The Multinational Monitor

JUNE 15, 1985 - VOLUME 6 - NUMBER 7

B A N K I N G   O N   D I S A S T E R

Banking on Disaster

by Stephan Schartzman

In the heart of the Brazilian Amazon, in Brazil's newest state. Rondonia. 13,000 new settlers arrive every month on the newly paved BU 364 highway. Most of Rondonia was pristine rainforest in the mid-seventies and the highway was only paved in 1984. Even so, there are so many people arriving that the state government must send them on, further north and west. There is no more land for them in Rondonia.

In Indonesia, more than two million peasants from the densely populated inner islands of Java and Bali have been relocated to the outer islands - more than 1,000 a day over the last five years. In Java, population densities reach 5,000 per square mile in the countryside. The outer islands are more sparsely settled and are home to indigenous ethnic minorities as well as unique and delicate forest ecosystems. Both are coming under increasing pressure from the migrants.

These Brazilians and Indonesians are poor. they want land and they are intended beneficiaries of World Bank financed development plans. Both Brazil's Polonoroeste (Northwest Region Integrated Development Program) and the Indonesia Transmigration Program are state-of-the-art development projects from tile world's top planning experts.

The World Bank, a development agency committed to bringing about a certain kind of economic progress. pours billions into Third World development. In 1981 it had $92 billion committed to more than 3,000 projects. Since Robert McNamara's tenure as president (1968-1981), the World Bank has aimed to improve the lot of the "poorest of the poor." But as a bank it is rewarded for loaning money that it has borrowed. The administrative structure of the bank is set up for heavy infrastructure mega-projects, like roads and dams. Such projects make sense to the World Bank's investors on Wall Street.

By the time McNamara took over. the assumption that building roads and dams would of itseIf help the poor was looking a little shopworn. There had been plenty of economic growth since the Second World War, but absolute poverty seemed to grow right along with GNPs. His approach came to be known as "redistribution with growth," which might he paraphrased as "the rich get richer and the poor ;;et richer too." It meant that the World Bank would loan more in areas like agriculture, which could be presumed to help the poor, in the hope that not only would -the cake get bigger-but the poor would actually get a slice.

In this light, it is hardly surprising (hat the World Bank has found agricultural colonization an attractive proposition. In a country like Brazil, where by World Bank Calculations 10 percent of the landowncrs own 45 percent of' the land while the poorest 10 percent own 1.5 percent and some 2.5 million remain landless, land reform seems like the most basic way to help the poor. Brazil's last democratically elected president, Joao Goulart, agreed, and that is one of the major reasons he was ousted in the 1964 military coup.

Brazil's president from 1969-1974. Emilio Garastazu Medici, proposed "land without people for the people without the land." Medici's "land without people" was the Amazon, and the slogan was the rallying cry for the Transamazon highway - intended as the road to prosperity for some two million utterly impoverished drought stricken Northeastern Brazilians. They were to be settled along the 500 km road running from the Atlantic almost to the Peruvian border. With massive loans to Brazil's national highway department between 1968 and 1972, the World Bank and the InterAmerican Development Bank (IDB) indirectly funded the Transamazon. Although it was only opened in 1974, the Transamazon is no longer mentioned at all in official pronouncements. The agricultural development project was a total failure. Few of the colonists who went (many fewer than originally slated for resettlement) remain today. The road was never completed and is, in many areas, virtually abandoned.

When in 1979 Brazil Proposed World Bank financing of another Amazon road project, the Polonoroes(c project, the World Bank considered the idea risky but worthy. The plan adopted proposed heavy World Rank involvement to help ensure "redistribu(ion with growth."

Since the project's start in 19f31 , the World Bank has approved $443.4 million in live loans, in a total project cost of $1 .6 billion. More than hall the World Bank's funds went for the centerpiece Oft he projecl, the paving of the 1,500 km highway through the states of, Mato Grosso and Rondonia. The project covers an area threefourths the size of France. In 1978 the region as a whole was about half' rainforest, and more than 80 percent of Rondonia was rainforest. More than 8,000 Indians representing at least 35 distinct ethnic groups live in the area.

Despite criticism from indigenous rights groups such as Cultural Survival and the Anthropology Resource Center, World Bank planners mistakenly thought that they could limit runaway transformation -massive migration, conversion of forest for low-yield cattle ranching, land speculation and fraud.

The World Bank proposed paving the road and building 39 rural settlement centers offering agricultural credit, health care, and education. Colonization would be confined to areas with good soil, there would be a clear demarcation of Indian lands and national forest areas, and biological reserves and ecological research stations would be created.

