Financing unaccountable infrastructure in South America: IIRSA and its relationship with the CAF and the EIB

The Initiative for the Regional Infrastructure Integration of South America (IIRSA) was born in Brasilia’s presidential summit, in the year 2000, where the heads of state of all South American countries (except French Guyana) agreed to carry out joint activities to impel the continent's political, economical and social integration. This agreement included a dialogue forum between the transport infrastructure, energy and telecommunication officials of the 12 countries. The initiative's objective is the development of infrastructure under a regional vision, securing physical integration as a step forward towards development.

For it's implementation, IIRSA scheme is divided into 10 integration hubs and 7 integration processes. The hubs are land strips that go across countries were commercial (actual and potential) flow is concentrated.  The integration process are work areas designed to harmonize the legal frameworks for transport, energy, communications and financing in these countries.

This grand infrastructure plan would not be possible without the support given by the initiative's Technical Coordination Committee composed of: The Inter-American Development Bank, The Andean Finance Corporation and The Financial Fund for the Development of del Plata’s Basin. Other mayor IFIs financing IIRSA’s projects are the World Bank, Brazil's National Bank for Social and Economic Eevelopment (BNDES) and the European Investment Bank.

Up to date, more than 350 infrastructure projects have been listed for funding under the initiative. The cumulative cost is about US$ 37.000.000.000. Many of these projects are huge and normally cost much more than stipulated. For example, the IIRSA’s official project of Duplication of national road 19 between San Francisco and the intersection with RN 11 in Argentina was valued in US$ 60 million in 2004. On February 2007 the World Bank is considering a loan of US$ 127 to part finance the future highway which now costs US$ 170 million.[1]

Problems identified by civil society in IIRSA

• IIRSA’s promoters have failed to communicate what the initiative is and what it consists of. Very few people know about it in South America, especially in Argentina. The information available in mass media is only related to individual projects but nothing is printed or said about its wider context. §         External costs to projects (environmental/social) are not specified in the official project cards available on IIRSA’s website. 
• Public participation has not been a priority in this initiative which involves millions of people, natural resources and taxpayer's money. Project stakeholders should be included in the decision making process.
• The infrastructure investments proposed by IIRSA are a source for great potential economic, social, cultural and environmental impacts. This causes two major problems. First, the lack of unified standards for project management between the different governments and IFI’s. Second, lack of capacity and commitment to adhere and respect existent standards. 
• IIRSA only focuses on infrastructure. There are no social, educational, health or small business development projects. 
• IIRSA’s model tends to consolidate the primary products exportation regime that has prevailed in the region for centuries. Commodities like soy bean are expanding the agricultural frontier and causing great damage to the environment, biodiversity and social sustainability. 
• IIRSA projects lack transparency and independent accountability processes that allow complaint filling when standards are not respected. 
• There are no clear relations between grand infrastructure projects and poverty reduction. 
• Although there already have been very controversial projects which have caused serious harm to local communities, environment and public debt, there have been no signs by government or IFI authorities to review the situation. Examples of this are the  Camisea Gas Pipeline, Bolivia-Brazil Gas Pipeline, Yacyretá Hydroelectric Dam and the Southern Amazon Inter-oceanic Road. 
• IIRSA’s logic is about trade liberalization and the creation of “ bi-oceanic export - import tubes ". There are no sustainable added value generation processes proposed. 
• The huge costs of IIRSA will contribute to enlarge even more the foreign debt of Latin American countries.

The relationship between IIRSA and the Andean Finance Corporation

               With headquarters in Caracas, the Andean Finance Corporation is the multilateral bank founded by Andean Community states in 1967. Today, it has 17 member states and the particularity of having 16 private banks as shareholders. The CAF has an authorized capital of US $ 5 billions of which US $ 2.800.000.000 has been integrated until 2004.                The Corporation's objective is to promote sustainable development and regional integration, by an efficient mobilization of resources to render of multiple high added value financial services, to public and private sector clients of the shareholders countries. 

The CAF is the most important financier of the IIRSA initiative, having financed more than 40 IIRSA’s sectoral projects and/or programs that contain IIRSA projects. Apart from being the greatest financier of IIRSA,  the CAF specifically adheres to the models of economic liberalization proposed by neoliberalism: privatization and free commerce. The CAF does not have a Information Disclosure Policy and publishes very little information on the details of the projects that finances. Another of its characteristics is that it uses country system standards instead of having a social-environmental policy harmonized to international standards to govern transnational projects.

