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IFI governance

News

World Bank safeguards and independent scrutiny at risk?

5 April 2011

Civil society groups have challenged Bank plans to rush through a new lending instrument, Program-for-Results, that would mean safeguards or equivalent standards no longer apply to a major portion of Bank lending.   Meanwhile, a secretive review could strip the Bank’s accountability bodies of their independence and safeguards could be scaled back for projects deemed “low risk”.

A concept note for the proposed Program-for-Results (P4R) instrument is available for online comment, but key elements of the reform are yet to be elaborated and consultation schedules were only announced in late March, despite plans for board approval by July.

P4R is intended to support government programmes, with funds disbursed based on results.  These would primarily be outputs but also possibly process or financing indicators, such as the percentage of women receiving antenatal care, the time taken to start a business or implementation of an improved procurement system. Funds would flow directly into national budgets, with the Bank’s financial and technical support focussing on countries’ institutional development.  P4R replaces earlier Bank proposals for ‘results-based investment lending’ (see Update 71).

The Bank would not apply its own safeguards to P4R or require country laws, regulations and systems to meet common standards.  Instead, for each operation it would identify criteria to assess the adequacy of countries’ systems for financial management, procurement, and for addressing relevant environmental and social risks. An action plan would set out any necessary improvements to the relevant systems; these could become disbursement-linked indicators. The government and the Bank would “agree on specific principles and standards to be adhered to by the client”, which would be subject to regular reviews.  However, weaknesses in monitoring have been frequently criticised by the Bank’s Independent Evaluation Group (IEG, see Update 71).  The Bank says it will seek to ensure that grievance mechanisms and responsive monitoring mechanisms are in place. Third party reviews, beneficiaries and civil society organisations could play a role in independent oversight teams, though plans have not been fully set out.  The Bank policies and procedures which would govern P4R have not yet been developed.

Category A activities posing the most serious social or environmental risks would be excluded from P4R, such as large, complex infrastructure construction, but category B activities – having “substantial impact” – would be eligible; these constitute about half of the Bank’s portfolio.  Moreover, civil society groups have repeatedly raised concerns about miscategorisation of projects (see Update 65).

P4R is said to be a response to developing country demand to use country systems, focus on results, and offer stable funding to scale up successful programmes.  P4R may enable the Bank to overcome procedural difficulties that have prevented it from ‘pooling’ external funds with other donors.

The Bank says P4R will complement its existing instruments, offering longer-term support than development policy loans (DPLs, see Update 66), and a stronger focus on implementation and results than project-based investment lending.   The Bank argues that IL and DPL will remain its primary lending instruments, but there are signs that the highly flexible P4R will replace a large share of investment lending.  Reportedly, the Bank’s vice president for East Asia and the Pacific, Jim Adams, said he hoped that half of his portfolio for the financial year starting in July would be P4R loans.

However, procurement remains a hot issue, with developing countries pushing the Bank to allow preference for domestic providers rather than insisting on international competition.

The Bank notes that donor imposition of results or review mechanisms could create “new forms of conditionality and admits a “risk of [P4R] being perceived as a lowering of Bank standards”.  Nancy Alexander of German think tank the Heinrich Boell Foundation says that, “The adoption of P4R as anticipated would mean safeguards that have worked to limited corruption and damage to communities and the environment would no longer apply to a substantial proportion of the Bank’s portfolio.  This change is being pushed through without robust consultation.  Moreover, because the P4R would pool financing from multiple sources, affected communities would no longer be able to “follow the money” and hold individual institutions accountable for damages inflicted upon them.   Either the Bank must be persuaded to retain the use of safeguards for Category B operations or it must embrace international standards.”

Accountability to be neutered?

Also ongoing is a secretive review of Bank accountability mechanisms, which could strip them of their independence, contrary to recent calls from UK parliamentarians (see Update 75).  The review covers the Inspection Panel (IP), Independent Evaluation Group, Compliance Advisor Ombudsman (CAO), integrity and internal audit departments (see Update 34).

Lori Udall of US-based Montpellier Consulting says, “The whole review has been conducted in complete secrecy, and no relevant documents have been released.  There are no plans for consultations and the final document will not be available in draft form for comment.  Moreover, the two accountability mechanisms that respond directly to the complaints of affected people [the IP and CAO] are getting lumped in with internal bank oversight mechanisms that are not independent.”

