WASHINGTON, 30 September 2002—Oil, gas,
and mining companies should fully disclose their payments to governments
in the developing nations, said the head of the International Finance Corporation
on Monday. Click here
for the speech.
“We would come a long way if all – and I emphasize all – natural resource
companies would make their transfers of royalties, fee payments, and other
revenues to host governments fully transparent,” said Peter Woicke, executive
vice president of the International Finance Corporation (IFC), the private-sector
lending arm of the World Bank Group. Woicke is also managing director for
all the private sector-related operations of the World Bank Group.
Disclosing such payments “would push governments to invest more wisely,”
Woicke said in a luncheon speech to IFC clients. “Hiding behind
confidentiality agreements does not help anybody, and those with the most
to gain financially from these projects – the poor people – are too often
helped the least.”
Woicke also pledged that IFC would redouble its efforts to help private
sector companies in the emerging markets that lose access to the global
capital markets during financial crises.
“Good companies in the emerging markets – with solid credit histories
and foreign currency earnings – should not be punished every time the
global capital markets close,” Woicke said. “They need export credit.
And we need to fill these financing gaps so that exporters, particularly
small exporters, can weather these storms. This is one of the messages
that has come out of the [World Bank Group-IMF] meetings this weekend.”
Woicke said that the major macroenomic forces in the developed world, which
he termed “push” factors, that had contributed to dramatic increases
in capital flows to the emerging markets would be less powerful in the
“The ‘90s were all about the ‘push’ of capital flows, we’re now into
the decade of pull,” Woicke said. “These factors include a country’s
investment climate, the depth and strength of its financial sector, and
its public and corporate governance.”
If the natural resource endowments of emerging market countries are developed
in an environmentally and socially responsible way, they could be a major
source of economic growth, Woicke said. “But as long as revenues from
such projects are squandered away and are not productively channeled into
health, education, and infrastructure for the benefit of the people, such
projects will not reach a full level of sustainability.”
The issue of disclosing payments from extractive industries to developing
nation governments has been contentious in recent years. Critics of the
industries have argued that royalties and other revenues, which often run
to the billions of dollars, are not properly accounted for and subject
to abuse by government officials. Developing country governments
counter that the degree of disclosure should be determined by each nation.
The World Bank Group has incorporated a disclosure agreement into one of
its extractive industries projects, the Chad-Cameroon pipeline, which is
currently under construction. However, such disclosure agreements are not
In 1998, following discussions with the World Bank Group, Chad's parliament
approved a law that sets out the Government's poverty reduction objectives
and details arrangements for the use of project revenues. Under the
law, 10 percent of the royalties and revenues will be held in trust for
future generations, 80 percent of the remaining funds will be devoted to
education, health and social services, rural development, infrastructure,
and environmental and water resource management, and 5 percent will be
earmarked for regional development in the oil-producing area (over and
above its share of national spending).
Annual published audits of Chad’s petroleum accounts are published, public
expenditures are reviewed by the Government and the Bank, and special arrangements
have been made for channeling and accounting for the funds. In addition,
the law created an oversight committee to monitor the use of oil
revenues. This committee will include representatives of Government, Parliament,
the judiciary, and civil society.
A related capacity-building credit from the International Development Association
supports the work of the oversight committee, as well as strengthens Chad's
general accounting office and the dissemination of information on Government
IFC’s mission is to promote sustainable private sector investment in developing
countries, helping to reduce poverty and improve people's lives. IFC
finances private sector investments in the developing world, mobilizes
capital in the international financial markets, and provides technical
assistance and advice to governments and businesses. Since its founding
in 1956, IFC has committed more than $34 billion of its own funds and arranged
$21 billion in syndications for 2,825 companies in 140 developing countries.
IFC’s committed portfolio at the end of FY02 was $15.1 billion,
with an additional $6.5 billion held for participants in loan syndications.
Speech by Peter Woicke
Executive Vice President, International Finance Corporation (IFC)
and Managing Director, World Bank Group
IFC Client Luncheon
September 30, 2002
Park Hyatt Hotel, Washington, DC
Thank you all for joining us here. It’s hard to believe that it
has actually been two years since we had one of these luncheons. Needless
to say, it has been an extraordinary two years for the emerging markets
and IFC, extraordinary because we in IFC have the privilege to be at the
nexus of the developed nations and the emerging markets, of the public
and private sectors, and of the financial sector and the so-called “real”
This is where the old debate about the “push” and the “pull” of capital
flows comes up. The push factors, of course, are the ones outside
the control of an emerging market, like growth rates, interest rates, and
trade policies of the G-7. The pull comes from the factors inside
The problem now, as you know, is that there is very little pushing or pulling.
