Devex Invested: Is IFC’s ‘exit policy’ a milestone or missed opportunity?

NGOs have been waiting years for the International Finance Corporation to release a policy on how it exits investments. Now it has released a two-page document. How does it stack up?

As the World Bank’s private-sector lending arm, IFC has faced its fair share of scandals. Consider the recent case of Bridge International Academies, an IFC-backed, for-profit chain of schools where child sex abuse was reported in Kenya in 2020.

The charge from civil society groups, as well as from the independent accountability mechanism — the Compliance Advisor Ombudsman — is that in some cases, the IFC exited investment projects without addressing documented social or environmental problems, even if dispute resolution processes were ongoing.

“Having an actual document that is telling IFC and the world we have to look at some things before we leave and this is what we’re going to do, even as short as this is, we consider it a milestone,” Carla García Zendejas, director of people, land and resources at the Center for International Environmental Law, tells Adva.

Now IFC has pledged to:

• Evaluate whether development impact can be achieved or sustained after it ends its relationship with the project, or if additional action is needed.

• Address environmental and social issues, including structuring its exit to ensure outstanding issues are resolved.

• Mitigate risks following its exit.

• Work with clients or use its leverage to consider the remediation of harms before or during an exit.

But some say the approach falls short, noting that the responsible exit principles only apply to investments where IFC leaves, but not if the client pulls out early or prepays its loan.

In the case of Bridge, IFC Managing Director Makhtar Diop wrote in November 2023 that IFC’s exit in 2022 was consistent with the new principles.

“If that’s how you define consistent, then this doesn’t bode well for the future because even to this day, survivors are waiting for concrete remedy,” Stephanie Amoako, policy director at Accountability Counsel, tells Adva. “IFC is going to have to demonstrate how it is actually applying these principles.”

Read: IFC's new ‘responsible exit’ policy — milestone or a missed opportunity?

Related: IFC policy for when projects cause harm lambasted as ‘letdown’

See also: Why IFC resists directly compensating people harmed by its projects

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Surcharges live on

The International Monetary Fund has made changes to the surcharges it imposes on heavily indebted countries that borrow large sums of money. And while it might provide some relief, it falls short of the ongoing effort, including by top economists, to have the IMF do away with the fees altogether.

The surcharges are often levied on countries hit by conflicts — such as Ukraine — or natural disasters — such as Pakistan. And the number of countries paying them has ballooned since 2019 in an era of high interest rates and debt distress.

The changes the IMF has made, which will take effect in November, will reduce the borrowing costs for members by 36% and cut the number of countries that get charged these extra fees, according to a statement by IMF chief Kristalina Georgieva.

However, Georgieva added that surcharges remain an “essential part” of the IMF’s approach as they “cover lending intermediation expenses, help accumulate reserves to protect against financial risks, and provide incentives for prudent borrowing.”

A group of U.S. lawmakers was also pushing for the surcharges to be eliminated, as Adva wrote last week. In a letter to the U.S. Treasury Secretary Janet Yellen, the lawmakers said that the IMF had not demonstrated that the surcharges effectively disincentivized reliance on its resources and that eliminating them would not significantly harm IMF’s balance sheets.

The changes might be a step in the right direction, but ultimately fall short of what many — including economist Joseph Stiglitz who wrote an impassioned opinion piece in the Financial Times last week — had pushed for.

Read: US lawmakers renew push for IMF surcharge changes

Background reading: Should IMF ditch surcharges? Some economists and lawmakers think so (Pro)

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B-READY for anything

Remember a few years back when the World Bank scrapped its flagship annual Doing Business report amid controversy, including an independent investigation that found multiple efforts to influence the ranking and manipulate the results in favor of countries including China and Saudi Arabia? The investigation also ensnared IMF chief Kristalina Georgieva, who was found to have applied “pressure” to have China ranked more favorably when she was CEO of the World Bank.

The bank officially did away with the report due to “data irregularities” and then announced it would be revamping the whole effort.

Enter the Business Ready report, or B-READY, the first version of which was recently released. It’s a look at the business and investment environment in countries around the world based on their regulatory frameworks, public services, and operational efficiency.

The big question is: Will it be better?

In a recent opinion piece, World Bank economist Indermit Gill detailed some of the changes, including the addition of factors such as labor laws, gender issues, and more. He writes that the goal is to “encourage healthy competition among businesses and countries, and to discourage ‘a race to the bottom,’” which he says was one of the unintended consequences of Doing Business.

From the archives: World Bank’s scandal-hit ‘Doing Business’ seeks redemption with revamp

One big number

That’s the estimate for how much it will cost to survey and clear Ukraine of mines, following Russia’s full-scale invasion which began in early 2022.

A new report from the United Nations Development Programme looks at two innovative ways to direct money into demining:

1. A sustainability-linked bond, or SLB, issued by the government of Ukraine where half of the proceeds from the sale of the bond (modeled at $250 million) are allocated to demining and the other half to sustainable agriculture.

2. An outcome-based public-private partnership, or OB-PPP, to try and encourage companies to clear an area for the purposes of constructing a solar farm and constructing it, while receiving concessions from the Ukrainian government outcome-based payments from donors.

There’s a catch on the first option, of course. With Ukraine in “selective default,” the authors note that internationally issued bonds would need 100% guarantees from international financial institutions connected to the European Union’s Ukraine Facility.

And in both cases, the authors add, the government of Ukraine would need to transparently manage and disburse the funds.

+ Catch up on all our coverage of the humanitarian response to the war in Ukraine.

What we’re reading

A coalition of African countries looks to launch an “energy bank” to fund projects on the continent. [Financial Times]

Major MDBs have rating headroom for $480 billion in new lending. [Fitch Ratings]

British International Investment recruits Leslie Maasdorp as its new chief executive officer. [BII]