World Bank lending arm forced into U-turn after Honduras loan row

The World Bank's private lending arm has been forced into a U-turn over its dealings with a Honduran palm oil company accused of assassinations and forced evictions of peasant farmers.

On Wednesday evening, the International Finance Corporation (IFC) admitted failures in the implementation of its own social and environmental policies when approving a $30m (£18.2m) loan to Corporation Dinant, an agribusiness owned by one of Honduras's richest and most powerful industrialists Miguel Facussé.

The IFC pledged to beef up its demands of Dinant, which is accused of using violence to deal with land conflicts in the Bajo Aguán valley, after criticism from the World Bank Group board last week.

This volte-face comes two weeks after its original lukewarm response to a damning investigation by the World Bank's internal watchdog, the Office of the Compliance Adviser/Ombudsman (CAO), which found multiple ethical failures in the IFC's handling of the Dinant loan.

The IFC's initial action plan caused outrage among civil society groups in Honduras and overseas, as it failed to address many of the investigation's findings.

Seventy organisations denounced the IFC's "totally inadequate" response, and demanded "root and branch investigation and reform", as well as an apology and remediation for communities found to have suffered as a result of Dinant's alleged violence in the Bajo Aguán.

The news was welcomed cautiously by civil society groups. Yoni Rivas, secretary general of the Movement of Unified Campesinos in Aguán, said: "The IFC has acknowledged its errors, evident in the human rights violations of local farmers and environmental damage in the Bajo Aguán. We hope the World Bank does not disburse more funds to Dinant and other international banks do not make the same mistake."

Dinant received the first $15m loan instalment in November 2009, months after a coup d'etat triggered widespread social unrest, to expand its lucrative African palm plantations. The company denies all allegations that its security forces have killed, kidnapped or forcibly evicted peasant farmers who also lay claim to the land. Dinant says its guards have been forced to defend their farms against violent, illegal occupiers.

The IFC's new promise to "refine and flesh out" its action plan and "reflect on" internal problems came after the World Bank Group board demanded a revised response that properly addressed the failures identified by the CAO.

It now says it will cancel the outstanding loan if Dinant fails to comply with its demands. Dinant has promised to adhere to the IFC standards.

However, some groups said the IFC had not gone far enough. Peter Chowla, co-ordinator of the UK-based Bretton Woods Project, said: "The IFC is clearly an institution which has lost its way and now needs an independent investigation of the underlying systemic reasons for the repeated and serious failures to adhere to standards by its staff."

A CAO spokeswoman said: "The ball is now in IFC's court."