IFC found negligent of preventing harm to indigenous communities in Guatemala

10.06.2020

Published: 10th June 2020

Responding to the publication today of an independent investigation into a hydroelectric dam project in Guatemala that found the International Financial Corporation (IFC), the World Bank’s private sector arm, was negligent in preventing harm to indigenous communities and the environment, Christian Donaldson, Oxfam International’s Senior Advisor on International Financial Institutions, said:

“The CAO’s investigation vindicates the communities’ allegations that they suffered violence, intimidation and repression since the project began, and that significant impacts remain. It shows the IFC failed in its duties and obligations to ensure that its investments ‘do no harm’, especially in poor, vulnerable communities ravaged by years of violence during the Guatemalan civil war.”

“The IFC accepts some of the CAO’s findings but denies the hydroelectric dam project had anything to do with violence suffered by the local communities and will not take any remedial action. The IFC can’t simply wash its hands of responsibility for upholding its own policies. There must be reparations for the damages caused.”

The IFC provided $20 million in loans and $10 million in equity in 2008 to the US-based Inter-American Infrastructure Finance Corporation (CIFI), a financial institution that funds small and mid-sized infrastructure projects in Latin America. CIFI, in turn, funded the provided Hidro Santa Cruz with a $8.2 million loan and up to $2.5 million for a mezzanine facility for the Canbalam dam project. According to the IFC’s policies, its environmental and social safeguards (Performance Standards) should apply to such investments.

In 2015, communities in Santa Cruz Barillas lodged a complaint with the CAO, the IFC’s watchdog, alleging significant social and human rights impacts, including project-related conflict —at least one person, community activist Andrés Francisco Miguel, was killed and several others injured and imprisoned.

“We’ve been imprisoned, forced to flee our communities and some of us have lost our lives. We’ve waited five years to hear the result of our complaint. And for what? We are appalled by the IFC’s response. We want justice for our communities and justice for Andrés Francisco Miguel. This isn’t the end of the road for us,” said Cecila Mérida, a community leader from Santa Cruz Barillas who testified at the 2015 World Bank Spring Meetings in Washington D.C. about the damage inflicted by the IFC’s financing of the hydroelectric dam.

After the complaint was filed in 2015, CIFI withdrew its financing, severing the IFC’s ties to the dam project. The IFC claims it no longer had leverage in the project but admits it needs to improve how it exits projects.

“Planning for responsible exits from projects that violate human rights is an important step, but this won’t help the indigenous communities in Santa Cruz Barillas. This case leaves us with serious questions about whether the IFC will indeed take responsibility and be accountable when a project it is financing, directly or indirectly through third-party lenders, causes harm,” said Kate Geary, Co-Executive Director at Recourse.

Notes to editors

Completed in December 2018, the CAO’s investigation was initially replied to by the IFC in early 2019. This response then got delayed by passing through the offices of 2019’s three World Bank Presidents, before a Board meeting in October 2019 and another in February 2020 requested the IFC to revise its response.

The CAO’s investigation finds that the IFC failed to uphold its own policies and procedures in relation to due diligence, monitoring and supervision, breaching its Sustainability Policy and its Performance Standards, especially as regards indigenous peoples, consultation, and use of security guards.

The investigation concludes: “Though aware of project impacts during the period of financing, IFC did not engage with its client to ensure that residual impacts of the project were assessed, reduced, mitigated, or compensated for, as appropriate, including at project closure, as required by the Performance Standards and the Sustainability Policy.”

In these circumstances, contrary to the intent of IFC’s Sustainability Policy, adverse impacts have been left to fall on the community.

In October 2019, Oxfam and Recourse (formerly BIC Europe) sent a letter to the World Bank’s Board of Directors urging them to ensure the IFC take responsibility in supporting communities in Santa Cruz Barillas, Guatemala. In February 2020, in an unprecedented move, the Board met to discuss this emblematic case, setting what would potentially be a precedent on whether the Board would support its own accountability mechanism findings or let the IFC walk away, disregarding the suffering of communities impacted by one of its investments.

Oxfam in Guatemala staff visited the affected communities in December 2019, finding that communities members are still living in fear and being arrested with no charges.

Recourse published a briefing on the contents of the CAO audit and the IFC response.

In March 2020, the IFC announced a series of unprecedented reforms on a range of issues championed by civil society and US Congresswoman Maxine Waters, including those related to transparency and accountability in financial intermediary lending.

Contact information

Annie Thériault in Montreal, Canada | annie.theriault@oxfam.org | +51 936 307 990

Kate Geary in UK | kate@re-course.org | +44 7393 189175