Country Systems Approach to World Bank Social and Environmental Safeguards: Concerns and Challenges

2 December 2004

by the Bank Information Center and the Center for International Environmental Law
December 1, 2004

Introduction

The World Bank is pursuing a new framework for addressing the social and environmental impacts of the projects it finances. Its “country systems” approach would rely solely on a borrower government’s social and environmental systems (e.g. a country’s relevant national, subnational, or sectoral implementing institutions and applicable laws, regulations, rules, procedures, and track records) rather than the Bank’s own safeguard policies for project implementation.

Theoretically, such an approach might produce positive results under certain circumstances. However, as currently envisioned by the Bank (and reflected in its draft proposal) the country systems approach raises several significant concerns, including numerous instances of weakening of Bank safeguard standards.

This action alert from the Bank Information Center (BIC) and the Center for International Environmental Law (CIEL) highlights some of these concerns and provides practical information on the consultation process, background information on the Bank’s proposal, and suggestions on possible steps for civil society groups. Some instances of safeguard policy weakening are included in an annex.

The Bank has launched a short public consultation period— November 2004 to January 2005—on its proposal. It is important for civil society groups to examine the Bank’s proposal given that it could significantly weaken the Bank’s safeguard system. While the Bank is proposing to pilot the approach in 8 to 12 countries over the next two years, there is a strong possibility that this approach may eventually replace the Bank’s policies for much of its project lending.

Consultation Process

The Bank has posted a background paper on “Issues in Using Country Systems in Bank Operations” (October 8, 2004) as the basis for public debate and comment. The paper is available in Arabic, Mandarin Chinese, French, Russian, and Spanish, with a Portuguese version forthcoming. The paper and supporting materials can be found at www.worldbank.org/countrysystems.

The Bank is conducting a series of in-person consultations between November 2004 and January 2005, including the following:

• November 11 Dar es Salaam, Tanzania
• December 1 Manila, Philippines
• December 3 Tokyo, Japan
• December 8 London, England
• December 14 New Delhi, India
• January 12 Brasilia, Brazil
• January 13 Washington, DC, US

Locations and contact information for these consultations can be found at http://www1.worldbank.org/operations/ucs/publicconsultations.pdf . In addition, the World Bank is accepting email comments sent to through January 21, 2005. Comments will be posted as they are received.

After the consultation, the Bank plans to send a revised version of the country systems paper to its Board of Directors in February 2005. If the paper is approved, the Bank will test the new approach in 8-12 “pilot projects” in different countries over the next two years. Based on the experience with these pilots, the approach will then be finalized and approved for general use by the World Bank.

Background

Given the range and severity of social and environmental impacts of many large-scale projects, most international financial institutions adopted over the past two decades policies that seek to minimize and/or mitigate these impacts. Such donor “safeguard” policies were necessary because many borrower governments did not have the institutional capacity or legal frameworks to provide adequate protections to project-affected communities. Policies on environmental assessment, involuntary resettlement, indigenous peoples, and other areas seek to integrate environmental and social considerations into economic decision-making. These considerations help ensure that projects funded by the Bank will provide for sustainable development, not just short-term economic growth.

In the late 1980s and early 1990s, the World Bank developed a set of ten “safeguard policies” to guide its activities, often in the face of wide-scale social and environmental damage caused by Bank-financed projects. In certain social and environmental areas, the Bank was eventually seen as a standard setter for other international financial institutions (even though policy implementation remains seriously inadequate).

Since the late 1990s, the safeguard policies have come under pressure for supposedly being too cumbersome, and for making Bank projects too expensive. The country systems approach is one element of a broad policy simplification process underway at the Bank. (This process only involves the World Bank proper, i.e. the IBRD and IDA, and is separate from the IFC’s ongoing policy revision process.)

Bank projects have always been required to comply with national laws and regulations in addition to the requirements of the Bank. Under the country systems approach, Bank policies would no longer apply directly. Instead, national systems will be evaluated against a simplified set of Bank safeguards, and, if judged “equivalent,” will be used for project preparation and implementation. In several instances, the Bank’s proposal would have the borrowing country itself assess the equivalence of its safeguard systems with Bank standards. (This equivalency can also be assessed only for a particular state or sector within a borrowing country, and the new approach will then only be used for projects in these states or sectors.)

The Bank argues that utilizing a country systems approach for its projects would increase economic impact, strengthen borrower ownership of Bank-financed projects, lower transaction costs of doing business with the Bank, and provide a focal point for harmonization efforts among donor agencies.

An analysis of benefits that might be realized from such a country systems approach remains outstanding. The primary challenge of such an analysis will be to determine whether the basic principles and objectives of the existing safeguards can be obtained in the absence of Bank mandates that state how countries must achieve these safeguards. From a civil society perspective, one potential positive aspect of a focus on country systems would be the opening of political space at the national and subnational levels for groups to affect changes. A major risk, of course, would be that no such space is opened, and groups witness an erosion of safeguard standards that would normally have been applied.

