Middle-income strategy threatens safeguards

A coalition of NGOs led by International Rivers Network has raised alarm bells that a proposed World Bank middle income country (MIC) strategy will seriously weaken policies meant to protect vulnerable groups and the environment. The strategy proposes accelerating the shift to reliance on national safeguards "where such systems are found satisfactory to the Bank."

A note on the operationalisation of the strategy has been described by a coalition of NGOs as "particularly disturbing". It suggests that the Bank consider relying on national safeguard systems in countries that are "in the process of developing them." National systems will be analysed not by independent experts, but by the Bank or the government itself. Differences between Bank safeguards and national systems do not need to be addressed before projects are approved, but can be examined during the implementation of the projects. Unclear is what the strategy would mean for the purview of the Inspection Panel. The strategy suggests that national systems become the reference point for Panel investigations, significantly weakening the accountability of the Bank to its own policies.

Transferring responsibility for safeguard compliance to national governments has been driven by a 2001 study which said that the cost of compliance with fiduciary, procurement and safeguard policies was an obstacle to increased Bank lending. Emphasis has since been placed on reducing safeguard costs despite the finding that compliance with fiduciary policies costs three times as much. No counterbalancing estimate of the development value of observance of environmental and social safeguards was made.

The MIC strategy was drawn up by a task force made up of Bank staff. The only external consultation on the strategy was with a "panel of experts from middle income client countries." The draft strategy and resulting management action plan were discussed by the World Bank Board in an informal meeting in early March, where they seem to have raised strong concerns. Transferring responsibility for safeguard compliance to national governments has been driven by a 2001 study which said that the cost of compliance was an obstacle to increased lending. Emphasis has since been placed on reducing safeguard costs despite the finding that compliance with fudiciary policies cost three times as much. No counterbalancing estimate of the development value of observance of environmental and social safeguards was made.

The impetus for the strategy re-think has come from two areas. First, pending re-evaluations of middle-income strategies by a number of bilateral donors, including the UK; and second, the realization that borrowing countries are turning away from Bank loans despite lower interest rates. From the latter, the task force concluded that "Bank-internal factors" are hurting competitiveness: retreat from infrastructure lending, excessive conditionality, cost of fiduciary and safeguard policies, complexity and rigidity in lending instruments and the inability to integrate public and private sector support are amongst those factors mentioned.

Several other contentious issues are raised in the strategy paper:

• The Bank intends to take a leadership role in coordinating support for middle-income countries similar to that which it enjoys in low-income countries. This will involve the renaming of the Country Assistance Strategy (CAS) to the Country Partnership Strategy (CPS).
• On conditionality, the strategy charges the Bank with pursuing "overambitious", "excessive" and "infeasible" policy reforms, particularly those requiring private sector participation in infrastructure provision. It recommends that projects should not carry sector policy conditions "unless these are explicitly shown to be essential for success."
• The task force recommends investigation into "stronger Bank group collaboration, including IBRD/IFC/MIGA country offices."

NGOs have written letters to Executive Directors urging them to reject the strategy: the Board "should support processes to strengthen national safeguard systems, but should not weaken the Bank's own responsibilities". Discussion at the Board of a project in Mexico piloting the use of national safeguards was re-scheduled for early June. It was unclear whether a management note on national safeguards would be approved by that time, putting in doubt a July rollout of the MIC strategy.

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Published: 28 May 2004 , last edited: 26 June 2006

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