World Bank’s new lending tool: Less safe, less transparent

The World Bank last week decided to take a significant step backwards on social and environmental protection and transparency.  The Bank’s board voted to approve Program-for-Results, also known as PforR, which, according to Bank hype, is “an innovative new financing instrument for the World Bank’s client countries that links the disbursement of funds directly to the delivery of defined results.” But according to more than 200 groups in 51 countries, “P4R represents the most radical development in [a] worrying trend towards the dilution of social and environmental safeguards.”

As is often the case, the World Bank is engaging in an exercise in double-speak.

The Disappearing Act of Environmental and Social Safeguards

In its press release, the Bank claims: “Key assessments – fiduciary, environmental & social – of program systems are an important feature of this new instrument and will help provide assurance that Bank financing is used appropriately and that the environmental and social impacts of the program are adequately addressed.”

Oh really? Is that why PforR gets rid of eight crucial environmental and social safeguard policies? (That’s in addition to 17 somehow “onerous” policies, like project appraisal!) Yep, gone are crucial do-no-harm policies on matters such as environmental assessment, involuntary resettlement, Indigenous Peoples, safety of dams, and gender and development. It’s not like these were superfluous, extravagant safeguards. Each of them resulted from drawn-out negotiations between economic justice, human rights, environmental, Indigenous Peoples, and other activists on one side, and the Bank on the other. They’re very much compromise policies tailored to the level of risk of a project. Lots of us would like the safeguards to be far stronger, not grossly watered down.

The approval of PforR is paving the way for safeguards to apply to less than 10 percent of the Bank’s portfolio. That’s because only the riskiest activities – known as Category A – are excluded from PforR. All Category B projects, which according to the Bank’s own Independent Evaluation Group still have ‘substantial risk,’ are fair game. Further, the Independent Evaluation Group found that “[a]lmost a third of projects with high-risk levels were incorrectly classified as Category B.” This means that a significant number of so-called Category B projects are, in reality, Category A and could thus qualify for PforR.

Not that we will even necessarily have the information to know when projects are being mis-categorized — public and community access to project-level information is not required.  What a borrower funds with Bank money, where the activity occurs, and its potential impacts may not be known outside of the Bank.    

Murky on Transparency

Maintaining its double-speak, the Bank’s PforR press release asserts, “PforR will also help improve the transparency and accountability of developing country programs, and strengthen systems to fight fraud and corruption.”

This is not possible when transparency standards are reduced. One ‘developing country program’ can potentially contain hundreds of projects. While it’s all nice and good to know what’s going on at the ‘program’ level, what really matters to people on the ground is what’s happening at the project level in their communities, and transparency at that level is not stipulated.

What this means is that the Bank’s and borrowers’ accountability for potential impacts to the environment and communities could be much more difficult to secure.  Communities are likely going to have a very difficult time taking complaints to the Inspection Panel – the Bank’s grievance mechanism for when the Bank fails to implement its own policies. In fact, few people at the Bank seem to know how this important accountability mechanism will be able to function under PforR. How is a community supposed to hold its own government accountable, let alone the Bank, if it doesn’t even know that the project is happening? 

Even industry has weighed in with strong concerns about PforR when it comes to transparency, corruption, and procurement.

Congress Has Its Say

For now, PforR is capped at five percent of World Bank commitments annually for the first two years. To its credit, the US Treasury Department insisted on this, with significant pressure from Congress, civil society, and industry. But after that, there’s no telling what will happen.

Indeed, because of the strong concern of civil society and industry, Congress has actually conditioned – through legislative language in the Consolidated Appropriations Act of 2012 – the provision of funds for the World Bank’s General Capital Increase on serious improvements in PforR. That’s actually a big deal, as Treasury and World Bank President Robert Zoellick considered the General Capital Increase sacred, having successfully fought off previous attempts to condition it on serious reforms to the Bank’s tremendous fossil fuel financing and poor record on energy access for the poor.

In addition to the 5 percent cap, the legislation requires “substantial progress” in the following areas:

…require that projects with potentially significant adverse social or environmental impacts and projects that affect indigenous peoples are either excluded from P4R or subject to the World Bank’s own policies; require that at the close of the pilot there will be a thorough, independent evaluation, with input from civil society and the private sector, to provide guidance concerning next steps for the pilot; and fully staff the World Bank Group’s Integrity Vice Presidency, with agreement from Borrowers on the World Bank’s jurisdiction and authority to investigate allegations of fraud and corruption in any of the World Bank’s lending programs including P4R;

PforR and International Climate Finance 

Those of us concerned about the World Bank’s involvement in international climate finance should pay close attention to what happens with PforR. The Bank’s concerted attempts to position itself front and center in the climate world – through the Climate Investment Funds, the Carbon Finance Unit, including the Forest Carbon Partnership Facility, and the Green Climate Fund – could well be impacted by how the Bank proceeds with safeguards in its various portfolios.

Some think that the World Bank’s safeguards should represent the floor (not the ceiling) of what should pass as safeguards for the UN’s Green Climate Fund. Many think the Green Climate Fund safeguards should be significantly stronger than the Bank’s. But, in any case, with the approval of PforR, the World Bank’s safeguards are on very shaky ground, and don’t provide much of a floor for the Green Climate Fund to stand on.