A wall that protect internal ends

Introduction

Activists, non-governmental organisations (NGOs), grassroots movements, think thanks, academia and the media have consistently argued for greater transparency and accountability of International Financial Institutions (IFIs) in relation to its operations. As a result of this, IFIs have been forced to create and develop new mechanisms in order to meet these demands. These mechanisms have been perceived as constantly evolving, developing, expanding, growing, but ironically, it also seems that these systems have been mysteriously adapting and transforming themselves, while intentionally or unintentionally, supporting, protecting and reproducing at the same time institutions that aim to accumulate more power, control and internal ends.

This essay first critically evaluates the growth of accountability mechanisms in IFIs by making reference to institutions such as the World Bank (WB), the International Finance Corporation (IFC) and the Asian Development Bank (ADB). It will illustrate these three mechanisms by making reference to two experiences in Colombia and Nepal. It then finally discusses two specific claims heard by the WB and IFC in Bangladesh and in Chile respectively. The central argument of this essay is that the growth and evolution of accountability mechanism in IFIs is characterised by a growing accumulation of power at the Institutional level as well as at different internal levels such as Management. The solution proposed in this paper as a crucial step to build strong accountability in IFIs is to encourage more independence of these mechanisms as well as to promote the development of a serious attitude of IFIs towards institutional reflexivity.

The Growth of Accountability Mechanisms

Accountability Mechanisms contains formal processes that bring empowerment of Civil Society in order to generate change, to influence decision making, to hold institutions accountable and to achieve justice. This perception looks accountability subjectively from the point of view of the people affected by the actions or omissions of institutions. Until the 1980s IFIs did not have the obligation to take responsibility of its actions when implementing projects that provide economic development in developing and borrowing countries. As a result of that, Civil Society was unable to file claims through formal mechanisms against IFIs for redress of their grievances on poorly-designed and/or environmentally damaging implemented projects. Indeed, any issue in relation to the project was handled mostly by Governments of borrowing countries. However, the scenario has started to change and accountability mechanisms are growing, developing and expanding its scope in issues such as involuntary resettlement, environment, indigenous communities and the disclosure of information. The purpose of these mechanisms is to address the absence of access to effective remedies by individuals negatively impacted by bank projects due to an MDB’s immunity from local jurisdiction (Suzuki and Nanwani, 2005 quoted in Bissell and Nanwani 2009: 9). The bank’s accountability in the establishment of these accountability mechanisms is to be distinguished from the separate concepts of legal liability and international responsibility (Bissell and Nanwani 2009: 38). These mechanisms focus on the institution’s acts or omissions in the design, processing or implementation of projects and address complaints filed by claimants adversely affected by the projects. They do not cover certain matters, such as fraud and corruption, and procurement irregularities under bank lending activities such as technical assistance and loans.

The processes of these mechanisms in these institutions have been developing from simple fact-finding investigation or inspection that focuses on bank’s conduct on the violation of policies and procedures, to methods that seek conciliation between the parties such as problem solving or amicable settlement and consultation and compliance reviews. These new processes contain more involvement and empowerment of Civil Society at different stages of the project cycle, and it has also included monitoring activities to check on the progress in the implementation of outcomes. There is a perception of a movement from informal non-permanent structures to formal structures (Permanent Panels), from “accountability” to “responsibility” that provides legal remedies to the affected people, from internal approaches (ensuring the Bank is accountable to its member states) to external approaches (accountable to those affected by IFIs operations).

Nanwani (2008: 205) argues that one criticism is that there is no guarantee that a claim will lead to improvements at the project level. The ground reality is that MDB[1] accountability mechanisms are viewed as “internal governance” tools, as an internal facility (albeit with stated independence from Management) with the aim to enhance institutional development effectiveness and improve project quality, the parameters of these accountability mechanisms are circumscribed in particular ways. These mechanisms focus on the bank conduct and not the government’s conduct. Nanwani also contends that the grievance mechanisms are not adjudicative and do not provide judicial type remedies such as damages or injuctions (ibid, p, 206).

