reforms were being implemented. n204 The Senate report also listed issues of particular concern, such as continued problems with the World Bank's resettlement policy, the Arun III project in Nepal and the need for initiatives to address fresh water development. n205 It encouraged the administration to use its influence to ensure that the GEF Secretariat is as independent from its three implementing agencies as possible and to ensure that other agencies, including NGOs, participate in project "selection and execution." n206 Finally, it reiterated that the GEF should be as public and transparent as possible in its operation. n207 C. Summary