Good Governance or Bad Mangement

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Good Governance or Bad Mangement Powered By Docstoc
					Good Governance
or Bad Mangement

An Overview of the ADB's
Decision Making Processes
and Policies

                 Focus on the Global South
  c/o CUSRI, Chulalongkorn University, Bangkok 10330, THAILAND
       Tel : 662 218 7363/7364/7365/7383 • Fax : 662 255 9976
  E-mail : • Web page
                             May 2002
    C o n t e n t s
          A Master-plan for Market Expansion:
      3   The Asian Development Bank and Governance
          By : Shalmali Guttal

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

          The ADB's Uncivil Engagements:
     17   The Experiences of Chashma Affectees
          By : Mushtaq Gadi

     22   The Sri Lanka Southern Transport Development Project
          By : Heather and Cyril Mundy

     25   Hijacking Development in Madhya Pradesh
          By : Raghav Narsalay

     30   BOT, Governance and the ADB
          By : Andrew B. Wyatt

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

     42   The Citanduy River Diversion Project: Some Critical Thoughts
          By : Susi Pudjiastuti and P. Raja Siregar

          Disclosure, or Deception?: Multilateral Institutions
     47   and Access to Information
          By : Shalmali Guttal

          Governance and the ADB: Complicity and Conflict of Interest
     52   By : Jenina Joy Chavez

     A Master-plan for Market Expansion
   The Asian Development Bank and Governance
                                             By Shalmali Guttal*

        In its 1999 policy on governance, the               the development process and encompasses the
Asian Development Bank (ADB) states, “The                   functioning and capability of the public sector,
term ‘governance’ means different things to                 and the rules and institutions that provide a
different people.”i In relation to the ADB, this is         framework of conduct for government, public
certainly true. The ADB’s forays into good                  enterprises, private business and corporations.
governance over the past few years clearly show             Although its policy states that “governance is
that what governance means to the ADB is quite              about the institutional environment in which
different from what it means to millions of                 citizens interact among themselves and with
people in the Asia and Pacific region, who are              government agencies/officials,”iii the policy
unfortunately under its financial (and                      neither discussed, nor recognises a meaningful
governance!) umbrella.                                      role for citizens in governance processes,
        For most people, precepts of good                   frameworks and mechanisms.iv
governance would imply publicly accountable                         The ADB does, however, articulate in
systems of rights, entitlements, laws, rules,               considerable detail what governments—as
distribution and use of resources, decision                 “economic development managers”—must do in
making, and so on, that are based on universal              the area of good governance. The ADB claims a
principles of equality, equity, and justice, but            “legitimate and direct interest in governance
which at the same time, allow for the cultural              issues” because of its involvement in the
specificities of a society or nation. For the               economic development of its DMCs. Its
ADB, however, governance is about putting into              framework for governance both, arises from and
place the required policy environments and                  supports, its development ideology.
structures in its Developing Member Countries
(DMCs)—who are also its debtors—to ensure
the success of ADB financed programmes.                     Getting it right
        By its own admission, the ADB’s                             The ADB is a market fundamentalist in
approach to governance is “economic” rather                 its economic and development approaches. Its
than “political;” i.e., the Bank regards good               poverty reduction strategy is based on
governance from the perspective of “efficient               unshakable beliefs in the wonders of rapid
management of public resources” and “sound                  economic growth, financial liberalisation,
development management.”ii Accordingly, good                privatisation, deregulation and increased market
governance is about “effective management” of               “openness.” By adding the phrase “pro-poor” to

*Shalmali Guttal is the Coordinator of the Micro-Macro Issues Linking Programme at
Focus on the Global South (

    its usual range of operations, it seeks to justify   the capacity of borrowing governments for
    its efforts towards private sector and market        policy formulation and implementation. While
    expansion. For example, the stated purpose of a      the policy objective in a particular DMC sector
    conference in March 2002 on privatised               might be clear enough, knowledge of the
    infrastructure development was to: help              institutional framework and its capability will be
    disseminate information on “pro-poor                 helpful in the design of reform measures.”vi
    infrastructure development by the private                    In other words, “good governance”
    sector,” showcase lessons on “pro-poor contract      provides the ADB with an effective and
    design regulation and reform processes,” and         legitimate window though which it can
    discuss current thinking on “pro-poor reform         institutionalise the reforms needed to firmly
    policy in infrastructure development.”               establish market capitalism among its DMCs.
    Appropriately, the conference was titled “Private    This involves writing new laws and regulations,
    Solutions for the Poor.” It is extremely unlikely    developing new administrative and management
    though, that the poor themselves were present at     systems, creating new positions and roles within
    the Conference.                                      government, institutionalising new decision
            The Bank’s governance policy—which is        making processes and in fact, doing whatever is
    considered an integral component of its poverty      required to ensure that the DMCs stay firmly on
    reduction strategy— is in effect, a master plan of   the path of market-led economic growth.
    strategies, directions and actions that borrowing
    governments must follow in order to ensure the
    supremacy of market processes, structures and        Hiding behind the Charter
    mechanisms in all aspects of social and                      The ADB’s charter prohibits it from
    commercial life. This is no secret and the ADB       “interference” in the political affairs of its
    is makes its ideas on the correct place for          members and from being influenced by the
    government, the public sector and private            political character of its members. Under
    enterprise in economic development quite clear:      Article 1 of the Charter, the purpose of the Bank
            “In a market-oriented economy, the           is to foster economic growth and cooperation in
    government has the obligation to see that            the region, and the Charter clearly gives primacy
    markets function efficiently and that the playing    to “economic considerations” in the carrying out
    field is level for all participants.....Market       of the ADB’s purpose and functions. By its own
    regulation by the government should ensure that      admission, however, the term “economic
    the operating rules do not discriminate between      considerations” has been “widely interpreted”
    individual participants or interest groups.”v        and ADB programs extend to any area that is
            The ADB’s approach to governance             deemed to have “economic effects.”
    poses serious threats to preserving autonomy         Accordingly, the Bank’s governance agenda too
    and sovereignty in national policy making.           has extended into such diverse areas as the
    While the Bank claims that its principal activity    environment, education, health, judicial systems
    is project lending, it argues that weak              and women’s empowerment.
    implementation capacity and poor sectoral                    On the other hand, the ADB is not quite
    policy frameworks in borrowing countries can         as willing to recognise the political
    negatively impact technically sound and well-        consequences of restructuring national policy
    designed projects. Therefore—the Bank                environments that form the core of it
    argues—it undertakes programme or policy             governance programmes. While it is true that
    based lending to complement its project              social and environmental programmes have
    financing activities. Such program loans cover a     economic effects, all programmes, economic or
    range of activities, from local and sectoral         social, also have political effects.
    studies to developing plans and strategies for the           Numerous examples can be found in the
    reforms of entire sectors (for example, judicial,    region where the access and rights of people and
    administrative, transportation, agriculture,         communities to crucial resources and
    education, etc.). According to the ADB:              opportunities have either been severely
            “These efforts at helping DMCs ‘get          restricted, or lost altogether as a direct
    policies right’ are now commonplace in the           consequence of ADB supported projects and
    Bank, and have led it to take greater interest in    programmes. Policy prescriptions such as

enhanced cost recovery for health, education          emerging track record of poor management and
and public utilities, water user fees in irrigation   project quality, negative project and programme
systems, the rationalisation (downsizing) of civil    impacts, and allegations of corruption in
service sectors, creating “flexibility” in labour     numerous World Bank financed initiatives, the
markets, and the privatisation of public sector       World Bank is indeed a poor role model of
enterprises, have resulted in the                     governance for any multilateral institution.
disempowerment and marginalisation of large
numbers of people across the region. The
ADB’s strategy of “pro-poor growth” has               Reconstructing the public domain
encouraged governments to freeze minimum                      The ADB has identified four elements of
wages and withhold the rights of workers to           good governance for its purposes:
association, benefits and protections. In             Accountability, Participation, Predictability and
countries such as Pakistan, India, Thailand and       Transparency. All four elements are
the Philippines, protests against ADB projects        operationalised by policy and sectoral reform
and programmes have resulted in social unrest         programmes that promote private sector needs
and divisions, and at times, even political           over public interest priorities. For example,
harassment of those who protest.                      “The litmus test [for Accountability] is whether
        Since the ADB’s framework of                  private actors in the economy have procedurally
governance does not discuss the political             simple and swift recourse for redress of unfair
dimensions of governance, it shows little             actions or incompetence if the executive
interest in the fact that its own projects and        authority.” And, “Access to accurate and timely
programmes may violate the constitutional             information about the economy and government
rights and democratic spaces of citizens. Too         policies can be vital for economic decision
often, reform regimes imposed by the ADB have         making by the private sector.”viii Predictability
acted as barriers to the accountability of            is about developing legal frameworks, especially
governments to their own citizens, and to the         to support private sector development.
protection of broad based public interest. The                The ADB claims that its “bread-and-
transformation of public sectors to serve             butter business” is assisting the public sector in
corporate and market interests in the guise of        DMCs. This assistance is geared primarily
“efficient management of public resources”            towards the reform of public enterprises, with a
undermines the obligations of governments to          concomitant process of reconstructing an
provide appropriately and sufficiently for their      “appropriate” role for the State in a market-
citizens. It also creates new vulnerabilities,        friendly economy. Maximising profits,
especially among those who are already income         minimising costs, preserving markets, market-
poor and politically marginalised. Not only has       friendly economic reforms, promoting market
the ADB not accepted its culpability in these         mechanisms in the provision of services,
consequences, but also, it has consistently           competitive operating environments, enhanced
hidden behind the privileges that its Charter         cost recovery, divestiture and privatisation, are
provides and assumed a politically neutral face.      the main concerns that guide the ADB’s
        The ADB has taken much of its content         assistance to the public sector, and the
and operational strategy regarding good               operationalisation of the ADB’s elements of
governance from its sibling institution, the          good governance.
World Bank. Inspired by the World Bank’s                      The ADB’s governance policy is vehicle
“global experience with project and adjustment        for entrenching sectoral reform and
lending,” the ADB feels confident in positioning      reconstructing the public domain. It is also
good governance as “sound development                 fundamentally contradictory. While the Bank
management” necessary for “ensuring adequate          claims to eschew involvement in political
returns and efficacy of the programmes and            aspects of governance, its core mandate-
projects financed.”vii                                promoting economic development-is a deeply
        The World Bank’s Charter also prohibits       political phenomenon. Economic development
it from engaging in political activities and          plans determine the distribution of a society’s
directs that decision-making be based on              wealth, opportunities and challenges, who gains
economic considerations alone. But given the          and loses, and how power is realigned or

    entrenched. It is both delusional and self-
    serving for the ADB to project that the political
    and economic dimensions of governance can be
    separated in policy and reality.
            The ADB’s policy on good governance
    offers no prescriptions for its own institutional
    governance. Accountability, Participation,
    Predictability and Transparency are the
    buzzwords for governments, but appear not to
    apply to the ADB’s own conduct or operations.
    ADB insiders have revealed that the institution
    is increasingly plagued by poor and
    irresponsible performance by Bank staff and
    Management, and a lack of clarity about its own
    operational policies and procedures. Questions
    have been raised in meetings of the ADB’s
    Board of Directors about the appropriateness of
    Bank conduct in formulating, processing and
    implementing projects. Controversies
    surrounding a number of ADB projects and
    programmes—from the Chashma Canal Project
    in Pakistan to reform programmes in the Pacific
    Island States-reveal that the ADB’s commitment
    to good governance is at best a lie and at worst,
    antagonistic to nationally meaningful and
    accountable governance structures and
            Evidently, there is a lot for the ADB to
    learn and acknowledge about the implications of
    its specific version of governance. The ADB is
    well advised to clean its own house and
    demonstrate its accountability to citizens and
    their governments before imposing its version of
    governance 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.

  Providing What Justice, and to Whom?
          The ADB’s Access to Justice Programme
                      for Pakistan
                                     By A. Ercelawn and M. Nauman*

        The Asian Development Bank (ADB)                   the ADB Loan Document (RPP: PAK 32023) for
proposes to assist Pakistan in improving                   the Access to Justice Programme (AJP). A
governance through loans of $350 million and a             request for full documentation has been made to
grant of $0.9 million. These loans and grants              the Minister for Law and Justice, Mr. Khalid
include $20.9 million for technical assistance, of         Ranjha (the former Minister was Shahida Jamil).
which 4 million dollars will go for training,                      In the meantime we rely on the document
workshops and public awareness campaigns (i.e,             made available by Mr.Hamid Sharif at the ADB
slush funds and disguised kickbacks). The                  office1
Government of Pakistan (GOP) will contribute                       Supposedly, the request for donor
$25 million to a national Fund. Of this, a Legal           assistance for a Justice programme came from
Empowerment Fund can get up to $5 million,                 the Federal Government, rather than being
which may be used by “approved” civil society              imposed upon Islamabad by the ADB. Is it then
groups for advocacy efforts, although not                  a mere coincidence that the text of the letter
presumably against donor boondoggles.                      from the Finance Minister reads like the loan
        The loan commenced in December 2001                document? Or is because the same types of
and ends in December 2004. The Federal                     consultants drafted both documents?
Ministry of Law, Justice and Human Rights, will
be the executing agency through a special
Programme Management Unit.                                 The right rhetoric
        In view of the substantial addition to                     The loan document states the rationale of
already unserviceable indebtedness, and/or                 the programme as follows:
because of a record of systematic plunder and                       “Vulnerability, justice, and entitlements
squander in externally determined “assistance”             are closely linked. Vulnerability is a function of
programmes, all donor projects need sustained,             insecurity of access to key sets of material,
critical watching. Such monitoring has become              social, political, and environmental assets.
all the more necessary after the United States             Justice is a function of the relationship between
(US) has signalled to donors that Pakistan’s               institutions responsible for delivering
ruling elite must be generously rewarded.                  entitlements (public goods and services)
        In preparation for this project, over $4           predictably, affordably, and accountably, and the
million have been, and are being spent spent               ability of citizens to secure and sustain their
through Technical Assistance (TA) grants since             access to key sets of assets. The pro-poor
1997 (TA 2979-PAK, 3015-PAK and TA 3433-                   rationale of this Programme assumes that efforts
PAK, 3640-PAK).                                            to limit the vulnerability of the poor to the
        This paper provides an initial review of           vagaries of systems of administrative, political,

*A. Ercelawn and M. Nauman are with the Creed Alliance in Pakistan

    civil, and criminal justice are at least as         Serious business
    important as macroeconomic performance in                   The loan document claims that the “the
    poverty reduction.”                                 AJP is to assist the Government to improve
            This rationale requires recognition that    access to justice so as to, (i) provide security and
    law is about the power to regulate social and       ensure equal protection under the law to
    economic relationships. Hence, changing the         citizens, in particular the poor; (ii) secure and
    balance of power is intimately related to           sustain entitlements and thereby reduce the
    promoting justice as the acknowledgement and        poor’s vulnerability; (iii) strengthen the
    realisation of rights. But the document             legitimacy of state institutions; and (iv) create
    compromises the notion of justice by defining       conditions conducive to pro-poor growth,
    the programme as a way to merely “influence         especially by fostering investor’s confidence.”
    the exercise of political, administrative and               The Programme will contribute to these
    judicial power so as to improve the accessibility   aims by supporting five inter-related governance
    of public entitlements for all citizens, in         objectives: “(i) providing a legal basis for
    particular the poor, women, and minorities.”        judicial, policy, and administrative reforms; (ii)
            The ADB asserts that “poverty reflects      improving the efficiency, timeliness, and
    social and political processes that are mediated    effectiveness in judicial and police services; (iii)
    through a range of institutions. “ But how about    supporting greater equity and accessibility in
    the economic arrangements enforced by the           justice services for the vulnerable poor; (iv)
    state? Or more generally, the creation of           improving predictability and consistency
    institutions that favour property over labour?      between fiscal and human resource allocation
    Does it really matter that social and political     and the mandates of reformed judicial and
    processes would be made more benign without         police institutions at the federal, provincial and
    altering the institutions themselves?               local government levels; and (v) ensuring
            The ADB’s analysis, however can only        greater transparency and accountability in the
    lead it to assert that “the vulnerable poor are     performance of the judiciary, the police and
    especially affected by their relations with a       administrative justice institutions.”
    dysfunctional and predatory local state”                    Will the AJP then also permit financial
    (original emphasis). It is such an anemic           support to groups endorsing or supporting the
    approach, or perhaps self-serving naivet?, that     referendum for sustaining reforms with Chief of
    results in the absence of any efforts in the loan   Army, General Musharraf as President?
    programme to support the mobilisation of the
    poor themselves for collective action in defence
    of their rights.                                    Guiding rules
                                                               The AJP objectives are marked by the
                                                        absence of explicit reference to the national
    Just markets                                        constitution, or even international conventions,
            “In addition, the present legal framework   such as the UN Conventions on Social,
    and the performance of judicial institutions        Economic and Political Rights and the ILO
    significantly constrain market-based economic       Declaration of Principles. This is self-serving
    growth, and in particular hinder foreign direct     since the State and its financiers cannot be held
    investment as well as the growth of small and       accountable by objective, substantive
    medium-sized enterprises.”                          benchmarks. Also worrying is the equation of
                                                        law with justice in a country with a record of
            And, “....the informal legal system is      incomplete translation of the Constitution into
    insufficient for adequate market-based economic     laws, of laws that endorse exclusion and
    growth, and constrains significant foreign direct   discrimination, and more generally, of laws that
    investment as well as the growth of small- and      permit the State to not acknowledge and protect
    medium-sized enterprises.”                          people’s rights.
            The attached Poverty Assessment is                 What are we to make of the emphasis on
    illuminating in this regard.                        securing assets? Are rights and justice to be
                                                        thought of as little more than economic
                                                        transactions? In which case, the prevailing

system of bargains between state agencies and          Negotiating, or managing
the poor through local negotiations of property        contradictions?
rights for life and livelihoods is already on the               Some degree of tension naturally prevails
right track.                                           within and between the Programme rationale
         The first sentence and paragraph of the       and Programme objectives. How are these to be
Introduction to the main Programme proposal is         resolved when promoting justice to the poor
revealing in the narrowness of Bank conceptions        collides with making the country investor-
of justice — “governance has emerged as                friendly or market-friendly? What if
Pakistan’s foremost development priority.” Not         environmental conservation implies a different
a word about participatory democracy is to be          growth model, one that is poor-friendly but not
found in this section, as through progress on          statistics friendly? In every sector, numerous
realising social and economic rights can happen        illustrations can be given of serious adverse
without the fundamental right of association in        impacts upon the poor and the environment as a
all its meanings.                                      result of the drive for (naturally profitable)
         It is considerable number of pages later      privatisation and of the obsession with
that issues of political justice are taken up in the   infrastructure. What then of justice as commonly
loan document. This disjunction between                understood? Moreover, as the Kirthar case
priority and treatment is not accidental, since the    illustrates, “enforcement of environmental laws”
project only pays lip-service to addressing the        becomes a travesty of justice when laws are
political implications - as institutions for           modified in favour of foreign investors as a
collective voice and response — of promoting           consequence of unrelenting pressure by the
justice for the poor.                                  ADB and the World Bank for privatisation of
         The language is revealing in defining the     the energy sector.
goal of the AJP as “an efficient, citizen-oriented              Accountability of “judiciary, the police
judicial system” and uncomfortably resonant of         and administrative justice institutions” is also
the Bank’s aim of economic reforms towards an          included as an objective. It is then puzzling why
efficient and consumer-oriented system. To             virtually the same institutions have been made
repeat, justice is about rights and people rather      the implementing agencies. Set a thief to catch a
than laws and citizens. Until this distinction is      thief?
accepted, dangerous confusion will persist about                Also notable is the absence of any
the nature of reforms needed to promote the            reference to the obligations of a just state - a
realisation of rights through reforms in the           constitutional mandate in Pakistan — to
justice system. Over the past half-century it          eliminate the private oppression and exploitation
should be more than obvious that the State             of people that is engendered through denial of
acknowledges few rights and permits even fewer         social, political and economic rights. As an
entitlements.                                          extreme example there is bonded labour; more
         The shallowness of ADB’s analysis is          common is the denial of even a decent living
also reflected in the statement that “the most         wage. More broadly, we have the exclusion of
serious constraints are found in the political         women from ‘public space’ but inclusion as
culture, and in sanctions bearing on the               property rights of men.
judiciary, police and administration.” Of course                “Concentration of power at the federal
these are important factors. But central to the        and provincial levels has limited broader
plight of the poor are the inequitable and             participation which has led to overrepresentation
oppressive economic and social arrangements            of feudal and business interests.” How would
that underpin the Pakistani State, and which will      balanced representation substantively affect
surely worsen as the State embraces                    justice for the poor? It seems that the ADB
globalisation at the behest of Washington and          shares the frivolousness of those who believe
Manila.                                                and would have us believe that an enduring
                                                       freedom to `do your own thing’ reflects
                                                       substantive justice.
                                                                It is absurd to state that “no adverse
                                                       social impact is anticipated” or that “no adverse
                                                       environmental impact is anticipated,” from the