The World Bank Inspection Panel

The pressure to establish Accountability mechanisms at the WB was driven both within the institution and outside the institution. Shihata (2000) argues that internally the creation of the IP came as a response to a New Bank Management’s concerns with the efficiency of the Bank’s work (p,1) Executive Directors, government officials, Bank staff, and some external parties believed that the management of the Bank’s portfolio of loans required improvement. Executive Directors also perceived that the Bank was less accountable for its performance and less transparent in its decision-making. The Wapenhams Report has concluded that there was an approval culture about getting as many projects as possible, therefore, the solution was to improve best practice. There was also pressure from the external level by activists to improve Accountability practices. The most important case to draw public attention was the impact of the Narmada Dam project in India. An Independent evaluation of the project commissioned by the Bank, the Morse Report, revealed the Bank’s Oversight of environmental and social considerations. This lent impetus to transnational activist US congress support for an accountability mechanism to ensure the Bank’s social and environmental sustainability. In 1993 the US Congress threatened to withhold International Development Assistance (IDA) replenishment funds should the Bank not establish such a mechanism (Bowles and Kormos 1999: 220 quoted in Park S, 2008: 15).

With 3 members that report directly to the board of directors of International Bank for Reconstruction and Development and IDA the function of the Panel is investigation, fact-finding. The Inspection Panel (IP) is supported by a secretariat and issues annuals reports. The cut-off point for filling claims is when the loan is still no closed or 95 percent has been disbursed. The bank does not monitor activities except when requested by the board and it covers violations to operational policies and procedures in public sector projects only.

Upon receiving a complete request for inspection that is not clearly outside the scope of the Panel’s authority, the Panel registers the claim, notifies the claimant and the Board of Executive Directors, and forwards a copy of the claim to Bank Management, which has twenty-one days to respond. The Panel then has an additional twenty-one days to review Management’s response and to make a recommendation to the Board of Executive Directors regarding whether the claim warrants a full investigation (Bridgeman et al 2008: 209).

If the Panel finds the Bank has violated its own policies then the Bank must respond to the Panel’s findings within 6 weeks on what remedial action it will take to resolve the problem. The Bank is required to ensure that all complaints, findings and recommendations of the Panel and the executive Directors’ decisions are made public (Park 2008: p.16). The Board evaluates the Panel’s recommendations for investigation, while Bank Management often proposes remedial action plans to the Board to circumvent the investigation process. Thus management aim to propose remedies to environmental and social problems they helped to create (through designing the loans in the first place). Strikingly, Bank Management often deny that problems exist (Treackle, Fox and Clark 2003: 266 quoted in Park 2008: 14). It is also worthy to illustrate this mechanism with a particular case. The Arun III project was the first case brought before the Panel which began operations in September 1994. In October 1994 the IP registered a request for inspection from citizens of Nepal who claimed that their rights and interests have been adversely affected by acts and omissions by IDA during the design and appraisal stages of the project cycle. Affected people alleged violations of provisions of the Economic Evaluation of Investment Operations, The WB Policy on disclosure of information, Environmental Assessment, Involuntary Assessment and Indigenous people. In its response to the IP, Management stated that it had followed the applicable policies and procedures. The Board authorized an investigation, however, before the IP completed its investigation, Management submitted to it a remedial action plan to address the issues. The IP found in its investigation report that the Nepalese government and the WB had not provided for adequate land compensation and resettlement for the local and indigenous people affected by the project. An adequate environmental assessment was not undertaken. In summary, the Bank did not comply with its own guidelines concerning the protection of indigenous people and the environment. As a result of that, the WB cancelled its participation in the Arun III project after the IP declared that the Bank had violated its own policies concerning indigenous people and environmental assessment in approving the project.

 

International Finance Corporation (IFC)

IFC and the Multilateral Investment Guarantee Agency (MIGA) set up the Compliance Advisory Ombudsman (CAO) in 1999 in response to a request filed with the IP on a private sector operation supported by IFC in the Pangue Ralco Complex of Hydroelectric Dams in Chile. This claim could not be investigated by the IP due to a lack of jurisdiction.

