DW :: Brazil accused of unscrupulous foreign loans

Conectas na Mídia

03/01/2016 deutsche welle

Por Dona Bowater.

When Brazil agreed to lend Bolivia $332 million (302.6 million euros) to build a highway through the Amazon in 2009, Evo Morales was en route to his second term as president.

The deal to finance a road from Villa Tunari in Chapare to San Ignacio de Moxos in the rainforest was both historically and politically significant.

"This is a project we've been waiting for since 1826, it's been almost 200 years," Morales said at the time, thanking then Brazilian President Luiz Inacio Lula da Silva for his support.

The 306-kilometer (190-mile) road, which would cut through indigenous land and a national reserve, was to be largely funded by Brazil's national development bank, BNDES, and built by Brazilian construction company OAS.
However, those involved had apparently not counted on the active opposition of the local indigenous population, which marched on La Paz until the project was suspended. For human rights and anti-corruption NGOs, such a lack of consultation and engagement with affected communities was indicative of a widespread problem with transparency and due diligence behind major publicly-funded infrastructure projects.

Lack of consultation

In a complaint published Monday, Brazilian NGO Conectas, along with Global Witness and Bolivia's Center for Studies of Labor and Agrarian Development (CEDLA), reported a number of alleged failings by BNDES to the bank's ombudsman. It argued that BNDES did not have sufficient mechanisms to evaluate, mitigate and repair the consequences of the project before committing the funds.

The complaint, which was originally filed in October but only now made public, claimed there had been no proper consultation with the indigenous people living on the land. It cited one study that predicted 65 percent of the forest on the land would be lost within 18 years if the road project went ahead.

"Our question is: why, based on all this evidence, all this information that was available prior to the signing of the agreement, why was BNDES not capable of seeing that this project carried social and environmental impacts?" said Caio Borges, a human rights lawyer with Conectas.

"We consider this case to be an emblematic case because we have been watching and following closely the investments made by BNDES outside Brazil, and we've seen that BNDES should have clear, specific social and environmental procedures and policies," he added.

A spokesman for BNDES said that the bank did not ultimately fund the project because it was cancelled, and that the matter was closed.

National interests

Many have criticized BNDES for neglecting Brazil's own infrastructure needs in favor of loans to foreign governments. Audit court records reportedly show the bank loaned more than $10 billion for work in other countries between 2007 and 2014.

Among its other controversial deals were the $682-million loan for the Mariel port in Cuba and the San Francisco hydroelectric dam in Ecuador.

The San Francisco dam was the cause of a diplomatic spat when Ecuador expelled Brazilian company Odebrecht from the country over the closure of the dam seven months after it was inaugurated because of structural defects.

In a speech to the Brazilian Senate after the funding of the Bolivian highway was announced, Senator Alvaro Dias, then of the Brazilian Social Democracy Party, said: "This would not that be a bad thing if we had wonderful roads in Brazil, if we did not need to restore national roads achieved by the Brazilian people, who paid inflated taxes for this road system to be built in Brazil."

"Roads are destroyed, roads are virtually decimated by time and government neglect, without resources for their recovery. How can we justify the investment of $332 million in another country to build a highway?"

'Injustice' at home

But it's not only foreign investments by BNDES that have attracted controversy. The bank has also supported several divisive contracts within Brazil as well. One of the biggest is the world's third largest hydroelectric dam in Belo Monte, Pará, in the Brazilian Amazon, which would divert water from the Xingu River.

BNDES signed off 22.5 billion Brazilian reals ($5.6 billion) of credit to Norte Energia to build the 11,233 megawatt dam, which would represent a third of the increased energy capacity of the country forecast for 2015-2019. However, NGO Amazon Watch has said the dam would displace up to 40,000 people, seriously affect indigenous populations and destroy huge swathes of rainforest.

"Some of the most egregious impacts caused by BNDES financing are located in the Amazon, where the bank is funding the destruction of river systems to construct energy infrastructure and the razing of primary forests for agriculture and ranching," the campaign group said.

"Many projects financed by BNDES in the Amazon demonstrate a disquieting level of socio-environmental injustice," it added.

The Belo Monte dam was among the topics of a recent parliamentary inquiry (CPI) into BNDES, which reported back last week and found irregularities in the bank's operations.

Reform needed

Meanwhile, compliance experts say the public bank should be held to the same standards as private companies. Sylvia Urquiza, a corporate compliance lawyer and president of Instituto Compliance Brasil, told DW the bank is geared primarily to the development of Brazilian companies, providing lower interest rates.

"In the case of work abroad, there must be an effective link with the country's development, for the benefit of its citizens," she said. "However, there is not the necessary transparency with regard to loans from the institution, especially those made for work in other countries in Latin America and Africa." She also warned about the potential for bribery in connection with foreign loans.

Conectas and others called for "urgent reform" within BNDES and its ombudsman. Chris Moye, a campainer with Global Witness, said: "Fundamentally, what we want is a policy that the bank should adopt in conjunction with civil society, both Latin American and Brazilian, that provides a thorough due diligence process, which should be participatory and consultative."

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