The road was finished ahead of schedule, and migration has topped all expectations. "Thirteen-thousand people arrive each month in Rondonia alone - over 150,000 people moved into the state in 1984.

But the World Bank's vision of Rondonia as a place where the poor and landless could be productively and permanently settled on small farms sharply contradicts the available evidence. Brazilian environmentalist Jose Lutzenberger blasted the project in testimony before the House Subcommittee on Natural Resources. Agriculture Research and Environment last fall. "The Polonoroeste project is a method of decreasing; the risk and increasing the security of the large landowners. � lie said, "and it does this by removing sonic of the rural poor from regions where they were horn and dumping them in the Amazon."

Lutzenberger and other expert witnesses detailed an environmental catastrophe the fastest rate of deforestation in Brazil, which if unchecked would leave Rondonia denuded by 1990.

Subcommittee Chairman Rep. James Scheuer (DNY), shocked by the testimony. wrote a letter to the Secretary of the Treasury calling for Steps to rectify the situation - demarcation of Indian lands and protectin of biological reserves and national forests. both of which are included in the original loan agreements.

In an October letter to World Bank President A.W. Clausen, 31 environmental and human rights organizations called on the World Hank to take action to fulfill tire conditions in the loan agreements providing for protection of indigenous peoples and the environment. The group, coordinated by Natural Resources Defense Council (NRDC) attorney Bruce Rich, pointed out (hat few of the stipulated measures had been lacks.

Several months later, the World Bank responded with a curt note. Sen. Robert Kasten and representatives of the NRDC, the Environmental Policy Institute (EPI), the National Wildlife Federation (NWF), and Cultural Survival met with Clausen, four World Bank vice presidents and other staff members to discuss the issues.

By then the picture had changed. In March World Bank halted disbursements on the Polonoroeste loans, pending resolution of environmental and indigenous peoples problems - the first time the World Bank has stopped payments on such grounds. Environmentalists point out, however, that the worst of the damage was done when the road was finished and remaining funds are largely for the consolidation of new settlements and environmental protection. They welcomed the dramatic response, but noted that there was little evidence of' policy changes designed to prevent such disasters in the future Meanwhile. the IDB approved a continuation of the Polonoroeste road into the adjoining state of Acre, a project critics consider even More poorly conceived than Polonoroeste.

Transmigration in Indonesia is in some ways like tropical forest colonization projects in Brazil: People from high population areas with good soils arc sent to low population areas with poor soils.

By 1982 there were 153 million people in Indonesia and 92 million of them lived in Java, an area the size of' New York state. Rural population densities in Java reach 5.000 per square mile. Despite efforts at population control. Java grows by almost two million people per year. The problem of over population is compounded by the tact that one third o( the land belongs to one percent of the landowners and of the 80 percent of the population that is rural almost hall are landless.

In the 19th Century, Dutch colonial rulers thought there were too many people in the inner islands (principally Java and Bali) and decided to move some of them to the more sparsely populated outer islands to work on plantations. The Dutch have been gone since the 40s, but the idea has remained. By 1978, about a million people had been moved from the inner islands to the outer islands.

Since the mid-70s, with increased Oil revenues and World Bank support, the Transmigration Program has been stepped up dramatically. In it](' Indonesian government's third five year plan from 1979-84, 350.000 families moved with government Support while another 150,000 moved without government support.

Government planners want lo move another 500,000 families in the next Five-year plan. The government sees transmigration as the answer to a series of problems. In addition to reducing population pressure on the inner islands, it is claimed, the program will provide land and employment for Javanese. Despite irrigated rice production, Indonesia until recently was dependent on imported rice. Only a few _years ago Indonesia bought half of the rice traded on the world market. The government hopes the cultivation of new lands will lead to greater food self-sufficiency.

Offering free, partially-cleared land (usually 2-5 hectares), a house, free agricultural assistance including seed, fertilizer and pesticides, free subsistence supplies for the first year, and a one way ticket, the Indonesian government has encouraged peasants to leave Java. A five-year residency requirement then ensures that they will stay on the outer islands.

It is not yet clear whether the program will succeed in economic terms. Most of the migrants go to upper lands where irrigation is not feasible and soils are very poor. Studies initially suggested that with fertilizer, pesticides and new cropping systems, small farmers could feed themselves and pay I or their costs after a few years. But a World Bank review found few farmers meeting these goals.

For farmers who can't keep their farms going on their own after three to five years, the Transmigration Program means big trouble. It costs the government from $6,-12,000 per family, and with oil revenues declining, the government will not be able to sustain this project.

