The high costs of environmental loans

Abstract

With environmental problems and hard currency shortages increasing across Asia, many are promoting a joint solution: massive lending by multilateral development banks for environmental projects. The banks have responded with a flood of assistance. In the Philippines alone, environmental lending has grown from $60 to $731 million dollars in 15 years. One such effort was a "showcase" loan by the Asian Development Bank in 1988 for Philippines forestry projects. Once blanketed with rich forests, the country's now degraded forest lands cause soil erosion, loss of biodiversity and dislocation of indigenous people. The ADB loan was a massive and innovative response. However, the outcome of the project including waste and corruption, the failure to ease foreign exchange problems and possible exacerbation of environmental problems raises serious doubts about the approach. In contrast, smaller-scale assistance based on alternative models shows promise for being economically more sound and more beneficial to the environment.