Term Paper

.
Submitted by:-
Jonathan Laldinsanga Fanai
Enrol. No.:-18/40/HI/072
M.A. (PISM)
J.N.U
Introduction

The World Bank is one of the world’s leading international financial institutions whose core task
is development assistance. The World Bank was created to help the poor and developing
countries of the world to raise the capital required for their various development projects. The
World Bank would raise capital in money markets and lend it at advantageous rates to war-torn
and developing countries (Ngaire Woods, 2008). The World Bank consists of two institutions:
The International Bank for Reconstruction and Development (IBRD), and the International
Development Association (IDA). With these two institutions, the World Bank is a part of a
family of five international organizations called the World Bank Group (WBG) which is the
largest and most well-known development bank in the world.

The International Bank for Reconstruction and Development (IBRD) is the main arm of the
World Bank and is largely independent in its function and structure. The Member States that
make up the World Bank hardly ever interfere in its workings owing to its relatively financial
independence. The paid in subscriptions of the member states which are basically guarantees by
the governments have never been called for in the history of the operation of the Bank and they
amount to less than five per cent of the Bank’s funds (Ngaire Woods, 2008). The Bank owing to
the sovereign credit of its members borrows money, that is, raises capital in the money market
and lends on the money for development projects.

The World Bank Group along with the International Monetary Fund (IMF) is called The Bretton
Woods institution. They were the financial institutions formed in 1944 during World War II by
the winning Allies when victory was in sight. The Bretton Woods system was the first example
of a fully negotiated monetary order intended to govern monetary relations among independent
states. It was established to stabilize the monetary order, bridge temporary imbalance of
payments, create cooperation and prevent unnecessary competitiveness in the valuation of
currencies in the post-war international economic order.

The new system planned at Bretton Woods put the IMF at the heart of a new monetary system,
managing a system of fixed but adjustable exchange rates and lending on a strictly short‐term
basis to countries facing short‐term balance of payments crises. Investment in the postwar
economy would be facilitated by the International Bank for Reconstruction and Development
(IBRD, but more commonly known as the World Bank) which would raise capital in money
markets and lend it at advantageous rates to war‐torn and developing countries (Ngaire Woods,
2008). The Bank began to take its place in the international economy by lending money for
specific development projects, for example, India received its first bank loan of US$ 34 million
from the International Bank of Reconstruction and Development in November 1948 for railway
rehabilitation.
Seeing as the World Bank lends to the poorer and more under-developed countries, the chances
that these countries will default and fail to pay the loans has made the World Bank equip itself
with policies, mechanisms and conditions for availing the Bank’s facilities. Soon, the Bank went
from project-based lending to policy-based lending. The necessity of having established
procedures and principles has been manifested time and again when ‘development disasters’
occur whenever the Bank strays from its policies and procedures in its non-compliance.

The experience of the crises along the years led to very public questioning of the role of
international financial institutions and the down‐side of liberalization and globalization. It was in
these circumstances of deteriorating public image, amidst a call for more transparency in
workings, and demand for accountability to the most severely affected that the World Bank
decided to impose on itself an independent review mechanism called the Inspection Panel. This
Panel allows for the independent evaluation of the Bank’s performance with regards to its own
policies and procedures which include social and environmental factors.

The Inspection Panel

The Inspection Panel was established in September 1993 by the World Bank Board of Directors
and started operation on August 1, 1994. The Panel was officially created by two resolutions of
the International Bank for Reconstruction and Development (IBRD) and the International
Development Agency (IDA) Board of Executive Directors on September 1, 1993 (Resolution
IBRD 93–10 and Resolution IDA 93– 6).
The World Bank became the first among international financial institutions to promote
accountability. Instead of the traditional ‘top-down’ approach to accountability, the Bank
complemented it with a community driven ‘bottom-up’ approach, often bringing the most
impacted of the Bank’s project into communication with the top decision-making body of the
Bank. The World Bank was truly a pioneer in this regard and many other institutions followed
suit in review mechanisms that make them more accountable to the people they serve.