The odds are against them. The land is cleared by huge machines which compact the soil and destroy root systems, removing what little fertility existed in the first place. The World Bank has encouraged hand clearing because of the jobs it creates, but machines are faster and therefore more lucrative for contractors.

Despite such difficulties. few migrants have opted to jump ship. But the real test will come five years from now when the free ride ends for the 350,000 families that have, just moved. If migration on this scale fails, the millions of dollars spent on the project will have done little more than export poverty to the outer islands.

Environmentalists' criticisms of the Transmigration Program go beyond the question of economic returns. Indonesia has about a tenth of 'the world's remaining tropical rainforest, only Brazil has more and it is disappearing fast. Environmentalist Nicholas Guppy estimates that in another 13 years there will be no forest left on Kalimantan, one of' the largest of the Indonesian islands and one of the most diverse and unique ecosystems on the planet. Although logging operations are responsible for much of this, when settlers follow, the deforestation becomes complete.

With no evidence that agriculture on the scale contemplated for uplands forested areas will prove sustainable, an immensely valuable resource is being thrown away for short term gains. The environmentalists call for a slowing down of the massive deforestation and promoting sustainable ways to tap the vast scientific, medical and economic potential of the forest.

Projects such as Polonoroeste and the Transmigration program make the World Bank an easy target for critics of various persuasion. From the left, authors such as Cheryl Payer (The World Bank) and Walden Bello (Development Debacle) argue that multilateral banks serve U.S. political interests and those of U.S. and multinational corporations, so their policies will always in the end benefit those interests at the expense of the poor they allege to help.

U.S. influence has indeed been manifest in World Bank policy. McNamara agreed not to lend to Vietnam after 1979. Aid to Peru was cut after nationalization of the International Petroleum Company under Juan Velasco and no loans were made to Chile under Allende. Most recently, the United States has blocked Nicaraguan efforts to secure assistance from the IDB. Hut the World Bank does loan to socialist countries such as Tanzania, Romania. Hungary. Yugoslavia, Mozambique, and China. Revolution itself does not make a poor country rich, and socialist countries need capital for development. For poor countries multilaterals offer a less politicized lending process than bilateral lending and many depend on the technical expertise that comes with World Bank loans

Conservatives attack multilateral banks such as the World Bank because the banks fail to uphold the principles of free market economics. The World Bank, it is claimed, receives a poor rate of return oil ill-conceived investments that amount to either international welfare from the IDB or loans to the public sector that at best are inefficient and at worst promote socialism. The Heritage Foundation report, Mandate for Leadership II, finds (hat (he United States, despite substantial contributions has little influence in the lending process" of the World Hank, and that the multilaterals do "too little to promote free market reforms in Third World countries." The money provides the United States with "few political or security benfits." Mandate prescribes cutting U.S. involvement in multilateral lending, which the Reagan administration has already done. In 1984, the administration cut the [J.S. contribution to the seventh IDA replenishment from $3.24 to $2.25 billion.

Ideological criticisms notwithstanding, development will continue. II the Fight has its way. target- and larger shares of the money would go to the private sector with no aid to countries that can't aford market rates.

A growing group of environmental and human rights advocates take another view of the multilaterals. The banks, they argue, are uniquely Situated to promote environmentally sound development planning that takes into consideration the right of local peoples to be involved in decisions concerning the use of their resources. Recent cases show that such influence is possible.

On several occasions over the last two years. NRDC and EPI staff have testified before the Foreign Operations subcommittees of the House and Senate Appropriations committees on multilateral bank funding. Supporting funding for [lie banks, the environmentalists have urged improved environmental planning. In September of 1984, the House subcommittee on International Development Institutions and Finance of' the Banking and Finance Committee, alter five hearings, recommended that [lie U.S. executive directors of the multilateral banks promote environmental staffing and training, the involvement of conservation and indigenous peoples' non-governmental organizations in development planning, and a series of other measures to improve the environmental performance of the banks. These recommendations were largely supported by the U.S. Treasury - the agency to which the U.S. directors must answer.

The international financial crisis may be off the front page, but it hasn't gone away. International indebtedness, inflation and the failure of previous development schemes have put a long list of Third World countries on a tightrope. and for many. foreign assistance - including multilateral lending- is the balancing pole. Some countries are so tightly pressed that they can't afford new loans. and that has some World Bankers worried. The private banks, with their huge resources, technical expertise, and Central decision making position, will continue to be in the middle of discussions. the outcome of which will in part be determined by innovative initiatives. like those of the environmentalists, to influence multilateral bank policy.

Stephan Schwartzman is a freelancer who has conducted anthropological research among the Krena-kore Indians of the Brazilian Amazon.

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