Multilateral Development Banks, Environmental Diseconomies, and International Reform Pressures on the Lending Process: The Example of Third World Dam-Building Projects

An environmental perspective on multilateral development bank (MDB) loans presents at least three points of analysis relevant to Third World development issues. First it gives some very vivid and instructive examples of how the international development loan process can go askew. Second, it demonstrates practically why and how the lending process itself has required constructive reform. Third, in reviewing legal approaches to reform, including recent pressures on MDBs, it helps clarify a latent debate about the legitimacy of donor-nation pressure on international lending institutions. This article focuses upon World Bank projects and processes, not only because they provide many useful examples of disastrous development loans, but also because in the past two years the World Bank, followed by other regional MDBs, has made a dramatic official shift in its willingness to recognize the seriousness of environmental problems caused by MDB projects. The new statements of policy and procedure are an attempt to reform the development loan process by making it more rational and less prone to environmental disaster, an initiative that so far seems to be winning mixed reviews. This article is organized in three parts. The first part offers a brief introduction to the environmental perspective, and then sets out a spectrum of serious environmental diseconomies which have been caused by various international dam projects, and accounting that requires the analytical observer to go beyond the usual broad and imprecise rubric of social costs or economic externalities. The second section of the article focuses on MDB administrative process: why have problems occurred over the years in the implementation of international development projects, and how can decisions be improved? The final section analyzes a range of available legal approaches for modifying and improving the international development loan processes, focusing on the practical example of several recent cases of donor-nation pressure on MDBs. From an observer\u27s perspective, the most noteworthy recent improvements in the development loan process are quite clearly attributable to external pressures applied to MDBs by major donor-countries - a development that may well worry some internationalists