     Programme when a key objective is to promote          accidental since implementation details show
     property rights in markets and of investors, i.e.     much of the project rationale to be mere
     to privilege capital over labour, rather than to      rhetorical.
     nurture community and people.                                 “A National Programme Review and Co-
                                                           ordination Committee (NPRCC) will review and
                                                           co-ordinate overall progress, and corresponding
     Gender issues                                         Provincial Programme Review Committees
             Predictably, the project includes attention   (PPRCs) will operate at the provincial level. The
     to gender aspects of injustice. But is this           chairperson of NPRCC will be the secretary of
     attention substantive? Consider the assertion         MOL. NPRCC will comprise one representative
     that “in most aspects of their lives the poor rely    of each of the provincial high courts, to be
     on informal justice and dispute resolution forum      nominated by their respective chief justices; the
     that in some respects have been more effective        secretaries of the ministries of Law, Finance,
     than formal mechanisms.” Any serious observer         and the Interior; the director general/secretary of
     would agree that jirgas and panchayats are quite      the National Public Safety Commission; the
     effective, but only in oppressing women by            secretaries of the provincial law departments;
     exclusion of participation and blatant                one representative nominated by the Pakistan
     indifference to their rights.                         Bar Council; the director general of FJA: one
                                                           representative of the Law Commission; one
                                                           representative of the Federal ombudsman; and
     Implementing agencies                                 one representative of civil society nominated by
             The Federail Ministry of Law, Justice         the Federal law minister. Each PPRC will be
     and Human Rights will be the executing agency         headed by the chairperson of the P&D or the
     for the loans and technical assistance, through a     additional chief secretary (development) of the
     special Programme Management Unit.                    P&D. A PPRC will comprise the secretaries of
     Implementing agencies will be the Federal Law         departments of Law, Finance, and Home; the
     Commission, Ombudsman, Judicial Academy,              high court registrar; the provincial inspector
     and the Ministry of Interior. Provincial              general of police; the secretary of the provincial
     implementation will be done by the Dapartments        PSC; two representatives of subordinate courts
     of Law, Home and Planning & Development,              to be nominated by the chief justice of the high
     involving the Ombudsman, High Court, and              court concerned; and one representative of civil
     Public Safety Commission.                             society appointed by the governor. NPRCC and
             The Ministry of Law, Justice and Human        the PPRCs will be assisted by the outputs of the
     Rights is not renowned for even comprehending,        TA grant, which will focus on programme
     let alone acting upon, rights. Their support to the   monitoring and evaluation. Under the TA, civil
     dilution of the National Policy & Plan for            society participation will be encouraged together
     Bonded Labour is the most recent illustration of      with public surveys.”
     odious conduct and wholly incompatible with                   When the State is the problem, there is
     the mandate of the ministry.                          little point in packing implementation and
             Also of note is that the Federal Ministry     oversight mechanisms with State functionaries.
     of Interior and the Provincial Home Department        For example, the Environmental Protection Act,
     are central to implementation, despite their          and the Bonded Labour Abolition Act do not
     ignoble records of repression rather than justice.    function because the highest state officials will
     Similarly, the provincial Planning &                  not allow it to be enforced. In fact, even the
     Development Department is the co-ordination           existence of widespread agricultural bonded
     link, in spite of a public record of suppressing      labour is denied at the highest levels in the
     people’s rights through project boondoggles and       province of Sindh.
     displacements.                                                Furthermore, public debate and
             Since the Programme rationale includes        transparency are prerequisites of serious
     economic and environmental rights, glaring also       reforms. Does anyone really believe that these
     is the absence of any institutions directly           are likely to be fostered by the proposed
     involved with labour or environment, at either        implementation arrangements?
     federal or provincial levels. This is not

What benefits? To whom?                              efforts to transform the performance of the
         The Bank claims that “AJP will deliver      judiciary and the police such that the citizenry
benefits in three domains. Actions in the first      will regard these institutions as the important for
domain, policy and legal provisions, will secure     the assertion and protection of their rights, while
(i) greater judicial independence, transparency,     the poor will feel confident to use them to
and accountability; (ii) better citizen-state        reduce their vulnerability. While the benefits of
relations; and (iii) more durable public             the improved rule of law are indispensable to
institutions responsible for the delivery of         improve economic performance, the AJP will
justice.”                                            decrease vulnerability for the poor in substantial
         These reforms in policy and law are         ways including (i) alleviating the vulnerability
likely to yield lukewarm benefits that will make     arising from everyday harassment, under
little positive difference to the range of the       performance, exclusion, and denial of basic
rights of the poor.                                  rights by public officials; (ii) easing the
         “Actions in the domain of institutional     vulnerability of informal sector activities to rent-
performance will result in: (i) greater judicial     seeking activities of officials responsible for
independence, fostering the predictable, timely      licensing and regulating people’s access to
and impartial rule of law conducive to investor      economic and environmental assets; (iv)
confidence; (ii) a dramatic decline in political     improving the accountability of public officials,
interference in police services; (iii) enhanced      and improving the accessibility and affordability
institutional arrangements for holding public        of public goods and services on which the poor
servants and officials accountable for violations    rely disproportionately.”
of citizens’ rights and entitlements; and (iv)                If realised, these claims are of
greater public engagement in planning and            revolutionary performance. Certainly a first
monitoring the performance of judicial and           reading of the document belies these claims.
police service delivery.                                      What are we to make of the assertion, “
         Accountable to whom? Engagement by          The vulnerability of the poor is significantly
whom? The usual coterie of public                    exacerbated by their weak literacy in law and
representatives, uniformed or otherwise, give        the inability to enforce the law.” Is this a
little reason for optimism that accountability to    question of inability, or design/intention? Or,
the poor for their rights can somehow be secured     that “it is apparent that patterns of adult literacy
without direct, collective action by the poor        greatly affect the capacity of the poor to access
themselves.                                          the opportunities created by reformed public
         Combining claims in the first and second    institutions.” What types of rights and services
domains suggests that greater judicial               are we talking about? Since literacy is currently
independence is largely to be confined to            largely absent among the poor, whom then is the
promoting investor confidence. This is               AJP really going to serve?
especially ominous in light of the frequent                   If the poor are admittedly non- or not
expressions of making labour and environmental       fully literate, how and through which
laws as investor friendly, i.e. turning the entire   intermediaries would they benefit from the
country into an export processing zone where         following programme actions? “Freedom of
capital can operate with much impunity. Has          Information (FOI) law will be passed, and the
anyone at the ADB bothered to think about the        public will be informed of its meaning and uses.
decades it would take even with high economic        Publication of laws efficiently through the
growth to wipe out existing income poverty?          official gazette will be reviewed, and web
                                                     publication of all laws will be achieved during
       The loan document further claims that:        the AJP period. A law will also be enacted to
“Actions in the third domain,                        ensure that all regulations and circulars having
budget/expenditure management, will result in        the effect of law will be published in the official
greater consistency between allocations of           gazette. The Ministry of Law (MOL) and the
human and fiscal resources and institutional         Department of Law (DOLs) will be assisted in
responsibilities for the delivery of justice at      the timely publication of the official gazettes,
federal, provincial, and local government levels.    including publication on the web. In addition, to
The AJP will contribute to the Government’s          enhance the public’s understanding of the law,

     simplified explanations of all new laws will be       “access to justice in private life, economic
     published in Urdu. Over the AJP period,               livelihoods, and public goods and services are
     simplified Urdu explanations of major enacted         profoundly affected by the administration and
     laws such as the Civil and Criminal Procedure         police as well as the judiciary.”
     codes and the Penal Code will be published.”                  “Second, programmes in support of
     Whether simple or complex, documents in and           reforms can provide short-term incentives for
     of themselves are irrelevant to those who are         policy reform, but they cannot supplant or
     non-literate!                                         precede prior domestic political commitments.”
            “To provide quick relief against unlawful      How then are the poor to be mobilised to press
     imprisonment, a study on the law of habeas            for such political change in the State?
     corpus will be initiated and recommendation                   “Third, reform programmes must assist
     implemented to increase access to justice in          governments to articulate these commitments
     such cases.” Does unlawful include private            into long-term budgetary arrangements that
     imprisonment? There is no evidence that the           provide for independence of the judiciary and
     AJP intends to deal with the current situation in     devolve spending powers to the appropriate
     Sindh, where the High Court has essentially           administrative level of authority. Fourth, reform
     denied the application of habeas corpus to            programmes must work with governments, civil
     bonded labour                                         society, and the private sector to define, embed,
                                                           and extend institutional arrangements to
                                                           articulate policies/laws and enabling resources.”
     Safeguards and risks                                  But one would imagine that justice calls for
              The loan document considers that,            creating new arrangements rather than merely
              “Three factors present particular risks to   defining or extending them. How are the poor to
     the reform process, each of which is only             participate in these partnerships? What kind of
     marginally within the capacity of the AJP to          justice would we have if profits are the sole
     mitigate: (i) the fiscal crisis will make it          incentives offered to the private sector to
     extremely difficult for the Government to             collaborate?
     adequately and predictably resource the reforms               Coalitions and alliances of the poor with
     over the next decade; (ii) implementing               civil society are necessary (even if insufficient)
     government commitments to reform will depend          for promoting justice. It is then rather odd that
     on corresponding constituencies being created         the Bank does not require the project design to
     among provinces and local governments and on          be focussed on facilitating such coalitions and
     the facilitation of broad coalitions and alliances    alliances. Is it any wonder that mobilisation of
     with civil society; and (iii) the window of           the poor does not figure anywhere in the
     opportunity for reforms, through to October           document as a “safeguard” intrinsic to the
     2002, is vulnerable to uncertainty, within both       realisation of the project objectives?
     Pakistan and the region. While the AJP design,                But then even the provision of justice is
     in particular the TA loan, will assist in             characterised by the ADB project as service
     ameliorating risks relating to (ii) above, the        delivery.
     other risks are beyond the capacity of the AJP to
     mitigate. Furthermore, the heightened sense of
     instability and uncertainty created by the present    Accountability for what, and to
     regional crisis will undoubtedly impact on the        whom?
     law, order, and security situation within Pakistan            The project will use part of the TA grant
     that it is the purpose of this programme to           for “independent” monitoring. Since the
     improve.”                                             programme is executed by the Ministry of Law
              Quite refreshing is the reminder that “the   and Justice, which itself deserves scrutiny, the
     lessons from experience with conventional             process of monitoring is fatally compromised to
     justice reform is it they must extend beyond the      begin with. Tragically, nothing seems to have
     judicial domain. However well designed and            been learnt from past projects such as the multi-
     run, judicial systems are unlikely to be well used    billion Social Action Programme scandal, where
     by the poor.” But then there is a sudden shift in     monitoring consultants kept parroting task
     language towards a managerial approach -              managers only to belatedly acknowledge that

there were serious problems in the Programme.        policy and legal framework for sustainable
        “Through the TA grant, ADB will help         judicial and police reforms, and initiate a set of
the PMU to establish monitoring procedures to        activities to address some of the most pressing
meet three purposes: (i) monitor the progress of     issues in the sector.” When such activities are set
the implementation of the reforms; (ii) ensure       by the ADB, they are likely to ensure everything
independent audit procedures; and (iii) provide      but justice.
strategic information, based on lessons from
experience, to manage the reforms. Monitoring
will focus on three aspects of the reform: (i)       Bribery and co-optation
Budgetary Commitments and Expenditure                        “An institutionalised and multipurpose
Performance. (ii) Implementation of                  legal empowerment fund (LEF) will be created,
Institutional Arrangements. (iii) Performance of     as an integral component of the AJDF, with its
the Access to Justice Development Fund.”             own governance structure that reflects civil
        It is assumed, both arrogantly and           society representation. The LEF will provide
dangerously, that public monitoring of the           new options for Pakistan’s most vulnerable
substance of the reforms is not required. If for     citizens and will allow for civil society
example, the Government of Sindh decides to          initiatives and public-private partnerships to
side with the Sindh High Court in persuading         empower the vulnerable poor. The feasibility of
bonded tenants to seek relief in the dormant and     establishing a public defender system will also
inadequate provincial Tenancy Tribunals rather       be examined to provide legal support to the
than in the Federal Bonded Labour Act, should        vulnerable poor.”
we be delighted at this successful management                No word about public prosecutors to
of implementation of injustice?                      address the glaring deficiencies of the Federal
        “MOL, in co-operation with the               Attorney General or the Advocate Generals at
Implementing Agencies and TA grant and loan          the provincial levels - perhaps because the
consultants, and ADB will conduct evaluations        lessons from Ombudsmen here and elsewhere is
by an independent authority jointly appointed by     that success in achieving justice requires the
ADB and the Government at the end of year 3 of       sincere and vigorous mobilisation of new civil
AJP implementation.” Not surprisingly,               society associations.
accountability remains confined between                      “Civil society groups will be able to
government and donors despite much rhetoric of       access the LEF to raise awareness about and
good governance.                                     provide assistance for enforcement of
                                                     environmental rights.” Whose rights, and to
                                                     what? Will the AJP finance peoples’ actions
Whose designs?                                       against the environmentally damaging
        It is a cruel joke to claim that a project   expansion of commercial fisheries that the ADB
addresses the needs of justice by the poor and       itself or donors such as the European Union
then to exclude them in designing the project.       (EU) are supporting? As another illustration,
This is the reality despite the claim that “reform   can the LEF be used to put brakes on the
proposals have been indigenously driven              Chashma canal project funded by the ADB?
through multi-layered stakeholder                    How will the LEF be constrained if the ADB
participation.”                                      funds expansion of the Karachi water supply
        In view of its shallow moorings but          before it first addresses problems of marine
enormous power, the ambition of the ADB is           pollution?
dangerous. “The AJP is the first phase of ADB’s              Quite consistently, civil society is to be
long-term assistance to Pakistan for access to       involved in oversight only through nominated
justice reform. Legal, judicial and police           representation at the federal and provincial
reforms, like any institutional change, are          levels.
inherently complex and require time to change                “By engaging stakeholders (within state
institutional culture, incentives, and behaviour.    agencies and civil society) in the reform process
In this first phase, the AJP aims to integrate       and demonstrating to the public that a positive
access to justice issues into the larger             difference can be made in the delivery of justice
development debate in the country, set the           through improved procedures, greater

     transparency, automation, etc., these                  Police Reform - $237 m; Fund - $25 m.
     complementary activities will instil confidence        Additional expenditures are to come from local
     in the reform process.” Since the document is          government. The AJP loans and grants of $350
     silent on how such engagement will be fostered,        million are to “defray” these outlays.
     one should safely assume business as usual in all              Administered by the Law Commission
     its senses.                                            (for a lawful commission of 3%) the Access to
                                                            Justice Development Fund (AJDF) will include
                                                            a Judicial Development Fund (JDF) of $16. 7
     No role for the poor                                   million; the Legal Empowerment Fund (LEF)
             The ADB considers that the programme’s         using between $3.75 - 5 m; the Fund for
     “focus on accountability, sanctions and                Innovations in Legal Education (FILE) of $1. 75
     performance through legal empowerment will             - 3 m; the research and development fund of
     raise sensitive cultural, social, and political        $1.75 m; and the Federal Judicial Academy
     issues. According to this empowerment-oriented         Fund of $1.75 m. From the AJDF, $ 2 million
     definition of access to justice, awareness and         may be used to establish centres of legal
     literacy involve building people’s appreciation        education. Another subsidy to the rich?
     of their rights and the law; their ability to act on           The judicial reforms in the loan
     legal knowledge or to assert their rights              programme say absolutely nothing of real
     individually or collectively; and their capacity to    consequences to the poor. One would have
     mobilise for change. This approach will focus          expected the agenda to include reform of labour
     on disadvantaged populations who most need             laws towards universality and towards better
     legal knowledge and ways to use it.”                   enforcement such as through a Minimum Wage
             But then how are the poor assisted by this     Tribunal. Instead, the programme will provide
     Programme to act?                                      dedicated full-time benches for commercial
                                                            cases in the Lahore and Karachi High Courts.
                                                                    In view of the emphasis on
     Protecting the environment                             environmental justice, it is odd that judicial
             “Consistent with its institutional focus,      reforms include the setting up and actual
     the AJP is to support the enforcement of               functioning of the long-promised Environmental
     environmental laws through the establishment of        Tribunals only in Balochistan and the NWFP.
     environmental tribunals already provided for in        Does the ADB really believe the Sindh and
     the law, and by ensuring that any conflict of          Punjab Governments that such tribunals are
     interest is removed by different persons heading       already operational in these provinces? Or is it
     environmental protection agencies (EPAs) and           considered too dangerous to establish tribunals
     the provincial environment departments so that         in Sindh and Punjab?
     EPAs can effectively promote the public                        The ADB promises among other benefits:
     interest.”                                             “enhanced institutional arrangements for
             How does the AJP intend to deal with           holding public servants and officials accountable
     gross environmental abuse such as changing             for violations of citizens rights and entitlements;
     laws to accelerate commercial exploitation of          and greater public engagement in planning and
     protected natural parks, as was done for Shell         monitoring performance of judicial and police
     and Premier by the Sindh Government and its            service delivery.” The document fails to explain
     agencies in Kirthar Park? What does the AJP            what these “enhanced” arrangements are to be
     recommend that citizens do when the North-             and how they will be attained. These are not idle
     West Frontier Province (NWFP) government               queries. Consider, for example, the current
     prevents the Forestry Commission from                  difficulties in acknowledgement of employment
     functioning as intended by law?                        status faced by informal sector workers and
                                                            sharecroppers, with the consequent depredation
                                                            upon their rights to life and livelihood.
     Where the money will go                                        Similarly, the loan document does not
            The programme expects the Federal and           discus how meaningful public engagement will
     provincial governments to spend over $ 400             be carried out. Most likely, these engagements
     million as follows: Judicial Reform - $149 m;          will involve elite negotiations with sham “public

Market-friendly rights                                to substantively overhaul projects for which
        For purposes of the poverty analysis, the     large loans have been approved and subsequent
programme document looks at broad expected            vested interests created within the Bank as well
outputs “in terms of their anticipated impacts on     as in Pakistani society.
the labour market, prices of goods and services,
public expenditures, and access to public goods
and services.” The attached tabular presentation
                                                      1; www.
is illuminating. Justice, did we hear anyone say?
                                                        RRPS/PAK/rrp_32023. pdf .
        In the Sindh Rural Development Project,
the ADB proposed to buy the freedom of bonded
labour from their creditor landlords, rather than
insist upon compliance with the exisiting
legislation that declares all such debts illegal
and requires prosecution of the creditors.
Perhaps this is what the ADB would call a
“market solution” to injustice.

Role of the law
        Since much is made of justice as
adherence to law, it is useful to recall the odious
role played by the ADB in funding, and
continuing to fund — despite documented
objections — projects and agencies who have
blatantly and consistently flouted national laws
on land acquisition. The unnecessary
displacement of people and their livelihoods - in
scale or timing — has been the hallmark of
projects such as the Chotiari Reservoir in Sindh
(under the National Drainage Programme); the
Chashma Link Canal in Panjab; and the Ghazi-
Barotha Hydropower project in Panjab and
NWFP. It should be apparent from these and
other examples - such as urban cleansing by
eviction of squatters to provide space for
shopping plazas - that for the poor, claims to
resources are threatened most by the State.
        It is perverse to term a programme that
makes the world safer for capital and its
interests, but tramples on all other moral orders,
as promoting access to justice for the poor.

Beyond remedy
        As a programme to advance justice by
promoting people’s rights, this the ADB
supported AJP is considered to be seriously
flawed in design and implementation
arrangements. An appropriate popular response
needs to be carefully formulated after wide
public discussions about the implications of the
Programme.. Our past experience (e.g. with the
Korangi Waste Water Project) is that it is
illusory to expect the ADB and the Government

              POVERTY IMPACT ASSESSMENT (Appendix 4, AJP Loan Document)

                                               Type of Effect

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

     Labor            Minimal effect jobs    Income losses for       Improvement of           Skilled and educated
     Market           in the judiciary and   rent seekers            business confidence.     labor is expected to
                      police through the     facilitating services                            benefit from
                      creation of new        under current                                    increased foreign
                      positions.             system.
                                                                                              investment that
                                             Employment                                       creates employment
                                             generation in private                            opportunities.
                                             sector as investment

     Prices           Service charges for                            Increased business
                      legal fees are to be                           efficiency of formal
                      increased but                                  businesses is
                      consumers are                                  expected to lower
                      willing to pay for                             prices of domestic
                      better service                                 goods and services.
                      especially if hidden
                      changes are

     Public           Despite budgetary      Other sector may        Overall fiscal deficit
     Expenditures     constraints increase   receive relatively      targets agreed upon
                      government             smaller budgetary       with IMF will be
                      expenditure for        allocation given        maintained.
                      judiciary and police   budgetary
                      administration.        constraints.

