Committee for the Abolition of Illegitimate Debt

New Report Exposes How the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

Investment Court Undermines Democracy

Washington, DC - On April 29, the leaders of Bolivia, Venezuela, and Nicaragua agreed to withdraw from the World Bank’s international arbitration court, which rules on cases against governments brought by foreign investors.

The surprise announcement came just as two Washington, DC, based groups, the Institute for Policy Studies and Food & Water Watch, released a harsh critique of the court, the International Centre for Settlement of Investment Disputes (ISCID). According to the April 30 report, Challenging Corporate Investor Rule, ICSID ICSID The International Centre for the Settlement of Investment Disputes (ICSID) is a World Bank arbitration mechanism for resolving disputes that may arise between States and foreign investors. It was established in 1965 when the Washington Convention of that year entered into force.

Contrary to some opinions defending the fact that ICSID mechanism has been widely accepted in the American hemisphere, many States in the region continue to keep their distance: Canada, Cuba, Mexico and Dominican Republic are not party to the Convention. In the case of Mexico, this attitude is rated by specialists as “wise and rebellious”. We must also recall that the following Caribbean States remain outside the ICSID jurisdiction: Antigua and Barbuda, Belize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not ratified (or even signed) the ICSID convention and the 6^th most powerful world economy seems to show no special interest in doing so.

In the case of Costa Rica, access to ICSID system is extremely interesting: Costa Rica signed the ICSID Convention in September, 1981 but didn’t ratify it until 12 years later, in 1993. We read in a memorandum of GCAB (Global Committee of Argentina Bondholders) that Costa Rica`s decision resulted from direct United States pressure due to the Santa Elena expropriation case, which was decided in 2000 :
"In the 1990s, following the expropriation of property owned allegedly by an American investor, Costa Rica refused to submit the dispute to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID proceedings, and the American investor ultimately recovered U.S. $ 16 million”.

https://icsid.worldbank.org/apps/ICSIDWEB/Pages/default.aspx has given global companies unprecedented power to undermine governments’ authority to protect human rights and natural resources and pursue national development strategies.

The three Latin American governments’ statement, signed at a summit in Merida, Venezuela, says that “(We) emphatically reject the legal, media and diplomatic pressure of some multinationals that ... resist the sovereign rulings of countries, making threats and initiating suits in international arbitration.”

Bolivia was the target of an ICSID case brought by Bechtel corporation over a water privatization fiasco in the city of Cochabamba. Bechtel eventually settled the suit for a token sum, but only after an expensive five-year legal battle. Nicaragua was the target of another such suit filed by Royal Dutch Shell over a domestic court order related to compensation for banana workers made ill by a pesticide in which Shell had a financial interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. . Venezuela currently faces four pending ICSID suits, the most recent filed in February by Italian firm ENI related to the government’s efforts to increase state ownership of the oil sector.

The IPS and Food & Water Watch report finds that most ICSID disputes, about 70 percent, involve private investment in public services such as water, electricity, and telecommunications, or investments in natural resources such as oil, gas and mining. According to Food & Water Watch, in too many cases, the World Bank or other international financial institutions required privatization of public services as a loan condition. In many cases, these funds then enable multinational corporations with poor environmental and public health records to assume control or management of local water supplies.

“When contracts fail, as they inevitably do when private corporations are unwilling to provide the needed investment to maintain, build and expand the water systems, investor protections allow the companies to demand outrageous settlements from the countries they failed to serve,” said Food & Water Watch Executive Director Wenonah Hauter.

The report explains how ICSID and other international arbitration tribunals enforce investment rules incorporated into trade and investment agreements, including U.S. trade pacts with 14 countries. Although the United States and other rich countries have faced a number of these “investor-state” lawsuits, 93 percent have targeted low- or middle-income developing countries.

The report highlights 10 of the most controversial investor-state cases, including two of the more than 30 cases against Argentina, one against South Africa’s affirmative action policies, as well as suits involving indigenous peoples’ rights in Ecuador, Bolivia, Canada, and the United States.

According to the report, ICSID tribunals have ruled in favor of the investor and ordered the government to pay compensation in nearly 70 percent of cases. Just the threat of an investor lawsuit can have a chilling effect on social or environmental initiatives, as policymakers justifiably worry about provoking an expensive lawsuit.

The announcement to withdraw from ICSID will not be enough to release the three Latin American countries from the inter-locking web of rules and institutions that now serve the interests of large corporations. Bilateral investment treaties signed by Bolivia and Venezuela would still be in force, while Nicaragua would still be bound by the investment rules of the Central American Free Trade Agreement. Instead of taking claims related to alleged violations of these agreements to ICSID, foreign investors could appeal to UN or other arbitration tribunals.

Nevertheless, according to IPS Global Economy Project Director Sarah Anderson, “This announcement was tremendously significant on a political level. It may empower other countries to challenge these excessive investor protections and, most importantly, put forth proposals for more just trade and investment regimes.” The report concludes with a summary of proposals for change.

The report can be downloaded here.

The Institute for Policy Studies is an independent, multi-issue think tank founded in Washington, DC in 1963. IPS Global Economy Project Director Sarah Anderson, a co-author of the report, served on the staff of the Congressionally appointed International Financial Institutions Advisory Commission and is the co-author of Field Guide to the Global Economy.

Food & Water Watch is a nonprofit consumer rights organization, based in Washington, D.C., that challenges the corporate control and abuse of our food supply and water resources. Water for All Campaign senior organizer Sara Grusky, a co-author of the report, works with communities and organizations, especially in Latin America, that are working to replace corporate control of their water resources with local, democratic control. Visit www.foodandwaterwatch.org.