The Inspection Panel was formed at the time when, as mentioned, the public confidence in the
Bank was very low. Widespread voices of concern and protest from civil society and project-
affected communities questioned the social and environmental impacts of Bank-financed
operations. The Bretton Woods institutions, as narrated before, were seen as instruments of
globalization and imperialism; coercing weaker nations into debt traps and hampering their
future growth. There was an atmosphere of distrust against the Bank and a central element of this
critique was that the Bank was not complying with its own policy commitments which it had
adopted to prevent these very types of adverse social and environmental impacts. To restore its
image and enable the smooth functioning of Bank projects, it was necessary to review where
they had gone wrong and how far they have strayed from the principles the Bank had committed
it to.

It was reported that many of the Bank-funded projects were “development disasters”, and proper
assessment of the project costs, especially those of environment and human, were not carried out
leading to “devastating human and environmental consequences of those violations” (Morse and
Berger 1992, 2; Inspection Panel 2003). The tipping point came in the Narmada Case as it drew
international attention to the accountability debate and potential remedies. The Narmada Case
involved two major projects supported by the World Bank on the Narmada River in India: the
Narmada River Development (Gujarat) Sardar Sarovar Dam and Power Project, and the
Narmada River Development (Gujarat) Water Delivery and Drainage Project. The World Bank
had agreed to partially finance both the projects in the mid-1980’s and was disbursing funds
when issues related to the project's implementation attracted worldwide attention.

From the beginning of project implementation, local and international non-governmental

organizations had criticized both the environmental assessment and the resettlement and
rehabilitation component of the Narmada projects (Ibrahim F.I. Shihata, 2000). An independent
review team headed by Bradford Morse "to conduct an assessment of the implementation of the
ongoing Sardar Sarovar projects as regards
(a) The resettlement and rehabilitation of the population displaced/affected
(b) “The amelioration of the environmental impact of all aspects of the project," with
reference to "existing Bank operational directives and guidelines.” (Terms of Reference
dated March 14, 1991, issued by the President of the World Bank)

In light of this investigation and continuing concerns from both within and outside the Bank,
then President Lewis Preston established an internal task force to review Bank operations. The
internal report (Wapenhans 1992), completed in November 1992 under Vice President Willi
Wapenhans, found that the Bank had developed a “culture of approval” driven by a promotion
incentive structure that rewarded staff for moving through as many projects as possible without
paying adequate attention to potential social and environmental impacts or effectiveness of
implementation. This contributed to poor project design and outcomes, shortcomings in
accounting for local priorities and capacity needs of borrowing countries, and corresponding
failures to comply with the Bank’s basic safeguard policies (Ibrahim F.I. Shihata, 2000).

This is not to say the Bank had no review mechanisms before the Narmada Case. For example,
under its Articles of Agreement, the Bank is required to make arrangements to "ensure that the
proceeds of any loan are used only for the purposes for which the loan was granted." (IBRD
Articles of Agreement, Article III, Section 5). However with widespread voices of concern and
protest from civil society and project-affected communities questioned the social and
environmental impacts of Bank-financed operations, the Bank realized the inadequacy of pre-
existing control mechanisms.

The Panel consists of three members who are appointed by the Bank's Board upon the
nomination of the Bank's President. Independence of Panel members was emphasized in the
Management report submitted to the Board's Committee of the Whole as "a condition of
effectiveness, objectivity, and credibility" (Ibrahim F.I. Shihata, 2000). The panel has been given
power to independently review and investigate operations supported by the IBRD and the IDA to
determine whether the Bank is in compliance with its operational policies and procedures, and to
make related findings of harm.

In addition, for the first time in the Bank’s history, the Panel process opened up a direct channel
of communication between affected people and the Bank’s highest level of decision making, its
Board of Directors. The Panel functions like a response mechanism or a grievance redressal
channel for the Bank and the people it actually serves. The findings of the panel also help the
Bank to learn from its mistakes and apply lessons learned in the future. The Panel process is
designed to address two central and interrelated issues raised by Requests for Inspection:
compliance (by the Bank with its own policies) and related issues of harm (to affected people or
the environment). (The Inspection Panel at 15 Years)

How the Inspection Panel Works

The Inspection Panel is a non-judicial body that acts independently, impartially and objectively
in evaluating the process followed by the Bank. The Panel does not investigate unless it receives
a formal, written Request for Inspection. With the Inspection Panel, a new horizon opened: the
Panel makes it possible also for non-State actors—citizens and their communities—to challenge
decisions of international bodies through a clear and independently administered accountability
and recourse process. Community participation in an international institution was a benchmark
set by the establishment of the World Bank Inspection Panel.