The CAO has two goals first, to support the IFC and MIGA address complaints made by people who have been or may be affected by projects in which the IFC and MIGA play a role in a manner that is fair, objective and constructive, and second, to improve the social and environmental outcomes of these projects. To achieve these goals the CAO has three related roles: Problem-solving as the principal function, followed by Compliance audit and Advisory.  The Problem solving stage (Ombudsman role) consists of responding to complaints by persons who are affected by projects and attempting to resolve issues raised using a flexible, problem solving approach. It also provides independent advice to the President and Management of IFC and MIGA in relation to particular projects and in relation to broader environmental and social policies, guidelines, procedures and systems. (Bernasconi et al 2002: 802 quoted in Anton et al 2011).  This role is both formal in terms of regular reporting to the President and periodic reporting to IFC/MIGA Boards, and informal in terms of responding to queries  from staff (Park 2008: 22). The Compliance role involves overseeing audits of IFC’s and MIGA’s social and environmental performance both overall and in relation to sensitive projects, to ensure compliance with policies, guidelines, procedures and systems.

CAO is supported by staff and issues annual reports. It reports to the President of the WB Group.  Individuals and Civil Organisations are allowed to file claims for problem solving up to repayment of loan or divestment of operation. However, Compliance is authorized by a request from Senior Management or the president of the WB.

Once a complaint is accepted, the CAO immediately notifies the complainant, registers the complaint, refers the complaint to the relevant IFC or MIGA personnel with a request for information, and informs the project sponsor of the complaint. The CAO then undertakes an assessment to determine how it proposes to handle the complaint. During the assessment, the CAO will communicate with the claimant, the project sponsor, and the IFC to attempt to identify a process for resolving the dispute (Bridgeman et al 2008: 211).

The CAO concludes the complaint process either when a settlement agreement has been reached through the ombudsman or when the IFC/MIGA are deemed to be in compliance with their policies. In this regard, the CAO will keep any compliance audit “open and monitor the situation” until it is satisfied that IFC/MIGA are moving back into compliance. The compliance audits and monitoring status of any projects under review are made public (Ibid p, 212)

The Ombudsman is a mediator, this role is innovative since it aims to resolve problems, and recommend practical actions rather than finding a fault. While the IP aims to determine whether people were affected as a result of WB noncompliance with its own safeguards policies CAO aims to act as an independent problem solving, using direct involvement and conciliation mechanisms. An example of the claims heard by CAO is a complaint lodged on December 2009 by a community of Afro-Colombians. The community believed that a project to be implemented by the IFC in the Terminal de Contenedores de Buenaventura along with other large development projects in this area threatened their cultural identities and social practices and violated their human and collective rights as indigenous community. There were concerns about ensuring proper consultations with ethnic minorities, ensuring participation in decision making and protecting their cultural and social ways of life as well as guaranteeing access to project information. After trips to the area affected and holding meetings with the community, complainants, company representatives and the IFC team, parties agreed that a structured dialogue was not necessary. Instead, according to CAO (2009) they agreed that a meeting among the parties’ representatives could be a helpful step forward to discussing the concerns that were raising with the complaint.  In November 2010 an agreement with all the parties involves was reached and the case was closed.

