Friend Of The Poor Or Evil Capitalist?

The World Bank's Peter Woicke is taking plenty of heat

When the World Bank tapped Peter L. Woicke three years ago to head its private investment arm, the International Finance Corp., he was well acquainted with the problems of developing nations. A veteran of emerging markets, German-born Woicke was then chairman of J.P. Morgan Securities' operations in East Asia, which lost hundreds of millions of dollars in the region's financial crisis.

What Woicke didn't expect was to be vilified. Soon after he arrived in Washington, anti-globalization protesters made the IFC, which invests and lends some $3.7 billion annually in for-profit ventures in the world's poorest countries, a prime target. Activists, such as those who converged in Prague for the Sept. 24-26 World Bank meeting, have attacked the agency for backing mining and oil projects in delicate environments that have displaced indigenous people. Among the projects: Latin America's biggest gold mine and a $3.5 billion oil pipeline in Cameroon. A U.S. congressional panel, meanwhile, criticized its practice of partnering with big multinationals. "I approached this job a little naively," Woicke concedes.

Yet Woicke, 57, is uncowed by the protests--though he says he has learned to listen to the critics. Every IFC investment ultimately benefits the poor by providing jobs, he insists--even a luxury hotel it backed in Egypt. He wants to finance a hydroelectric plant in Uganda that will draw activists' wrath by damming a portion of the Nile River prized by white-water rafters. The need for rural electrification in the desperately poor countryside takes precedence, he says, and hydro power will do less environmental harm than forcing villagers to burn wood.

As Woicke sees it, many poor countries have no real option but to exploit natural resources to earn foreign exchange and create jobs. And in many developing nations, few foreign investors will take on ambitious projects unless the IFC and World Bank offer political-risk insurance or bridge financing. The real challenge, he contends, is to minimize the damage. "If we cannot take risks," Woicke asserts, "then development can't happen."

Woicke claims the environment and indigenous populations stand a better chance of getting protection when the IFC is involved in sensitive projects. That's because IFC funds come with increasingly stringent conditions attached to keep them eco-friendly and make sure they improve the lot of the general population--not just that of corrupt local officials, as has often been the case with projects in the developing world that involve multinationals.

HYPOCRITES. IFC critics call Woicke well-intentioned and acknowledge he has improved the IFC's social awareness. As recently as 1994, an internal World Bank report took the agency to task for ignoring the social and environmental impact of its investments. But many say the IFC still is overly infatuated with big projects that multinationals could finance themselves and that ultimately cause more harm than good. "They should be using finite funds for projects that clearly promote sustainable development," says Friends of the Earth International Director Andrea Durbin. "They shouldn't be making bad projects just a little less egregious." Groups like the Rainforest Action Network, which is active in anti-globalization protests, are more radical. "How dare they use public money to finance global warming?" asks Randall Hayes, RAN's president.

Woicke counters that it's hypocritical for groups in the rich West to try to keep poor nations from using their resources. But he says activists deserve credit for making the agency more sensitive to the concerns of civil society. The IFC began changing its lending policies in the mid-1990s. Reforms have continued under Woicke, who also sits on the World Bank's board and was put in charge of the Bank's own private-sector assistance programs.

The IFC now is expanding its push into poorer, higher-risk countries that have little access to private capital, rather than old favorites like Argentina and India. Last year, it invested for the first time in Armenia, Turkmenistan, Chad, and Syria, and sub-Saharan Africa accounted for the most new projects. Woicke also aims to sharply expand the agency's role in microcredit by supporting banks that make tiny loans, typically less than $1,000, to small entrepreneurs in developing nations. He also is putting a greater emphasis on sectors such as health care and education.

HOODWINKED PEASANTS? But the IFC can't stay away from controversy. Woicke says microcredits and the poorest nations can't absorb enough of its resources. And its mandate is to back profit-making projects with the private sector. So, says Woicke, the IFC must keep investing in big natural-resource-based projects.

The IFC's image was tarnished by projects such as Peru's Yanacocha gold mine, in which it took a 5% stake in 1993. Developed by Denver-based Newmont Mining Corp., which owns 51%, it is the biggest and most cost-efficient gold mine in Latin America. But activists charge the mine has not helped poor Peruvians. Forty peasant families--many illiterate--were persuaded to sell their farms for as little as $30 to make way for the project. Many are now jobless. "They did not know the real value of their land," says Miguel Huerta, a Lima attorney representing several families. Newmont spokesman Douglas Hock says farmers were paid fairly "given land values at the time."

While some IFC staffers consider Yanacocha a mistake, Woicke defends the investment. Local mining experts say it's well-run by Peruvian standards, and the IFC says outside inspectors have refuted activists' claims that the mine has caused water pollution. An IFC ombudsman, hired last year, has tried to resolve disputes with the community. The mine recently offered low-cost business loans to the families.

Still, the IFC wants to avoid such embarrassments. In Chad, the IFC and the World Bank helped the government develop a revenue-sharing plan to assure equitable distribution of oil proceeds. The pipeline in Cameroon was relocated to reduce disruption to wildlife and rain forests.

The Nile hydro plant in Uganda, to be built by AES Corp. of Arlington, Va., may be the IFC's next big test. Only 5% of Ugandans have power, and the only other plant--also on the Nile--is nearly obsolete. Yet the dam will flood some of the country's best white-water rapids and displace villagers. Before deciding whether to provide financing, the IFC is commissioning environmental studies and holding discussions with villagers near the project to ensure that they benefit economically.

If they are handled well, Woicke contends, such projects can do the most to boost development and reduce poverty. If that means he may be burned in effigy in a street protest, so be it.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE