Rain forest misuse prompts ultimatum. Development bank looks for ways to make its warning to Brazil stick

Environmentalists are changing the way multilateral banks do business. Earlier this week, the Inter-American Development Bank issued an ultimatum to Brazil: Either comply with environmental provisions in a loan for a highway project or risk losing $40 million.

The action was prompted by pressure from conservation groups and a group of influential US senators. It underscores the growing willingness of environmentalists to focus their wrath on the international lending institutions that bankroll destructive projects, rather than the borrowing countries themselves.

Environmentalists are often frustrated in their attempts to protect resources in developing regions. Many developing countries, strapped for cash, are turning to short-term projects that damage the environment, but bring in needed foreign exchange.

Writing environmental safeguards into loans and getting countries to abide by them, however, are two different things.

``The banks need a method of showing they mean business when they write in a loan condition,'' says Barbara Bramble, head of the international program at the National Wildlife Federation.

The Inter-American Development Bank's message to Brazil will give the provisions needed muscle, says Ms. Bramble - both in this loan and in others written by the bank. ``Otherwise, everyone will know that as soon as pressure is applied, the bank will give in.''

The 44-member bank approved the loan in 1985, despite opposition from the bank's US representative, who cited environmental concerns. The road-paving project will link the regional capitals of P^orto Velho and Rio Branco in the tropical forest states of Acre and Rond^onia, opening up formerly isolated regions to colonization and development.

Brazilian officials say the project is a necessary - and inevitable - element in the development of the region. Environmentalists emphasize that the bank is not being urged to scuttle the deal entirely, but rather to suspend payments until environmental concerns are addressed. This way, the bank can retain influence over the project, which is already more than 25 percent complete.

The loan sounds great on paper. It includes a plan to set aside lands for indigenous peoples, conduct ecological monitoring, and use improved construction techniques.

But today, two years into the project, critics say all environmental aspects of the plan are either delayed or unimplemented. As of July, for instance, only 11 of 35 reserves for indigenous Indian groups had been laid out. Meanwhile, a state environmental agency has been created, but it only has one employee, and a forest monitoring system hasn't even been started.

``This isn't just another bad project in some distant country; it's become the key test of the bank's accountability and willingness to consider environmental factors,'' says Stephan Schwartzman, an anthropologist with the Environmental Defense Fund.

Mr. Schwartzman says that, in addition to its obvious environmental impact, the project is threatening the health of local inhabitants. Poor construction techniques have led to drainage problems, creating new breeding grounds for disease-carrying mosquitoes.

In addition, no provisions of any sort have been made for the people who live in the forest and gather natural rubber from the trees for their livelihood. Some efforts have begun to organize ``extractive reserves,'' areas in which these rubber-tappers would retain control over the trees. But unless more is done to protect this group, says Schwartzman, they are likely to suffer from the deforestation expected in the future.

The US Senate's foreign operations appropriations subcommittee, which controls US funding to multilateral banks, has played a key role in the dispute.

Ranking member Bob Kasten (R) of Wisconsin advocates greater environmental sensitivity on the part of the multilateral banks. The lawmaker is one of several who pushed legislation through Congress requiring the Reagan administration to insure that environmental safeguards are built into the loans it approves.

Senator Kasten has accused the bank of ``monumental foot dragging'' in the affair. The lawmaker says that the bank took action only after his subcommittee, with the support of chairman Daniel Inouye (D) of Hawaii, threatened to cut off all US aid to the institution.

Bank officials, however, say outside pressure was only one factor in their decision to crack down on Brazil. If the bank is not satisfied with the response, loan dispersements could be halted as early as mid-October.