     Access to        Due to the             A significant           Spillover effect to
     Public Goods     tremendous backlog     improvement in the      improved delivery
     and Services     of cases and           timeliness and          of public foods
                      entrenched practices   quality of legal        across as the            Impact relatively
                      in the legal/justice   services is expected.   efficiency and           less on non-poor
                      system the                                     effectiveness of         who have access to
                      significant                                    judicial and police      justice and police
                      immediate effect is                            services permeate        services through
                      not anticipated.                               throughout the
                                                                                              their position of
                                                                     public sector.
                                                                                              power or financial

                  The Asian Development
                Bank’s Uncivil Engagements
           The Experiences of Chashma Affectees1
                                            By Mushtaq Gadi*

        The Asian Development Bank (ADB)                  informal practices to address these
makes frequent assertions about bettering the             contradictions. The public is tactfully denied
governance aspects of the development projects            access to relevant information. Decisions and
it finances. Participation, transparency and              agreements that are considered pragmatic are
accountability are considered major mechanisms            kept secret to avoid unpleasant and
to improve overall project management and                 unpredictable consequences. Meetings with
address adverse social and environmental                  project-affected communities (affectees) and
impacts. A number of policies, albeit formal,             representative of civil society organizations
legalistic and procedural in character, prescribe         (CSOs) are not generally recorded, and often,
these elements as pre-requisites for attaining the        they are mis-represented. Participation is
goal of good governance in terms of project               reduced to token representation. The risk of
planning and implementation, programming and              opposition and resistance by affectees and CSOs
strategy development.                                     is deterred through prolonged, laborious and
        However, there is now significant                 unclear engagements with Project and Bank
accumulated evidence available to demonstrate             staff, without any indications or assurances
that the ADB’s claims do not match reality. Its           about the outcomes of these engagements. The
written words seldom translate into deeds. Bank           success of these engagements depend largely on
staff usually find it difficult to even ensure            seductive and imaginative speech. General
compliance with the ADB’s own already weak                features of such engagements include promises,
and contested policies regarding project                  complaints about ADB’s lack of leverage,
preparation, planning, implementation and                 criticism on dysfunctional national policies and
monitoring. The Bank frequently finds that it             laws, and sympathy for the suffering of the
has to negotiate decisions in deeply political            affectees by ADB and project staff. On the
institutional contexts, and thus needs to increase        other hand, Bank staff always display uneasiness
its political leverage and make strategic power           and reluctance when issues of rights and
alliances to protect its institutional interests.         compliance with institutional policies are raised
Unfortunately, project-affected communities               with them.
who lack voice in decision-making and access to                   The policy violations based on informal
power alliances remain marginalized in this               practice coupled with the lack of effective
process.                                                  mechanisms for internal accountability yield a
        The fact of non-compliance with its own           variety of “uncivil” engagements by Bank staff
policies has led Bank staff to engage in a set of         with the project affectees. Although these

*Mushtaq Gadi is with the Sunghi Development Foundation in Pakistan (

     uncivil engagements are not recorded, they          of environmental impacts. Most shamefully, the
     overwhelmingly determine the relationship of        report on resettlement survey and plan was
     the Bank’s staff with project affectees. More       prepared in the same month when the
     often than not, these engagements appear to be      engagement of Chashma affectees was started
     more of a game for Bank staff than a genuine        with the Bank. The affectees were kept in the
     recognition of the fundamental rights and           dark and denied their right to know about these
     responsibilities of the affectees.                  plans (the right to know is accepted in the
            The experiences of affectees and civil       Bank’s own guidelines). This was clear violation
     society organizations involved in the campaign      of the Bank’s own policies.
     of Chashma Right Bank Irrigation Projects                   Apparently, the violation of the affectees’
     (CRBIP) are a testimony to the uncivil              right to know was necessary in order to conceal
     engagements practiced by the ADB.                   a series of policy violations in other areas. In
                                                         fact, the Bank was not fully prepared to follow
                                                         its own guidelines and policies. It was therefore
     Information maneuvering                             thought better to conceal Project related
             The formal engagement of Chashma            information as long as agreement between the
     affectees with the Bank was started in February     Bank and WAPDA was not reached. The
     2001. The first demand from the Chashma             agreement was negotiated three months later
     affectees and NGOs was to allow full access to      when the WAPDA refused to implement the
     all project related information, and particularly   resettlement plan. Consequently, a second
     to the report on resettlement surveys and the       document was prepared in May 2001 which
     environmental management plan. However,             stated clearly that the affectees should either
     Bank staff refused to share any of this             accept nominal cash compensation or
     information and pleaded that the Bank’s new         construction of flood protection embankment.
     policy on information disclosure does not apply     Again, the second document was also not shared
     in the case of CRBIP since the Project was          with the affectees.
     approved in 1992. Similar answers was given
     with regard to compliance with the Bank’s
     Policy on Involuntary Resettlement.                 Consultation: choose between
             Surprisingly, after almost two years, the   forced eviction or life
     Project Management Consultants handed over          imprisonment
     the resettlement survey report and action plan to           “Flood protection bund is a sub-jail for
     representatives of the affectees during the         us. Our women, children and elderly people face
     Chashma Stakeholders’ Workshop held in              problem for toilet. In our village, we are 170
     March 2002. After going through the report,         persons at present; naturally we will grow and
     surprise was replaced with utter shock.             be in need of more houses soon; but the
             The document was extremely revealing.       premises is too small to build a single room;
     We learned that the resettlement survey and plan    imagine living within 18-20 feet high
     was prepared in accordance with the guidelines      embankments at 50 degree temperature. The
     for incorporation of social dimensions in Bank      protection bund could be breached any time and
     Operations2. These guidelines make it               we would be buried inside the bund. You people
     compulsory to consult with the affectees and        would be responsible for our death”.
     concerned NGOs. Moreover, consultations with                The above are the views of an affectee,
     the affectees and NGOs was also included in the     expressed during the Chashma Stakeholders’
     terms of reference for the resettlement survey      Workshop.
     and plan. It was further revealed that the ADB              “ We can not do anything to solve your
     had asked the consultants to take into account      problem. We don’t have the funds for
     the Bank’s Policy on Involuntary Resettlement       resettlement. Moreover, the law does not permit
     when preparing the resettlement plan for            us to provide resettlement for affectees. It is up
     Chashma affectees. Bank guidelines mandate          to you whether you want to live there or migrate
     that irrigation projects which cause involuntary    to the other areas.”
     displacement should include resettlement                    “ We admit that there is a severe problem
     components and be given high ranking in terms       of flooding in the riverine belt caused by the

project. We are also ready to extend the                     The entire situation was a two-pronged
distributaries and flood carrier channels up to      strategy jointly formulated by the Bank and
the Indus River. However, the local community        WAPDA. On one hand, Bank staff continued to
will have to cooperate with the WAPDA and            engage the affectees and NGOs in consultations
should provide the land to the government free       without sharing vital project information or
of cost”.                                            disclosing decisions that had already been
        The above are the views of the project       agreed on. Bank staff pretended that they were
director expressed during the Chashma                serious in their intentions to follow their policies
Stakeholders’ Workshop                               and guidelines. On the other hand, WAPDA
        The life of more than thirty thousand        carried on coercive operations against the
people living in the west side of Chashma Right      affectees to compel them to choose between
Bank Irrigation Canal is under the severe threat     forced eviction and the construction of flood
of project induced flooding. A number of mighty      protection embankments. The strategy was
hill-torrents from the west side hit the canal and   indeed a fine combination of tactical thinking
created flooding because of failure in getting       and use of force.
safe and timely passage.                                     Last year, the implementing agencies and
        The first social survey and resettlement     local police tried to forcefully evict the affected
plan for the villages facing the threat of project   villagers. They were asked to accept the
induced flooding was prepared in February            payment for only houses. It was said that the
2001. The resettlement survey and plan was           compensation for land would be paid later, after
meant to consult with the affectees about the        the completion of legal processes. However, the
option of resettlement or construction of flood      villagers are still living in their ancestral places
protection embankments around the endangered         despite the fact that they would be under the
villages. All villages except one opted for          threat of flooding during the monsoon in the
resettlement in the east side of the canal. The      current year.
survey report indicates that the opinion in the              The people in the village who opted for
villages that opted for flood protection             flood protection embankments feel that they are
embankment was also divided. However, these          now living in a jail. Imprisoned by the high
consultations proved to be symbolic, and views       embankments, they can now only view the sky
of the affected communities were totally             or stars. There is no facility for the drainage of
disregarded in the decision-making process.          rainwater-which is enough to flood the entire
Consultation with the affectees was one sided        village. New construction in the village is
and there was no institutional mechanism to          impossible because of the closed embankment.
involve the affectees in decision-making             Mobility has been seriously constrained. It is
processes.                                           particularly difficult for the elderly to walk up
         In May 2001, the decision was made          and cross the embankment. Most importantly,
against the implementation of resettlement plan.     these earthen embankments provide minimum
It was agreed between the WAPDA and Bank to          protection. They can be breached any time by
either pay the nominal cash compensation or          the force of floodwaters.
provide flood protection embankments to these
villages. This was the same month when the
Bank showed its readiness to send a special          Making the impossible happen:
review mission followed by a stakeholders’           Inaccurate data, changes project
workshop in response to the concerns of              design, flooding and displacement
Chashma affectees and NGOs. During the                      When the project was started in 1992, it
negotiation, the Chashma affectees and NGOs          was claimed that there would be no
demanded once again access to the resettlement       displacement. Four years later, it revealed that
survey and other project-related documents. The      nine villages would be displaced due to the
demand was rejected on the basis of policy           project induced flooding. The figure went up to
restrictions. In fact, it was considered incorrect   twelve villages when the resettlement survey
to share this information before making the final    and plan was prepared in February 2002. The
decision.                                            figures on displacement continue to rise. In a
                                                     recent document, the WAPDA indicated that

     about twenty-three villages would be under the       stakeholders. Efforts towards multi-stakeholder
     threat of flooding. However, the affectees are       dialogues and consensus building help the Bank
     convinced that this recent assessment is still not   to buy time to speed up the process of project
     realistic. Rather, the number will continue to       completion. Most importantly, the rules of
     increase because of fundamental structural flaws     stakeholder dialogues and consensus building
     in the project design are being deliberately         processes are purposefully structured to impose
     ignored.                                             decisions that have already been made on the
             The reason why the Bank, WAPDA and           vulnerable affectees.
     foreign engineering consultants failed to assess             Our experiences of a recently held
     the flooding and subsequent displacement             Chashma Stakeholders’ Dialogue are ample
     accurately is interesting. The project is an         proof of the sophisticated manipulative skills
     impossible endeavor that was made to look            and methodical tactics of Bank staff in imposing
     possible on paper through hyper-scientific and       decisions on affectees. In response to the
     engineering imagination, using inaccurate data       affectees’ demand for an independent project
     about peak flood flows and rate of silt              review, the ADB agreed to send an internal
     deposition. In addition to divergent local views,    special review mission. Based on the affectees’
     information and figures of other national and        concerns about the independence of the review
     international agencies also contradict the           process, the Bank suggested involving external
     estimates made by the project’s engineering          consultants to document stakeholders’ concerns
     consultants.                                         and facilitate the dialogue on conflictual issues.
             Most interestingly, one of the major aims    The process took almost seven months to
     of the project is to protect local communities       culminate into the stakeholders’ workshop.
     from the risk of seasonal floodwaters by the         During the workshop, the WAPDA refused to
     various hill-torrents. Almost half of the project    agree with the major demands from the
     budget was allocated to construct flood              affectees regarding resettlement, just
     protection structures. Indeed, this objective was    compensation for loss of livelihoods, full access
     misplaced. Local communities have never              to information, etc. The delegation from the
     considered the water of hill-torrents as             ADB refused to comment on compliance with
     floodwaters. Rather, they have used this water       Bank policies in relation to these issues. The
     for irrigation purposes for generations. A very      affectees also came to know that “consensus”
     sophisticated hydraulic system was developed         was already reached and agreed upon between
     by the local communities to control and use this     two powerful stakeholders. This led the
     seasonal water for irrigation purposes. The          affectees to boycott the workshop. The entire
     Chashma project failed to achieve this objective     process proved to be an important learning
     and instead, created a situation in which a large    experience for the affectees, who trusted the
     number of local people are facing the severe         Bank and entered into the stakeholder dialogue
     threat of project induced flooding.                  with the hope to achieve something from the
              The Bank and its consultants have not       promised “win-win” solutions.
     only used wrong data, but also used misplaced
     objectives to justify the project. The planning
     and preparation of the project were based more       Report on the Chashma
     on the will to profit, than the need to address      stakeholders’ workshop:
     local problems.                                      Secondary displacement
                                                                  The affectees were shocked when they
                                                          received the report on the stakeholders’
     Multi-stakeholder dialogue:                          workshop. There was no reporting on the areas
     Imposing consensus                                   where major disagreements had occurred. The
            Multi-stakeholder dialogues and               views and opinions of affectees on issues critical
     consensus building are two preferential terms in     to them were not considered worth documenting
     the Bank’s discourse on engagement with              in the report. The report on one-day field visit
     society. The Bank benefits from this discourse in    was entirely missing. The Chashma affectees
     many ways. Compliance with its policies is           considered this technique a kind of secondary
     made conditional to consensus building among         displacement in which the views and opinion of

affectees were systemically displaced from the           financing for the project was provided by the ADB
discourse and text. Despite several protest letters      in 1999. Major concerns of affectees are project
against this attitude, the consultants hired by the      induced flooding and subsequent displacement of
ADB refused to report on the areas of                    more than thirty thousand people, irreparable
disagreement and to include the views of                 disruptions of local livelihoods, massive losses of
affectees in the main report. Clearly, displacing        productive assets including land, trees, houses and
the voices of affected peoples from mainstream           other structures, and adverse environmental
discourse is essential for powerful institutions         impacts. This paper will focus on the governance
such as the ADB to ensure that they control              related aspects of the project.
knowledge about development.                           2 Guidelines for the incorporation of social
                                                         dimensions in Bank’s operations were approved in
                                                         1991 and hence applicable in this project.
Conclusion: Rethinking
        Civil society organizations and peoples’
movements have serious concerns about the
approach and practices of International
Financial Institutions (IFIs) on governance and
rights. They are becoming increasingly
convinced that the policies of these institutions
on information disclosure and structures of
decision-making are not able to ensure
compliance with universally recognized,
fundamental human rights. On the other hand,
these institutions claim to evolve “constructive
engagements” with key stakeholders to create an
enabling environment for resolving the
problems and addressing the concerns of
         Like many other cases, the experiences
of Chashma affectees show that the rhetoric of
constructive engagement has never become a
reality in actual practice. Rather, a set of
standard, informal practices and strategies are
devised to impose consensus on politically
marginalized groups of local affectees. Instead
of constructive engagement, a variety of uncivil
engagements are developed and used to achieve
the IFIs’ own institutional objectives.
        There is serious need to document
experiences of such uncivil engagements in
different projects to facilitate future dialogue
and strategy development among projected
affected peoples and supportive CSOs. Equally
urgent is the need within civil society to debate
the issue of engagement with institutions such as
the ADB and other IFIs from the perspectives of
good 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

                    The Sri Lanka Southern
                 Transport Development Project
                                           By Heather and Cyril Mundy*

             We have been told that in the Charter of       political and financial influence. The ADB failed
     the ADB it is clearly laid down that the Bank          to monitor the RDA as a result, none of the
     should ensure it is a socially minded lender.          “Elements of Good Governance” as given by
     However, we are seeing the complete opposite           ADB in their Operations manual OM Section
     of this in Sri Lanka, in the Southern Transport        54/BP were practised by the RDA.
     Development Project that is supported by the                    All the ADB documentation, the Report
     Asian Development Bank (ADB).                          and Recommendation of the President to the
                                                            Board of Directors on a Proposed Loan (RRP),
             The Sri Lankan road system is very poor        Summary Environmental Impact Assessment
     and there is certainly the need for a network of       (SEIA) all refer to the originally designed route.
     fast roads to improve communication and                None of the variations of the RDA have been
     movement of freight. The first is a link between       covered by any of the above studies. The
     the capital Colombo and Matara, a deprived area        changes in the route causes significant social
     in the South of the island. Funding for this link      disruption, for instance in one village alone 138
     is being provided by the ADB and the Japan             houses out of five hundred houses will be
     Bank for International Cooperation (JBIC).             destroyed. Most of these houses are parts of
                                                            extended families. The splitting of these close
            In line with the ADB policy, a highway          family ties by moving people elsewhere is very
     was designed which minimised the destruction           disruptive to the community. Moreover, there
     of houses and ensured the road had the best            are no places to resettle the families, so large
     balance of income and costs, both social and           compensation have been promised to silence the
     financial. This design was handed over to the          critics. The promise of compensation is
     executing agency the Road Development                  untenable— Under ADB guidelines people
     Authority (RDA) to manage the environmental            displaced have to be provided with alternatives
     clearance and come up with a detailed design. In       which provide an equal or better standard of
     the process of doing so the RDA changed the            living. Many of the people in the village are
     route of the proposed highway link. The RDA            farmers and will not be provided with
     acted in secret, and partly staged a cover up          alternative lands to cultivate. They are too old
     exercise. The change of the proposed route was         to be retrained. The people have been promised
     concealed from the public and possibly the ADB         only 1/8th of an acre in compensation, at
     as well. The RDA design seems to be a result of        present most of the villagers have productive


home gardens and vegetable plots in addition to       the organisations realised that some of the
their paddy fields. The promised land will not        comments of the people and of the
be able to sustain them in the same way. There is     representatives were conspicuous by their
also an obligation to re-locate people within the     absence. When the local organization
administrative divisions that they now live in.       Gelanigama asked the ADB to include the
This impossible as there is not sufficient land for   statements, the request was denied. The idea of
this in the local area. Children’s schooling will     getting an inspection request to investigate the
be disrupted and family ties severed. In areas        project is in itself a very uphill task. The details
where compensation was paid, early on, it was         required for the Inspection request is often hard
derisory, recent values that have been offered in     to obtain, moreover, the manual and guidelines
some areas are also very low.                         for such a request are in English and couched in
                                                      legal jargon, which makes it extremely difficult
         After our pleas to the RDA and the           for non-english speaking farmers to
Government of Sri Lanka (GOSL) fell on deaf           comprehend and adequately address.
ears for many months, we sent a petition in July
2001 signed by 188 families representing 745                   We did our best and sent in a request with
people to the JBIC and the ADB. The ADB did           all the details we could find. We have not
not even acknowledge it. In December 2001 we          received any information from the inspection
were told that the Resident Mission had sent it       administration or the ADB management. To
to Manila, who have not acknowledged it up to         make matters worse, the ADB claimed the
now! We were not aware that this project was          whole issue is sub-judicei and therefore cannot
being run by Manila and feel the Resident             be discussed. However, the investigation is not a
Mission concealed this fact from us. Not much         legal case and therefore, by virtue which, all
of “Transparency” by the ADB!                         evidence and information should be considered.
        The ADB were advised in detail of the         It is clear therefore, that the ADB is not willing
changes and results of these changes on the           to hear evidence that could expose the flaws of
people by various groups along the route. The         the project. The ADB’s claim to transparency,
ADB were pressured to ask the RDA for                 accountability and good governance seem to
clarifications. The RDA’s clarifications were         have vanished into thin air.
clearly unsatisfactory and falsified. For instance
the RDA claimed that they conducted 4000                       The RDA is now in a race to beat the
meetings with people affected in one year,            Inspection Committee. Get the project to a point
which means the RDA should have conducted             where the Inspection Panel, if there is one, can
12 meetings day every single day of the year,         do nothing. All the land acquisition is to be done
including weekends, holidays!! The ADB                before the Board ratifies the Inspection
accepted the clarifications given by the RDA          Committee’s decision. The route then becomes
and referred the RDA’s letter to the                  a fait accompli!
complainants, with a covering letter stating
ADB’s acceptance of RDA’ clarifications.                       The ADB Management is happy to help
Further letters were sent by societies in the         the RDA, it asks for extensions for its reply.
villages of Gelanigama and Akmeemana to the           The Inspection Committee also gets extensions
ADB asserting the RDA’s responses were not            for itself. The ADB Directors will not respond to
factual. The ADB Management’s lengthy reply           letters, they will not even meet the complainants
reiterated the ADB’s acceptance of the RDA’s          to understand the problem and delay the RDA.
clarifications.                                                The indications on the Panel request so
        In December 2001 the ADB sent a team          far are that the RDA continues to misguide the
of representatives to meet the people , this was      ADB and Management, who in their turn are
in response to a inspection request made by the       content to pass them on. The Management
affected people. The ADB representatives met          Response to the Inspection Request cannot be
the people and in their discussions the team had      seen or verified by the affected people. Perhaps
indicated their displeasure over RDA’s handling       we will see it after the Board has made its
of the project. However, when the minutes of          decision on the Inspection Panel.
this meeting were received from the ADB office,

             The decision is due mid April 2002. It is
     surprising, that having written the first
     complaint in July 2001, it takes the ADB more
     than a year to make a decision?

