IMF Polices Damaged Environment, Group Says

"The current model of economic development that is being pursued by the IMF (and other international financial institutions) is fundamentally unsustainable, as it seeks growth at all costs without regard to ecological limits," says the report by Friends of the Earth.

The document, titled "The IMF: Selling the Environment Short" and written by an international team of veteran environmentalists and economists, examines the IMF's impact in eight borrowing countries and concludes with recommendations to "green" the agency's operations while restricting its mandate.

The report's release coincides with the much-anticipated publication tomorrow of recommendations by the International Financial Institutions Advisory Commission, which is to report to Congress on the operations of the IMF, World Bank, and regional development banks.

Commission members already have said they will urge that the IMF be removed from long-range development planning and, instead, be confined to making short-term loans to countries in financial trouble.

That recommendation is at the top of the Friends of the Earth wish list, too. So long as the IMF remains in the business of structural adjustment, however, the group also wants the Fund to:

• include borrowing countries' environment ministers and civil society groups in negotiating loan programs and make sure the resulting agreements hamper neither the making nor enforcement of local environmental protection laws;

• determine -- and publish -- the likely environmental impacts of its macroeconomic policy prescriptions; and

• establish an independent evaluation unit to assess IMF policies and programs and improve the agency's accountability.

It also urges the Fund to drop its preference for regressive value-added taxes in favor of "green taxes." These "could be used as a mechanism for countries to promote environmental goals by providing incentives for manufacturers to change production practices...encouraging more efficient energy and resource use, and preventing environmental contamination and degradation."

"There is a new acceptance that policies must be geared first and foremost toward poverty reduction," the authors acknowledge. The environment, however, remains "a major missing element."

Rather, they say, the IMF and World Bank generally assume that policies designed to promote economic stability also will ensure sustainable development. On closer inspection, however, "exports of natural resources have increased at astonishing rates in many countries under IMF adjustment programs," aimed at boosting export earnings and currency reserves.

"Structural adjustment and stabilization also aim to generate positive government budget balances. In the effort to rapidly trim budget deficits, governments are forced to make choices and, inevitably, the environment loses," the report asserts.

That approach has had tragic consequences, according to the report.

"The human tragedy of deforestation was highlighted when Hurricane Mitch struck Central America in 1998," causing billions of dollars in damage and killing more than 6,000 people.

"The hurricane's effects were exacerbated by widespread deforestation, which left the landscape susceptible to rapid rainfall runoff and increased rates of erosion," the report notes.

The Nicaraguan government has launched a reforestation and land rehabilitation program with some help from the World Bank and this "represents a more positive shift in management practices," the authors say.

"However, it is unclear whether this new program will be any more successful in avoiding forest exploitation," they warn, because in January 1999, just as the forest-conservation effort was being launched, the government inked an agreement with the IMF under which it had to promise to cut public employment.

Thus, the government's ability to implement the rehabilitation program has been thrown into question, the report asserts, noting that "currently, the government maintains that it does not even have the resources to enforce a ban on the export of mahogany."

Friends of the Earth also takes to task the World Bank, which it says "is not doing its part to integrate its broader expertise into the adjustment design."

IMF officials long have said they rely on the World Bank to address environmental concerns in structural adjustment operations, but a recent internal review of the Bank's structural and more tightly-focussed sectoral adjustment lending found that Bank staff raised environmental questions in fewer than 20 percent of the projects examined.

Given that poor performance, the IMF's reliance on the World Bank "is misguided," the report concludes.