Many people may be tempted to view the World Bank’s recent announcement that it will freeze new loans to Uganda because of the country’s vicious anti-LGBTIQ+ law as a harbinger of the Bank taking a more progressive approach to human rights issues.
While the announcement is welcome, based on my many years studying the Bank and on my research for my forthcoming book, The Law of the International Financial Institutions, I think there are good reasons to be cautious about its significance.
The World Bank, which has been operating for over 75 years, has 189 member states as shareholders. It funds development projects and programmes in member states that have annual per capita incomes below about US$12,535. The member states elect a Board of Executive Directors that oversees the Bank’s operations and approves all its loans.
The Bank’s Articles of Agreement stipulate that it cannot base its decisions on political grounds. The articles state that the Bank “shall not interfere in the political affairs” of its member states. Nor should its decisions be influenced by the “political character” of these states.
Moreover, the Bank is instructed that it should only pay attention “to considerations of economy and efficiency”. And that it should not be affected by “political or other non-economic influences or considerations.”
The articles don’t define these key terms. They also don’t identify the criteria the Bank should consider when deciding if a particular issue should be excluded from consideration because it is “political” rather than “economic”.
This means that this decision is within the exclusive discretion of the Bank’s decision makers.
Division of labor
The Articles were drafted and agreed in 1944. At the time, the division of responsibilities between those who made the “political” decisions and those who made the “economic” ones seemed relatively clear. It was assumed that each Bank member state, as an exercise of its sovereignty, would decide for itself how to deal with the social, environmental, and cultural impacts and consequences of the particular transaction for which it was seeking the Bank’s support.
The Bank, on the other hand, would take the state’s decisions on these issues as given. It would merely consider if the particular loan request was technically sound and economically and financially feasible.
This division of responsibility, of course, was unrealistic. The Bank’s Board of Executive Directors must approve each loan. They represent its member states. It is inevitable that officials elected or appointed by – and ultimately accountable to states – will pay close attention to the political implications of their decisions. And that these considerations may trump the technical merits of the transaction.
Thus, inevitably, political considerations, including human rights, have always been, at least implicitly, a factor in Bank operations.
The futility of the Bank’s attempt to exclude political, including human rights, considerations from its operations can be seen at two levels. Firstly, at the level of the Bank’s relations with its member states. Secondly, at the level of individual transactions.
A good example of the Bank’s failed efforts to exclude political factors at the country level was its decision in the 1960s to lend to Portugal and South Africa to fund the construction of the Cahora Basa dam in Mozambique. The Bank decided to make this loan despite a UN General Assembly effort to impose sanctions on these countries because of their colonial and apartheid policies.
Many African states, supported by a majority of UN member countries, argued that the loan should have been denied. Their case was that the policies of the borrowers violated the human rights of their subjects. They were also a threat to regional peace and security.
The Bank’s General Counsel defended the decision on the basis of the political prohibition in the Bank’s articles and on the technical merits of the project.
Despite its ostensible non-political position, the Bank did not make any further loans to South Africa until it became a democratic state.
At the individual transaction level, the Bank funds projects and programmes that have profound social and environmental impacts. Consequently, it is forced to pay attention to some of the political, including human rights, implications of these projects and programmes.
For example, if it finances a road or a renewable energy project, the project will require land. The current occupants of the land may need to be moved to make way for the project.
Alternatively, the project may have social and environmental effects that hurt people. It could, for example, affect the surrounding community’s ability to grow food, or place the community at higher risk of accidents or exposes more young girls and women to the risk of gender-based violence.
If the affected community belong to minority groups in the country, with their own language, culture, and geographic attachments, they may qualify as indigenous people under international law and the Bank’s policies. In this case, the project may require their free, prior informed consent.
However, there are disagreements among states and between the Bank and some of its member states about which communities qualify as indigenous and what is required to ensure that their rights are respected.
For example, some states and Bank stakeholders contend that it is enough to seek the consent of the community’s leadership. But others maintain that the consent can only be established if particular vulnerable groups within the communities, such as women, youth, LGBTIQ+, or disabled people, are given specific opportunities to express their consent.
Some states may argue that giving such attention to these vulnerable groups is inconsistent with local practices and customs and that the Bank, pursuant to its own Articles, should not be interfering with these internal “political” matters.
In all these cases, the Bank has to exercise judgement. This means, for example, that in the Uganda case the Bank could decide that it should not extend any new credit to Uganda because of its new anti-LGBTQI+ legislation.
However, it is also easy to see that in another context the Bank – or its Board of Executive Directors – may conclude that on balance it is better to continue lending to the particular country despite serious human rights issues. Or to a particular project because the perceived benefits outweigh the costs.
The challenge, of course, is ensuring that the Bank is making these decisions on a principled and predictable basis. And not according to its own whims and political preferences. And that it can be held accountable for the way in which it makes the decisions.