The Panel was established to be independent of Bank Management and report directly to the
Board. In this way, when triggered by project-affected people, the Panel provides an independent
means to inform the Board of whether Bank Management is acting consistently with Bank
policies, including the way in which projects are implemented on the ground. (The Inspection
Panel at 15 Years, 2009). The Panel process is designed to address two central and interrelated
issues raised by Requests for Inspection: compliance (by the Bank with its own policies) and
related issues of harm (to affected people or the environment) (The Inspection Panel at 15 Years,
2009). As confirmed in the Panel’s Resolution, these operational policies and procedures are not
limited to the Bank’s social and environmental safeguard policies but include other Operational
Policies, Bank Procedures, and Operational Directives, as well as other Bank procedural
documents.

Under the Panel procedures, any two or more individuals affected by a World Bank–financed
project can send a short letter to the Panel requesting it to investigate a Bank funded project. The
Resolution that established the Inspection Panel clearly states that the affected party's standing
before the Panel is not based on just any kind or degree of harm it may have suffered in
connection with a Bank-financed project. Rather, it is limited to cases when "its rights or
interests have been or are likely to be directly affected by an action or omission of the Bank as a
result of a failure of the Bank to follow its operational policies and procedures with respect to the
design, appraisal, and/or implementation of a project financed by the Bank, (including situations
where the Bank is alleged to have failed in its follow-up on the borrower's obligations under loan
agreements with respect to such policies and procedures)." (Paragraph 12 of the Draft Resolution
of the Executive Directors (the Board) establishing the Inspection Panel (No. 93-10 for the IBRD
and 93-6 for IDA)).

The letter of Complaint is formally called a Request for Inspection and The Panel does not
investigate unless it receives a formal, written Request for Inspection. Any group of two or more
people in the country where the Bank-financed project is located and who believe that, as a result
of the Bank’s violation of its policies and procedures, their rights or interests have been, or are
likely to be, adversely affected in a direct and material way. The letter could be hand-written and
the Inspection Panel entertains complaints from duly appointed local representatives,
organization, association, society, foreign representative, or even an Executive Director of the
World Bank depending on the circumstance. The Requesters have to show in writing:
1) Names and addresses of the senders, or Requesters
2) A concise description of the project financed by the World Bank
3) A description of the harm, or the likelihood of harm, that affects the people or
environment concerned by this project
4) If known, the World Bank policies relevant to this project
5) The attempts made to bring the matter to the attention of World Bank staff and the
level of satisfaction with the response
6) A clear statement requesting the Inspection Panel to investigate the matters raised in
the letter

It is required that the Requester lives in the project area (or represents people who do), and have
been or are likely to be adversely affected by project activities. They must have genuine reasons
to believe that they may suffer actual or future harm resulting from a failure by the Bank to
comply with its policies and procedures. One important but often misunderstood point is that
Panel procedures do not require the Request to cite specific Bank policies. If Requesters are not
sure about the type of information needed, or if some information is missing, the Panel
Secretariat is available to provide assistance. This is confirmed by the 1999 Clarification to the
Panel Resolution, which states that a Request simply needs to assert “in substance” that there is a
serious violation of Bank Policies and Procedures (1999, 2 Clarification).

Once the Inspection Panel receives a Request, it is required to determine whether the Request
meets certain technical eligibility criteria established in the Panel Resolution, as updated in the
Clarification to the Panel Resolution adopted in 1999:
9. If the Panel so recommends, the Board will authorize an investigation without making a
judgment on the merits of the claimants’ request, and without discussion except with respect
to the following technical eligibility criteria:
a) The affected party consists of any two or more persons with common interests or
concerns and who are in the borrower’s territory (Resolution Para. 12).
b) The request does assert in substance that a serious violation by the Bank of its
operational policies and procedures has or is likely to have a material adverse effect
on the requester (Resolution Para. 12 and 14a).
c) The request does assert that its subject matter has been brought to Management’s
attention and that, in the requester’s view, Management has failed to respond
adequately demonstrating that it has followed or is taking steps to follow the Bank’s
policies and procedures (Resolution Para. 13).
d) The matter is not related to procurement (Resolution Para. 14b).
e) The related loan has not been closed or substantially disbursed (Resolution Para.
14c).
f) The Panel has not previously made a recommendation on the subject matter or, if it
has, that the request does assert that there is new evidence or circumstances not
known at the time of the prior request (Resolution Para. 14d).