            Other affected groups have sent in their
     Inspection Requests, ten in all. One organisation
     may receive a decision in early May, the others
     have been pigeon-holed by the Inspection
     Committee waiting for them to review the
     request ‘as soon as practicable’ which has been
     more than four months.

             All the good words about transparency
     and good governance come to naught if the
     Management and the Board cannot show these
     themselves. They certainly have not been
     interested in trying to get the GOSL to follow

     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.

                           Hijacking Development
                            in Madhya Pradeshi
                                                  By Raghav Narsalay*

Introduction                                                        mainly through support for efforts to reduce
        Since the beginning of the nineteen-                        bottlenecks in key infrastructure sectors,
nineties, the Asian Development Bank (ADB),                         including measures to improve policy,
has played a central role in deepening neoliberal                   institutional and regulatory frameworks and
ideology at the sub-national level by                               through support for financial sector reform and
strategically extending what are known as                           capital market development.”
‘policy loans’ to national and sub-national                                 The above paragraph shows that the ADB
entities in India. By adeptly using political                       wants to generate employment and growth in
processes at the sub-national and national levels,                  India by reducing bottlenecks in key
the ADB, with active support from different                         infrastructure sectors. Is this approach
state-level governments, has carved out a role                      particularly India-specific? Not at all. In fact,
for itself in pushing policy reforms, especially in                 the ADB has been implementing this strategy in
the states of Madhya Pradesh, Gujarat and                           almost all the countries where it is operational.
Kerala.ii                                                           Which then raises the question, why is the ADB
        Given this evolving role of the ADB in                      keen in pushing such a strategy everywhere?
the Indian context, it is critical to analyse how
the ADB uses its macroeconomic framework to                         ADB furthering interest of the State at the cost
push the macroeconomic and sectoral reforms at                      of people’s interest
the sub-national level. Also important would be                             For the ADB, creation of key
to review as to whether the ADB becomes an                          infrastructure is about building dams, huge
agent to facilitate the political objectives of the                 electricity generation plants, ports and other
State and elite local private interests and vice                    forms of large infrastructure. Creation of such
versa.                                                              inflexible, hard projects helps not only the ADB,
                                                                    but also helps the State to promote a false,
                                                                    development-friendly image before its people.
The Macroeconomic Framework                                         Furthermore, actualization of these projects
of the ADB - some critical issues                                   creates a space for the State and the ADB to add
        To quote from the ADB’s Country                             new contours to the definitions of ‘national
Assistance Plan (2000-2002):                                        pride’ and ‘national security’. The State and the
        “ADB’s current country operational                          political and economic elite are then in a
strategy (COS) for India is designed to support                     position to use these notions to roll out projects
efforts to achieve higher growth and                                that may snatch away the rights of local
employment generation by improving the supply                       communities over their natural resources and
side efficiency of the economy. This is done                        livelihood opportunities under the garb of

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

     serving and safeguarding the larger public            construct such infrastructure projects. For
     interest. Rolling out such projects then provides     example, by instituting processes such as
     an opportunity for the State to seek external         international competitive bidding for purchases
     funds and for the ADB to lend, and oils the           above certain amounts, the ADB effectively
     machinery that furthers private and institutional     distorts the level playing field for domestic
     interests.                                            producers and service providers from host
             Constructing linkages between the             countries.
     creation of infrastructure projects and generation            In addition, similarities between the
     of employment also provides a rationale for the       reform approaches of the ADB and other
     ADB to argue that the generation of                   bilateral aid agencies at different levels allow
     employment and increase in economic growth            these institutions to complement each others’
     reduce poverty (which is not necessarily true).       efforts in deepening the neoliberal framework of
     And thus, the ADB claims the right to be              reforms at the macroeconomic, as well as at
     functional in the area of poverty reduction. Like     sectoral levels.
     the World Bank, the ADB then claims to have an
     expertise in designing and promoting economic
     reforms that purportedly lead to greater poverty      The ADB’s agenda for Madhya
     reduction in the Asia Pacific region.                 Pradesh - is it at all a
             Through its self-proclaimed expertise in      developmental one?
     the area of poverty reduction, the ADB gets a                 An examination of the macroeconomic
     license to automatically demand much greater          framework of the ADB vis-á-vis developmental
     and well-defined policy space from the national       concerns of its host countries clearly shows how
     and sub-national governments in the sphere of         the ADB creates an incentive structure for the
     economic reforms, encompassing areas such as          State and other private interests to collaborate
     education, health, sanitation and other essential     with it in the garb of furthering public interest. It
     services. Many a times, it gets much more than        would therefore not be surprising to see this
     the demanded space. This happens mainly               happening in the state of Madhya Pradesh as
     because the State also finds it politically           well.
     worthwhile to accept costly ADB financing to
     help the State to defuse the intensity of its         Mapping the process
     immediate political concerns at the national and              In 1997, Madhya Pradesh was shortlisted
     international levels. In sum, by accepting ADB        as the second state for ADB assistance (the first
     funds, the State, at the national level, can keep     state was Gujarat). During December 1997, the
     pushing the neoliberal reform process by              Bank cleared two packages in the area of
     showing that it is not abdicating its                 technical assistance, viz. “Support for the
     responsibility of providing the required financial    Government of Madhya Pradesh Public Finance
     resources to enhance the quality of basic             Reform and Institutional Strengthening”iii and
     services. And at the international level, the State   “Strengthening Local Government in Madhya
     can continue to build a pro-reform image.             Pradesh”iv.
                                                                   Technical Assistance included ‘teach-ins’
     Furthering the private interests of developed         for officials working with public institutions and
     countries                                             the State Government on the benefits of
             There is also another reason why the          undertaking a public sector reform programme.
     ADB is keen on pushing such a strategy across         As expected, these teach-ins concentrated on
     the Asia-Pacific region. By showing linkages          convincing the officials about the usefulness of
     between key infrastructure development and            the ADB-strategy for the state of Madhya
     economic growth, the ADB and its major                Pradesh and making them adopt the necessary
     developed country donors generate definitive          language that would guarantee an ADB loan
     demands for goods and services provided by            under the rubric of ‘poverty reduction’.
     large international suppliers (from the donor                 These observations are verified from tone
     countries) not only in the area of technical          and language of the letter written by the Chief
     assistance, but also in the procurement of            Secretary of the Madhya Pradesh Government in
     expensive goods and services required to              August 1999 to the then Finance Secretary of

the Government of India requesting him to             from the private sector.
“forward this letter to the Bank for the purpose              3. The Report mentions that the ADB is
of seeking Bank financial assistance for the          trying to learn from the sub-national experiences
Program”v. The letter clearly reveals the fact that   of other organisations like the World Bank.vii
the Government of Madhya Pradesh had not              But this does not seem to be the case, especially
entered into any critical consultation with people    since this document was released three years
before putting forward such a proposition to the      after the initiation of the Structural Adjustment
ADB.                                                  Programme (SAP) by the World Bank in the
       Although the ADB boasts about its              state of Andhra Pradesh. Research conducted by
governance policy, it completely overlooked this      Focus on the Global South and the Centre for
fact and in fact found it fit to come out with the    Environment Concerns in Hyderabad clearly
‘Report and Recommendation of the President           shows how the World Bank initiative— which is
to the Board of Directors on a Proposed Loan          similar to the one being pushed by the ADB in
and Technical Assistance Grant to India for the       Madhya Pradesh— has actually deepened the
Madhya Pradesh Public Resource                        cycle of indebtedness in Andhra Pradesh.
Management”vi in November 1999.                               4. If the State Government continues to
                                                      take loans from bilateral and multilateral donors
Problems with the ADB President’s Report              to finance its social sectors but is unable to raise
        It would have been surprising if there        revenue through taxes, then its chances of
were no striking glitches in the Bank President’s     falling into a debt trap are extremely high. The
Report, which is based on a process that did not      President’s Report does not discuss this issue
involve peoples’ participation in any stage of its    and therefore, it does not discuss strategies by
formulation. Following are some of the                which the State can address such risks.
shortcomings regarding the President’s Report:                Based on the above shortcomings and the
        1. The document is marred with                process by which the Report was formulated,
inconsistencies right from the beginning. For         one can conclude that the President’s Report is
e.g., the “Objective and Scope” and the               anti-people. Furthermore, the language and the
“Classification” of a project are important to        inconsistencies within the document imply that
understand the basic categorization of an ADB         the ADB is deliberately promoting confusion
loan. Consistency in language describing the          about the unfolding economic reform process in
“Objective and Scope” and “Classification” in         India.
ADB documents provides understanding on
whether a loan would prioritize social concerns
over economic imperatives. But this                   The ADB’s entry into the power
consistency is absent in the President’s Report.      sector of Madhya Pradesh
In the Report, while the “Objective and Scope”                The President’s Report (the document
prioritize social sector reform over economic         discussed in the section above) clearly makes
growth, economic growth becomes the primary           crucial links between the reform of public
objective and human development becomes the           finances and power sector reform. Although the
secondary objective in the section on                 Report mentions that this particular observation
“Classification.” It is hardly surprising that        is based on the lessons drawn from Gujarat,
these inconsistencies are reflected (and used by      these links have also been highlighted in the
the ADB to its own benefit) in the                    letter sent by the Chief Secretary, Government
implementation of the public sector reform            of Madhya Pradesh to the Finance Secretary,
package.                                              Government of India. This letter also reflects
        2. The President’s Report mentions that,      the interests of the State Government in toeing
“Reconnaissance, consultation and fact-finding        the ADB line regarding the power sector reform
missions were fielded between December 1997           programme.
and April 1998.” However, reports from a
number of local organisations, social
movements and trade unions in the state indicate
that the consultation process carried out by ADB
staff was limited to government staff and actors

     What are the objectives of the power sector           State Government is undertaking these actions
     reform programme?                                     in connivance with the ADB under the name of
             Overall objectives of the reform include:     rectifying commercial losses but is relegating
     1. Achieving commercial efficiency and                the welfare dimensions associated with
         improving viability of the sector;                electricity distribution to the background. The
     2. Increasing operational efficiency through          Madhya Pradesh Electricity Board (MPEB),
         enhanced competition, managerial autonomy         which actually distributes the generated
         and higher accountability; and                    electricity to households, is taking such
     3. Creating an enabling environment for private       draconian measures even when it knows that
         sector participation.                             small and marginal farmers and poor households
                                                           are not responsible for the commercial losses of
     Some problems with power sector reforms               the MPEB.
     Transparency and Financial viability being put
     at stake
             Once again it is important to note that the   How have mass movements and
     programme of power sector reform has been             other social formations acted?
     formulated in a very secretive manner. There has              In the past two years, civil society
     been no public debate to discuss the nature of        organisations and mass movements in India
     reforms that the power sector actually requires.      have realised that ADB is also playing a key role
     The concerned trade unions have never been            in entrenching neoliberal policies at the national
     invited for discussing the relevance and the need     and the sub-national levels. As a result, a
     of such a package before its formulation. In          number of organisations and movements have
     spite of carrying out its plans in such a manner      started to critically analyse the documents and
     the ADB continues to talk about good                  actions of the ADB at all levels.
     governance initiatives that have been introduced              Specifically in the case of Madhya
     as a part of this exercise.                           Pradesh, mass movements and other social
             The energy sector policies that the           formations have already started critically
     Madhya Pradesh Government is promulgating             evaluating and mobilising against the process of
     on the advice of the ADB have not only                reforms institutionalised by the State and
     legitimized prohibitively expensive power             supported by the ADB. On January 17, 2001,
     production by private corporations, but have          nearly 150 people from people’s organisations
     also given tacit support to financing private         were jailed while marching on the streets of
     power projects that are anti-people. For              Bhopal (Capital city of Madhya Pradesh) to
     example, the Power Finance Corporation, which         protest against the anti-people policies of the
     has received funds amounting Rs. 15 bn.               ADB and the World Bank.ix
     (around US$ 350 mn.)viii from the ADB and the                 Especially in the area of power sector
     World Bank will give a foreign currency loan          reforms, movements in Madhya Pradesh are
     worth about Rs. 11 bn. (around US$ 200 mn.) to        particularly angered by the fact that the ADB is
     a private power generation project-the                not concerned that the money that it has lent to
     Maheshwar Power Project in the Narmada                Power Finance Corporation is being channeled
     Valley— to produce power at the rate of Rs. 7 to      to the controversial Maheshwar Hydel Power
     Rs. 10 per KWH. This is several times higher          Project (the Maheshwar Power Project has been
     than the power that is supplied by the Madhya         severely criticised not only by peoples’
     Pradesh Electricity Board (MPEB).                     movements but also by expert teams for its
              Furthermore, the Energy Reforms Bill         demographic and socioeconomic non-viability).x
     that has been passed in Madhya Pradesh at the                 Awareness campaigns are being
     instance of the ADB has meant that marginal           organised at the local level to make people
     farmers (farmers having land less than 1.22           understand how the State Government, in
     hectare) have stopped receiving electricity at        coordination with the ADB, is unfolding a
     concessional rates, which was promised to them        reform programme that would only end up
     by the State. For many poor families, this has        deepening their debt burden.
     meant the loss of the only (single point)
     electricity connection in their households. The

In conclusion                                            ii   Madhya Pradesh, Gujarat and Kerala are three
        In summary, one can conclude that ADB                 states in India
has deliberately continued with the same set of          iii TA No. 2943-IND worth US$ 780,000
errors that it has committed in other parts of the       iv TA No. 2944-IND worth US$ 700,000
world. The ADB is assisting and endorsing state          v Letter from K. S. Sharma, Chief Secretary,
reform packages and private sector development                Government of Madhya Pradesh to P. G.
that are anti-poor, and serve the interests of local          Mankad, Finance Secretary, Government of
elite and transnational players at the cost of local          India, Dy. No: L-10544, Date: 29/8/1999
labour, capacity, resources and industry. The            vi RRP: IND 29051
ADB’s operations in the state of Madhya                  vii The World Bank in 1996 initiated a structural
Pradesh confirm its unwavering commitment to                  adjustment programme at the sub-national level
support for hard and inflexible infrastructure                in the Indian State of Andhra Pradesh. This was
development, no matter what its cost to the                   the first time that the World Bank had decided to
people.                                                       get into structural lending at the sub-national
        The ADB has cleverly used the language                level in the Indian context.
of poverty reduction to gain entry into the social       viii 1US$ = INR 49
sectors of various states. It continues to work          ix For more on this kindly refer to:
closely with the State and local elites to          
institutionalise economic reforms that serve the         x For more on this kindly refer to, “Maheshwar
economic and political interests of a small                   Hydroelectric Project: Resettlement and
coterie. By serving the short-term political                  Rehabilitation” (June 2000); An independent
interests of State Governments, the ADB has                   review conducted for the Ministry of Economic
created an incentive structure within                         Cooperation and Development (BMZ),
developmental processes that institutionalizes                Government of Germany; Printed by the
white-collar corruption and poor governance.                  Narmada Bachao Andolan
And finally, under the name of poverty
reduction, ADB supported reform programmes
are steadily pushing people into a debt trap.
        However, civil society and social
movements in India are getting increasingly
vigilant about the role being played by the ADB
in deepening neoliberal ideologies at the
national and sub-national levels. The primary
task before them now is to mobilise the people
to mount a unified challenge to the policies and
operations 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.

                                       BOTs, Governance
                                         and the ADB
                                                        By Andrew B. Wyatt*

             “The demand for private capital has                          management of a country’s economic and social
     increased considerably in the Region, influenced                     resources for development”. Whilst the ADB’s
     by the financing needs of large infrastructure                       focus in this definition is that of its Developing
     development programs ... ADB is in a unique                          Member Country (DMC) government’s
     position to assist in mobilising international                       performance, I contend that the DMC’s are not
     private capital for its DMCs. It has considerable                    the sole determinate of DMC economic and
     regional experience accumulated over decades                         social development performance. This is readily
     and, through policy dialogue with member                             apparent since the ADB wields considerable
     governments, has assisted in the formulation of                      power to shape and direct policy. In terms of
     policies designed to encourage private                               governance, the ADB should therefore also be
     initiatives.” (Asian Development Bank,                               under scrutiny in terms of the policy and
     2000b:1)                                                             strategy advice it gives.
             “In addition, ADB will develop sectoral                              In this paper I wish to critically examine
     templates for appropriate risk-sharing                               the ADB’s continuing promotion of private
     arrangements that would allow the private sector                     infrastructure development support, one of two
     to earn reasonable rates of return ...” (Asian                       primary areas of the ADB’s Private Sector
     Development Bank, 2000a : 15)                                        Operations (PSO), despite increasing evidence
             A key area of ADB policy advice has                          that the ADB’s advice in private infrastructure
     been in the development of and support for                           development is leading to unsustainable and
     private infrastructure. Through consistent                           highly risky developments for its DMCs. In
     support for numerous Technical Assistance                            particular, continuing ADB support for and
     studies, forums such as the GMS Subregional                          mobilisation of project finance into
     Electric Power Forum, and workshop series                            infrastructure through project delivery systems
     such as the Workshop on Economic Cooperation                         such as Build-Operate-Transfer (BOT) and
     in Central Asia, the ADB’s policy advice reaches                     Build-Own-Operate (BOO) and related
     decision makers, planners and implementers                           mobilising mechanisms such as Partial Risk
     from ministerial level all the way down to the                       Guarantees (PRG) which the ADB has recently
     technocrats. As such the ADB has considerable                        reviewed and expanded (Asian Development
     power to influence and shape policy and                              Bank, 2000c) are of considerable concern.
     direction of developments such as foreign                                    All this, despite the cautionary words of
     private capital flows and private infrastructure.                    independent private sector analysts and
             The ADB defines governance as “the                           stakeholders such as Kent Rowey (1997, pg.22),
     manner in which power is exercised in the                            a partner and head of project finance at

     *Andrew Wyatt is a Senior Research Associate at the Australian Mekong Resource Centre in Sidney, Australia

