World Bank Lending in Peru: Not Seeing the Forest—or the Trees
The World Bank is one of the biggest sources of climate change finance, thanks in large measure to a number of trust funds it administers on behalf of donor nations. But how is it doing with its own funds?
We thought it would be instructive to take a close look at a borrower that is important for climate and for the Bank, and specifically for forests, since that is an area where the Bank has made specific commitments in its Forest Action Plan and Climate Change Action Plan, both issued in April 2016. The Bank also committed to a new country engagement model with its lending to be based on a Country Partnership Framework (CPF), so we looked for a country with a new CPF.
Peru fits all those criteria. It has the world’s fourth largest tropical rainforest, with only Brazil, DR Congo and Indonesia having more. It is New York Declaration on Forests signatory and has set a target of zero net deforestation by 2021. It is also #16 in terms of outstanding IBRD loans, with roughly $13.1 billion. And Peru has a CPF released in April 2017 covering FY17-FY21. According to the CPF, the WBG will support Peru under three pillars:
- Productivity for Growth
- Services for Citizens across the Territory
- Natural Resource and Climate Change Risk Management
So, Derecho, Ambiente y Recursos Naturales (DAR), based in Lima, with support and collaboration of the Bank Information Center (BIC), did an “Analysis of World Bank Interventions in Peru and Their Impact on Forests.” What did we find?
The number one surprise was…lack of information. This is surprising, considering the Bank’s access to information policy calls for “maximizing access to information” apart from a clear list of exceptions. The excuse here is that 19 of the 44 facilities (loans or other form of assistance) that fall under the CPF were from IFC, the Bank’s private sector arm, which has its own policy. Of the 19 IFC facilities, only three had risk categories assigned, but none offered sufficient information to make an informed assessment of impact on forests. Additionally, there was no public documentation on eight advisory facilities. So just 17 of 44 (39%) of facilities had documentation with detailed information available.
A second finding was: not a lot that could be rated positively or negatively. Of facilities that could be rated, 89% of financing provided was found as not likely to have a particular impact on forests. Of the remainder, operations that drive deforestation ($70M) were slightly greater than operations that promote sustainable management of forests ($65.5M).
But perhaps more significant is that by far the largest Bank lending to Peru is in the form, of development policy loans (DPLs)—loans given as general budget support. These totaled $2.5 billion, almost double the amount of the loans to which we were able to assign a forest impact rating. Why is this important? DPLs are disbursed based on the completion of a set of policy or institutional measures called ‘prior actions,’ mutually-agreed between the Bank and the government that often involve the passage and implementation of laws. And these laws can have profound impacts on natural resource management.
In Peru’s case, the two DPLs under the current CPF (“Public Expenditure and Fiscal Management;” “Boosting Human Capital and Productivity”) parallel the rest of the portfolio as not likely to have a particular impact on forests or climate. However, while the prior actions for Boosting Human Capital and Productivity were judged as unlikely to have such impact, they were included in an omnibus bill, Law 30230, that significantly weakened environmental and social regulations, including through, inter alia, expedited approval of environmental impact assessments, greatly reduced (by 50%) fines for environmental violations, and weakened indigenous peoples’ land tenure rights. So while the Bank may state that is not supporting those changes, it has at the least missed an opportunity to engage Peru’s government on upholding environmental standards and indigenous rights—policies to which it is nominally committed.
Similarly, the Bank has missed an opportunity to demonstrate its commitment to its own Forest Action Plan (FAP) either through sustainable forest management or forest-smart interventions in other sectors, the two pillars of the FAP. The three loans judged as supporting forests are National Agricultural Innovation ($40M), Sierra Rural Development ($20M), and the Saweto Dedicated Grant Mechanism ($5.5M). These are 5% of the rated facilities and only 1.6% of those included in the study. And, as noted above, loans assessed as driving deforestation (for subnational transport and agribusiness) slightly outweighed these, implying a net negative impact on forests.
This is, of course, a partial snapshot of one country. But the relative absence of information is a major reason that it is so partial—denying a full view of the “forest” of Bank financing. And in the view that we do have, there isn’t much support for trees, either. For key tropical forest countries like Peru, if the Bank is serious about its forest and climate commitments, we should be seeing more.
Download the report:
 Peru had tree cover (2000) with >30% canopy density of 78,067,721 hectares, or 60.7% of land area, and reported loss 2001-2016 with >30% canopy density 2,369,302 ha., a loss of just over 3%. [Peru’s total area is 128,735,258 ha.; 8.1% of losses were offset by tree cover gain (2001-2012) of 190,961 ha.] Source: Global Forest Watch.
 The legislative elements deemed to meet the Bank’s prior action criteria, according to the Management Clarification Note to the Inspection Panel, Annex II to the Notice of Non-Registration, November 20, 2017, on the Peru Boosting Human Capital and Productivity DPF-DDO (Deferred Drawdown Option), P156858, were 1) modifications to the value-added tax, 2) modification to the law on administrative procedures, and 3) a temporary provision derogating customs stamp duties.
 This was assessed as divided in impacts–$20M supporting sustainable management of forests, and (another) $20M promoting drivers of deforestation.