Country Systems approach based on “equivalency”

The Bank proposes to pilot the country systems approach only after it has determined that a borrower’s systems are equivalent to the principles and objectives of the Bank’s safeguards. The Bank proposes to assess a country’s relevant national, subnational, or sectoral implementing institutions and applicable laws, regulations, rules, procedures, and track records to make a determination of “equivalency” with the Bank’s safeguard policies. To facilitate this equivalency assessment, the Bank has boiled down 65 pages of its operational policies, procedures, and annexes into a short 3-page table that by its very nature drops numerous important safeguard provisions (see Annex A of the Bank’s country systems paper). It is against this weakened restatement of the Bank’s safeguards that national systems will be judged (not the Bank’s full policies). The Bank has also proposed a specific Operational Policy and Operational Procedure (OP/BP) to guide Bank staff in implementing the safeguard pilots (also contained in the paper).

Equivalency assessments will be done on a case-by-case basis (e.g. reviewing a borrower’s regulations in the sectors specific to the proposed Bank-financed project) and, problematically, may include “agreed” improvements to a borrower’s systems, not just existing national capacity. Such planned improvements, together with other provisions required by the Bank, would be allowed to fill “gaps” to achieve equivalency.

The analysis of equivalency and relevant social and environmental safeguard documents (such as the record of consultations, resettlement plans, and environmental assessments) are to be disclosed in an accessible place and understandable form and language before project appraisal. (Minimum disclosure time frames have been dropped.)

The Bank’s legal agreements with borrowers will incorporate those “elements of a borrower’s systems necessary to ensure that the requirements of the applicable safeguards …are met—and these provisions will become part of the borrower’s contractual obligations to the Bank” (see FAQ on Bank’s country systems website, p. 4). In this regard, it is an open question whether the country systems approach would provide more autonomy for borrowers or, conversely, would deepen the Bank’s involvement in a borrower’s governmental agencies. Likewise, past experience shows that the borrower’s contractual obligations to the Bank are rarely enforced in case of breach.

Areas of concern

Civil society organizations (CSOs) have always promoted a strengthening of the social and environmental capacities of borrowing governments. However, many CSOs are opposed to the prospect of losing or weakening important standards that have been achieved at the global level. In June 2004, 186 NGOs – predominantly from borrowing countries – wrote to the Bank to oppose any weakening of the Bank’s safeguard standards in the country systems approach.

Many concerns arise with the Bank’s country systems proposal. Below are a few key concerns:

• A CIEL analysis of the Bank’s country systems approach identifies nearly 150 areas of policy weakening and approximately 20 areas of strengthening (the attached annex cites major examples of proposed weakening).
• Bank Management proposes to accept national safeguard systems as equivalent even if improvements in policy or practice are only being planned, and have not yet been implemented. World Bank evaluations have shown that it is very risky to base projects on promised improvements.
• The Bank proposes that the borrowing governments themselves, among other actors, could assess the equivalence of their safeguard systems with Bank policies and the quality of their compliance with national systems. Such borrower analyses would raise questions of independence and potential conflicts of interest.
• If affected people file complaints with the Inspection Panel against projects under the new approach, the point of reference for Panel investigations will no longer be the Bank’s existing policies, but the brief synthesis of the policies in Annex A of the Bank’s paper. This will seriously weaken the purview of the Panel and cripple its ability to provide accountability to project-affected persons and groups.

Potential next steps

We urge you to study the World Bank proposal and the analyses prepared by NGOs. Here is what you can do to help stop the proposed weakening of the Bank’s safeguard policies:

• Participate in the consultation on the new approach by attending the consultation meeting in your region, and by sending comments to (before January 21, 2005). Limited travel grants for Southern NGOs to attend these meetings will be available. Contact information for these meetings can be found at can be found at http://www1.worldbank.org/operations/ucs/publicconsultations.pdf .
  
  (Many NGOs are currently boycotting the consultations on the IFC’s proposed policy revision, and with good reasons, including lack of transparency, the failure to ensure that documents are translated and available in local languages, etc. This boycott does not apply to the separate World Bank process, in which all relevant information has been made available, and translated.)
• Send a copy of your comments to the Executive Director representing your country in the Bank’s Board. (A list of EDs is available at http://www.bicusa.org/bicusa/issues/misc_resources/92.php ).
• Issue public statements expressing your thoughts on and concerns with the Banks proposal.