        “It is often assumed that the use of            government provided guarantees.
financing techniques such as BOT and BOO in                     As capacity and understanding has built
Asian private infrastructure programmes                 within the DMCs over the last decade, there has
relieves the host country from the liabilities          been resistance against a number of aspects of
associated with financing, building and                 project financing in infrastructure as greater
operating infrastructure projects. This is a            awareness was gained of the compromises DMC
misconception. The reality is that many of the          governments have had to agree to. For this very
risks of the project remain with the host               reason, in Vietnam where BOT type investments
government under the support contracts they             and project financing has been legislated for
enter into.”                                            since 1993, not a single power sector project had
                                                        reached financial closure by 2000, and only 3
       Another industry insider, Levy, points           water sector projects had received investment
out, “Most of the public/private infrastructure         licences. However, in many DMC’s, within
partnerships created in the 1970s and 1980s             technocrats and politicians overseeing these
have yet to yield the hard evidence of a series of      developments there is a sense of “what else can
successfully completed projects since few of the        we do?” Certainly, there are no other viable
typically 20 to 40 year concession agreements           options being presented by the ADB and its
are near maturity.” (Levy, 1996: ix)                    multilateral partners such as the World Bank.
       Levy’s observation is in stark contrast to               Here I will focus on a couple of areas
the ADB’s premature claims for the success of           that I contend are leading the DMCs into highly
BOT type investments in infrastructure (see for         unsustainable and risky developments.
example, Asian Development Bank, 2000a) and                     In its seminal study of energy sector
indeed, Rowey’s words on the cusp of the Asian          development in the Greater Mekong Subregion
financial crisis were to prove prophetic in             (GMS) in 1995, ‘Subregional Energy Sector
demonstrating the enormous risks that the ADB’          Study for the Greater Mekong Subregion’, the
s DMC early adopter’s took.                             ADB pointed out to its DMC governments that “
                                                        To facilitate project financing, the capacity
                                                        charge will normally have to be denominated in
Key issues in project financing and                     a hard currency” and “investors will often insist
BOTs                                                    on provisions such a high capacity charge or a
        Project financing utilising limited or non-     substantial minimum take provision, making it
recourse financing in BOT type investments is a         clear that the utility will be required to take
highly complex business that many DMC                   electricity over the full useful life of the power
politicians and government bureaucracies have           station” (Asian Development Bank, 1995a :
had difficulties in coming to terms with. It is         607-611). These conditions are not restricted to
simple enough from the viewpoint that the               the energy sector but are also called for in
harnessing of private capital flows into much           sectors such as water supply and transportation
needed physical infrastructure is meant to avoid        where the investors obtain a profitable return on
increasing public debt in the face of a crisis in       their investments from the revenue stream the
public funding globally. This rationale has been        project will generate, eg. water tariffs and
the single most enticing feature of BOT type            motorway tolls.
investments. But all is not as it seems.                        Hard currency, usually in US dollars are
        The limited or non-recourse nature of the       usually demanded in order to pay back levels of
project financing insulates parent companies            debt that may reach as high as 80% of project
who are investing in the project from the project       cost denominated in same currency. Investors
risks and makes financiers extremely nervous            and their bankers therefore avoid the risk of
about the risks that will come into play since          currency fluctuations. The minimum off-take
they have no recourse to the parent balance             provisions are often known in the industry as
sheets should things go bust. As a result,              “take-or-pay” guarantees. These are guarantees
financiers and developers spend considerable            that governments have to enter into ostensibly to
effort to ‘correctly’ allocate risks, shift it onto a   minimise network and regulatory risks that are
party least capable in analysing the                    under the control of the government, but in
consequences, or to insulate from risk through          effect where a large element of the investors’

     market risk is also covered.                          following the start of the Asian currency crisis in
            The consequences of these aspects of           July 1997, the domestic revenue implications for
     project financing in private infrastructure have      the Government of these payments have risen by
     been devastating where project financing in           60 percent.”
     BOT type infrastructure has been widely                       According to Fernando Roxas (1999:
     adopted.                                              150), Group Manager of NAPOCOR, by 1999
                                                           NAPOCOR was “... paying about P60 million
                                                           (US$1.5 million) a month to the Department of
     BOTs, contingent liabilities and                      Finance for the provision of these guarantees
     debt: The Philippines disaster                        covering the BOT projects.”
             In the late 1980’s and early 1990’s under             These payments were directed to the
     a power supply crisis, the Philippines                private IPPs, but served to compound
     government became the first country in Asia to        NAPOCOR’s exposure to its US dollar debts
     enact a law specifically for the BOT process in       that had been under control before the financial
     1987. By early 1995, 19 BOT power plant               crisis and have dragged the corporation - which
     projects had come online and by 2002, there           even the ADB had admitted was under good
     were over 45 contracts in place (Domingo,             financial management between 1992 and 1997
     2002). In almost all of these contracts, the          (Bello, 2001) - to its knees. With total debts of
     Philippines government power utility the              US$6 billion (Landingin, 2002), NAPOCOR is
     National Power Corporation (NAPOCOR), had             trying to raise US$1.65 billion in foreign
     guaranteed payments in US dollars and provided        borrowings just to service debt which matures
     take-or-pay commitments in its Power Purchase         this year (Batino, 2002).
     Agreements (PPA) with the Independent Power                   The whole debacle leading to the
     Producers (IPPs), most of whom were owned by          indebtedness of NAPACOR also instigated the
     foreign power companies. Without the                  ADB to push for the restructuring of the
     guarantees, no investor would invest.                 Philippine power sector through the unbundling
             It proved to be a fatal strategy! The Asian   and privatisation of NAPOCOR (see for
     financial crisis in 1997 left the Philippines         example, Bello, 2001; Landingin, 2002;
     government bearing the risks of power purchase        Williamson, 2001).
     agreements denominated in US dollars and the                  Before the extent of NAPOCORs crisis
     devaluation of their currencies during the crisis     became apparent, the ADB repetitively rolled
     raised government purchasing costs and                out the Philippine model of energy sector
     increased retail prices. Compounding the              liberalisation through BOT type investments as
     situation, the slow down in the economy and           a prime example of how successfully private
     lowered energy demand left NAPOCOR in a               sector capital could be brought into
     situation where it was paying for electricity         infrastructure investment (see for example,
     purchases that it could not use.                      Asian Development Bank, 1995b; Asian
                                                           Development Bank, 1997; Asian Development
             David Husband (1999 : 105), Chairman          Bank, 1999b). Despite the experience of the
     and Principal of Global Economics Ltd.,               Philippines, and that of Indonesia which has had
     observed; “... developing countries that have had     a mirror experience, the ADB in its blind faith in
     some success in attracting BOT/build-own-             the benefits of liberalising private capital flows
     operate-transfer (BOOT) infrastructure                and privatisation, continues to provide private
     investments, such as the Philippines, must be         sector loans for infrastructure projects despite
     regretting the terms. While the Philippine            the knowledge that government guarantees
     Government fast-tracked BOOT power projects           demanded by the private sector, such as take-or-
     in the early 1990s to overcome crippling “            pay guarantees, would lead to situations where
     brownouts,” it did so basically by assuming the       the government would not be able to recoup
     entire foreign exchange risk. Foreign exchange-       costs.
     denominated payments of $600 million in 1997
     will rise to more than $1 billion in the next few
     years. Given that the peso fell by about 60
     percent against the dollar in the months

The beginnings of a BOT fiasco in                     sector production. In so doing, the ADB (and
Vietnam?                                              IFC) demonstrate a lack of accountability to its
         One such recent example appears in Ho        DMC governments. According to ADB’s own
Chi Minh City (HCMC), Vietnam, a city of 6            researchers (McIntosh and Yniguez, 2000), the
million people, but where the government              situation at Binh An is such that the government
owned HCMC Water Supply Company (HWSC)                owned HWSC is forced to pay the BOT
has only 300,000 connections. Here the ADB            contractors for water it cannot sell to consumers.
has supported the development and co-financing        According to deputy minister for construction,
for the largest BOT water supply project in           Nguyen Tan Van, water off-take commitments at
Vietnam, the US$154 million Thu Duc Water             Binh An costs HWSC more than VND8 billion a
Supply plant. The project will increase HCMC’s        month, yet its revenue from Binh An’s
water supply by almost a third of present             production is just VND3 billion a month (Ngoc
capacity. It was a non-competitive negotiated         An, 2001). Furthermore, as a result of the
bid by a multinational consortium led by one of       implementation of these BOT projects, tariffs set
the largest multinational water companies in the      by the HWSC are also set to rise from
world, Suez of France who holds a 70% share in        VND1300 m3 in 2000 to VND9, 400 m3 by the
the project. A 25 year concession was granted in      time Thu Duc comes on line in 2004 (ibid). It is
1997 and the project company reached financial        certain that consumers will not see any
closure in August 2001 with the ADB providing         reduction in water pricing any time soon.
US$106 million worth of co-finance together           Because the take-or-pay guarantees and the
with four other financial institutions, including     water tariffs that the government enters into with
US$31 million loan from the ADB’s ordinary            the BOT companies are locked into contract for
capital resources (Asian Development Bank,            the 20-25 year life of the concessions, there are
2001a).                                               no competitive pressures on the BOT companies
         In fact the city of HCMC to date has         to reduce water pricing.
contracted 3 BOT water supply plants including                 It is apparent that despite the disastrous
Thu Duc. The other 2 plants are; the US$38            experience of BOT in the Philippines, the ADB
million Binh An water plant, owned and                continues to support non-competitive projects
operated by a consortium of Malaysian                 and mechanisms that actually raise utility prices
companies with IFC finance consisting of a loan       and which leaves considerable risk with
of US$12.5 million and a syndicated loan of up        governments. One might argue that the HCMC
to US$12.5 million for the account of                 government had to ensure the on-time
commercial banks and financial institutions           completion of the distribution networks and that
(International Finance Corporation, 1999); and        this was a risk that it had control of, but
the Grand Imperial which received an                  questions must be asked as to why the IFC
investment licence in 1999 but whose present          initially, and then the ADB concluded financing
status remains unclear. All three projects have       when the city was not yet in a position to fully
demanded and received government take-or-pay          utilise new capacity. The result has been that the
guarantees that would insulate the private            major beneficiaries have been the multinational
investors from market risk. Binh An was the           companies investing in the projects and their
first to begin production in 1999 while Thu Duc       financiers, both of whom are guaranteed a
is scheduled for commissioning in 2004.               revenue stream no matter what transpires, whilst
         However there are questions over             the government is left with liabilities that are
whether the city is able to fully utilise the water   adding to greater levels of borrowings.
it has contracted to take-or-pay from these 3
three projects. Partly this has to do with the lack
of distribution capacity, which is not yet in         Development strategy, BOTs and
place. Although the responsibility for                the ADB: Lao export hydropower
distribution remains within the government’s          at a dead-end?
hands, it is apparent that the ADB’s and IFC’s                The role of the ADB as a player in
due diligence process of ensuring the viability of    development strategy has come under increasing
these projects has not extended to the                criticism in the Lao PDR in recent years. In the
government’s capacity to fully utilise private        Lao PDR, the ADB together with the World

     Bank has been at the forefront in advising the       (Asian Development Bank, 1999a). By 2001, at
     Laotian government on policy and strategy for        the Sixth Meeting of the GMS Experts Group on
     the development of a Laotian export                  Power Interconnection and Trade, the Laotian’s
     hydropower industry, but which under the             were growing increasingly desperate about the
     ADB’s GMS program also doubles as regional           development of the Thai electricity trading pool.
     infrastructure. Since the inception of the GMS in    The Lao representative, Houmphone
     the early 1990’s, the ADB has provided regional      Boulyaphol, Director General, Department of
     governments with the vision of an                    Electricity, Ministry of Industry and
     interconnected electricity grid that would allow     Handicrafts, commented out of concern that “...
     the development of a regional energy trading         in Lao PDR, a number of projects were on hold
     system (Asian Development Bank, 1995a). The          due to uncertainties in financing and
     hub of this regional energy trading system           uncertainties in the status of PPAs under a
     would be Thailand where demand exceeded              power pool system” (Asian Development Bank,
     supply in the years before the Asian financial       2001b).
     crisis. To direct and support the development,               The Laotians had good reason to be
     the ADB continues to support various forums          concerned. For almost a decade now, the Lao
     the most important of which is the yearly            government, with advice from the ADB and
     Subregional Electric Power Forum, involving          World Bank had pinned their hopes on the
     ministerial and expert level delegations.            development of a Laotian hydropower export
     Ostensibly these forums allow technocrats to         industry as a key development strategy to pull
     exchange information, and to receive policy          Laos out of poverty. But public funds were not
     advice and strategy from the ADB and other           available to finance such large investments, so
     resource persons from the World Bank and             with assistance and advice from the ADB and
     international authorities such as the Tennessee      the World Bank, Laos turned to the BOT form
     Valley Authority of the USA with regards to          of investment. The ADB sponsored a
     energy development cooperation and direction.        demonstration project, the US$280 million
     Ministerial delegations then rubber-stamp            Theun Hinboun hydropower project. The World
     decisions and agreements.                            Bank followed soon after with what it hoped
             One of these development strategies first    would also be a demonstration project, the
     flagged in the ADB’s 1995 Subregional Energy         massive US$1.2 billion Nam Theun 2
     Sector Study, has been the development of a          hydropower project.
     competitive trading system for electricity in the            In 1994, the Theun Hinboun project was
     GMS. Since then the World Bank, who actively         established as a joint-venture BOT concession
     participates in the GMS Subregional Electric         between the Lao government electricity
     Power Forum, has carried out its own studies to      company Electricity du Lao (EdL) holding 60
     promote the development of a competitive             percent equity and the sponsors and private
     electricity market in the GMS (World Bank,           sector partners, Nordic Hydropower (20 percent)
     1999) as has the ADB through its ‘Study on the       - a joint-venture company owned by the utilities
     Regional Indicative Master Plan on Power             of Norway (Statkraft) and Sweden (Vatenfall
     Interconnection in the GMS’. Norconsult, a           AB) - and MDX Lao of Thailand, a subsidiary
     Norwegian engineering and management                 of GMS Power, one of Thailand’s leading IPP
     consulting company heavily involved in               developers (20 percent). The project moved
     regional hydro feasibility and environmental         quickly to financial closure with a 1995 power
     studies carried out the latter. Both these studies   purchase agreement (PPA) with the Thai
     promoted the establishment of a Thai electricity     government electricity utility, the Electricity
     trading pool.                                        Generating Authority of Thailand (EGAT).
             By October 1999, at the Third Meeting of     Under the terms of the off-take agreement,
     the Experts Group on Power Interconnection           EGAT committed itself to purchase 95 percent
     and Trade, the Thai’s announced their own study      of the output on a take-or-pay basis. The base
     on the establishment of the electricity trading      rate tariff is 4.3¢/kWh (1994) escalated at 3
     pool would be completed by year-end. This was        percent a year for the four-year construction
     of concern to the Laotians who were at that          period, and at 1 percent a year for ten years
     meeting and they requested further information       thereafter. The price would be renegotiated at

the end of the ten-year period. The project came      project development cycles. It is now becoming
into operation in 1998.                               apparent that the only way Lao export
        By contrast, despite development of the       hydropower projects with the intention of selling
two projects beginning at about the same time,        into a competitive Thai market will proceed is
the large predicted social and environmental          under what is known as mercantile financing.
impacts, international opposition, and the Asian      However it is highly unlikely that financiers
financial crisis delayed the Nam Theun 2. The         would finance these high-risk mercantile
project is currently finalising the PPA with          projects. First of all, there is no precedent for the
EGAT, which would then allow it to move to            financing of mercantile projects in developing
financial closure.                                    countries such as Laos with a relatively high
        However, the Lao PDR currently has 14         political risk profile. The ADB’s and World
other priority private hydro projects lined up for    Bank’s partial risk guarantees are specifically
PPA negotiations with EGAT. Of these, two             structured for project financing and no
projects, Nam Ngum 2 and Nam Ngum 3                   equivalent mechanism exists for mercantile
together with the Nam Theun 2 project are listed      financing. Secondly, mercantile projects do not
as priorities under the first tranche of a non-       sell electricity based on take-or-pay guarantees
binding Memorandum of Understanding (MOU)             or fixed tariffs, rather they are required to
signed between Thailand and Laos for the export       dispatch electricity on a daily basis and at daily
of 1600 MW of electricity to Thailand by year         prices1. On this basis, knowledge of particular
2007 (Worley and Lahmeyer International,              market conditions must be well established in
2000). Under the GMS program the ADB had              order for financiers to judge if debt repayments
been supporting the development of Nam Ngum           can be made. This is hardly the case since a Thai
2 and 3 through the provision of a TA for a           electricity market does not yet even exist, let
500kV transmission line system that would             alone have a track record.
enable power to be delivered to Thailand (ibid).              In Laos, private investors with sunk costs
It also received a request for financing from the     in BOT hydropower project development left
developers of both these projects.                    without a PPA and therefore unable to obtain
        Despite this, it is clear now that Nam        financing for their projects are fuming. Mid-
Theun 2 will be the last private power producer       level government bureaucrats are beginning to
to enter into a PPA. As a result of the               question the wisdom of a development strategy
development of the Thai electricity pool, which       that led Laos to invest a huge amount of
is slated for implementation in 2003, EGAT is         financial and human resources into the BOT
refusing to enter into any further PPAs that          export hydropower program, with just 2
would require take-or-pay conditions as well as       completed operational projects2 to show for a
long term fixed tariffs. Negotiations over the        decade of export hydropower development. On
PPA for Nam Theun 2 dragged on for 3 years            this front, the ADB has been extremely quiet,
over this issue until EGAT was finally forced to      shelving plans to support the implementation of
negotiate the PPA consisting of a much-reduced        the 500 kV transmission line for Nam Ngun 2
take-or-pay period and tariff after political level   and 3. It has recently been requested to consider
intervention. EGAT’s concern here has been that       co-financing for the Nam Theun 2 project and it
the Lao PPAs were uncompetitive, and that             remains to be seen if it will again provide
EGAT and Thai consumers would eventually be           support for a BOT export hydropower project in
subsidising the private producers in Laos.            Laos that the Thai’s see as uncompetitive, and
        Under these conditions, it is highly likely   which in all likelihood, will be the last export
that the Lao BOT export hydropower program is         BOT hydropower project in Laos.
at an end even if regional energy demand should
pick up. The establishment of a competitive
Thai electricity market is being further              Rethinking ADB governance
reinforced by the increasing availability of                Governance must be analysed in much
cheaper alternative sources of energy such as         broader terms if it is to be effective in delivering
natural gas from Myanmar and Malaysia, and            sound management of social and economic
investments in efficient gas turbine technology       development that benefits the ADB’s DMCs.
with much lower up-front investment costs and         The ADB must turn its focus on governance

     onto itself and its powerful role as a policy        of the huge public costs of the contingent
     broker or driver of development policy and           liabilities inherent to BOT projects in a
     strategy.                                            developing country context.
             In the case of private infrastructure                 It is also clear from the case of private
     development presented here, it needs to move         hydro in the Lao PDR that regional private
     out of its mindset of liberalising private capital   infrastructure in the form of BOT projects are in
     flows and rhetorical claims of the benefits of       contradiction with moves toward the
     privatisation and in particular, private             competitive energy market developments in the
     infrastructure in the form of BOT projects. The      GMS that the ADB itself has been promoting as
     ADB must be accountable for the policy advice        a part of the GMS’s longer term regional
     it provides and the development strategies that it   infrastructure development strategy. Having
     develops for its DMCs, much of it lacking in         invested considerable financial and human
     transparency. In its development strategies, there   resources into the development and support of
     is often no consideration of independent             BOT in the Lao PDR, the ADB and its DMC,
     research or options. It must take heed of the        the Lao PDR, finds many of these investments
     warnings of independent analysts and                 stranded, leaving investors and government
     researchers without a vested interest in the         officials alike privately furious at the dead-end
     building of a BOT industry and critically            which the industry now faces.
     examine its premature calls of success in BOT.                The case of BOT developments in the
     The claims of success are clearly based on the       selected DMCs presented in this paper
     narrow definition of achieving financial closure     demonstrates the ADB’s considerable allocative
     and commissioning new projects. It fails to          power and ability to influence and direct a
     analyse the longer-term consequences of BOT          DMC’s economic and social resources for
     investments to the DMCs and their publics that       development without recourse to critical
     take between 20 and 35 years to run the course       independent analysts. It has done so and
     of its concession.                                   continues to do so with little accountability for
             The case of BOT private infrastructure       the unfolding disaster of BOT investments in its
     clearly demonstrates the short-term nature of its    DMCs. Its own governance credentials must be
     strategies and lack of accountability in terms of    on the line!
     longer-term development goals of its DMCs
     such as debt and risk management. For example,
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       Asian Cities, Manilla: Asian Development
Ngoc An, 2001, Warnings sounded over HCM
       City plans to sell water supply projects,
       VNS News: Http:// Vietnamnews.
       Vnagency. Com.Vn/2001-03/19/Stories/

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

             “Good Governance” and the holding of                measures promoted by the Asian Development
     multi-party elections are added conditions                  Bank - measures for which there is little popular
     imposed by the donors and creditors, yet the                support and which are rapidly increasing
     very nature of the economic reforms, precludes              economic inequalities.
     a genuine democratisation.... Structural                            It is a mystery as to where the ADB
     adjustment promotes bogus institutions and a                claims to derive any authority to determine what
     fake parliamentary democracy, which in turn                 is good or bad governance. However, it is very
     supports the process of economic restructuring.             clear what the ADB means by “good
     ‘Michel Chossudovsky, Professor of Economics,               governance”.
     University of Ottawa, April 2000                                    The ADB’s concept of ‘good
             “Small island nations are vulnerable and            governance’ “focuses essentially on the
     are practically of no consequence when it comes             ingredients for effective management”. Its
     to combating the adverse effects of globalisation           policy document, Governance: Sound
     and what is emerging is a new order of                      Development Management says “the common
     colonialism. The uneven distribution of wealth              features that stand out in respect of the high-
     and power points to the potential loss of                   performing economies are stability in broad
     sovereignty by national governments as the                  policy directions, flexibility in responding to
     control of their respective economies becomes               market signals, and discipline in sticking with
     more subject to global forces such as                       measures necessary for meeting long-term
     multinational companies and the pressures of the            objectives despite short-term difficulties, all
     select global brotherhood”. Sani Lakatani,                  hallmarks of sound development management,
     Prime Minister of Niue, January 2001.                       i.e., good governance.”
             The Asian Development Bank (ADB), in                        Building upon the World Bank’s
     adopting a policy on governance in October                  approach, the ADB has identified four basic
     1995, claims to be the first international                  elements of good governance: accountability (of
     financial institution to have a board-approved              the public sector for delivering specific results),
     official position on “good governance”.                     predictability (of legal frameworks for private
             “Good governance” is a serious                      sector development), transparency and
     contender for a prize for the best example of               participation (of key stakeholders).
     Orwellian doublespeak. It has nothing to do                         Jane Kelsey, Professor of Law at
     with democratization, humanitarianism or                    University of Auckland, defines ‘good
     support for peoples’ rights. It is a euphemism              governance’ as “shorthand for a limited
     for a limited state designed to service the market          government” whose role is “to facilitate
     and undermine popular mandates. It is explicitly            markets, Western-style rule of law, individual
     linked to the kinds of structural adjustment                liberty, private property rights, and passive
                                                                 forms of electoral democracy.”