CAF’s financing strategy is to obtain financial resources competitively and efficiently. Following this objective, the Corporation diversifies it's sources and terms. The majority of its financial resources nowadays come from extra regional sources and include a wide range of financial instruments, terms, markets and currencies. The CAF has received loans and lines of medium and long term credit from the Inter-American Development Bank, the European Investment Bank and Spain (its only member state located outside region).

The Corporation has a very weak social, environmental and indigenous people policy. It does not have an implementation system and it uses the country system approach. This means it uses the national environmental and social policy of the country to which it is lending money instead of implementing harmonized binding policies that apply for all the projects financed by the institution. This is a key point because a lot of IIRSA´s infrastructure projects have transnational impacts while the law regulating them are national.  

The CAF does not have information disclosure policy, as a result of this, it is one of the less transparent IFIs in the world. The only concrete source of information on the activities of the bank are its press releases which do not contain a lot of important data on projects finance. Further, the loan documents are not available to the public, and the CAF does not respond to information requests by civil society.

In addition, the CAF depends on the client countries to monitor the implementation of the projects it finances. When financing IIRSA, this means that the most controversial projects, with the highest level of negative impacts are financed by CAF.

This is possible because the Corporation can easily finance them without having to assure that the project fulfills environmental regulations, something that the Inter-American Development Bank or the European Investment Bank cannot do.

Due to the reasons above, civil society has considered the CAF (a public institution and the bigger financier of IIRSA) as the “ lowest common denominator ” of IFIs. This is a consequence of having the weakest operational policies and standards operating in South America.

The European Investment Bank (EIB)

The EIB is the European Union's financing institution created by the treaty of Rome in 1958. As an EU organ, its main task is to contribute towards integration, balanced development and economic and social cohesion of the Member Countries. It’s mission is “to further the objectives of the European Union by making long-term finance available for sound investment.”

According to FOEI “the EIB seems to exist without any clear knowledge by the EU public of its functions, goals and operations, or even its very existence. This invisibility seems to have served it well, as little criticism has been directed towards it in comparison with the World Bank (WB) and the European Bank for Reconstruction and Development (EBRD).”[2]

Becuase the EIB is a EU institution bound to the treaty of Rome, it should comply with certain key principles such as: representation, public participation, public accountability and sustainable development. As an EU institution it is accountable to the Commision, the Parliament, EU citizens and national parliament of member sates. Nevertheless, the EIB lacks enforceable and specific standards, has no public accountability, inadequate staff size and expertize, low threshold of evironmental protection and unsupervised global loans.

Projects financed by the EIB must present a mutual interest for both the country in which the investment is implemented and the EU. That is to say that the borrower has not only to pay the for the loan plus the interest rate, but also it has to benefit EU companies. The role played by the “joint venture”: EIB + European transnational corporations in Latin America has generated conflicts between consumers of public services, governments and private sector, putting access to basic services at risk, and promoting the privatization of public services. An example of this was the Aguas Cordobesas Case in Córdoba Argentina.

When financing outside the EU, the EIB has diferent ways of channeling its money to the South.

1- Direct loan to private sector of an eligible country.

2- Indirect loan to private sector of an eligible country through the government.

3- Global loans to other financial institutions.

EIB lending to Asia and Latin America is governed by mandates from the European Union. Amounts are allocated on a regional basis, not on a country basis. As of 01/02/07 the EIB started its fourth mandate which will last till  2014 and has a global budget of € 2.8 billion.[3]

List of the last EIB excuted loans in the region

Source: www.eib.org & www.eibproyects.org

As the table shows, most project loans disbursed in the mid and late 90´s EIB were direct or indirect loans with a clear purpose. There seems to be a new trend (last three rows) with the creation of “intermediary banks” that receive global loans from the bank. The official intermediary banks for South America are the CAF and Banco Itaú BBA S.A.(Brazil). Although the BNDS is not an official intermediary bank it received the biggest global loan. This investment strategy generates irresponsible EIB funding in the region as these banks, specially the CAF, have weak or inexistent operational policies that guarantee sustainable development, transparency and social licence. By doing so, the EIB may be indirectly financing unaccountable infrastructure in South America.

Sources of information:

• Initiative for the Regional Infrastructure Integration of South America (IIRSA): www.iirsa.org
• Building Informed Civic Engagement for Conservation in the Andes-Amazon (BICECA): www.biceca.org
• Andean Finance Corporation: www.caf.com
• Página de Amigos de la Tierra sobre Instituciones Financieras: http://www.foei.org/esp/ifi/index.html
• European Investment Bank Proyects: www.eibprojects.org
• European Investment Bank :www.eib.europa.eu

[1]Página del proyecto BICECA:  /es/Project.35.aspx