Asian Development Bank

The ADB Accountability Mechanism is the first system which went beyond the incipient approach to have a pure investigation or inspection function approach by having a dual approach of both problem-solving and compliance review externally driven by claimants (Bissell and Nanwani 2009: 163).  This mechanism provides a procedure whereby people adversely affected by ADB-assisted projects may file complaints. There are two phases, a Consultation Phase led by a Special Project Facilitator SPF (a Senior staff member at the level of director-general, selected by and reporting to the President). SPF assists people who are adversely affected by ADB-assisted projects to find solutions to their problems. The SPF is appointed by and reports to the president of the ADB. Thus SPF is fundamentally the tool of Management, and the Board does not have significant influence on the process during Consultation Phase (Guerrero 2003: 35). SPF manages problem solving and helps parties to find solutions (agree) to their own problems through meetings, dialogues, mediation. This requirement provides outside stakeholders with more avenues for voicing their concerns. (Carrasco, 2008: 35). Complaints to the office of the SPF may be filed only by: (i) any group of two or more people (such as an organisation, society, or other grouping of individual (s) in a borrowing country where the ADB-assisted project is located or a member country adjacent to the borrowing country; (ii) a local representative of the affected group, or (iii) a nonlocal representative in exceptional circumstances where local representatives cannot be found and the SPF agrees (Mackenzie et al 2010: 483). Compared to the IP, the advantage of the mechanism is its independence and permanence, it does not require requester for the Compliance review citation of Policy violations, reduce management response, claims or request might be submitted in any official or national language of ADBs developing member countries, Anonymity and Confidentiality, requesters are also given the opportunity to comment on the draft report of the Panel, monitoring of remedies and the covering of private sector operations (Guerrero 2003: 36).

The Compliance review phase comprises an independent three-member compliance review Panel to investigate alleged violations of ADBs’ operational policies and procedures that have resulted in direct, adverse, and material impacts on project-affected people and to make recommendations for ensuring future compliance and reducing adverse impacts. The Panel recommends remedial actions and monitor it for 5 years. SPF and CRP issue annual reports. CRP members report to the board and to BCRC when it exercises its oversight role. The Panel’s objectives are not only fact-finding but also can make recommendations to ensure project compliance for the Board of Directors to then decide on the remedial actions that Management has to take (Bissell and Nanwani 2009: 164). ADB also carries out monitoring and it covers Operational policies and procedures for both public and private sector operations.

Claim heard by the IFC (The case of Chile)

The Pangue Hydroelectric Project involved a series of proposed hydroelectric dams on the upper BioBio River, Chile. In July 2002, the “Grupo del Alto Bio Bio” a group of Pehuenche women filed a petition with CAO in relation to the following concerns:

1. Inappropriate and weak social and environmental mitigation measures; and

2. Lack of adequate compensation for those individuals affected by the project.

CAO (2009) argued that they acknowledged the complaint based on the fact that the complaint related directly to IFC’s role in the project over a number of years; to promises and commitments made; and to previous opinion by independent investigations and consultant reports requiring certain actions be undertaken by IFC. In July 2002, CAO Compliance conducted an appraisal for audit of the project and commenced assessment in October 2002. In May 2003 CAO recommended that IFC disclose the Hair Report and disseminate documents it had commissioned including emergency response plans and downstream impact studies. At the request of the complainants, CAO Ombudsman continued to monitor the settlement by working with local and indigenous organizations to address broader, cultural impacts of the project. In February 2006, a settlement agreement concerning local development capacity building was finalized and CAO continued to monitor implementation of this agreement.  According to Van Puten (2008) the IFC accepted the following findings: IFC should have taken a more systematic approach to the analysis of environment and social impacts in the Pangue Project, it should have waited for more complete information and analysis of the downstream impacts of the dam, before making certain key decisions to move forward with financing for the project and it should have handled the indigenous peoples issues more roughly and, in particular, assessed indirect impacts of the project on indigenous people (p,177).

Critics such as (Orellana 2007: 2) argue that despite apparent good intentions, the CAO has remained unable to resolve outstanding problems related to the dam project among the indigenous communities (Mapuche/Pehuenche). This institutional capacity is due both to opposition from IFC management and to the inherent limitations within the mandate and powers of the CAO.

This case also reveals the CAO’s limitations, including chiefly the CAO’s lack of resources or authority to implement its recommendations. Simply put, if IFC management does not want to cooperate with the CAO, the CAO will be unable to deliver its mandate (Orellana 2007: 11).