Once the Panel registers the Request, Bank Management has 21 business days from the date of
registration to respond to the Request. In its Response, Management must provide evidence that
 (i) It has complied with the relevant Bank policies and procedures;
(ii) There are serious failures attributable exclusively to its own actions or omissions in
complying, but it intends to comply;
(iii) The serious failures that may exist are exclusively attributable to the borrower or
other factors external to the Bank; or that
(iv)The serious failures that may exist are attributable both to the Bank’s noncompliance
and to the borrower or other external factors

According to the 1999 Clarification, the Panel may “independently agree or disagree, totally or
partially, with Management’s position and will proceed accordingly (The Inspection Panel at 15
Years, 2009). The Management response is important because it shows how the Management
views its own actions and what shortcomings it might itself detect in relation to the claims of the
Requesters. The Panel may decide to visit the project country if it believes it necessary to
examine on the ground the eligibility of the Request. The eligibility phase is focused entirely on
whether the Request qualifies for a full-scale investigation, and is not designed to lead to a report
on whether the Bank has complied with its policies or procedures. (The Inspection Panel at 15
Years, 2009)

With regard to the process, following its receipt of the Management Response, the Panel has 21
business days to make its determination on the eligibility of the Request for Inspection, and to
make a recommendation to the Executive Directors for approval, on a no-objection basis, as to
whether the matter should be investigated. The 1999 Clarification gave independence to the
Inspection Panel in determining whether a Request meets the relevant eligibility criteria and
warrants a full investigation. Under these new procedures, any definitive assessment of
Management’s failures would not occur until the investigation stage, thus limiting early debate
on policy violations and instead focusing on the criteria for investigation. The authority to
approve a recommendation to investigate is vested in the Bank’s Board of Executive Directors,
and the decision is made by the Board, on a no-objection basis, at the end of the eligibility phase.
(The Inspection Panel at 15 Years, 2009).

If the recommendation for an Investigation is approved by the Board, all the details of the Panel
Eligibility report, Management Response, Request and content of Board decision are made
public. This is evidence of how committed to transparency the Bank is when it established the
Inspection Panel. The Panel’s investigation work can best be described as systematic research
and comprehensive analysis. This systematic research work, in turn, falls into two categories:
desk research and field research (The Inspection Panel at 15 Years, 2009).

Desk research focuses on the written documents about the project and takes place both in the
Bank’s headquarters and in the Bank’s resident mission in the country where the project is being
implemented. The Panel is interested in learning as much as possible about the project’s history
and the national and local contexts within which the Request for Inspection emerged. Though
field research is conducted mainly during the Panel’s visit to the country, it also begins first in
Washington, in the Bank itself, which is part of the Panel’s “field.” Indeed, the Panel always
starts the investigation phase with a series of interviews of staff members who were or still are
associated with the project. These rules require, first, that strict confidentiality is guaranteed to
the staff interviewed. The names of those interviewed are never mentioned in the Panel’s reports,
and the records of the interviews are destroyed after the end of an investigation process. (The
Inspection Panel at 15 Years, 2009).

The Panel then visits the country of the project on a fact-finding mission. During its country
visit, the Panel meets with the Requesters and other affected people to learn in detail about the
issues, their local context, people’s concerns and their exposures to risks, and the project’s actual
and potential impacts and harms. As part of its responsibilities, the Panel also meets and
interviews local World Bank staff, project unit staff, relevant government officials, civil society
organizations, professional associations, well-recognized experts, and others so that it can gain a
full understanding of and thoroughly investigate the claims expressed in the Request (The
Inspection Panel at 15 Years, 2009).

During its field research, the Panel is required to keep a low profile and declines media contacts
while an investigation is pending or underway (The Inspection Panel at 15 Years, 2009). The
Panel also makes it clear that its role is to investigate the Bank and not the borrower. The frame
of reference for the Panel in researching and evaluating the substance and accuracy of the
Requesters’ claims is the Bank’s policies. The Panel examines the project’s consistency with the
Bank’s policy provisions, the quality and soundness with which those policies have been
translated into project activities in the local conditions, and the project’s observance of the
prescribed operational procedures during the project process. (The Inspection Panel at 15 Years,
2009).

