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World Bank’s new financing model downplays risks

With the World Bank adopting PforR (Programme for Results) as a new lending instrument, it is virtually abandoning many of its rights protection policies, says Joe Athialy

World Bank’s lending policies

The 25-member executive board of the World Bank recently adopted a new financing instrument, the Programme for Results (PforR). As its name indicates, the Bank can now provide finance not to a specific investment project but to any blurry programme, for the purpose of achieving results (a so-called ‘country programme’ could potentially include hundreds of projects). A 5% cap from the Bank’s overall lending portfolio will be used for PforR in its two- to three-year pilot. In fiscal year 2011, the World Bank group had a $57 billion lending commitment; 5% of that would be $2.8 billion.

By design, the Bank will put out money mainly for low- to moderate-risk government programmes. But in reality will the Bank avoid high-risk projects that have irreversible and significant social and environmental impacts, given the many cases of improper categorisation and downplaying of project impacts?

In this instrument, the social and environmental standards that apply to investment loans have been abandoned, undermining decades of work putting in place a protection and accountability regime. Currently, applicable operational policies, bank procedures, good practices and operational directives listed in the Operational Manual are triggered in projects funded by the Bank.

What is extremely disappointing to a lot of people’s movements and individuals whose efforts have contributed to significant progress in advancing standards that protect the environment and local communities, is that PforR does away with eight safeguard standards and 17 other important policies. These include policies for environmental assessment, natural habitats, indigenous peoples, safety of dams, involuntary resettlement, and others (see Box 1).

In the past, what made the Bank stand out among multilateral development banks were its strong safeguard policies that, over the years, have influenced other financial institutions, even countries, to adopt progressive policies. With the Bank abandoning key environmental and social safeguards, the pressure to uphold basic rights protection will weaken, with other funding and development organisations feeling compelled to lower their own standards.

Who will benefit from this new financing instrument? Institutions like India Infrastructure Finance Co Ltd. Earlier, Mint (January 6, 2012) reported: “Unable to utilise a $1.2 billion World Bank line of credit because of strict environmental and social safeguards for infrastructure projects, India Infrastructure Finance Co Ltd (IIFCL) has asked the multilateral lender to amend conditions for lending to such projects.”

“Despite being framed as a ‘new approach to lending’ that requires a new approach to managing risks, the PforR approach will simply allow the Bank to fund the same type of activities funded through investment and development policy lending, but to fund these activities without consideration or application of existing environmental and social standards and other key policies,” said a group of civil society organisations (CSOs) in their comments on the PforR policy, referred to as Operational Policy, OP 9.00. The CSOs include The Norwegian Forum for Environment and Development-Norway, Campagna per la Riforma della Banca Mondiale (CBRM)-Italy, Urgewald-Germany, Bank Information Centre-USA, Forest Peoples Programme-UK, Sierra Club-International, Friends of the Earth-USA, Centro de Derechos Humanos y Ambiente (CEDHA)-Argentina, The Social Justice Committee of Montreal-Canada, Heinrich Boell Foundation-Germany, Both ENDS-The Netherlands, Ulu Foundation-Hawaii, International Accountability Project-USA, Bretton Woods Project-UK, International Rivers, Accountability Counsel-USA, and the Centre for International Environmental Law-USA.

Communities that could be impacted by projects funded through a programme may not have the most fundamental information about the project -- what the potential impacts could be, how and when consultations will take place, etc.

The implications of allowing lending to Category B projects (nearly half of all project lending) without applying safeguards and other critical policies are significant. A 2010 report of the Independent Evaluation Group of the World Bank highlights several problems with category B projects. One of the most important was “(a)lmost a third of projects with high-risk levels were incorrectly classified as category B”. 

Financing instruments like PforR and the use of financial intermediaries, where the Bank’s safeguard policies are not applicable, and impacted communities do not have access to the Bank’s grievance redressal mechanisms, will only serve to make the lives of the poor -- for whom the Bank is purportedly working – more insecure.

The following OPs/BPs (and the related Operational Memoranda) do not apply to programme-for-results operations:

OP/BP 4.00, Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank-Supported Projects
OP/BP 4.01, Environmental Assessment
OP/BP 4.02, Environmental Action Plan
OP/BP 4.04, Natural Habitats
OP 4.09, Pest Management
OP/BP 4.10, Indigenous Peoples
OP/BP 4.11, Physical Cultural Resources
OP/BP 4.12, Involuntary Resettlement
OP/BP 4.36, Forests
OP/BP 4.37, Safety of Dams
OP/BP 6.00, Bank Financing
OP/BP 8.00, Rapid Response to Crises and Emergencies
OP/BP 8.10, Project Preparation Facility
OP/BP 8.30, Financial Intermediary Lending
OP/BP 8.40, Technical Assistance
OP/BP 10.00, Investment Lending: Identification to Board Presentation
OP/BP 10.02, Financial Management
OP/BP 10.21, Investment Operations Financed by the Multilateral Fund for the Implementation of the Montreal Protocol
OP/BP 11.00, Procurement
OP/BP 12.00, Disbursement
OP/BP 13.05, Project Supervision
OP/BP 13.20, Additional Financing for Investment Lending
OP/BP 13.25, Use of Project Cost Savings
OP/BP 13.55, Implementation Completion Reporting

 

 

World Bank's lending policies

 

World Bank's lending policies

 

World Bank's lending policies

(Joe Athialy is South Asia Coordinator, Bank Information Centre, New Delhi)

Infochange News & Features, April 2010