Safeguards Amid Surging Infrastructure: Development Banks and Sustainability in the Andean Amazon

Baños de Agua Santa, Ecuador

By Kehan Wang

During the COVID-19 pandemic, Latin America has suffered from one of the most acute economic downturns in the region’s history. More than ever, Latin American countries need help from the international community in the forms of liquidity, debt relief and more importantly for the long-term recovery, new development finance.

On Tuesday, January 26, the Global Development Policy (GDP) Center, together with Universidad del Pacífico (UP) launched an edited volume ‘Development Banks and Sustainability in the Andean Amazon’ by the GDP Center’s Kevin P. Gallagher Rebecca Ray, and UP’s Cynthia Sanborn.

In 2020, Latin American countries had the worst economic performance in the past 120 years. The economy contracted by 8 percent, bringing the per capita income back to the level of the year of 2010, and sounding the alarm for another “lost decade.” The current hardship may lead to a push for “shovel ready projects” to give a quick boost to the economy, and therefore skirting the due diligence in environmental and social risk management (ESRM, or safeguards) before launching new infrastructural projects.

The book comes in a particularly timely moment. It looks into the experience from the last decade and explores what development banks, governments, and civil society have learned in balancing between social and environmental protections in the Andean Amazon, and the pressures of a surging infrastructure and development boom, to ensure that infrastructure projects bring shared economic benefits to nations while mitigating risks to ecosystems and communities.

The book launch started with GDP Center’s Senior Researcher and editor of the book, Rebecca Ray, who gave an introduction to the scope of the book and highlighted the approaches to environmental and social safeguards of the Chinese development banks, which are increasingly major players in the Andean Amazon.

Ray also shared three main findings of the book. The recent infrastructural surge in the Andean Amazon is characterized by a rising share for Chinese banks with deferential ESRM and a significant environmental degradation, social conflict and economic costs. Secondly, both the national government and the development finance institutions are responsible for the negative externalities due to the lack of meaningful due diligence and project oversight mechanisms. Lastly, improving the outcomes will require mutually reinforcing networks of support from both sides.

Following Ray, Juan Luis Dammert Bello, Latin America Director at the Natural Resource Governance Institute, introduced a country-based case study on Peru that he authored in the book: the effectiveness of the environmental and social safeguards in infrastructure projects financed by development banks in the southern Peruvian Amazon. The analysis of the process to build the Southern Interoceanic Highway (CVIS) shows that when there is a broad coalition of actors interested in building the project, safeguards are not relevant in the project’s decision-making, and are only filled in after the political decision.

As a result, even though the development banks had made great contributions to build up the capacity of the state to carry out the measures to mitigate the project’s environmental impacts, it was still far from enough to prevent deforestation and the surge of illegal gold mining along the new highway. By comparing CVIS to the Inambari Dam, which was cancelled due to a coalition contesting the project, Dammert Bello demonstrated that coalitional politics play a crucial role in activating or diminishing the power of the environmental and social safeguards.

Besides coalitional politics, civil society can also be an impetus to strengthen environmental and social safeguards, as shown in the case of the Inambari Dam. Along the same vein, Betty Espinosa from FLACSO-Ecuador introduced two comparing cases from the book in Ecuador, the Baba Multipurpose Dam and the Coca-Codo Sinclair Dam and demonstrated that the successful implementation of safeguards depended more on the mobilization of local civil society than on the existence of de jure safeguards by the state or development bank.

The book not only traces the development of social and environmental protections throughout more than a decade of interaction between the government, development banks and affected communities, but also explores paths for future reforms to enhance the performance of the existing safeguard framework. GDP Center Director, Kevin P. Gallagher, discussed the major recommendations from the book for building mutually reinforcing networks to buttress the due diligence of a wide range of shareholders throughout a whole project cycle. The recommendations highlighted transparency as paramount to ensuring accountability.

The webinar also invited René Gómez-García Palao, Senior Executive for Sustainability, Inclusion, and Climate Change at the Development Bank of Latin America (CAF), to comment on the book. Gómez-García Palao reiterated CAF’s commitment to the sustainable development of the Andean Amazon and used the construction of CVIS in Peru as an example to illustrate CAF’s long-term effort and commitment to coordinate with the national government, the contractor of the mega infrastructural projects and the local stakeholders in building institutional capacity to carefully implement environmental and social safeguards.

Development finance in infrastructure will be of the utmost important in the post-COVID-19 economic recovery of the region. Whether or not we will see a more socially responsible and environmentally friendly infrastructural boost largely hinges on the capacity and commitment of the government to work with civil society on more rigorous environmental and social safeguards. The development banks also play an irreplaceable role, as they are usually the ones with expertise.

As for the role of China and the Chinese development banks in the future bounce-back of the region’s economy, not only do they need to strengthen their mechanisms of safeguards and enhance transparency themselves, but also they must work with host countries to improve their transparency, capacity and standards of safeguards. Moreover, a more positive contribution from China to the region also calls for cooperation with regional and external players, particularly those from the US, that can transcend zero-sum great power politics, foster monitoring, and transfer managerial know-how of environmental and social safeguards.

The book ‘Development Banks and Sustainability in the Andean Amazon’ is available in English and Spanish.