Recommendations for public finance

Posted: 28 May 2007 in


The role of development banks

The mandate of development banks is based on the goal of poverty reduction in developing and transition countries. However, such publicly owned banks have given generous support for the expansion of the international pulp industry without evaluating its development impact. Given the negative impacts on people and environment, the question arises why development banks are financing the pulp and plantation industry.

The reality is that aid to pulp mills supports the pulp industry in the countries giving the aid. The Swedish aid agency (Sida), for example, is clear about where the benefits of its aid to the Bai Bang pulp and paper mill in northern Vietnam ended up. Sweden poured a total of about US$ 1 billion into the Bai Bang project between 1974 and 2002, making it perhaps the most expensive pulp mill in the world per ton of pulp produced. In 1998, Sida produced a brochure celebrating 30 years of Swedish aid involvement in Vietnam, which states:

“Sweden has benefited a lot from development cooperation with Vietnam. Development aid has cleared the way for Swedish companies. The Bai Bang project, with its many branches, has produced a lot of spin-off effects.”

In 1993, the British Overseas Development Agency (now the Department for International Development) stated that

“British banks and businesses … gain from the ODA’s contributions to multilateral agencies such as the World Bank. British firms and suppliers receive orders for goods and services that are used in aid projects far exceeding the value of Britain’s contributions to those agencies.”

Yet another example comes from the US. In 1994, the US Department of the Treasury published a report titled “The Multilateral Development Banks: Increasing U.S. Exports and Creating U.S. Jobs.” The title reveals clearly who benefits from the World Bank. The report explains that:

“Since the founding of the World Bank in 1945, we have been their largest and most influential contributing member. We have also been their largest beneficiary in terms of contracts awarded to U.S. firms to help borrowing countries carry out projects financed through the banks.”

Of course, not every pulp mill is necessarily bad. A pulp and paper mill in, say, Kenya to provide paper for local users such as schools could be quite small and would be providing an important service for people in Kenya. But today’s massive pulp mills are built to produce pulp for the international market or to produce packaging for consumer goods for exports. These projects are neither “development” nor do they relieve poverty. Instead, aid to the pulp industry is way of providing public funds for the private profits of an international industry.

If they were serious about their mandate of reducing poverty, development banks and aid agencies would not subsidise the pulp industry – including supporting the expansion of industrial tree plantations. CIFOR’s 2003 “Fastwood” report points out that, “Subsidies create economic distortions and make plantations viable in situations where other land uses might make better economic and environmental sense.” A 2002 submission from IUCN and WWF to the World Bank argued against further subsidies to plantations: “Large amounts of money that could have been better invested, either within or outside the forest sector, have gone to support ill-conceived planting schemes.” CIFOR’s 2003 “Fastwood” report concludes that “The sooner subsidies to commercial plantations are phased out, or at least dramatically reduced, the better.”

Experiences from the past show that development aid for the pulp and industrial tree plantation sector is not only not leading to poverty alleviation; its net developmental impact is negative. Instead of serving industry interests at the cost of local people and the environment, aid agencies and development banks with the mandate to reduce poverty should stop such investments and end all subsidies to the pulp and industrial tree plantation sector.


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