IFI standards fail on indigenous rights

Down to Earth No. 70, August 2006

NGOs and indigenous peoples have called for greater attention to be paid to the impacts of lending by international financial institutions (IFIs) on indigenous rights. They want IFIs - including multilateral banks like the World Bank and Asian Development Bank, as well as UN funds, bilateral donor agencies and private commercial banks - to recognise the fundamental importance of respecting indigenous peoples' rights to lands, territories and resources and to free, prior and informed consent in their development-related activities.

A statement by UK-based NGO, Forest Peoples Programme (FPP), and indigenous organisations to the May 2006 session of the UN Permanent Forum on Indigenous Issues highlighted the fact that IFI projects and sectoral loans often have serious negative impacts, which are not necessarily avoided simply because IFIs have policies on indigenous peoples.1.

A number of IFIs have recently revised or are currently updating their safeguard policies, including the World Bank, the Asian and Inter-American Development Banks and the IFC (see below). Most of these, says the statement, fall below international human rights standards applying to indigenous peoples, while certain loans, particularly technical assistance, sectoral and structural adjustment loans, have no specific guarantees applicable to indigenous peoples. Some institutions, including the Global Environmental Facility, most bilateral donors and export credit agencies, and a number of large commercial banks, have no formal policy on indigenous peoples whatsoever.

The FPP and indigenous groups who submitted the statement believe that indigenous peoples and the Permanent Forum - an advisory body to the UN, set up in 2002 at the instigation of indigenous peoples organisations - should actively participate in the revisions of these IFI policies to ensure they are consistent with indigenous rights.

IFC new safeguards critiqued
One institution that has completed its policy revision is the International Finance Corporation (IFC), the World Bank Group's private sector lending arm, which provides businesses with loans, equity, investment services and technical assistance. The IFC has committed financing of $2.6 billion to 81 projects in Indonesia since 1968, including investments in oil palm plantations - a sector which is notorious for violating indigenous peoples' rights and destroying forests.

The IFC's new policy on Social and Environmental Sustainability, plus eight new performance standards - including one on indigenous peoples - was approved by the World Bank Group's Board in February this year. An initial assessment by FPP has pointed to some potentially positive elements, but also to serious flaws in the standards - both in their content and the rushed process for developing and adopting them.

Potentially positive elements include a safeguard for 'high risk' projects located on indigenous lands or using their resources, which indirectly establishes that the IFC will not fund projects where negotiations with affected indigenous peoples do not end in agreement. There is also an indirect safeguard against forced relocation because 'good faith' negotiations must be successfully concluded before any physical or economic displacement of indigenous peoples takes place. In addition, IFC clients must release annual implementation reports to the public.

However, FPP has also identified a weakening of standards in several instances and found that concerns raised about loopholes in the policies have not been adequately addressed. The weaknesses include a lack of commitment in the performance standards to uphold international law, including human rights law in IFC investments and operations; the failure to adequately recognise the accepted international standard of Free Prior and Informed Consent for IFC-financed plans, decisions or activities that may affect indigenous peoples; dropping the exclusion of industrial logging operations in tropical moist forests from IFC finance; and a failure to include human rights impact assessments as part of the social and environmental assessment process.

The new IFC standards are particularly important because they have a significant knock-on effect beyond the IFC. They are expected be adopted by around 40 large commercial banks that have signed up to the 'Equator Principles'.2 These banks provide an estimated 80% (US$125 billion) of private sector international project finance. They include banks with a history of investment in Indonesia, such as ABN-AMRO, Rabobank (Netherlands), Fortis (Netherlands/Belgium); HSBC, Barclays (UK), Citigroup, and JP Morgan (US).

1 The statement was submitted by the Forest Peoples Programme, Foundation for Aboriginal and Islander Research Action Aboriginal Corporation, Na Koa Ikaika o Ka Lahui Hawaii, Saami Council and Tebtebba Foundation. The full version is at www.forestpeoples.org/documents/law_hr/pfii_fpp_statement_may06_eng.pdf
2 See www.equator-principles.com

(Source: A brief and preliminary assessment of the IFC's new safeguard policy framework, FPP, 3/May/06 at www.forestpeoples.org/documents/ifi_igo/ifc_safegd_fpp_brief_may06_eng.shtml)