In the 1960s, the World Bank Created a Mechanism That Allows Corporations to Sue States
The investor-state dispute settlement is a system that empowers foreign investors to sue a sovereign government. It was instituted in the 1960s against the votes of most Latin American countries — and continues to wreak havoc today.
American banker George David Woods (R), president of the World Bank from 1963 to 1968, talks to head of the International Monetary Fund Pierre Paul Schweizer (L) and Iranian minister of finance Jamshid Amuzegan (C) during a conference of the International Monetary Fund in New York on September 26, 1966. (Schulman Sachs / picture alliance via Getty Images)
In February of this year, the Delaware-based company Próspera filed an international legal claim demanding the government of Honduras pay it $11 billion — a sum equal to about two thirds of its 2022 national budget. The offense, according to Próspera, was the government’s recent outlawing of the company’s plan to operate a privately run city — with special economy zones and autonomy from the central government on issues like taxation, administration, and security — on the island of Roatán.
Based on an idea floated by former World Bank chief economist Paul Romer to emulate the success of city-states like Hong Kong and Singapore, Próspera was launched in 2013 with the backing of then Honduran president, Porfirio Lobo Sosa.
When new president Xiomara Castro’s took to the campaign trail in 2021, she promised to revise the legislative framework enabling these controversial carve-outs, denouncing them as a threat to the country’s sovereignty. Once she took office in early 2022, her government began to take action in response.
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