Responsibly managing globalization

The lead editorial in today’s Washington Post is a must read.

Most people agree that globalization is here to stay; that it has both positive and less positive effects; and that the world lacks good institutions to ameliorate the negative ones. The "Equator Principles," created by the private-sector arm of the World Bank in 2003 and now embraced by 40 big private banks, are a rare creative effort to grapple with this deficit. The principles govern the social and environmental impact of large-scale projects such as mines or roads or dams; although their implementation remains uneven, the fact that perhaps $125 billion of the $170 billion in global project finance is supposed to respect the Equator code represents genuine progress. On Tuesday an updated version of these principles faces a vote by the board of the World Bank. It is vital that the governments that sit on the bank's board approve the update.

The Post argues that the update will make the principles more effective and less legalistic. Critics argue that they will reduce accountability and that the standards are too low. The Post counters that perfectionist standards have a downside. The World Bank Group's role in middle-income countries is also touched upon.

Ever since the early 1990s, when private capital began to flood into emerging markets, skeptics have doubted the relevance of the World Bank in countries such as Brazil or Thailand. In fact, because the world lacks good institutions to manage globalization, keeping the bank active in these rich developing countries is justified. For example, the bank is mobilizing money to fight avian flu, even in comparatively rich Turkey. But the Equator Principles are a direct response to the skeptics. They demonstrate that the bank can remain relevant in a world awash in private capital -- provided that the governments that sit on its board do not frustrate its efforts.

Rachel Kyte is our expert on environmental and social standards, see her posts here, here and here.

Update: The IFC's board has approved the new standards.