     *Aziz Choudry is the editor of GATT Watchdog in Aotearoa, New Zealand (

        The Asian Development Bank operates in        strengthening its professionalism; promoting
12 Pacific Developing Member Countries                more open and growth-orientated economic
(PDMCs). These are the Cook Islands, Fiji             policies and; encouraging privatisation and a
Islands, Kiribati, Federated States of                larger role for the private sector.
Micronesia, Republic of the Marshall Islands,                 It states: “A core good governance
Nauru, Papua New Guinea (PNG), Samoa,                 agenda of economic policy, public sector and
Solomon Islands, Tuvalu, Tonga and Vanuatu. It        governance reform has already been agreed to
also has operations in East Timor, which is not       broadly. The Pacific countries have already
yet formally an ADB member country.                   agreed in principle to this agenda through the
        Annually the ADB approves between             Pacific Islands Forum. ADB has appropriately
US$100 million and $150 million in loans and          fostered and supported this agenda, which forms
$15 million in technical assistance grants for the    the basis of most of the reform programmes
Pacific region. It has also influenced the            currently being financed by ADB in 10 of the 12
direction of the Pacific Islands Forum (formerly      PMDCs”.
the South Pacific Forum). This body represents                The ADB co-sponsored the first Pacific
14 Pacific Island governments (Australia and          Regional Conference on Governance for
New Zealand are also members), and plays a            Parliamentarians in Nadi, Fiji, in March 2000.
key political role in getting assent and              The Pacific Islands Forum has also adopted
commitment on economic, financial and trade           eight principles of public accountability
policy measures. The Forum has increasingly           developed at the 1997 FEMM, and the October
focused on promoting the economic agenda              2000 Biketawa Declaration on good governance.
already being pushed by the ADB, the World                    The economic reforms, trade and
Bank/IMF, APEC and the WTO.                           investment liberalization, with their “good
        At the first South Pacific Forum              governance” focus are also being advanced in
Economic Ministers Meeting (FEMM) in Cairns           the region by bilateral aid donors such as the
in July 1997, the structural adjustment model         European Union, Australia (AusAID) and New
was formally adopted in an action plan which          Zealand (NZODA).
covered economic reform, public accountability,               There is increasing coordination among
investment and tariff policies, and multilateral      the various multilateral and bilateral donors to
trade issues. The FEMM stated that “private           the region. Australia in particular makes a
sector development is central to ensuring             significant contribution to the ADB’s Asian
sustained economic growth, and that                   Development Fund. The World Bank also lends
governments should provide a policy                   about $50 million annually to the Pacific (Fiji
environment to encourage this.” The theme for         Islands, PNG, Samoa, Solomon Islands, Tonga,
the August 1998 South Pacific Forum Leaders           and Vanuatu), with governance one of its
meeting was “From Reform To Growth: The               focuses. AusAID argues that aid plays a vital
Private Sector and Investment as the Keys to          role in encouraging ‘good governance and in
Prosperity.”                                          promoting sound economic policies’. This
        In its 1999 report, Pursuing Economic         entails across-the-board intervention to promote
Reform in the Pacific, the ADB praised the            ‘the competent management of a country’s
FEMM Action Plan for being based on “market           resources in a manner that is open, transparent,
friendly policies widely accepted as                  accountable, equitable and responsive to people’
economically sensible, albeit politically difficult   s needs and which enables all people to
to implement.”                                        contribute to and benefit from development’.
        In its 2001 strategy document, A Pacific              Sydney-based AIDWATCH notes that
Strategy for the New Millennium, the ADB lists        AusAID’s direct and indirect expenditure on
its areas of emphasis relating to governance in       promoting ‘good governance’ in recent years
the initial phase of the reform programmes since      has exceeded the estimated total direct and
1995. These are: supporting legislative reform        indirect expenditure on health, and the total for
of the role of parliament and the public sector;      infrastructure. As members of the Pacific
strengthening good governance institutions;           Islands Forum, and with extensive trade,
introducing fiscal discipline and output focused      investment and economic interests in the Pacific
budgeting; downsizing the civil service and           Islands, Australia and New Zealand play key

     roles in maintaining pressure on the region to      that exist in some countries in the region. To
     implement the reforms.                              advance the argument that a solution to these
             As well as being a key element of the       problems can be tackled by accepting the ADB’s
     structural adjustment programme, good               “good governance” misunderstands the concept.
     governance - or rather the lack of it has been      Throughout the Pacific local communities and
     frequently used as a convenient explanation for     movements like the Tongan Human Rights and
     economic crises and a way to blame                  Democracy Movement are organizing to
     governments rather than the policies set by the     challenge domestic problems in government,
     reform programmes.                                  and issues of democratic rights.
             Another excuse is lack of local “                   The ADB claims that “with the adoption
     ownership” of the reform agenda. Introducing        of a strong governance reform agenda by the
     the ADB’s new Pacific strategy at last year’s       new Government in late 1999, and supported by
     ADB Annual Meeting in Hawaii, Basudev               multilateral and bilateral development
     Dahal, Director of ADB’s Office of Pacific          institutions, PNG has quickly managed to
     Operations said: “The challenge is to deepen the    substantially reverse its fast-declining economic
     commitment of government and civil society to       performance, and subsequently improve its
     the reform programme”.                              access to international finance.”
             Predictably, the ADB speaks of                      Yet it was precisely the structural
     consulting more widely with “civil society” and     adjustment programmes, privatizations, and sale
     working to “strengthen the interface and            of state assets driven by the ADB, IMF, World
     collaboration” between Pacific member               Bank and backed by the Australian government
     governments and NGOs/civil society groups.          which sparked last year’s mobilizations against
     “[W]ider NGO involvement and consequent             them in Papua New Guinea. Last June four
     stronger ownership of Pacific developing            young Papua New Guineans were shot dead by
     member country governments’ development             riot police and many more injured after an anti-
     strategies and reform agenda has become a           privatisation rally in Port Moresby, the capital.
     priority”. The ADB now emphasizes “poverty          Where was the ADB’s celebrated “strong
     reduction” and “good governance”. It will tailor    governance reform agenda” then?
     its activities towards “country-specific                    Despite all of the good governance
     strategies” in the Pacific. The buzzwords might     sloganeering by the ADB and other vehicles
     have changed over the years. But the economic       pushing the neoliberal agenda in the region,
     fundamentals that underpin its programme            Pacific peoples have little or no input into the
     remain unchallenged.                                development of macroeconomic policies
             Indeed the “new” Pacific strategy offers    affecting them, promoted with little empirical or
     more of the same. “Emphasis will continue on        independent research on whether or not they are
     implementing fiscal discipline, strengthening       appropriate or desirable for the recipient
     revenue management, promoting an export             country.
     orientation, and encouraging private                        What consultations there have been with
     investment.” It promises to promote “               communities and NGOs on the economic
     privatization of state-owned enterprises, private   reforms have been little more than cosmetic
     sector participation in infrastructure              exercises. In February 2002, the Pacific
     development, liberalization of investment and       Network on Globalisation (PANG), a network of
     trade regimes, and greater competition.”            NGOs and individuals concerned with
             While its economic reform programmes        globalisation and the Pacific, challenged Pacific
     have meant cuts to public services like health      Island governments about the lack of public
     and education, the ADB envisions a greater role     consultation or parliamentary debate over two
     for NGOs in service delivery - not in setting the   regional trade agreements which had been
     agenda. Through engaging selected NGOs in “         opened for signature at the Pacific Islands
     dialogue” and “consultations” the ADB seeks to      Forum Leaders Summit in Nauru last August.
     legitimize its economic reforms.                            Communal ownership of land, the
             To be critical of the “good governance”     existence of the subsistence economy (some
     agenda of multilateral financial institutions is    85% of people are engaged in the subsistence
     not to ignore issues of corruption and conflict     economy in PNG, 80% in Vanuatu, and 55% in

the Federated States of Micronesia (FSM)) and        Pacific countries are governed by Western
strong communitarian values are celebrated as        systems of governance, indigenous models of
strengths against the onslaught of corporate         governance are still highly relevant today.
globalisation by its critics in the Pacific. The             “Governance in the indigenous concept is
ADB regards traditional values, the subsistence      linked to a belief system that supervises and
economy, and especially traditional forms of         monitors peaceful co-existence of everyone and
land tenure throughout the Pacific as little more    everything that share the multi-dimensional
than impediments to private sector investment        natural world that we live in....Individual rights
and growth.                                          and freedom are practiced within the parameters
        According to its 1999 Reforms in the         of collectivity. Any disturbance to peace is
Pacific - an assessment of the ADB’s assistance      frowned upon and collective responsibility for
for reform programmes in the Pacific, its            peace restoration is a crucial task....Truth and
reforms had led to the slashing of public sector     justice are prerequisites for good governance,
employment - by 57% in the Cook Islands              social security, economic self-reliance and
between March 1996-October 1998, by 37% in           political stability,” she told ABC Radio in
FSM between 1996-January 1999, and 33% in            Australia in January.
the Marshall Islands between October 1995-                   A joint church/NGO submission to Fiji’s
March 1999.                                          1999 national budget asked “are we trying to
        Social services spending cuts and the        make Fiji into something it was never meant to
introduction of user-pays have seen the decline      be - a poor copy of large nations, reliant on an
of health services, especially in rural areas, and   economic model in which we will always be
imposed barriers to the affordability of             dependent or losers? In our current system
education. Unemployment, especially for youth,       some may profit but most are excluded or
has worsened as the private sector in Pacific        exploited. We believe that this system is not
Island countries cannot absorb the available         made for us.”
labour. Public sector “rightsizing” has been
accompanied by a sudden increase in the
numbers of consultants.
        At a Public Service International Oceania
regional conference in Auckland in March 2002,
delegates of public sector unions from
throughout the Pacific said that radical
restructuring of the state sector had had
disastrous effects. Most said that as a
consequence of privatization, deregulation and
globalisation, living standards had lowered, and
employment rights had been eroded through
individual contracts. As a result of job losses
through restructuring, emigration has soared in
several Pacific Island countries.
        Convenor of PSI Oceania, Paul Slape, of
the 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 high
unemployment and the erosion of labour
standards. It is undermining communities and
breaking down social cohesion.”
        Pacific peoples have long histories of
struggle against colonialism. Director of the
Pacific Concerns Resource Centre, Motarilavoa
Hilda Lini, from Vanuatu, says that while all

         The Citanduy River Diversion Project
                                  Some Critical Thoughts
                                        By Susi Pudjiastuti and P. Raja Siregar*

             The Asian Development Bank (ADB) is                   future use and management of the Segara
     providing financing to the Government of                      Anakan (ECI, page 3). The latest plans-based
     Indonesia for the Citanduy River Diversion                    on two studies (ECI 1994 and BBV 2000)-will
     Project. The supposed aim of the Project is to                ostensibly save the Segara Anakan from being
     preserve the Segara Anakan Lagoon which has a                 totally filled with sediment from the
     unique and rich marine eco-system. However,                   contributing rivers by undertaking major
     the process by which the Project has been                     engineering interventions. The Project is being
     formulated and negotiated raises serious                      financed and technically supported by the ADB.
     questions about the ADB’s real motives in                             This paper shows the problems and
     supporting and promoting the Project.                         inconsistencies contained in the proposed
             The Segara Anakan is a large Lagoon on                engineering interventions and argues for a major
     the south coast of the island of Java in                      review of the threats that Segara Anakan faces.
     Indonesia. It is situated on the north side of the
     Nusa Kambangan island, between Cilacap in
     Central Java and Pangandaran in West Java.                    The plan and justification.
             The Lagoon is connected to the Indian                         The two latest studies about the Segara
     Ocean via the Western Outlet and smaller                      Anakan were done by the ECI in 1994, and as a
     connections such as tidal Channels towards                    follow-up by Binnie Black and Veach (BBV) in
     Cilacap. Two large rivers: the Citanduy and                   2000. Both arrived at the conclusion that the
     Cikonde supply the majority of the fresh water                Segara Anakan is filling-up because of the
     to the Lagoon. A small amount of fresh water is               sediment brought in by large rivers. They also
     also supplied by smaller rivers.                              conclude that there has to be a dredging program
             Since the first mapping of the Lagoon in              and ultimately, the diversion of the Citanduy and
     the early 1900s, its surface area has                         Cikonde rivers. Even in reaching these
     continuously declined. The main reason for this               conclusions, both reports contradict themselves
     is high levels of upland erosion. The fresh water             and omit facts recorded in other sources. They
     supplying rivers carry large amounts of                       also do not properly address many potential
     sediment and silt into the Lagoon. Other                      problems. The diversion of the Citanduy river is
     important contributing factors are land                       planned for early 2002 without an initial trial
     reclamation and flood control measures.                       programme of dredging, which was considered a
             The Segera Anakan has long been the                   vital part of the plan.
     focus of many studies, proposals and projects                         In the ECI plan, the justification for the
     involving Government agencies, international                  diversions of the rivers is that the Citanduy and
     institutions and Consultants. Over the years, a               Cikonde carry among them almost 100% of the
     variety of proposals have been made for the                   sediment load that is now deposited in the

     *Susi Pudjiastuti is an independent business woman in Indonesia (;
     P. Raja Siregar is with WALHI in Indoensia (

Segara Anakan. By diverting these rivers a large       initial dredging stage.
proportion of this sediment can be deposited in                 There are serious doubts about the
the sea. The economic justification for this           positive environmental and economic effects of
course of action consists mainly of three              this project as it is planned and proceeding
elements: the benefit to off-coast fisheries; a        today. These doubts justify an independent and
proposed aquaculture project; and, improved            comprehensive review of the Project goals,
drainage for agriculture areas surrounding the         justifications and implementation means.
Segara Anakan. It is argued that if the project is
not implemented. these benefits cannot be
realized. for the following reasons :                  Environmental impacts
         • As the Segara Anakan fills in, many                There is no doubt that the Project will
marine species which use the          mangrove and     have a major environmental impact on the
Lagoon area as nurseries will be reduced in            Segara Anakan Lagoon and it’s surroundings.
numbers and thus affect the coastal and Lagoon         There is concern that these changes will lead to
fisheries negatively. If the Lagoon is preserved,      the destruction of the Lagoon environment as is
the fisheries can be kept at the present level and     today. Many indications of major negative
even improved.                                         impact can found in the ECI and BBV reports :
         • The increased salinity of the Segara
Anakan makes a large aquaculture project inside        1. Nutrients
the area feasible.                                             Other than sediments, the large rivers
         • Direct diversion of the large rivers will   also contribute freshwater and nutrients to the
improve drainage and decrease flooding upriver.        Lagoon. Both freshwater and nutrients are
         It has to be noted that the report            needed for the Lagoon to function as it does
concludes with the fact that if any one of these       now. The Citanduy alone carries about 75% of
three benefits cannot be gained fully. the project     freshwater and nutrients into the Lagoon.
loses the economic viability. A special focus of               The ECI Report mentions on page 9: “It
the project seems to be the aquaculture                is possible to save the Lagoon from the
component. The ADB claims that it is                   incessant sedimentation and at the same time to
supporting the Project in order to reduce              destroy its productivity as it now exists. The
sedimentation in the Segara Anakan Lagoon and          irony is that the sediment filling the Lagoon is
that the Project is categorised as an                  accompanied by the nutrients that make the
environmental project. However the Project has         Lagoon so productive. “ However, the Report
a component focussed on aquaculture by                 also attempts to argue that even without the
opening 200 hectares (ha) to shrimp ponds.             Citanduy input, the nutrients would be sufficient
         The ECI report provided the following         for the Lagoon: “... much of the nutrients
timetable of activities: from 1994 to 1999,            requirements of the biotic system of Segara
initial annual dredging were to be performed in        Anakan is stored within the system itself “ and
the Lagoon. to restore and preserve the shape          that freshwater input “ merely contribute readily
and size of the Lagoon. After this dredging            available nitrogen and phosphorus, currently
phase (five years) it was to be determined if the      exceeding requirements” (page 19). The truth of
environmental requirements and implications of         these claims is questionable since even nutrients
dredging could be addressed. In 1998 and 1999          already in the system will one day be exhausted
the Citanduy diversion was to be constructed,          if no there is no regular re-supply! In addition,
but only after it was proved that the mangrove         the Report mentions that there is no observation
forests could be managed satisfactorily and the        of effects on mangroves that would indicate
dredging program met all the necessary                 excess amounts if nutrients available (page 33).
requirements. After that the Cikonde diversion
would be made. After all these interventions, the      2. Salinity
Report estimates that salinity will be high                   With both rivers diverted, the salinity in
enough to start the 200 ha aquaculture project.        the Lagoon will rise considerably. At the
         Uptill now, no work has been done on          moment water in the Lagoon can be considered
dredging. It appears that now work shall start         brackish at most times with salinity in most part
directly on the Citanduy diversion, without the        of the Lagoon at no more than 20 ppt in that

     wet season, and no more than 10-15 ppt in the         welcome condition for the proposed aquaculture
     dry season (BBV, page 42). After diversion, the       component. This component seems to be
     salinity will double or even triple in places,        extremely iimportant to the ECI consultants
     rendering the Lagoon a seawater area. It may          since they write in many parts of their report
     also be that the salinity will rise to even higher    (pages 48, 54, 94, 96, 101, 107 and 109) that
     levels because of increased water temperatures        without the aquaculture component, the entire
     and subsequent evaporation.                           project will not be feasible from the perspective
             The possible negative impacts of this         of Internal Rates of Return (IRR). The plan is to
     increased salinity on the Lagoon and it’s             develop a concentrated site with a maximum of
     habitants is not directly mentioned in the            200 ha of brackish water ponds since a greater
     reports. However there are some notable items         area “ is judged to have a negative impact on the
     mentioned which need further clarification to be      other functions and services of the Lagoon
     able to asses the environmental and economic          mangrove complex “ (page 48). However, to
     impacts of increased salinity                         improve the outcome of the economic analysis,
             On page 25, the ECI Report mentions           this area could be increased by up to 70 percent
     interactions of species inside the Lagoon. It         (page 101).
     goes on to say that “ for instance, many types of             The report also mentions the following:
     shrimp have evolved optimal growth rate at            “Aquaculture, especially for tiger shrimp, has
     lower salinity levels at certain stages in their      failed in other parts of Indonesia. Special skills
     life, making them dependent on the inner              are needed to manage tiger shrimp ponds. It is
     creek.” This could mean that one of the               planned to provide the necessary resources so
     consequences of the river diversion is that many      that failure is avoided in the Segara Anakan”
     of the shrimp species now present in the Lagoon       (page 109). This is very correct! Almost all
     will not be able to live there any more. This will    black tiger shrimp farming in Indonesia has
     have negative impacts in both, the                    failed because of intensive cultures and
     environmental and economic sense.                     subsequent overuse and overstocking have
             The report discussed extensively              resulted in diseases. Pollution has made many
     laboratory results which suggest that “ late          ponds unusable for many years to come!
     juvenile stages of certain shrimp species cannot      Furthermore, these failed ponds mostly had
     tolerate very low salinities, whereas young           direct access to the open sea whereas the Segara
     juveniles demonstrate larger tolerances .” It         Anakan ponds will contribute to pollution in the
     would be interesting to know if this affects          Lagoon and eventually poison themselves.
     commercially valuable shrimp species as well.         Small shrimp pond projects on the south coast
             Also in the ECI Report (pages 18 and          work well if they are managed according to
     20), there is mention of growth reduction in the      traditional methods, but there is no reason to
     mangroves under high salinity conditions. The         believe that a large 200 ha site in the Segara
     type of mangroves that grow well in these             Anakan would be operated and managed in an
     conditions will also change, in effect, changing      environmentally friendly and sustainable
     the entire ecosystem of the Lagoon. The BBV           manner! It must also be stressed that the EU is
     Report even mentions tested flow scenarios for a      getting extremely strict on medications that are
     “ No mangrove scenario, in case that the              permissible in shrimp farming.
     mangrove loss around Segara Anakan results in
     the loss of storage volume that presently exists
     “ (page 20).                                          Economic sense
             Further, the ECI Report mentions (page               To evaluate the economic sense of the
     33) that one of the indirect uses of the Segara       diversion project, the assumptions guiding the
     Anakan is the prevention of saline water              project and providing the economic rationale
     intrusion, by maintaining a fresh water wedge         need to be evaluated.
     on top of the salt water on the coast. It goes on            A big question of concern is the urgency
     to say that “ increased penetration of saline         with which the river diversion stage, with its
     water (...) may cause far-reaching socio-             associated costs-is being implemented.
     economic and ecological impacts. ”                    Dredging and management requirements
             Of course, the increased salinity is a very   mentioned in the ECI Report have not yet been

