The World Bank has cancelled a highly contentious loan to China for an “anti-poverty program” that would have resettled 58,000 Chinese farmers in an area claimed by Tibetans as part of their homeland.

Canada’s executive director, Terrie O’Leary, did not support China’s Western Poverty Reduction Project when it first came to the World Bank board for approval last year, due to concerns raised by citizens groups, including Probe International, that the scheme threatened Tibetans and violated citizens’ rights. But the $160-million loan was approved anyway on the condition that disbursement of the US$40 million resettlement component would be withheld until an inspection panel could investigate objections.

In June of this year, a copy of the inspection panel’s report was leaked to the Financial Times Washington bureau, confirming that bank staff had violated seven out of a total of 10 operational directives in a bid to push through the loan.

The bank had failed to conduct a full-scale environmental assessment for the project, which includes a 40-metre high dam and reservoir, irrigation canals, new roads, several new towns, the moving out of 4,000 Tibetan and Mongol herders, and the moving in of 60,000 Chinese farmers.

The panel also confirmed that “a climate of fear” surrounds the project and noted that “full and informed consultation [as required by Bank policy] is impossible if those consulted even perceive that they could be adversely affected for expressing their opposition to, or honest opinions about, a Bank-financed project.”

Days before the board was scheduled to decide the project’s fate, e-mails and letters from concerned citizens poured in to the bank. Thousands of Tibetans who were gathered in Washington for the annual Smithsonian Folk Life Festival rallied and marched for Tibetan rights, and included a stop in front of the World Bank.

Finally on July 7th, the 24 executive directors, including Terrie O’Leary representing Canada, voted 14-10 against the Bank management’s recommendation to conduct further studies.

In her statement prior to the Board’s vote, O’Leary said: “It is clear from the Panel’s report that we have a project today that does not comply with very significant Bank policies. . . . [W]e believe this is not a problem created by a project under ‘special circumstances’. This is a problem caused by an organization that has failed to live up to its own standards.”