World Bank proposes, China refuses

China, one of the World Bank8217;s biggest borrowers, lashed out at the way shareholders were politicising the institution.

The spat, over a mere 40-million portion of a larger loan, heated up last month after an independent report found the World Bank broke its own rules in processing the poverty reduction loan by not properly consulting locals in the area.

The so-called China Western Poverty Reduction Project backed resettlement in China8217;s Qinghai province the area where Tibet8217;s spiritual leader, the Dalai Lama, was born.

Critics saw the loan as 8220;cultural genocide8221;, saying it would further dilute the indigenous Tibetan culture in the area, while the bank said it would reduce poverty.

The loan was approved last year despite US opposition, but was placed on hold while the independent report was prepared on the bank8217;s conduct in assessing the loan.

In recent days, Wolfensohn had tried to broker a deal whereby additional environmental and social assessments and studies would take place before any cash was disbursed. Wolfensohn8217;s proposal included a caveat that the board would not have a further opportunity to vote on the loan, a position which was supported by China.

But sources inside the bank said the United States, backed by Japan and other donor nations, had pushed for a further board vote on the loan 15 months from now, after those new studies were completed.

That split the board on the need for a further vote. With consensus untenable and the bank precluded from cancelling the loan outright, China withdrew its request for the cash on the grounds that new conditions were unacceptable.

8220;It is unacceptable to Chinese authorities that other bank shareholders would insist on imposing additional conditions on management8217;s recommendations namely coming back to the board for approval again for a project that was already approved last year,8221; China8217;s Executive Director at the World Bank Zhu Xian said in a statement.

Zhu8217;s strongly-worded statement accused other nations of politicising the bank. 8220;The bank8217;s mission particularly its development effectiveness has been jeopardised. We call for discussion on this as soon as possible.quot;

Sources familiar with the debate described the sentiment as 8220;semi-chaotic8221;, with board members unsure of what the outcome was going to be. One source said Wolfensohn, as chairman of the board, had failed in his key responsibility to quietly broker a consensus deal before the board8217;s meeting began.

8220;The question is why did Wolfensohn bring this to the board without a vote count,8221; the source said.

The US Treasury Department also issued a strongly worded statement: 8220;We and numerous other World Bank shareholders were not prepared to support this project because we do not believe it was in compliance with World Bank policies.8221;

8220;Additionally, we found the remedial action proposed by the bank inadequate in light of those policies and the findings of the inspection panel,8221; the statement said.

But perhaps most damning for Wolfensohn, who holds what is in effect a US appointment, Treasury said the China loan debacle left US confidence in the bank depleted.

Despite the bruising, World Bank watchers said the charismatic Wolfensohn should survive. The controversy is the biggest to surround the bank in recent memory and even prompted China last year to threaten abandoning membership of the bank completely if the loan did not secure board approval. Chinese officials could not be reached to comment on whether that threat would be renewed in light of the final chapter of the long-running saga.

Critics of the loan were delighted with the outcome. 8220;We8217;re elated,8221; said John Ackerly of the International Campaign for Tibet. 8220;It was very unexpected that this was going to be the outcome.8221;

After the decision came out, a group of about 40 Tibetan activists who had camped outside the bank8217;s headquarters this week, hugged and cheered in jubilation, waving Tibetan flags.

While China pulled its request for funding, it will still proceed with the project with its own cash and under its own terms. Some said critics of the loan were the biggest losers since the World Bank will now have not oversee safeguarding the social and environmental aspects of the project.