Net private capital flows to the emerging markets are expected to
be around $125 billion this year – which is about one third less than
the average for the 1990s. As a share of emerging market GDP, net
private capital flows have actually declined from nearly 4 percent a decade
ago to just over 2 percent for this year. You may remember the phrase about
the “electronic herd” of global finance? Well, the herd is not
stampeding anymore. At best, it’s grazing. So if the ‘90s were
all about the “push” of capital flows, we’re now into the Decade of
Pull. These are factors like a country’s investment climate, the
depth and strength of its financial sector, and its public and corporate
It is much harder today to pull massive amounts of capital. We see this,
for example, in the direction of overall flows, where there is more differentiation
between countries on both the volume and the type of cross-border capital
flows. Advances in technology and connectivity mean that data and information
are available faster and in more detail than ever before. So the markets
are doing a much better job in drawing distinctions – between sovereigns,
between sectors, and between corporates within sectors.
We see it in the political and economic climate for privatization. Volume
is back to the levels that we saw in 1992 – less than 150 deals per year
– and nobody is talking about “waves” of privatization anymore. If
you divide that number among all the emerging markets, you begin to see
how slow the deal flow is. Even when the numbers work, the politics might
not. In country after country, free trade, liberalization, and privatization
are being held up as scapegoats for economies in trouble. This, of
course, is a very damaging myth.
Social and environmental issues are also key variables that affect pull.
One of the biggest potential sources of growth in poor countries
is development of natural resources. But as long as revenues from
such projects are squandered away and are not productively channeled into
health, education and infrastructure for the benefit of people, such projects
will not reach a full level of sustainability.
We would come a long way if all -- and I emphasize all – natural resource
companies would make their transfers of royalties, fee payments, and other
revenues to host governments fully transparent. This in turn would
push governments to invest more wisely. Hiding behind confidentiality
agreements does not help anybody, and those with the most to gain financially
from these projects, the poor people, are too often affected the least.
In terms of environmental and social requirements, the IFC is happy and
privileged to provide its expertise in these areas to project sponsors,
particularly where that effort is coupled with another real effort to let
local communities derive benefits from such projects. Long term financial
sustainability of projects can only be assured when we pay attention to
all these elements. Enlightened companies recognize this today. I
spoke with the CEO of a mining company earlier this year. I asked
how much time he was spending on sustainability. He said, “That’s
the majority of my time. It’s the only way for our industry to have a
That’s the same type of message we hear from people on the street. Earlier
this year, a survey was conducted across 25 countries. Eight out
of 10 people said, “we expect a company to do more than pay taxes and
give to philanthropy.” We in the IFC believe that’s a sustainability
issue. That’s a bottom-line issue.
Another “pull” factor that continues to need our help is the local financial
markets. We need to keep deepening these markets. We need to keep
widening them. Good companies in the emerging markets with solid
credit histories and foreign currency earnings should not be punished every
time the global capital markets close. They need export credit. We
need to fill these financing gaps so that exporters, particularly small
exporters, can weather these storms. This is one of the messages
that has come out of the meetings this weekend.
Deepening the emerging bond markets is just one part of the long-term solution.
Over the past five years, these markets have grown very rapidly, reaching
just over $2 trillion dollars. They represent more than one-third of emerging
market GDP. But we need deeper markets in the advanced countries. We
still need to create markets in the frontier countries.
The challenge that we in IFC face, and that I think you face with us, is
that all of those pull factors – the investment climate, political support
for market reforms, development of local markets, and sustainability –
are inter-related and dependent on each other. And there’s tremendous
variability between the advanced markets and the frontier markets.
The political climate for privatization and free trade is not going to
improve unless we do a better job on local community development and sustainability.
Capital flows are not going to return in large numbers unless we accelerate
improvements in public and private governance, trade liberalization, and
The tensions around environmental and social factors are not going to change
until we do a better job on overall growth, which relies on the investment
The good news, and one of the things that makes my job so exciting, is
that IFC has been working very hard to make sure that we can add value
in precisely those areas where our clients and emerging market investors
need help. Whether it’s upstream, working on the investment climate and
project design; midstream, working on project implementation and compliance
issues; or downstream, working on supply-chain linkages with local communities,
IFC is in a much stronger position than we were two years ago.