Further information

• The World Bank’s paper, Issues In Using Country Systems In Bank Operations, and further information regarding the proposed approach is available at www.worldbank.org/countrysystems .
• In June 2004, 186 NGOs from 60 countries sent a letter to the World Bank protesting against the proposed weakening of Bank policies. See http://www.bicusa.org/bicusa/issues/safeguard_policies_at_the_world_bank/1469.php .
• In September 2004, International Rivers Network prepared a critique of the World Bank paper. See http://www.irn.org/programs/finance/safeguardcritique09.04.pdf .
• The Center for International Environmental Law (CIEL) compared the World Bank’s existing safeguard policies with the proposed synthesis in Annex A of the Bank’s paper. This comparison can be obtained from CIEL (Anne Perrault, ), and will be made available at www.ciel.org .
• The Bank Information Center is following this issue (contact Bruce Jenkins, ).
• Environmental Defense is preparing a background paper summarizing the ongoing safeguard policy review processes at various financial institutions. (Contact Shannon Lawrence, ).

Annex

Using Country Systems in Bank Operations:
Instances of Serious Policy Weakening

An analysis by the Center for International Environmental Law (CIEL) notes that the World Bank is shrinking 65 pages of current Operational Principles, Bank Procedures and Annexes into a 3 page table that will form the basis for determining the equivalency between a borrower’s systems and Bank policies (see Table A1 of Annex A, of the bank’s country systems paper). CIEL’s Matrix of World Bank Operational Principles lists about 150 instances where current policies would be weakened and about 20 instances where policies would be strengthened by the proposed use of country systems in Bank operations. The following list, based on CIEL’s matrix, summarizes major cases of weakened policies.

CIEL’s matrix is available on the web at www.ciel.org

In the below list, reference is made to the Bank’s Operational Policies (OPs) and Bank Procedures (BPs) by their designated numbers: OP/BP 4.01 Environmental Assessment; OP/BP 4.04 Natural Habitats; OP/BP 4.12 Involuntary Resettlement; OD 4.20 Indigenous Peoples.

Environmental Assessment

• Under OP 4.01, the Bank does not finance projects that contravene the country’s obligations under international environmental agreements. This principle is dropped in Annex A.
• OP 4.12 requires that, if adverse indirect social or economic impacts might result, a social assessment should be done and measures to minimize or mitigate such impacts implemented. These requirements are dropped.
• Annex A drops the classification of proposed projects into categories based on severity of potential environmental impacts (A, B, C, and FI). As a result, all requirements that hinge on whether a project is in Category A or B are lost.
• OP 4.01 requires sectoral and regional EAs if sectoral and regional impacts are likely to occur. These requirements are not mentioned in Annex A.
• OP 4.01 favors the prevention of adverse impacts over mitigation and compensation. Annex A places these measures on the same level.

Natural Habitats

• Annex A drops OP 4.04’s expectation that borrowers apply a “precautionary approach to natural resource management”.
• OP 4.04 allows projects that adversely affect natural habitats only if a comprehensive analysis demonstrates that their overall benefits substantially outweigh their environmental costs. This precondition is dropped in Annex A.

Involuntary Resettlement

• OP 4.12 sets up a hierarchy of improving livelihoods before restoring them. Annex A gives improvement and restoration the same priority.
• Under OP 4.12, resettlement activities must be done as sustainable development programs if it is not feasible to avoid resettlement, enabling the displaced persons to share in the project benefits. This requirement is dropped in Annex A
• Under OP 4.12, displaced persons are consulted on more than just the eligibility and grievance procedures—they have opportunities for consultation and participation in planning, implementing, and monitoring the whole resettlement program. These opportunities are not provided by Annex A.
• Unlike OP 4.12, Annex A no longer requires that displaced persons, their communities and host communities are provided timely and relevant information.
• OP 4.12 includes detailed provisions on the obligations of borrowers, for example to implement socioeconomic surveys, analyze legal and institutional frameworks, and take measures to mitigate the impact of resettlement on host communities. Annex A doesn’t contain such provisions.
• Unlike OP 4.12, Annex A doesn’t require borrowers to inform potentially displaced persons at an early stage and take their views into account in the design of projects.
• BP 4.12 explicitly states that a project is not considered complete until resettlement measures have been implemented. Annex A doesn’t say this.

Indigenous Peoples

• OD 4.20 requires an assessment of the legal status of indigenous peoples groups, and describes measures to be taken if local legislation needs to be strengthened. Annex A doesn’t require this.
• Annex A does not require an Indigenous Peoples Development Plan. The IPDP is a major requirement of OD 4.20 and includes the planned implementation of special project components such as developing a strategy for local participation, gathering baseline data, and providing technical identification of mitigation activities.

Various policies

• The current Bank policies on environmental assessment, natural habitats, pest management, involuntary resettlement, indigenous peoples, forests, cultural property, and safety of dams are much more explicit than Annex A on the specific roles and obligations of Bank staff in Bank projects. The role of Bank staff under these policies is unclear in Annex A.