Once the field investigation and data gathering are completed, the Panel process enters its third
phase—writing the final report. The main emphasis during this phase is not on additional fact-
finding but on the collective analysis and synthesis of all that was learned during the Panel’s
research. All Panel reports are made publicly available upon Board approval. The Panel conveys
its Investigation Report to Bank Management via the President and also submits it to the Board.
Management is expected to submit a written response to the Board and the Panel within six
weeks of receipt of the Panel’s report. Management is expected to submit a written response to
the Board and the Panel within six weeks of receipt of the Panel’s report. The Executive
Directors also begin their own study of the Panel’s Investigation Report in preparation for the
Board meeting convened to discuss the Panel findings and consider the Management Response.
(The Inspection Panel at 15 Years, 2009).

The Management Response must include recommendations in response to the findings of the
Panel and generally includes a corresponding Action Plan. The Action Plan, which offers
remedies to bring the project into compliance with Bank policies and addresses related findings
of harm or potential harm, must be agreed to by the borrower and be prepared in consultation
with the Requesters according to Panel procedures. However, the participation of the Requesters
and the affected communities is very limited as Panel Resolution does not allow the disclosure of
its Investigation Report at this stage. This prevents Requesters from knowing its contents, which
limits their ability to engage meaningfully with Management in the preparation of remedial steps.
(The Inspection Panel at 15 Years, 2009).
Once the Board has received both the Panel’s Investigation Report and the Management
Response, the Executive Directors schedule a Board meeting. The President of the Bank
personally chairs the Board meeting at which the Panel’s Investigation Report is presented and
because the Panel’s findings and conclusions on compliance are considered relevant for the
entire Bank, all operational Vice Presidencies are invited to have their representatives attend the
Board meeting. This shows how much importance Inspection Panel is given in the workings of
the World Bank. The Board meeting decides whether to approve the proposed Bank
Management Response and Action Plan or to require changes and additions to better address the
findings of the Panel’s Investigation Report. Even after Action Plan is approved by the Board,
the Panel may be called up further for follow –up actions like monitoring how well the Bank’s
Management Action Plan is being implemented and on whether it results in tangible changes on
the ground. This monitoring and after-inspection responsibilities and actions of the Panel
remains very ill-defined and thus ‘While the Panel’s work increases the Bank’s credibility, the
Bank loses credibility when it fails to follow through on its proposed response’(The Inspection
Panel at 15 Years, 2009).

Conclusion

The panel is an exceptional project in bringing accountability into the Bank but the fact remains
that it is still a very intra-Bank process which excludes the very people it tries to account for. The
Bank seems to remain aloof from accountability like in the case of the Narmada River Project
(although before Inspection Panel still sets precedent) when it accepts the incompetency of the
Bank meanwhile reiterates that “The argument in favour of the Sardar Sarovar Project is that the
benefits are so large that they substantially outweigh the costs of the immediate human and
environmental disruption." (Catherine Caufield as quoted in Wikipedia Page of Narmada Bachao
Andolan).

The truth remains that the Bank is merely pushing for efficiency in terms of its policies and
procedures and the people impacted by the project are not always kept a priority. Criticism could
be raised that the Bank is doing nothing but an image makeover from the reputation and
skepticism people view it as wagon of globalization and imperialism. However, Critics can be
too harsh and the reality is that the Inspection Panel is indeed a pioneer and groundbreaking
project; it still defies reasoning that an International Organization would set up an independent
panel to review itself and the impact its projects might have on local people. The transparency
and public scrutiny the Bank exposes itself to and adheres to with the Panel is truly worthy of
praise.
The reality is the Bank has control over only its own organization and it is thus why the Panel
reviews only the Bank and not the borrower Country.

References:

 World Bank (2009), The Inspection Panel at 15 Years, A free Publication retrieved from
the Inspection Panel Website.
 Shihata, Ibrahim F.I (2000), The World Bank Inspection Panel: In Practice,Oxford
University Press.
 World Bank (2018), The Inspection Panel at 25 Years Accountability at the World Bank,
A free Publication retrieved from the Inspection Panel Website.
 Ngaire Woods (2008), “Bretton Woods Institutions”, The Oxford Handbook on the
United Nations, Oxford: Oxford University Press.
 The official websites of The Inspection Panel and the World Bank.
 World Bank. (2019, April 06). Retrieved from https://en.wikipedia.org/wiki/World_Bank
 Narmada Bachao Andolan. (2019, March 25). Retrieved from
https://en.wikipedia.org/wiki/Narmada_Bachao_Andolan