U.S.-Mexico Bank Fizzling

Born of the controversy over free trade, it was an unusual bilateral creation: a public bank, run jointly by the United States and Mexico, to finance desperately needed antipollution measures along the shared border.

But the North American Development Bank has spent the last six years in obscurity, largely ignored by the governments that spawned it and unable to lend impoverished border towns more than a pittance from its bulging vault. Despite having raised $304 million in six years, the bank has made just seven loans, totaling $11 million.

A debate is mounting over whether the institution, known as NADBank, should be redefined to make better use of the loan funds, which have proved unaffordable for for low-income communities along the border. Suggestions to invest in other areas--from highways to housing--have prompted an outcry among environmentalists, who fear the border’s towering ecological woes will go untended.

The struggle over the fate of the San Antonio-based bank and a sister agency is critical for a 2,000-mile-long strip where booming industry, rapid population growth and decades of neglect have left an environment in crisis.

Poverty and proximity mean towns on both sides of the border face shortages of drinking water, shared rivers of raw sewage, no room for trash and air swirling with the dust from unpaved roads.

“This is where some of the United States’ greatest environmental needs are,� said Andrea Abel, a border specialist for the National Wildlife Federation.

Challenges are apparent even in rural spots such as Valle de las Palmas, a farming community in Baja California, where leaders are worried about the health of the nearby Las Palmas River. Residents say septic-tank waste is dumped next to the river that courses through the broad valley of vineyards and olive groves. The river provides the town’s drinking water and feeds Tijuana’s main reservoir.

Treatment “was necessary 20 years ago, but we couldn’t do it. There weren’t resources,� said rancher Arturo Gomez, who serves as treasurer of the community near Tecate, 18 miles south of the border. He said the need is fast becoming acute as Tijuana shantytowns push east and Tecate sprouts assembly plants just to the north.

The sudden focus on NADBank, set up to deal with problems such as waste treatment and disposal, comes at a key moment.

Mexico’s president, Vicente Fox, has made clear his anxiety over the unused millions and Mexico’s need for money to finance economic development throughout the country. He has suggested that the bank could help infrastructure projects there that would further cement the economies of Mexico, the U.S. and Canada, linked by the North American Free Trade Agreement since 1994.

Mexican officials say limiting NADBank to environmental work makes it likely that little of the money will be used. Lending solely for water, sewer and trash projects has proved difficult, bank officials say, because those services generate little income that poor communities can use to repay the loans.

Mexican treasury officials propose freeing the money for loans for energy, communications, housing and construction of other unspecified infrastructure projects. The Fox administration’s point man for the border, former Baja California Gov. Ernesto Ruffo, told reporters in Mexico City last month that the funds could be blended with help from government agencies and international banks to build highways, railroads, airports and seaports.

Mexico also favors expanding the area eligible for NADBank aid from 60 miles on each side of the border to 180--an idea that has won little support among U.S. officials.

President Bush has signaled his desire to make the bank more useful, convening a group of U.S. agencies to examine NADBank reform. Fox and Bush are expected to take up the matter again at their next meeting, scheduled for September.

The bank and the affiliated Border Environment Cooperation Commission, a bilateral agency based in Ciudad Juarez, Mexico, were set up to ease concerns of NAFTA critics who feared more trade would aggravate border-area pollution.

The bank was assigned to finance treatment of water and sewage and disposal of municipal trash. The nations contribute toward an eventual capital pool of $450 million and have pledged more as backup. The border environment panel counsels communities and holds public meetings on proposed environmental projects.

A Striking Contrast in Views of the Border

The two entities were the first joint U.S.-Mexico border agencies since creation of the International Boundary and Water Commission more than a century ago.

Environmental activists worry that sweeping change now will spell retreat just as the border’s long-standing ecological problems are getting some attention, despite NADBank’s skimpy lending.

The border has seen an unprecedented boom in construction of water treatment plants and sewers under NAFTA. Thirty-two projects have been built or begun, from Tijuana to Donna, Texas, thanks mainly to $265 million in U.S. government border-cleanup grants. Those grants come from the Environmental Protection Agency but are managed by the bank, apart from the loans.

“It doesn’t make a whole lot of sense to develop bridges and highways when people are drinking water that’s making them sick,� said New Mexico environmentalist Lynda Taylor, who is a U.S. representative to the border environment commission.

The wave of recent construction has introduced treatment plants for the first time in fast-growing places such as Ciudad Juarez, across the Rio Grande from El Paso. “We’ve begun to make a dent in the needs of the border,� Taylor said. “Our work is far from done.�

The debate underlines a striking contrast in the way each country views the border zone. By U.S. standards, the mostly rural area is gravely troubled, with some of the lowest incomes and poorest health and environmental conditions in the nation. From the Mexican heartland, however, the frontier represents economic dynamism and prosperity--a far cry from the abject poverty of villages in Mexico’s interior and far south.