Fast-tracking “low risk” projects

In November, the Bank began a two-year process of reviewing and streamlining its safeguards and policy on using country systems (see Update 42), which will be combined to form a single policy.  The Bank is preparing an approach paper; a draft policy is expected for consultation from July.  The final draft is scheduled for board approval in September 2012.

Bank staff said that the controversial performance standards of the International Finance Corporation (IFC, the Bank’s private sector arm, see Update 74) would inform the review, and management is proposing to directly engage with indigenous peoples’ leaders.  The review will not cover the ‘streamlining’ of other operational policies for investment lending, for example on project appraisal and supervision.

The review will result in a less stringent approach to safeguards for projects deemed “low risk”.  The Bank’s February paper on the Use of country systems for environmental safeguards notes a tension between the intention to shift emphasis from project preparation to implementation support: “The safeguard policies do not really permit this. They explicitly state that all requirements must be met‚ ‘by appraisal’.”

A February briefing by US NGO Bank Information Center (BIC) called for the review to be extended to cover DPLs, which flow directly into government budgets and rose rapidly in response to the financial crisis to account for 40 per cent of Bank lending.  The briefing argued that, Compared to the Bank’s safeguard framework for traditional investment loans, DPL Operational Policy provides significantly less accountability to affected communities that may want to defend or challenge the proposed DPL conditions or the process in which these conditions were negotiated or implemented” (see Update 67).  In December, dozens of Latin American civil society organisations raised concerns about the disbursement of a $500 million tranche of an environmental sector policy loan to Brazil, “despite an alarming lack of evidence regarding compliance with loan requirements [particularly social and environmental policies and] … a serious lack of transparency and civil society participation in the preparation and implementation.”

The BIC briefing also argued that the current DPL policy has an “inadequate framework for measuring institutional capacity, which diminishes the ability to demonstrate effectiveness and … additionality.”   An evaluation should emphasise results, while monitoring and evaluation must be improved.  BIC also recommends clearer minimum standards for consultation and transparency, environmental and social impact assessments.  BIC also questioned the influence over the future safeguard framework of large middle income country borrowers, many of which will no longer be eligible to borrow in the medium term.

Transparency faltering

Effective implementation of the Bank’s access to information policy remains patchy.  At end March, the Bank published its progress report for October through December 2010, saying “significant strides” had been made in implementing the policy.  However, Amy Ekdawi of BIC says, “Documents are not systematically translated, except for the Middle East and North Africa region, and the strategy for translation is still in development.  Outreach to affected communities is similarly unsystematic and depends on the Bank staff in country.  BIC’s proposal to develop civil society groups to support outreach was welcomed by the Bank, but the process is really slow.”

In a February briefing, US NGO Gender Action called for IFI policies to address barriers to women’s access to information, such as the gender digital divide and limits to women’s mobility. Recommendations included publishing information in diverse formats and local languages, and supporting specific ICT strategies to promote equitable access.

In February, the Bank was among 18 signatories of the International Aid Transparency Initiative that agreed to publish information on aid in a timely, internationally comparable form.  The Bank was among the last donors to announce a schedule for implementation, in March.

IFC strategy stagnates?

As it nears the end of its first year, the IFC’s internal reform initiative is yet to set out its strategic ‘development goals’ with progress indicators.  ‘IFC 2013’ is designed to decentralise and simplify the institution, while increasing its development impact.  Amid criticism that it has failed to focus on poverty reduction and adding value (see Update 73, 62), up to six goals were planned to ‘target and measure’ the IFC’s impact.

A ‘road map’ published in October set out two broad goals for infrastructure and financial access, and said that in “consultation with stakeholders, IFC plans to articulate a fuller set of development goals during the course of FY [fiscal year] 10.”  No public consultations have taken place and additional goals are still being developed for stated priorities including agribusiness, geographical focus and climate impacts.  On climate, the IFC expects 20 per cent of its investments to be “climate friendly” by FY2013.  This includes all controversial technologies such as large hydropower and carbon capture and storage.  The goal will be refined to measure greenhouse gas intensity and avoidance.

According to the IFC, goals are currently being tested before consultation in September, with the final decision to operationalise them expected in FY2013.