implemented (page 106). In addition. according          a base for calculations (ECI Report, page 53).
to estimates in the ECI report, the Lagoon              Since the trawl ban was implemented in 1980,
should at the present time already be filled            catches have diminished significantly (ECI
completely (page 14, surface prediction for the         Report, page 47) and now average about 7.500
year 2000). However, the Lagoon still exists,           tons of fin-fish and 2.000 tons of shrimp. The
even if smaller in size than in 1992.                   use of the pre-1980 data casts doubts on the
         An indication of what is happening             neutrality of the ECI report in its assessmentt.
comes from the BBV Report where it is                           Also needed is an evaluation of the
mentioned that already almost 93 percent of all         effectiveness of much cheaper methods to
sediment carried by the rivers flow out to sea,         preserve the Lagoon, some of which have fewer
and due to a changed Lagoon size and coastal            long-term impacts on the environment. The
shape this amount of sediment may be                    ASEAN report mentions only agitation
increasing. Untill an equilibrium state is              dredging and enhanced flushing as methods to
reached (BBV Report, pages 45 and 1), the               preserve the size of the Lagoon (ASEAN, page
actual sediment deposition is 500.000 m3 per            44). The BBV report also mentions that the
year (1999) as opposed to 1.000.000 m3                  Cikonde diversion alone would already have a
estimated by ECI in 1994 (BBV, page 7). If in           large effect an the sediment deposits in the
fact it is true that there is an equilibrium stage      Lagoon, without having to construct the much
that has almost been reached at this time, there        more expensive and environmentally destructive
may be time to think about other measures to            Citanduy diversion project.
protect the Lagoon than an expensive                            Without doubt, an extremely
engineering intervention.                               environmentallyy friendly alternative would be
         If a reduction in fish catches in and          to spend money on preventing the rivers from
outside the Lagoon is taken as an indication that       carrying such large amounts of silt in the first
the Lagoon is losing it’s productivity as it            place, which means an effective upriver erosion
becomes smaller, it must be pointed out that            control program. The ECI report (page 108)
much more productivity loss in fisheries can be         devotes a single paragraph to recommend a
attributed to the use of destructive fishing gear       feasibility study about upland erosion control,
by lagoon and offshore fishermen. This is               but states this is not feasible basin-wide. But
described in detail in the 1990 report on “             how would they know this without the necessary
Coastal Resources Management Project “ by               feasibility study?
the ASEAN-US cooperative Program on Marine
Sciences (pages, 20, 28). Another important
factor is the rapid destruction of mangrove             Local participation
forests around the Lagoon by human activity                     Diverting the Citanduy rivers will
(ASEAN page 19, ECI Report page 21 and 30).             generate result in a large proportion of sediment
         The assumed economic benefits of the           being carried out to the coastal area in Cilacap,
Project through aquaculture must be related to          West Java, where villagers and fisherfolk live.
environmental issues. As it is unlikely that the        This will affect their environment and
black tiger farming will be successful in the           livelihoods. Therefore fisherfolk in Cilacap are
long term, this should not be counted as a              opposing the project.
project benefits. In addition, marine farm prices               The ADB has discussed the project with
have collapsed following the September 2001             local people in Cilacap who would be eligible to
WTO attacks and European Union import                   will receive some benefits. However, no broad
restrictions. The ECI Report (page 102)                 based public consultations and discussions have
mentions that a 10 percent fall in both farmed          been carried out anywhere. The fisher folk in
and captured fish prices will push the IRR below        Pangandaran, West Java, who will also be
the required 12 percent. Certainly these prices         affected sedimentation from the river’s diverion
have fallen much more than 10 percent and are           have not been consulted at all. At present, they
expected to remain low.                                 are also opposing the Project.
         In looking at offshore fisheries data, it is           The Project will require the appropriation
questionable to use pre-1980 data of 5.000 tons         of land that is in the route of the river diversion.
of shrimp and 15.000 tons of fin-fish catches as        Affected land owners and users are supposed to

     be compensated by the Project for loss of land.       activities are reduced and the nursery
     The project has finished the study phase and is       function of the Lagoon can thrive. Together
     in the process of preparation and                     with Nusa Kambangan, the Segara Anakan
     implementation. However, iimplementation has          could from a unique and valuable nature
     currently stopped because of disagreements over       reserve for the Southern Java coast. This
     land compensation. The owner of 130 ha of             would eventually be beneficial to local
     land in Cilacap, whose land will be directly in       people and communities as a productive fish
     the new route of the river, has refused the           and shrimp nursery, bird habitat and refuge,
     compensation price offered by the Project.            and an attraction for visitors from other
             Meanwhile, villagers in the Segara            places.
     Anakan area have been informed by ADB                      There is a serious question why the ADB
     consultants that diverting the river is the best   and the Government of Indonesia have chosen
     option to reduce sedimentation in the Lagoon.      to divert the flow of the Citanduy river to reduce
     The fact that fisher folk in Cilacap refused the   sedimentation, instead of considering another
     Project has created potential for conflict among   option that has proved to be succesful, namely
     villages in the two areas and villages in Segara   forest rehabilitation. Forest rehabilitation in
     Anakan consider those villagers in Cilacap to be   upland areas, which had already been completed
     jealous of the benefits of the Project in the      up to 50 percent, has significantly reduced
     Lagoon area.                                       sedimentation in Segara Anakan. Despite its
                                                        success, forest rehabilitation was eventually
                                                        discontinued because of corruption and
     Alternatives to consider                           mismanagement.
            The following proposals are made:                   Benefits from the Project will not go to
     • A study must be conducted by an                  the local communities or those living up or
       independent and neutral entity, supported and    downstream from Lagoon area. The real
       accepted by all parties. Current data should     beneficiaries of the Project will be the
       be gathered and an assessment made on all        consultants, project executors (local and national
       possible solutions to Segara Anakan problem.     government officials, commercial shrimp
     • Upland erosion control should be considered      businessmen, and the ADB itself.
       seriously, at it not only saves the Segara
       Anakan Lagoon, but also benefits the entire
       upland watershed areas of the Citanduy and
       Cikonde rivers. Financing should be made
       available for these measures..
     • Until the erosion control has had positive
       effects on the filling of the Segara Anakan
       Lagoon, maintenance dredging (either
       conventional or agitation) can be performed
       to maintain the size of the Lagoon, or to even
       enlarge the Lagoon back to a suitable size.
     • The encroachment of commercial farming
       and aquaculture on the mangrove and Lagoon
       areas must be stopped.
     • Fisheries in the Lagoon must be regulated
       and destructive fishing gears outlawed. No-
       catch zones, seasonal restrictions, and
       minimum net mesh sizes should be
       considered. This must go hand-in-hand with
       education measures for the fisher folks and
       increased Marine Research of the Lagoon and
       offshore fisheries.
     • The Lagoon should be designated a nature
       reserve so that disturbances from human

                     Disclosure, or Deception?
                            Multilateral Institutions
                           and Access to Information
                                              By Shalmali Guttal*

        Multilateral institutions such as the Asian           irresponsible in their stated commitment to
Development Band (ADB) and the World Bank                     promote public participation, and equitable and
pride themselves on their information disclosure              fair access to information.
policies, and hold them up as evidence of their
commitment to transparency and accountability.
The discussion on information disclosure,                     The politics of information
however, needs to be located in the larger                    disclosure
context of rights and governance. Today, the                          Access to information is primarily a
public’s right to know is considered indisputable             political issue, and embedded in power relations
by most proponents of democracy, and                          and the exercise of power. It involves not
articulated in the Universal Declaration of                   simply the ability to access information that
Human Rights and International Covenant on                    exists, but also, the generation of information
Civil and Political Rights. Most of us would                  that would influence the ability of the public to
agree that meaningful public participation in                 participate in making decisions that shape the
democratic processes requires informed                        future directions of their societies and countries.
discussion and debate. Unless a public is fully               The capacity to generate information and to
empowered with all the relevant and required                  enshrine this information in social and
knowledge, its participation in a given situation             institutional memory as “knowledge” is indeed a
is cosmetic at best.                                          powerful one. Both the World Bank and the
        By Governance, I refer to a                           ADB have these capacities and have used it to
comprehensive and transparent system of rules,                their full advantage in the name of information
processes, and procedures that ensure the                     disclosure.
protection of peoples’ rights to knowledge and                        The information disclosure policies of
decision-making, and accountability and                       both institutions are comparable in some
responsibility for decisions made and actions                 fundamental shortcomings.
taken. Policy decisions have economic, social
and political consequences, and it is crucial to              1. Irrelevance to decision-making
examine whether those who bear the greatest                           The most obvious flaw in the information
costs of decisions have been involved in making               disclosure policies of the World Bank and the
these decisions.                                              ADB is that they have little to do with
        In this context, both the ADB and the                 influencing key policy decisions made by the
World Bank fail in their practices on information             institutions. It does not matter how much paper
disclosure and access to information. Both                    or how many megabytes they make available;
institutions are completely unaccountable to the              the most important decisions in both institutions
public, highly non-transparent in their policy                are made according to the economic and
formulation and decision-making, and                          political interests of their more powerful

* Shalmali Guttal is the Coordinator of the Micro-Macro Issues Linking Programme at Focus on the Global South
( This paper is based on her presentation at the Conference, “Access to Information” held in
Hua Hin, Thailand, from March 4-6, 2002

     members and not according to broad based              that it will receive majority approval from the
     public interest.                                      Board. And if this approval is not possible
             Equally important here is the issue of        through informal “consensus-building,” senior
     how decisions within these institutions are           management is likely to delay the process by
     made. Again, public debates or public interest        bringing additional steps into the formal
     priorities have little meaning here. It is widely     decision-making process.
     acknowledged that a significant reason for why                In sum, decision-making in the ADB and
     developing countries have been disadvantaged          the World Bank is controlled by exclusive,
     by multilateral institutions is that they have been   closed circles of top leadership and senior
     marginalised from the formal decision-making          management, and guided by multiple levels of
     systems of these institutions.                        self-interest. The present information disclosure
             In the World Bank, formal decision-           policies of the two institutions are not going to
     making power is based on the size of capital          change this situation.
     subscriptions. Here, the United States (US),
     with a 17.6 percent voting power has the formal       2. Selective disclosure
     clout to veto decisions that it does not favour.              Another fundamental flaw in the
     The only contender on the horizon to the US’s         information disclosure policies of the two
     power in the World Bank is Japan, whose capital       institutions is that they only disclose what is
     share and voting power the US has been able to        convenient to them and advance their
     limit to eight percent. Formal power is further       institutional interests. What is more important
     supplemented by informal mechanisms. The              than the information they disclose is what they
     World Bank President is always a US citizen           do not disclose.
     and the Bank’s location in Washington DC has                  The World Bank’s recently revised
     helped to ensure that (US approved) US citizens       information disclosure policy continues to focus
     account for a quarter of senior management and        on providing people with information about
     higher-level professional staff. According to a       decisions already taken, rather than making
     US Congressional Research Service analysis,           available the information needed for the public
     the advantage of the World Bank and                   to participate in decision making. In the new
     multilateral development banks to the US (and         policy, key documents such as tranche release
     other rich lenders) is that they are able to          memoranda, the Bank President’s reports, drafts
     demand performance standards of their                 of Country Assistance Strategies (CAS) for most
     borrowers that the US and other lenders may be        countries, and the draft and final documents for
     reluctant to impose on a bilateral basis.             most structural adjustment lending will not be
             What Japan has lost in the World Bank, it     made available to the public. The Bank’s Board
     has claimed in the ADB. According a number of         was apparently divided on the question of
     ADB insiders, the ADB operates by the rules of        transparency in structural adjustment lending
     “Japanese culture.” Decision- making is “             and these divisions are reflected in the
     consensus-driven” (in the Japanese way) and           complicated agreement that was eventually
     takes place through informal discussions in           reached. Final versions of some documents for
     hallways among select members of senior               low-income borrowers will be made available,
     management and the Board. The ADB too has             while documents pertaining to middle-income
     specific key senior positions reserved for the        borrowers will be left to the “discretion” of
     nationals of its more powerful capital                borrowing governments to disclose.
     subscribers. Sole and final authority on all                  According to the Bank Information
     decisions rests with the President of the ADB         Centre (BIC), a US based policy research
     who is also the Chairman of the ADB’s Board of        organisation that has monitored the World
     Directors-and most important, is Japanese.            Bank’s information disclosure process
     Although members of the Board are expected to         exhaustively, under the new policy the World
     consult with the national capitals they represent     Bank has essentially abdicated responsibility for
     for major policy decisions, senior management         its own transparency by pushing such disclosure
     have no such cumbersome requirements. Their           decisions onto borrowing governments. It has
     primary concern is to ensure that no policy or        thus clearly chosen to deny the public its right to
     issue goes to the Board unless they are confident     access key documents regarding structural

adjustment lending.                                  not disclose the information on which its own
        Also under the new policy, the World         assessment was based.
Bank’s Board of Directors will continue to                   By October, 2001, the Samut Prakarn
govern in total secrecy. Again according to BIC,     project went into the ADB’s inspection process,
the Board has yet to acknowledge that the public     which itself was racked with non-transparency,
has a right to know how they are being               conflict of interest and antagonism between the
represented within the Bank. Almost no               Bank’s senior management and staff, Inspection
progress has been made regarding disclosing          Committee, Inspection Panel, and the Thai
information about project lending. While the         Government. An inspection report was
World Bank claims that it is interested in           submitted by the Inspection Panel team to the
including project-affected communities in            ADB without the Panel having visited the
decision-making, it refuses to make important        project site or having direct consultations with
documents about project design and                   project-affected communities. Even so, the
implementation, and financing agreements             inspection report finds that the ADB violated a
available to the public until after decisions have   number of its important policies and procedures.
already been made.                                   The project should have been re-appraised at a
        The ADB on its part proudly touts its        much earlier stage, before a supplementary
website, and the number of reports it has            financing loan for the project was made. But it
published and made available on the website as       took the ADB several months to make this and
evidence of its commitment to information            other related documents available to the general
disclosure. However, according to a source           public. The Requestors of the inspection (the
close to the ADB, what is not on paper is the        affected communities in Samut Prakarn) were
real issue. What is available on the website or in   not contacted by the ADB management about
published form is not pertinent to the ADB’s         the inspection report until several months after
decision-making processes. Too many decisions        the report was submitted to the ADB. To date,
are made through closed, informal discussions        what the ADB has made public is a summary of
that should in actuality be open to the public.      its conclusions about the Inspection Committee’
Much of this information and access to such          s recommendations. The nature of deliberations
discussions are also not equally shared within       within ADB Board regarding its responsibility
the ADB itself; delegates from poorer and thus       and culpability, however, remain secret.
less powerful countries are as likely to be kept                In the meantime, project construction
out of the loop as the general public in the ADB     continues and affected communities cannot
borrowing countries.                                 expect any compensation from the ADB for lost
        ADB secrecy is amply demonstrated in         livelihoods and a degraded environment. The
case of the Samut Prakarn Wastewater                 position and response of the ADB in the Samut
Management Project in Thailand. Despite              Prakarn Wastewater Management project is not
repeated requests by project-affected                simply a violation of its own information
communities and members of the Thai Senate,          disclosure policy; it is a fundamental betrayal of
the ADB did not disclose the project profile,        the public’s right to know. And this is one
procurement documents or even initial                instance of the ADB’s commitment to
environmental and social impact assessments of       information disclosure that the public is
the project. Project-affected communities and        watching very closely.
supporting non-governmental organisations
presented substantial data to the Bank about the     3. Dubious quality
potential negative impacts of the project. They               Given the high degree of secrecy that
also pointed out how the project violated both       governs the information disclosure policies of
Thai laws, and many of the ADB’s own                 the World Bank and the ADB, it is difficult to
operational policies (such as Anticorruption,        trust the quality and integrity of the information
Governance, Confidentiality and Disclosure of        that it does disclose.
Information, and Environmental Assessment                     The recent draft water resources sector
Requirements). However, the ADB continued to         strategy prepared by World Bank staff was
maintain that it saw no evidence of wrongdoing       found wanting by members of the World Bank’s
or negative impacts, but at the same time, it did    Board. Quite a few World Bank financed

     infrastructure projects have been marked with         public participation in the development of their
     scandals of corruption and bribery, which             respective policies and programmes, what
     occurred even as senior Bank staff reported that      purpose do they serve? I would conjecture that
     all was well. One of the Bank’s own internal          the primary aim of these practices is to keep the
     reports in 1999 indicated that the Bank has           public occupied with sometimes interesting, but
     tolerated corruption, legitimised false statistics    largely irrelevant information while the Banks
     and was complacent about the state of human           get on with business as usual. This is not
     rights in many of its borrowing countries. The        information disclosure in any meaningful sense,
     Bank’s close involvement with the Suharto             but rather, this is deception.
     regime in Indonesia—to which it funneled US $
     30 billion in 30 years—has been well
     documented. Bank management was found                 Struggling with governance
     violating its own rules on environment and                    There is ample evidence to show that
     resettlement in the China Western Poverty             neither the ADB, nor the World Bank are
     Project. The Meltzer Commission report                sufficiently competent to sermonise to the world
     released in February 2000 found that the failure      about transparency, accountability, good
     of Bank projects is 65-70 percent in the poorest      governance and participation.
     countries and 55-60 percent in all countries. In              In order to bolster its image, the World
     sum, the Commission concluded that the World          Bank attempted to engage the public in at least
     Bank was irrelevant to the achievement of its         two global initiatives, the Structural Adjustment
     stated mission of global poverty alleviation. Not     Programme Review Initiative (SAPRI) and the
     surprisingly, none of this information was made       World Commission on Dams (WCD). In both
     available to the public by the Bank itself.           these initiatives, the public-which included
             The information provided by the ADB           many long-time critics of the Bank-entered into
     about its own policies is out of date with            what they hoped would be good faith processes
     developments within the institution. For              of research and dialogue with a variety of
     example, long pending reviews of its                  opposing interest groups. And despite
     Information Disclosure Policy and the                 challenges and compromises, they stayed with
     Inspection Policy have yet to be conducted.           the programmes. The World Bank, on the other
     Preliminary problems with both policies thus far      hand, started to back-peddle as soon as it
     have been kept secret, as have debates between        became clear that the two reviews were
     senior management and the Board about the             generating information that contradicted its self-
     quality of ADB programmes and projects. The           created scorecards of success in structural
     ADB’s lawyers have advised Board members to           adjustment programmes and support for large
     not make public statements about the possibility      dams. In the case of SAPRI, the Bank produced
     or state of project inspection processes (as in the   its own report, which ignored the findings of the
     case of Thailand and Sri Lanka). The                  research that its own staff was involved in. And
     Operational Manual for ADB Staff has not been         by so doing, it effectively closed off any
     updated for at least five years. Operational          substantive or meaningful discussion with the
     policies and procedures that should have been         public about structural adjustment. In the case
     reviewed years ago are still unchanged, while         of the WCD, the Bank more or less rejected the
     other policies approved five years ago have still     Commission’s findings and is taking refuge
     not been included in the Manual-at least not in       behind opposition to the report by some country
     the version that is publicly available. There is      governments as an excuse to not implement the
     thus a great deal of confusion among Bank staff       WCD recommendations.
     as to which policies they should follow-those on              In the meantime, the World Bank
     paper (but outdated), or those agreed on by the       continues to impose structural adjustment
     Board (but not yet included in the operations         through a new programme-the Poverty
     manual).                                              Reduction Strategy Papers (PRSP), which the
             Given that the information disclosure         Bank claims are nationally owned and
     practices of the ADB and the World Bank do not        participatory. However, investigations into the
     provide complete, accurate, and reliable              PRSP process by civil society groups reveal that
     information to the public, nor do they facilitate     PRSPs are plagued with the same flaws of