Claim heard by the WBIP (The case of Bangladesh)

On August 23, 1996 The IP registered a request from a Banglaseshi NGO representing the char people (people living on nid-channel islands that emerge periodically from the Jamuna River bed as a result of accretion who claimed they had been adversely affected by construction of the Jamuna Multipurpose Bridge Project in Bangladesh. The request claimed that damage to the chars had hurt char dwellers who were not included in the project’s resettlement action plan and they had not received compensation, in fact it was claimed that the initial resettlement plan did not even acknowledge the existence of the char people. The project has led to violations of IDA policies by Management on Enviromental Assessment, Environmental Action Plans, Involuntary Resettlement and Involvement of NGOs in Bank supported activities and called for compensation to the Char dwellers who incurred losses as a result of the project. The response of the Management was that the char people were to be compensated under the Erosion and Flood Action Plan (EFAP) which was approved by the borrower and the project executing entity. However, this erosion and flood policy was adopted only after the request was registered and while Management was drafting its response. The Panel was satisfied with the management’s action plan for dealing with the requester’s complaints and did not call for an investigation. It concluded that although some policies and procedures of resettlement and environmental assessment had not been followed, the EFAP seemed to address the requester concerns. Board accepted this recommendation and asked management to submit a progress report on the implementation of the Revised Resettlement Action Plan (RRAP) and the Enviromental Action Plan. IP reviewed EFAP aspects of progress report and visited the area consulting with different stakeholders. It concluded that despite some delays and problems, the Bangladesh Rural Advancement Committee (BRAC) was appropriate and its success at identifying people affected by the project, estimating the damages incurred, and initiating payment of compensation (with borrower funds) have been impressive. Procedural omissions during project preparation continued to cause problems, however, Char people have complained that the affected chars have not been demarcated accurately and that the cost of obtaining the documents required to file for compensation was too high.  Despite these problems the remedial measures in place for compensating the char people appeared adequate if certain adjustment were made. The Grievance Redressal Committee was set up as part of the EFAP to deal with grievances.

In more than a few cases, the Board has been reluctant to approve investigations, which management has been able to avert by proposing management actions plans instead (Clark, 2003b 1-14 quoted in). In the Jamuna case similar evasive manouvering was facilitated by the developer, JMBA (Jamuna Multipurpose Bridge Authority). The Management response announced that JMBA had adopted a “generous and simple” Erosion Flood Policy (EFP). The IP does not have the powers of enforcement mechanism, though within limits it can hold the Bank Management and clients accountable (Penz et al 2011: 200).

 

Conclusion

The experiences of the Jamuna project in Bangladesh, Anur III in Nepal and even Pangue in Chile reveals a common pattern to us that is important in the analysis of accountability mechanisms.

The growth and evolution of accountability mechanism in IFIs is characterised by a growing accumulation of power at the Institutional level as well as at different internal levels such as Management. The case of Anur III reveals a struggle of Management to influence the IP by submitting remedial action plans to address the issues. In the case of Jamuna the erosion and flood policy was adopted only after the request was registered and while Management was drafting its response, thus, Management was able to avert, to circumvent the investigation by proposing Management actions plans instead, and in the case of Pangue, according to Orellana CAO has remained unable to resolve outstanding problems related to the dam project among the indigenous communities (Mapuche/Pehuenche) due to institutional capacity caused by the lack of cooperation and opposition from IFC Management and to the inherent limitations within the mandate and powers of the CAO. The hidden level of power of Management to influence outcomes as well as the position of IFIs at the structural level that focus only on internal ends has led to the erection of a wall that protects its internal ends and use others as opportunities,  a wall that blocks the process of the expansion of accountability in terms of empowernment of the claimants, a wall made of restrictions in information, communication and procedural practices affecting people in  terms of inclusion and accessibility. This wall has created exclusions as well as fear leading to a lack of credibility and a poor effectiveness in accountability objectives. The solution proposed in this paper as a crucial step to build strong accountability in IFIs is to encourage more independence of these mechanisms as well as to promote the development of a serious attitude of IFIs towards institutional reflexivity.  This reflexivity might be achieved by designing a coordinated strategy among IFIs with the objective of standardising and improving their organisational, strategic and accountability processes in order to enhance effectiveness, efficiency, equality and sustainability while learning the lessons in order to avoid the repetition of violations.

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[1] Multilateral Development Banks

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