New World, New World Bank Group

1. New World, New World Bank Group Nancy Alexander Heinrich Boell Foundation April 24, 2010

2. Scope of this Presentation: Features of Lending Reform (ILR) • Operational Risk Assessment Framework (ORAF) • Decentralization • Current loan instruments • The new Results-Based Investment Loan • The Bank as Standard-Setter. Its Ambitions and Claims • Country Systems

3. The Framework has 38 types of risks in 4 categoriesProject level social and environmental risks represent 2 of the 38 types of risk. How will such risks be assessed? How will country environmental and social risks be assessed?

4. Decentralization The “New” World Bank Group will be significantly decentralized, including several regional hubs which will take complete responsibility for managing low-risk projects. Higher risk projects will receive more attention from HQ.

5. Current Loan Instruments Where do the environmental and social safeguards apply?

6. 10 Safeguard Policies These pertain to: Environmental Assessment, Cultural Property, Disputed Areas, Forestry, Indigenous Peoples, International Waterways, Involuntary Resettlement, Natural Habitats, Pest Management and the Safety of Dams

7. Primary Types of Instruments • Budget support – often multiple donors pool finance to inject into national budgets. (DPLs/PRSCs.) Rapid disbursement. Full suite of safeguards* do not apply. Nor does gender policy. • Ring-fenced projects: slow disbursement (5-7 years) for specific stages of project. Full suite of safeguards apply.

8. Bank’s Verdict on Ring-fenced Projects The Bank has decided that the “blueprint” project instrument “was created for a different era…”* and that it is “being increasingly criticized inside and outside the Bank because of its inability to adapt to the varied needs of the Bank's clients and the inefficiency, rigidity, and insularity of the processes and requirements that apply to it.”** *World Bank, “Moving Ahead on Investment Lending Reform,” Risk Framework and Implementation Support,” September 3, 2009: **World Bank, “Investment Lending Reform, Concept Note,” January 26, 2009.

9. The Future of “Ring-Fenced” Projects • First, management announced plans to: “replace the rigid “ring-fenced” project model with a flexible menu of design and funds flow options to better meet development and funding needs of IDA’s varied clients.” (IEG, “Internal Controls” Review, 2009) • Then, management decided to continue the model, but at a reduced level.

10. What Will Replace Some of the “Ring-fenced” Projects? • The Results-Based Investment Loan (RBIL), which is currently being designed. • The Board will approve an RBIL concept paper in June 2010.

11. What is the Results-Based Investment Loan? • Sector instrument for scaling up operations. • Often, a platform for pooled funds. • Support for on-going or new government expenditure program. In addition, the RBIL will: • Disburse in tranches after results (outputs/outcomes) are achieved. • Focus on systems rather than individual transactions.

12. Disbursement After Achievement of Results? How will the RBIL disburse in this manner when most operations lack a results framework or a satisfactory monitoring and evaluation system?

13. Is the Bank Achieving Results?No One Knows In reviewing projects that closed in fiscal 2007 and 2008, IEG found that only 37% of projects exiting the portfolio received ratings of high or substantial M&E systems, while the remaining 63% were rated modest or negligible. Indeed, if one looks at IEG evaluations of various types of World Bank work (e.g., environment, gender, health and education), each one says that results and outcomes are impossible to assess because monitoring and evaluation or results frameworks are missing. *IEG, “Annual Report on Development Effectiveness: Achieving Sustainable Development,” World Bank, 2009, p. 27

14. The Bank’s Ambitions and Claims • The Bank wants to expand its capital base, administer more pooled funds, and manage billions in climate investment funds/carbon funds. • It claims suitability for these roles because of its high standards in fiduciary and safeguard areas.

15. Is the Bank a Standard-setter in Fiduciary Policies? • No. IEG found evidence that the Bank/IDA is violating its charter re fraud and corruption. (IEG, 2009) • And, less than half of the Bank’s financial management and procurement assessment tools contributed to fiduciary management. (IEG, 2008)

16. Is the Bank a Standard-setter in Safeguard (Social/Environmental) Areas? • Many of the safeguards are well-designed, but they applied to only 44% of WBG operations in 2009. • The full suite of safeguards don’t apply to budget support. • And…now…the future of safeguards hinges -- in part -- on whether they will apply to the RBIL. At this point, the Bank has not decided on what kind of safeguards will apply to this new instrument.

17. Bank Staff Perceptions of Policy Requirements Many World Bank staff members see fiduciary and safeguard policies as: • imposing excessively burdensome and time-consuming requirements on each operations and, thus, • inhibiting the Bank’s competition with China and other emerging market economies.

18. “Country Systems” and their implication for the future of safeguards

19. Who Takes Primary Responsibility for Standards and Compliance? • Now, the World Bank takes primary responsibility, but this is changing. • The 2005 Paris Declaration and the 2008 Accra Action Agenda call for recipient countries to assume primary responsibility. On a pilot basis, the World Bank is experimenting with this shift. • The shift requires that “Country Systems” (fiduciary and safeguard) are equivalent to those of the Bank.

20. Country Systems… There’s a Long Way to Go IEG* finds that • For many countries – financial, procurement and safeguard systems are “weak to non-existent” • A shift to country systems continues (on a pilot basis) despite some evidence of severe problems. Already, 66% of external aid goes through country financial systems. *”IDA internal controls” (2009)

21. Bank’s Role in Country Systems • Legal department determines the extent to which country systems are “equivalent” to World Bank policies. • Where gaps exist, countries (or third parties) would implement “gap-filling measures.” • At some point, the Bank would make an “acceptability determination.” • Will the Bank ensure that country policies are acceptable over time? That countries actually enforce their policies? We doubt it.

22. Who’s Afraid of Policy Enforcement/ Compliance? • Internal reforms aim “to change the philosophy of the Bank’s approach from an emphasis on supervision and compliance to one of implementation support.” (“New World, New WBG”) • “At a time when the development community is focused on results, accountability, and partnership, current supervision efforts place most of the emphasis on inputs, process, and oversight of compliance.” (“Moving Ahead on ILR”) • When the Bank is potentially in violation of its charter, is it shying away from compliance?????

23. Conclusion The Bank is re-defining itself. For 65 years, its primary business has been to finance “ring-fenced” projects that comply with its policies. Henceforth, the Bank will: • primarily administer “pooled funds” such as national budget and sector operations. • rely on recipient countries to design, implement and enforce fiduciary and safeguards policies, where they apply.

24. The Challenge The World Bank is a PUBLIC institution. If it were privatized, then it would be legitimate for the Bank to compete with Chinese lenders, among others. As a PUBLIC institution, it has an obligation to be a pace-setter for governments by championing high fiduciary and safeguard standards. HOW CAN GOVERNMENTS AND CSOs ENSURE THAT THE WORLD BANK SHOULDERS THIS RESPONSIBILITY?