THE BLOG
11/22/2016 05:17 pm ET Updated Nov 23, 2017

Asian Development Bank: Finance for Development or Finance at All Costs?

On November 25, the Asian Development Bank's board will decide whether to provide US$1 billion to expand Azerbaijan's gas fields. A few weeks later, the bank will decide whether to directly fund the government's budget. The Azerbaijani government has been campaigning for these loans while simultaneously waging a vicious crackdown on critics and dissenting voices. The bank's decisions will reveal whether it is truly committed to inclusive, sustainable development. Or does it simply finance, at all costs?

Independent organizations in Azerbaijan are struggling to survive in the face of the government's arrests, harassment, and intimidation, as well as laws and regulations restricting their activities and ability to secure funding. The Azerbaijani government's repression is a serious impediment to public participation, transparency, and accountability, principles that the Asian Development Bank has highlighted as essential for achieving its laudable goal of eradicating poverty in Asia.

The risk of corruption in Azerbaijan is high. The "Panama Papers," which came to light this April, included documents showing that President Ilham Aliyev's family has, according to the International Consortium of Investigative Journalists, "built an empire of hidden wealth." Instead of working to eliminate corruption, the Azerbaijani government has attempted to silence those reporting on allegations of the ruling family's misuse of government funds. The government has attacked people pressing the government to use its oil and gas wealth to invest in the urgent social and economic needs of the people.

In May 2013, the authorities arrested Ilkin Rustamzadeh, a blogger and youth activist who had frequently posted criticism about alleged government corruption on social media. A year later, a court convicted Rustamzadeh of inciting violence and organizing mass disorder, and sentenced him to eight years in prison. Prison authorities placed Rustamzadeh in solitary confinement twice in December 2014 as apparent retribution for his letters from prison that were critical of the government and his statement at the appeal hearing, in which he reported ill-treatment and abuses against other inmates.

Another critical blogger who has worked to expose corruption, Faraj Karimov, and his brother Siraj, similarly were arrested and sentenced to long prison terms on bogus drug charges, before being released under an amnesty. While the authorities released the prominent investigative journalist Khadija Ismayilova, a member of the Organized Crime and Corruption Reporting Project, on May 25 following intense international pressure, her conditional release does not allow her to travel outside of the country. Meanwhile, Ismayilova's lawyer, Yalchin Imanov, is facing retaliation. The government continues to harass and intimidate people linked to Meydan TV, one of Azerbaijan's last surviving independent media outlets that carries material critical of the Azerbaijani government and its policies related to human rights, corruption, and similar issues. Meydan TV is only able to operate out of Germany.

Like the other multilateral development banks, the Asian Development Bank has endorsed the Extractive Industries Transparency Initiative (EITI), a multi-stakeholder effort to promote better governance of resource-rich countries by fostering open public debate about how oil, gas, and mining revenues are used. Azerbaijan was the first state to become compliant with EITI. But in April 2015, Azerbaijan was at the vanguard again when the EITI board downgraded it to a candidate country, recognizing that the government's crackdown on independent groups ran contrary to its EITI commitments.

This October, EITI upheld its demotion of Azerbaijan, which now risks suspension from EITI if the government does not carry out reforms to allow independent groups to operate freely before the next EITI board meeting in late February 2017. EITI highlights the importance for a country to have a framework in which natural resource revenues can actually benefit inclusive development.
The Asian Development Bank is already a significant financier of Azerbaijan's gas fields. If it agrees to invest US$1 billion to expand Azerbaijan's Shah Deniz Gas Fields, it will indicate that the bank's endorsement of EITI and commitments to public participation, transparency, and accountability are not worth the paper they're written on.

It will also create a dangerous precedent. The World Bank, the European Investment Bank, and the European Bank for Reconstruction and Development, which have similarly endorsed EITI and committed to participation, transparency, and accountability, are considering financing the Southern Gas Corridor, designed to deliver natural gas from the Caspian Sea and the Middle East to Europe. The government of Azerbaijan partially owns each segment of the pipeline either directly or through the State Oil Company of the Azerbaijan Republic (SOCAR) or its subsidiary.

The easiest path for the Asian Development Bank is to give Azerbaijan the money. But if it does, it will undermine its--and its shareholders'--credibility, particularly its largest shareholders, Japan and the United States. Development banks have an important role to play in Azerbaijan, provided they actively work to invest in the social and economic needs of the people by supporting appropriate projects. The banks should be careful to ensure that they don't undercut efforts, including by the EITI, to reverse the government's crackdown on independent voices.

Update on December 7, 2016:
After a brief delay, the Asian Development Bank board of executive directors agreed to provide US$1 billion financing to expand Azerbaijan's Shah Deniz Gas Field and US$500 million in direct budget support to the government. Several members of the board did not support the project. The ADB undertook to encourage "the government in its efforts to reinstate its compliant status with the Extractive Industries Transparency Initiative."