By Peter Blackburn

Rio de Janeiro, Brazil - The International Finance Corporation (IFC) said on Monday that a controversial $30 million loan to Brazil's leading soybean producer will help raise environmental and social standards.

But environmental campaigners said that the loan to the Amaggi company will encourage the expansion of soy planting into degraded pastures in eastern Mato Grosso state and push ranchers into the fringe of the Amazon rain forest.

The IFC, the private secotr financing unit of the Wolrld Bank, rejected the criticism.

"It's inaccurate stretch to say that we are financing the destruction of the Amazon forest", Rachel Kyte, the IFC's Director of Environmental and Social Development, told Reuters in an interview.

Kyte was speaking on the first day of a Latin American consultation with clients, banks and non-governmental organizations (NGOs) on updating lending criteria to emphasize social and environmental standards.

It is the first of four regional consultations on the IFC's new safeguards and performance criteria which serve as a global benchmark for most of the banks active in project financing in emerging markets.

These include safeguards that no child or slave labor is used and that farming does not erode or pollute the land.  Kyte said that the problem of soy expansion into the Amazon won't be solved by the public sector alone.

"Amaggi is the market leader... the private sector has got to be part of the solution" Kyte said, noting that Amaggi was an existing IFC client and respected World Bank social and enviornmental guidelines.

Blairo maggi, the world's largest soybean producer and president of Amaggi, on the sidelines of a debate in São Paulo on Monday, told Reuters there had been some confusion in the media about the purpose of the IFC financing.

"Amaggi proposed the financing for the commercial and industrial areas of the group - processing soyoil, beans and meal and for trading activities," said maggi, who's also governor of Brazil's No.  1 soy state Mato Grosso.

"But this has been portrayed by the media as if it were for expansion of the group's farm land" said Maggi.  "This isn't accurate.  As I announced last week, Amaggi doesn't plan to expand its productive area of 200,000 hectares in the future".

The IFC loan helps finance a $125 million project and will be used to refinance part of Amaggi's short term debt and to construct soybean silos with 250,000 tonnes storage capacity as well as collection centers.

Amaggi, based in Mato Grosso, employs up to 3,000 people during harvest, and provides pre-financing to around 900 third-party farmers.

Brazil is the world's No.2 soybean producer.

GREEN WITH ANGER

Environmental campaigners protested that the IFC loan disregarded its own guidelines.

"it was approved without an environmental impact study although it encourages the exansion of soybeans in the highly vulnerable Amazon transitional forest area" Roberto Smeraldi, head of Friends of the Earth in Brazil, told Reuters.

Seaking from the IFC's meeting in Rio de Janeiro, he criticized the organization's new performance standards.

"They substantially weaken environmental safeguards and introduce double standards", he said.

In line with the view of the Brazilian NGO Forum, he said that he would be walk out of the IFC meeting on Tuesday. 

(Additional reporting by Reese Ewing from São Paulo).