Though the border’s environment is of concern to Mexican officials, it is hardly the only region in which they face daunting air pollution and untreated water and sewage, said Gordon Plishker, who directs an environmental institute at Sam Houston State University in Huntsville, Texas.

“They’re not having the same degree of concern about the border that we’re having,� said Plishker, who also serves on an environment committee of the Border Trade Alliance, a group based in Phoenix.

But everyone seems to agree that NADBank’s loan program is mostly a failure.

Its managing director, Raul Rodriguez, supports loosening the operating rules to permit lending for non-environmental projects, saying the focus on treatment and trash has been a “straitjacket.�

“It’s a very simple trade-off. If we remain as we are, our belief is that a bank is not justified. You can’t lend to the sectors and the projects contained in the current mandate,� Rodriguez said. “There are so many needs that you can’t be sitting on the money.�

Rodriguez insisted, though, that the border would remain a high priority for the bank.

Bank officials say grants and other low-cost funding sources are a surer way to tackle the shortages of water, sewers and solid-waste disposal--needs that are expected to require investments of $1.9 billion during the next five years alone.

Communities on the U.S. side have found cheaper alternatives to NADBank loans in state revolving funds or by floating bonds. Mexican towns, unable to afford NADBank loans and barred by Mexican law from issuing debt the way U.S. municipalities do, tend to rely on their federal and state governments and the EPA grants. Leaders in Valle de las Palmas, for example, are considering applying for EPA funding to cover some of the cost of building systems to treat water and sewage.

Activists argue that NADBank, rather than seeking new areas for lending, should find a way to lower its rates. Bank loans now must be offered at commercial rates and generally are about 5% to 7%. The two governments agreed last year to an experimental program in which the bank will lend $50 million at reduced rates. But that program has not yet been put in place.

Rodriguez said, however, that rates are not the sole problem. Sewers and water systems are simply “not bankable� because they produce unreliable returns in communities that are only learning how to set rates and collect payments, he said. That lesson has been learned by global development banks, which he said allot a tiny slice of their portfolios to such projects.

Rodriguez said lending to more financially promising projects, such as those involving private companies, would enable NADBank to generate income that could in turn provide grants to needy communities.

Controversy also is swirling around the fate of the border environment commission, whose relationship with the bank has often been contentious since its formation under NAFTA.

Some activists worry that bank reform will gut the commission, which helps communities sketch proposed facilities, organizes public meetings and certifies projects for financing. It has approved 49 projects in both countries; 95 others are being prepared for certification.

The commission has been broadly praised for emphasizing community needs and giving voice to grass-roots groups that have flowered along the border. But critics view its review process as slow and cumbersome, especially daunting to private developers. They favor shifting development duties to the bank, leaving the commission in charge of working with the public.

Once, a Grand Vision for the Continent

For their part, U.S. officials are divided on what needs fixing. Treasury Department officials cite the paucity of loans as a sign NADBank and the border environment commission have failed. Officials at the EPA, meanwhile, say such an assessment obscures what the bank and commission have done to shepherd projects benefiting 7 million residents, even if most of the money came from U.S. grants and other financing.

Fernando Macias, the commission’s general manager, said the agency has streamlined project planning in the last two years and should retain that job. “There would have to be an overwhelming reason to justify moving project development from one institution to the other,� Macias said.

The high-level interest in the bank cheers early backers who hoped it would do more. Promoters had envisioned a development fund that would help finance projects from Canada to southern Mexico. Fox has pushed such an idea, arguing that the economic boost in his country would make for a sturdier trading partner and dampen the flow of migrants seeking jobs in the U.S.

But a much broader role probably would require a big increase in the governments’ funding for the bank--a matter certain to prompt additional debate.

“The bank’s assets are not enough to deal with the border’s problems, much less the economic-integration needs of North America,� said Mark Spalding, an environmental law specialist at UC San Diego who advises advocacy groups in both countries. “You end up shorting everybody concerned.�

The governments have taken modest steps toward giving the bank more leeway. Last year the board of directors, made up from a trio of federal agencies from each country, approved lending for air pollution projects, energy and water recycling.

Mexico now is suggesting using bank funds to cope with mountains of used tires that pile up on the border and to improve ports of entry. A new bill, sponsored by Sen. Pete Domenici (R-N.M.), would steer $75 million in transportation funds through the bank to upgrade border crossings, which often are scenes of long lines of exhaust-belching trucks and cars.