WASHINGTON, (Reuters) – The World Bank’s private sector arm did not pay enough attention to environmental and social risks when it lent to Honduras’ largest bank, Ficohsa, an internal bank watchdog said yesterday.
The finding marks the second time this year that the International Finance Corporation’s own ombudsman has chided it for flaws in Honduran investments.
The IFC acknowledged some problems with its initial investment in Ficohsa, which has also drawn fire from non-profit groups, but said it has since improved.
The IFC approved $70 million for Ficohsa in 2011 despite the bank’s risky operating environment and clients, including a palm oil company linked to multiple killings and drug trafficking, the IFC’s Office of the Compliance Advisor Ombudsman (CAO) said in the report.
In fact, the IFC had itself earlier approved a $30 million loan to the palm oil company, called Dinant, despite the firm’s troubling history, the CAO found in a previous report.
Honduras, one of Central America’s poorest countries, is embroiled in one of the thorniest land disputes in the region.
Human rights groups have accused Dinant and its guards of human rights violations, including killings and forced evictions of peasants occupying disputed land.
The CAO said IFC had “at best, a superficial understanding of the environmental and social risks that are attached to Ficohsa’s client base,” even though some IFC employees who lent to Dinant knew about the risks and the wider problems in Honduras.