policy and conditionality imposition,                 information disclosed through paper and
inaccessibility of information and absence of         megabytes, even as decision-making and
any serious learning from past Bank imposed           democratic oversight in the ADB and the World
reform programmes. In the same vein, the Bank         Bank become increasingly remote to the public.
has entered into yet another global review                     Secrecy in public information disclosure
process, this time of mining and extractive           policy is a violation of the social and political
industry. But here, the Bank does show some           compacts between a people and their
institutional learning. The process is far more       government. Governments are-at least in
closed and exclusive than the WCD, and the            theory-expected to be accountable to their
Bank is attempting to exercise greater control        citizens for the decisions they make.
than before over the review structure and             Multilateral institutions-which are public
process. Sources close to the World Bank have         institutions—argue that they are directly
indicated that the Bank may be on a path              responsible to the governments that constitute
towards “downward harmonisation” of project           their clientele, and not to the general public.
and programme standards in an attempt to              However, the policies and practices of these
ensure that it does not lose its infrastructure and   institutions have severe and long-term
borrowing clientele.                                  consequences that are not borne by governments
        The ADB has its own problems of               alone, but by the populations in the client
internal governance and non-transparency. The         countries. And the less directly accountable a
Samut Prakarn Wastewater Management Project           public institution is to the public, the more open
inspection process has opened a can of worms          and transparent it needs to be in order to uphold
within the ADB, highlighting problems of poor         its stated commitments to democracy, good
leadership, staff confusion, and lack of              governance and social responsibility.
responsibility and accountability. The                         Experience to date shows that the ADB
inspection process has revealed the                   and World Bank have failed in this regard. They
inconsistencies between the ADB’s stated              are in no position to preach the values of
policies, what is recorded on paper and actual        openness, transparency and accountability to
implementation. A particularly alarming internal      anyone until they can fundamentally restructure
by-product of the inspection process appears to       internal and external governance in their own
be a rush within the ADB to update the staff          houses.
operations manual towards protection from
future inspection processes. According to
sources close to the ADB, the Bank may try to         Selected References:
arbitrarily decide which of their policies and        Asian Development Bank:
which parts of their policies are subject to
inspection, and which are not. In the future,         Aubugre, Charles: Still Sapping the Poor: A Critique
project managers are likely to be in a bind about           of IMF Poverty Reduction Strategies.
                                                            ISODEC, June, 2000.
whether they should focus their efforts on
                                                      Bank Information Centre: The Ongoing Struggle for
faithfully meeting project objectives, or on                World Bank Transparency-The Outcome of the
implementing the “inspectable” policies and                 Information Disclosure Policy Review.
thereby protecting themselves from the risks of             November, 2001.
future inspection processes.                          Bank Information Centre: The Asian Development
        Like the World Bank, the ADB may also               Bank’s Inspection Function. February, 2002.
                                                      Bank Information Centre: Testing ADB
be moving towards a general lowering of                     Accountability: The Case of the Samut
programme and project standards by arbitrarily              Prakarn Wastewater Management Project in
deciding which of its policies and procedures               Thailand. February, 2002.
are “inspectable” and which are simply “good          Bello, Walden: Prospects for Good Governance:
practice.” And whatever is deemed                           The View from the South. Focus on the Global
                                                            South, October, 2001.
“inspectable” would still be shielded from
                                                      The Bretton Woods Project: website.
external accountability by the ADB’s immunity         The Halifax Initiative: Halifax Initiative Submission
to local and national laws, as guaranteed by its            to Consultation on Draft Information
charter. Most likely, these trends will be                  Disclosure Policy.
accompanied by a lot more irrelevant                  The World Bank: website

                          Governance and the ADB
                      Complicity and Conflict of Interest
                                                 By Jenina Joy Chavez*

              When crisis struck East Asia in 1997, the           reforms (civil service and judicial reform,
     international financial institutions (IFIs) and              regulatory and market governance), in some
     multilateral development banks (MDBs)                        cases compiled in a comprehensive governance
     scampered everywhere to look for an                          masterplan or action plan, became one of the
     explanation. That is, everywhere but into                    hottest initiatives coming from the IFIs/MDBs.
     themselves. Not surprisingly, the most viable                        One would not have begrudged the IFIs/
     apology turned out to be governance, or rather               MDBs their claim of the moral high ground had
     the lack of it. Governments were corrupt and                 institutional memory been short. Fortunately
     nontransparent, rules were unclear and                       such was not the case. Most everybody
     discriminatory, private companies were                       remembers that the IFIs/MDBs definitely
     irresponsible and overextended - the system was              hugged the policy limelight during the darkest
     not functioning the way it should. It mattered               and most repressive era of East Asia. They have,
     little that the system gave such incentives for              for instance, stayed on and shored up the
     overextended “irresponsible” behavior of both                Suharto regime in Indonesia, even at a time
     government and the private sector, nor that the              when civil society was already appealing for
     rules were designed in the way most expedient                their withdrawal of support. The World Bank
     and politically convenient. After all, the system            and the International Monetary Fund had been
     was sponsored by the IFIs and the MDBs                       known to manipulate certain country data to
     themselves, and anytime at their beck and call, it           justify their loan programs in the past. And the
     should be “all systems go”.                                  U.S. Congress appointed International Financial
              More than anything, it was governments              Advisory Commission (also known as the
     that received the ire of the good governance                 Meltzer Commission) reported in early 2000
     gurus. They alleged that corruption pervaded                 that more than half of World Bank projects were
     governments, and this spelled doom for                       failures.
     countries during the crisis and made it difficult                    The most damning revelation came with
     to implement the necessary response. For former              the collapse of American electricity equipment
     United States Treasury Secretary Robert E.                   and supply giant, Enron Corporation. Enron
     Rubin, the situation was so bad that he urged the            registered the biggest bankruptcy in U.S. history
     IFIs “to cut off assistance when corruption                  to date, leaving on its trail more than US$140
     undermines the viability and effectiveness of                billion in debts. Not only did the most powerful
     their reform programs” because “scarce                       country in the world fail to arrest the situation
     resources should not be wasted in countries that             before it exploded, it was also revealed that
     are not prepared to confront and combat                      Enron thrived with its financial support.
     corruption seriously”.1                                      According to the Institute for Policy Studies
              Thus began the march of good                        (IPS), a U.S.-based progressive policy think
     governance as the most important new pillar in               tank, “since 1992, at least 21 agencies,
     international development discourse, second                  representing the U.S. government, multilateral
     only to poverty reduction. Governance-related                development banks, and other national

     *Jenina Joy Chavez is a senior research associate at Focus on the Global South, Manila

governments, helped leverage Enron’s global          policy responsibility”, a situation that challenges
reach by approving $7.219 billion in public          the
financing toward 38 projects in 29 countries”2.      “traditional merit of a Regional Development
        Closer to home, the governance discourse     Bank being closer to its borrowing members
has also been actively promoted by the Asian         countries”6 DFID further sees the operation of
Development Bank. The ADB has been cited by          “a quota system for professional staff (i.e., the
the same IPS report as having “supported             number of staff of a particular nationality
(Enron’s) Batangas Power Plant with a $26.4          depends on the size of that country’s
million loan”3. Official ADB documents show          shareholdings)” and the reservation of certain
that the loan was approved in 1993 from the          posts for particular countries, an anomaly.7 This
Bank’s Ordinary Capital Resources, and that the      quota system is responsible for having the most
Bank also made an equity investment to the           senior management posts occupied by Japanese
plant in the amount of US$3 million4.                and American nationals. The Presidency, the
        The irony of Enron is not so much that it    Treasury and Budget portfolios are reserved for
went bankrupt. But that, being a private             the Japanese, while the Americans take charge
corporation, it was subject to less nagging over     of the General Counsel’s Office.
governance issues than governments were. The                 How the ADB handles projects and
irony is that the private sector has long been       programs in DMCs is itself not a source of good
pitted against the public sector, hailed as the      examples. Projects with implications on
better of the two, and in the 1990s been the         resettlement almost always fail to incorporate
recipient of much direct support from the            meaningful participation (versus mere
MDBs.                                                consultation) with affected communities.
                                                     Relevant information are not made available on
                                                     time, if at all. Although one wonders whether
As the ADB says, not as it does                      the production and/or possession of conclusive
       The ADB prides itself for being the first     pieces of evidence (whether positive or
to have a Board-approved governance policy.          negative) is really more important to the Bank
This policy has four core elements -                 than actually having a project or program
accountability, participation, predictability and    implemented come what may.
transparency. The governance activities the                  The latest scandal to prick the ADB’s
Bank supports in developing members countries        governance veil was the Samut Prakarn
(DMCs) revolve around the following                  Wastewater Management Project. First brought
objectives: to (1) strengthen governance in          to public attention in Chiang Mai in 2000,
public sector management; (2) improve public         Samut Prakarn was the first Inspection case
enterprise management and public-private             brought before the Bank. Being the first, one
interface; (3) improve public expenditure            would think that the Bank would put its best
management; (4) support public administration        foot forward. Instead, a Board nervous about the
reform; (5) enhance participation; (6)               deluge of potential Inspection requests, and a
decentralise government services; and (7)            total lack of political will on the part of the
reform the legal system.5                            Bank, caused the Bank to repeatedly ignore or
                                                     outright violate its own governance guidelines
        However, the ADB does not always             and proceeded with a poorly managed
practice what it preaches. Internally, the ADB is    Inspection process. Still, the Inspection
very centralised and hires personnel based on        Committee found various violations of Bank
criteria other than merit. A Department for          policies, including participation, in the Samut
International Development (DFID, UK) study           Prakarn case8.
pushed for institutional and management reform               The project, however, is continuing. The
within the ADB. DFID claims that “the Bank           Inspection Report is likely to gather dust. And
remains a higly centralised organisation with        civil society’s worst fear is coming true: the
most decisions taken at its headquarters in          Bank has started turning down new requests for
Manila”, that “in-country offices are...restricted   inspection.
to project implementation, logistical support and
liaison with the host government” and lack “

     Conflict of interest                                   commissioned a large hydropower consultancy
              It should not be hard to see why it is        firm, Norconsult International, to assess the
     difficult for the ADB to apply its own                 energy potential for the Greater Mekong
     governance yardstick onto itself. There are just       Subregion (which at the time everybody knew
     too many elements of the governance principle          the ADB was grooming as a hydropower hub).
     that threaten the very foundations of the Bank.        Not surprisingly, the report that was produced
     When an institution’s professional judgment is         read like a dam catalogue.9 But when
     compromised or appears being compromised by            consultants manage to come up with
     considerations other than those openly covered         compromising results, as in the case of
     in the assessment process, a situation of conflict     independent fisheries expert Terry Warren, the
     of interest arises. In the case of the ADB, the        ADB manages to pretend no such reports exist.
     considerations need not be personal or financial,      Terry Warren confirmed that the Theun-Hinboun
     but values that the institution feels the need to      hydropower project is responsible for negative
     protect. This includes financial viability, positive   impacts, including the loss of fisheries,
     public projection, shareholders interest, and          riverbank erosion and damage to drinking water
     survival.                                              supply.10
              The Bank should be measured against an                It is also self-promotion when the ADB
     expanded standard of conflict of interest because      explicitly states in consultancy terms of
     it is a public institution, one that has tremendous    reference (TOR) that certain projects must be
     influence not only over how projects are done          identified for implementation even before there
     but also over what policies are implemented in         is conclusive assessment that will support such
     the DMCs. Financial resources have long been a         projects. Such was the case with the TOR for the
     weapon of coercion. Because of this, the ADB           US$2.5 million Basin Hydropower
     should be placed under very strict scrutiny.           Development Plan in the Xe Kong, Se San and
              Conflict of interest may be explicit or       Nam Theun river basins in Cambodia, Laos and
     implicit. It may surprise some people to know          Vietnam, where its was stipulated that the study
     that in many instances, the conflicts of interest      should identify at least six hydropower projects
     involving the Bank are more explicit than the          for early implementation.11
     Bank itself cares to recognise.                                Finally, it is self-promotion to extend
                                                            funds for “constituency building”, or the process
     Self-promotion                                         of convincing DMC citizens about the virtue of
             Self-promotion is the selective use and        Bank-financed projects or programs, usually
     disclosure of information and dispensation of          done through massive media campaigns. This
     policy based on their potential contribution to        practice was first tried out by the World Bank12
     the Bank’s image. For the purpose of                   and is being tried by the ADB in some of its
     scrutinizing the Bank, self-promotion can also         sector restructuring projects.
     mean the use of official position to ensure that
     only positive things about the Bank or its             Private sector operations
     projects are publicised officially, or to ensure               The ADB recorded its first private sector
     that criticisms in official documents are held at      investment facility approval in December 1983.
     bay. The ultimate objective for self-promotion is      It was a less than one million dollar equity
     to show that the Bank is doing everything right        investment to the Korea Development
     all the time.                                          Investment Corporation. Direct support for
             The ADB is guilty of self-promotion for        private sector projects used to be done through
     only hiring consultants who are to make positive       the Bank’s non-sovereign window, but are now
     or favorable recommendations on controversial          carried out by the Private Sector Operations
     projects. By extension, the Bank is self-              Department (PSOD).13 As of December 2001,
     promoting when it ignores important                    the ADB has approved a combined total of
     information that negates its own consultants’          US$2.66 billion in private sector investment
     reports, or withholds negative findings even of        facility, including direct equity, underwriting,
     the consultants that the ADB itself hires. For         loans and risk guarantees14.
     instance, in 1993 it can be said to have                       The recent attention the ADB drums up
     committed self-promotion when it                       for its private sector operations and the spate of

private sector lending from its Private Sector        themselves. However, if a guarantee exceeds a
Group has led to accusations of conflict of           specified limit (US$50M or 25% of project cost
interest on the part of the ADB. The conflict         for partial risk guarantee, and US$100M or 50%
arises because other groups within the Bank           of project cost for political risk guarantee), the
promote privatisation programs in DMCs.               ADB requires a counter-guarantee from the host
Uncannily, the biggest private sector loans           government.17
approved by the ADB in recent years have been                 Finally, when the Bank has both
connected to the buying up/operation of assets/       government and private sector clients in a DMC,
utilities that have been privatised under ADB         and where the Bank has Resident Mission
programs. While the ADB itself acknowledges           offices, statements by Resident Mission
that there is a potential for conflict of interest,   members remotely referring to the private sector
they are quick to claim that this is not a real       client’s dealings with the host government can
problem since the Private Sector Group has no         be considered meddling and an occasion for
real influence over the Policy and Strategy           conflict of interest. Similarly, if the Bank is
Department of the Bank.15                             silent on the design of a privatisation program or
         Far from the ADB’s claim that the            its regulatory instrument, especially when such
conflict of interest in this case can be avoided by   silence means undue advantage may be captured
full disclosure or by assurances that different       by the private sector client once the program or
departments do not confer with each other, the        instrument is approved, it is liable for conflict of
broader development objective of assisting a          interest.
DMC still “appears compromised”. Having                       These are not hypothetical occasions.
these two groups, clearly with disparate              The experience of the Philippines around the
functions and motivations, in a single institution    metropolitan water utility privatisation (where
is problematic and in itself constitutes conflict     the ADB is also arranging a private sector loan
of interest.                                          to one of the winning concessionaires) is a stark
         The Bank’s Private Sector Strategy,          reminder that the Bank can be a “persuasive”
which aims to leverage private sector investment      power when its interests are on the line. The
in DMCs, does not help at all. The strategy           Bank uncritically and insensitively made
admits that DMCs have development needs far           comments about how it would be difficult for
beyond what the ADB can finance.16 This is a          them to arrange the loan facility for their private
crucial question to the ADB’s ability to              sector client if the Philippine Government does
spearhead development in the region and an            not grant their petition for automatic currency
implicit declaration that private sector partners     exchange adjustment.18
are necessary for its continued relevance.                    On the other hand, the Bank may choose
         If the argument is that assisting private    not to be explicit about not-so-perfect conditions
sector groups helps client governments by             that may hold in technical and impact
promoting production, why not channel the             assessment, as long as broad opening up or
assistance through government instead? The            privatisation objective is met. For instance, a
private sector can still be the ultimate              Technical Assistance activity attached to the
beneficiary. The argument that the government         restructuring of a major public utility might be a
will be inefficient in directing support (through     study on pricing and regulatory practice in a
credit, for instance) becomes tired. And anyway,      “competitive environment”. The study would be
given its questionable governance performance,        fine, except that in the real world a competitive
who’s to say that the ADB will be better? At          environment remains a pipe dream. Yet the ADB
least the government has sovereign power to           will not place the emphasis on how the
make private corporations pay compensation for        competitive environment can be achieved, nor
damage they cause. When has the ADB ever run          would it reassess its role in the restructuring if
after erring contractors?                             its design were found to be less-than-
         Even in its private sector operations        competition friendly. Such was the experience
(PSO), the ADB calls on government to be              with the ADB around the Power Restructuring
involved in certain occasions. Private sector         Program.
loans no longer require government guarantees.
The ADB usually covers these guarantees

     Policy Conditionality
             The conflict of interest in the ADB’s PSO    1    Robert E. Rubin, Remarks delivered at the
     becomes more pronounced when viewed in the                conference Global Forum on Fighting
     context of broad-based policy conditionality that         Corruption: Safeguarding Integrity Among
     the Bank imposes on its DMCs. The ADB has                 Justice and Security Officials, February 24,
     been giving policy-based lending since 1978.              1999. Available on the internet: http://
     However, it was after the programs’ second      
     review in 1987 that policy-based lending             2    Enron’s Pawns: How Public Institutions
     became more stringent.                                    Bankrolled Enron’s Globalization Game.
             In policy- or program-based lending,              Sustainable Energy and Economy Network,
     loans are usually released in three tranches, with        Institute for Policy Studies, March 22, 2002.
     each tranche release conditioned on the                   Available on the web:
     achievement of certain benchmarks or the                  pawns.PDF
     performance of specified conditions. For             3    Ibid.
     example, the second tranche of a power               4    Asian Development Bank. December 2001. Loan,
     restructuring program loan may be conditioned             Technical Assistance and Private Sector
     upon among other things the passage of a power            Operations Approvals.
     sector restructuring law (such as in the case of     5    Asian Development Bank. 2000. Promoting Good
     the Philippines). And third tranche will be               Governance: ADB’s Medium-Term Agenda and
     released upon the approval of a privatisation             Action Plan
     program for the national power company (also         6    Department for International Development. 2000.
     as in the case of the Philippines). Tranche               Working in Partnership with the Asian
     release conditions may number from as few as              Development Bank
     one or two to as many as a dozen or more.            7    Ibid.
             Even without the PSO, the use of policy      8    Final Report of the Inspection Panel on the
     conditionality is already a big governance                Samut Prakarn Wastewater Management Project,
     problem. What if DMCs would like to                       14 December 2001. Summary of Key Points
     experiment beyond the economic orthodoxy?                 prepared by Shalmali Guttal, March 2002.
     Should not programs be evaluated on their            9    International Rivers Network. The Asian
     individual merits and based on specific country           Development Bank: Financing Destructive
     contexts? Quite obviously, with the PSO, policy           Development in the Greater Mekong Subregion.
     conditionality makes a clear case for conflict of
     interest.                                            10   Joy Chavez, “Will the ADB Pass the Reality
                                                               Test?”, Focus on Trade No. 63, ADB Special Part
                                                               II, May 2001.
     Beyond governance                                    11   IRN, Ibid.
             The ADB’s poor performance record on         12
     governance reeks of doublespeak. It invents          13   Asian Development Bank. 2002. Private Sector
     new policies to exhibit a seeming freshness, but          Operations: Catalyzing Investment Across Asia
     clings on to outdated structures. It co-opts              and the Pacific.
     progressive language to project dynamism, but        14   Asian Development Bank. December 2001. Loan,
     fortifies its support of old models. It packages          Technical Assistance and Private Sector
     itself as working for the benefit of its client           Operations Approvals.
     governments, while becoming more and more            15   Jenina Joy Chavez. 2001. Taking Stock of the
     beholden to the interest of its private sector            Motives and Interests in ADB’s Private Sector
     clients.                                                  Operations, in Profiting from Poverty: The ADB,
             This doublespeak highlights the                   Private Sector and Development in Asia.
     opportunism of the Bank who wants the cloak of       16   Asian Development Bank. 2000. Private Sector
     security provided by a multilateral public                Development Strategy
     character, but nevertheless diminishes the public    17   Asian Development Bank. 2001. A Guide to
     institutions that make it possible.                       ADB’s Official and Commercial Cofinancing
                                                          18   Jenina Joy Chavez, Ibid.


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