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Brazil accused of unscrupulous foreign loans

Campaigners have claimed the Brazilian national development bank is lending money to damaging foreign projects without proper due diligence. Donna Bowater reports from Rio de Janeiro.

When Brazil agreed to lend Bolivia $332 million (301.7 million euros) to build a highway through the Amazon in 2009,

Evo Morales was en route to his second term as president.

The bilateral agreement to finance a road from Villa Tunari in Chapare - where Morales got his political break as a coca trade union leader - to San Ignacio de Moxos in the rainforest was 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 the support of the then Brazilian president Lula da Silva.

The 306-km (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 native populations, 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, compliance and due diligence behind major publicly-funded infrastructure projects.

Lack of consultation

In a complaint published March 7, Brazilian NGO Conectas, along with Global Witness and Bolivia's Centro de Estudios para el Desarrollo Laboral y Agrario (CEDLA), reported a number of alleged failings by BNDES to its 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, and cited one study that predicted 65 percent of the forest on the land would be lost within 18 years, if the road had been built.

"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, business and 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 have been seeing that BNDES should have clear, specific social and environmental procedures and policies."

A spokesman for BNDES said the bank did not ultimately fund the project as it was suspended, adding in a statement that no money was released because BNDES was not satisfied with the environmental assessment.

"In the case of this project, in addition to adhering strictly to its rules, BNDES extended the conditions for the release of funds," the bank said.

"For example, it asked the exporter for the opinion of an independent audit, that assessed the environmental documentation and expressed an opinion as to the attendance to the environmental legal-institutional framework in Bolivia."

The spokesman added that two public consultations were carried out in September 2009, before the funding was approved, and said it had imposed strict environmental conditions on the future release of any credit.

But Conectas claimed the bank failed to properly check whether indigenous communities had been effectively consulted and had agreed to fund the road without proper environmental assessment.

Isiboro National Park

The Villa Tunari to San Ignacio de Moxos highway was to run straight through the middle of the Tipnis nature reserve

The NGO also accused BNDES of a lack of transparency, adding that until June last year, it did not reveal the foreign projects it was funding under the guise of exporting Brazilian services.

National interests

Many have criticized BNDES for lending money to foreign governments

while Brazil's own infrastructure is left wanting.

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

The San Francisco dam was the cause of a diplomatic fallout 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.

Audit court records reportedly showed the bank had loaned more than $10 billion for work in other countries between 2007 and 2014.

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 (PSDB), 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 exaggerated 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 to another country to build a highway?"

The bank said export loans were a common tool in national development strategies, and added that foreign lending did not diminish resources for domestic investment.

'Injustice' at home

However, it is not only financing abroad by BNDES that has 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 R$22.5 billion of credit to Norte Energia to build the 11,233 MW dam, which would represent a third of the increased energy capacity of the country forecast for 2015-2019.

However, Amazon Watch has said the dam would displace up to 40,000 people, affecting indigenous populations and destroying swathes of the rainforest.

"Some of 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."

The Belo Monte dam was among the topics of a recent parliamentary inquiry (CPI) into BNDES, which reported back on February 25 and made extensive recommendations for reform. The bank said it had invested R$4 billion in social and environmental mitigation measures, and defended the dam.

Reform needed

Meanwhile, compliance experts have said the public bank should be held to the same standards as private companies.

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," said Sylvia Urquiza, corporate compliance lawyer and president of Instituto Compliance Brasil.

"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."

“Another point is that if the interest rate is very low, the bank could be helping companies maintain a profit cushion that could be used to bribe abroad. We are not saying it happened, but that it is typical red flag that should be observed."

The complaint by Conectas and others called for "urgent reform" within BNDES.

Chris Moye, Global Witness campaigner, 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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