At the operational level, for example, IFC has taken a huge step forward
in making the “business case” for sustainability. We know that,
particularly in countries where the capacity of the government is limited,
companies face difficult environment, social, and community development
issues. We asked the question: “Can you make one of those factors
into an asset?”
We looked at some of the leading companies throughout the emerging markets.
Altogether, we came up with more than 240 examples of how performance
on environmental, social, and corporate governance issues contributed to
profitability. These examples come from more than 60 countries, every developing
region and virtually every sector and every type of firm. In July,
we published this in a new study called Developing Value, which
is here in the back of the room for you.
The most impressive examples were not the cases where companies
had simply paid their taxes and adopted a “do no harm” approach. The
most impressive companies were the ones that viewed sustainability as a
market opportunity. They were the ones with the strongest balance sheets,
the most exciting prospects, and long-term potential. So our message
to clients is: sustainability does not have to be something you do to
your bottom line, it can be something you do for your bottom line.
This is something that many companies are now discovering on corporate
governance, another area in which we have been very active. We believe
the same principle holds for environmental and social responsibility.
For years, advocacy groups have tried to use the moralistic argument to
address environmental and social issues. That is important. But the moral
case has not generated the capital flows or the major changes that developing
countries need. We need the power of private sector ideas, technology,
and capital. And it needs to be based on a clear value proposition – the
value for your company, and the value for your community.
At the project level, IFC is becoming much more proactive in pursuing public-private
partnerships. In just the past six months, we have created five new facilities
specifically targeted toward helping our clients and potential clients
find, add, and maintain value through sustainability. These cover
a wide array of issues, from carbon emissions credits, biodiversity, energy
efficiency, and renewable energy to community development and supply-chain
linkages to helping local financial institutions better manage the environmental
risks in their own portfolios.
We also believe that blending public funding with private capital in innovative
new business models could help many good projects clear the hurdle rate
and go forward successfully. We need a way to rejuvenate the basic
services sector – water, power, and transportation – where privatizations
have proven difficult, especially in the so-called frontier markets. But
we have to find a way to ensure that public funding is done transparently,
and that we address community concerns about rate shocks. Just to
cite one example: we now have some of our shareholder nations coming to
us and saying, “Why don’t you use IDA money for IFC projects?” So
far, IFC has done this only once – in Tajikistan. But we believe
we can use this model very effectively in other countries.
At the market level, we are very excited about the possibilities ahead.
As part of our reorganization this year, we have consolidated our
resources into a new Global Financial Markets Department. And we
expect to see this department, together with our Treasury Department, be
much more active in deepening and expanding capital markets.
I believe it’s time for IFC to scale up the expertise that we have in
financial engineering – in securitization, in local currency financing,
and in risk management guarantees – and continue reducing the exposure
of our clients to the volatility and risk associated with the international
markets. We can help create new asset classes. We can help
build the bond curve. That, in turn, is going to create the “pull”
of more investment.
For years, we in the international financial community have asked nations
to disband capital controls, which has made them more vulnerable to the
volatility of private capital flows. We can and should address that issue.
Of course, that also means that we are going to have to be much quicker,
much more agile, and much more involved with our clients to make this happen.
But I am convinced that we can do it. I am convinced that it
will have a huge multiplier effect on domestic economies.
We have had quite a number of meetings over the past few days – meetings
with clients, meetings with government officials, meetings with participants.
There is a consensus that this is not business as usual. The
volume of capital flows is not going to come back. It is going to
take a lot of hard work. It is going to take creativity. It is going
to take commitment. It is time for the development banks – for IFC,
in particular – to step up to that challenge.
When I look at our clients in Argentina and Brazil, I don’t see companies
that have failed. I see great companies, solid companies, companies that
can be players on the world market. I wonder whether we shouldn’t be more
aggressive in helping the private sector. For years, we in the development
banks have used trade, finance and public policy to bring private sector
companies into the global economy. Now, at the very time when they
could use our help, most of the focus is still on helping the governments.
I think we can do better than that. Isn’t it time to think
about playing a counter-cyclical role for the private sector? We
have the expertise. We have the willingness. We have the patience. This
is one of those times when a little bit of capital could go a very long
IFC is ready to play that role. We recognize that all the initiatives
that we have taken over these past few months are necessary. None
of them taken alone are sufficient. They are going to take work.
But that’s what we are here for -- to work for you. I always tell
people you have to be an optimist be a development banker. Well,
I am an optimist -- even with the difficulties that we have now. In
fact, when I look at the quality of the clients that we have in this room,
and I look at the talent and energy that we have at IFC, I think it’s
easy to be optimistic.