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World Bank Approves Loan To China. U.S. Objects To Plan To Relocate Farmers

Globe and Mail, June 25, 1999 Reuters News Agency, Washington

The World Bank tried yesterday to defuse one of its most bitter disputes in years as it approved a $160-million (US) loan to China that had angered its biggest shareholders and outraged Tibetan activists.

The loan, to be used in part to resettle 58,000 poor Chinese farmers to an area where Tibet's spiritual leader, the Dalai Lama, was born, put the bank at the centre of a political storm.

Among those who opposed the project in recent days were U.S. treasury secretary-designate Lawrence Summers, 60 members of the U.S. Congress, Tibetan interest groups and, most surprisingly, almost half of the bank's 24 member board.

The loan was approved yesterday against the votes of the bank's largest and third-largest shareholders - the United States and Germany - despite claims that it violated its own rules in processing the loan.

As the loan gained heightened attention, China lobbied hard to push it through despite the U.S. and German objections. Rumours circulated that China, the bank's biggest borrower, might leave the organization and that foreign ambassadors in Beijing were threatened that investments in China would be quashed if the loan were not approved.

Canada, which had earlier signalled oppostion to the loan, abstained in the vote yesterday, while registering its concern at a closed door meeting that the bank staff had not followed proper discloure procedures or conducted proper environmental-impact studies.

Canadian activists were disappointed that Ottawa refused to publicly oppose the loan.

"It's one more example in a long line of Canada's retreats from China's wrath," said Pam Foster of the Halifax Initiative, a non-governmental group working for international financial reform.

The bank board was slated to debate the controversial loan on Tuesday, but after 11 members of the board asked bank president James Wolfensohn to pull or alter the loan, that meeting was postponed so he could return from a conference in Paris to personally conduct the meeting.

Mr. Wolfensohn secured a compromise which would delay the contentious resettlement portion of the loan until after an inspection panel reviewed whether the bank violated its own rules on the environment, resettlement and disclosure.

Ms. Foster said the inspection panel represented a "partial victory" since it was the first time the World Bank's board has required a review of a contentious project.

The loan will be used in part to resettle farmers from an overpopulated area to sparsely populated land in the province of Qinghai. Other parts of the loan, to alleviate poverty in the Inner Mongolia autonomous region and the province of Gansu, are not subject to the panel's review.

The independent panel review was prompted by complaints from the International Campaign for Tibet and the Center for Environmental Law.

The panel will produce its findings and the board will then vote within about two months on whether a full-blown investigation is warranted.

-- with a report from Shawn McCarthy in Ottawa.

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