Senator Menendez’s bill, the United States Innovation and Competition Act of 2021 recently passed the Senate, including language authorizing a General Capital Increase (GCI) at the Inter-American Development Bank (IDB), and the bill now goes to the House for consideration. Periodically, all Multilateral Development Banks (MDBs) require General Capital Increases (GCI) to support the operation and administrative costs of running the institution. To raise funds, MDBs must ask their shareholders for increased funding to maintain or expand operations. A GCI is a negotiated process among shareholders before final contribution amounts are determined, allowing donor countries to ask the MDBs for policy commitments in exchange for increased funding. After a GCI is negotiated and increased contributions determined, shareholders will ask their governments, often finance ministries and legislatures, for the necessary funding to meet these commitments.
The last GCI at the IDB was in 2012 when shareholder governments negotiated the terms of a GCI, including policy reforms and donor contributions before shareholders sought legislative approval. Yet, the Senate recently passed Senator Menendez’s bill that includes language authorizing a GCI at the IDB. U.S. Congressional authorization for a GCI without previous negotiations among shareholders is not only unprecedented, but also premature. The U.S. will lose leverage in the negotiation process, limiting its ability to use a GCI as an opportunity to push for policy reforms. Historically, U.S. leadership has played a critical role in increasing the transparency, accountability, and developmental effectiveness of the MDBs. Negotiations on GCIs at the MDBs, including the IDB, are critical moments for the U.S. to push the institutions to update, adopt, and implement policies and standards to protect the environment and project-affected communities from the negative impacts and risks of development projects.
Unfortunately, in recent years, the IDB has financed projects with significant negative impacts, including projects that other development institutions deemed too destructive to support. In Chile, the IDB Invest is financing the Alto Maipo Hydroelectric Project, which threatens the water supply of seven million people in Santiago. The World Bank’s private sector lending arm, the International Finance Corporation (IFC), divested from the project in May of 2018 over concerns for the viability of the project, however, the IDB has remained. Now Alto Maipo, the U.S. subsidiary of AES Corporation, has filed for bankruptcy, claiming the project will never be fully operational due to diminished river flows.
Further, in late 2020 in Honduras, the IDB Invest approved a $20 million investment in the Jilamito Hydroelectric Project over the objections of local communities. In May of 2021, the U.S.’s own Development Finance Corporation (DFC) declined to support the project when its human rights due diligence process turned up significant human rights concerns. The IDB Invest’s continued support for this project suggests a significant discrepancy between the institutions’ safeguards, with the IDB Invest's standards appearing to be much lower than what the U.S. requires at the DFC.
If Congress passes a GCI authorization before the negotiation process even begins, the U.S. will lose its leverage. This will limit the ability of the U.S. to press the IDB to raise its policies around accountability, transparency, stakeholder engagement, and environmental and social risks to prevent the financing of harmful projects like those described above. Therefore, we encourage the Department of Treasury and the United States House of Representatives to oppose premature congressional authorization for a GCI at the IDB and preserve the U.S.’s historic ability to play a leadership role in negotiations around any GCI.
For more information, see the letter from civil society to the House of Representatives expressing concerns over the premature authorization of a GCI at the IDB by the Senate.