The outgoing World Bank Country Manager for Brazil, Mahktar Diop, challenges the conclusions of an evaluation by Bank Information Center of the $1.3 billion Sustainable Environmental Management Development Policy to promote environmental reforms in Brazil.
As the World Bank prepares to review its core operational safeguard policies in 2012, and has recently introduced a new operational policy for program lending, the policy governing the use of development policy lending (DPLs) remains off the table.
In August, 2011, over 250 organizations from across the globe signed a letter that urged the Bank to include DPL policy in the proposed safeguard review.
BIC’s evaluation of the Brazil SEM DPL found that the World Bank had exaggerated the positive performance of $1.3 billion operation, and called into question the evidence behind a number of reported policy achievements. In a 10 page response by outgoing Brazil Country Manager, Mahktar Diop, the Bank response failed to rebut a number of the most fundamental concerns surrounding the SEM DPL.
The DPL instrument can be an effective financial instrument for conveying the comparative advantages of World Bank cooperation. The observations and recommendations in the BIC evaluation were offered in the shared interest in making DPLs as effective as possible.
Among the most central critiques of the SEM DPL, the evaluation found that the World Bank was unable to demonstrate that all conditions were met to justify a $500 million tranche release in late 2010. The SEM DPL condition involved the effective application of a new social and environmental institutional policy to manage risk by BNDES. The World Bank and BNDES have not disclosed information to demonstrate how BNDES has effectively applied this new safeguard policy framework.
In its response, the World Bank stated, “We would like to reiterate that the second release strictly followed all the relevant procedures and triggers agreed by in the loan. The full set of supporting documentation was sent by the Government of Brazil and the implementing agencies to the Bank…While the Bank has an open access to information policy, third party documents presented to the Bank in confidence cannot be released without express permission of the owner. This was the case of the documents presented by the client as evidence of for the second tranche. The TRD however, presents the title, date and legal number of each one of the documents along with a summary of its main topics and a Bank assessment of them. The Bank stands by the technical review carried out by its specialists and does not agree with BIC’s statement that there is “lack [of] evidence of full compliance with the loan’s policy triggers.” ”
The referenced Development Policy Action Database managed by OPCS since 2009 is a list of short, ambiguous single sentence statements that fail to adequately address the observed substantive weaknesses in performance reporting. For the SEM DPL, the database lists as evidence of the above referenced policy action:
“The Borrower has evidenced in form and substance satisfactory to the Bank that new environmental and social institutional policy, following, inter alia, the provisions of Protocolo Verde (see Section I.A.1(c) of this Schedule), has been approved by BNDES Board of Executive Officers, and is being applied to operations financed directly by BNDES.”
Because BNDES does not disclose any project documents, it remains impossible to assess the effective application of the new safeguard policy framework. Rather than providing or referencing evidence of effective application of the new BNDES policies to operations, this statement, like others in the World Bank database, exhibits many of the transparency defects that the BIC analysis pointed out in greater detail.
BIC insists that when a $1.3 billion operation is unable to produce publicly verifiable evidence of compliance with a central policy trigger from a loan executing agent, there are reasons to question the effectiveness of the DPL. Moreover, the persistent concerns regarding transparency, participation and accountability for results underscore the need to update OP 8.60.
The BIC evaluation of the Brazil Sustainable Environmental Management DPL was published in October 2011.
To read the Nov. 30, 2011 World Bank 10 page response to the BIC Evaluation, see:
World Bank Brazil Country Manager Response to BIC Evaluation of SEM DPL, November 30, 2011To read the full Bank Information Center’s response to the World Bank, see:
BIC Response to World Bank on SEM DPL Comment, January 16, 2012As the World Bank deliberates over a number of profound governance reforms in the coming years, the recommendations of the BIC DPL evaluation of the SEM DPL call for the World Bank to open DPL Operational Policy 8.60 for review to ensure adequate harmonization of risk management and development effectiveness policies covering all Bank instruments. Constituting over a third of all IBRD and IDA lending, DPLs should not be given a free pass in the policy review process.
The SEM DPL experience informs three broad recommendations that might guide such a policy review:
1. New Approach to Environmental DPLs: Any future Development Policy Loan that targets policy change and capacity building for sustainable development, particularly in the context of high risk investments in fragile, complex regions such as the Amazon, should guarantee the highest standards for transparency and consultation, a monitoring and evaluation systems that delivers independently validated results. The Bank must begin to work more systematically with civil society as a partner in the environmental reform process, the particularly in terms of strengthening demand-driven mechanisms for environmental governance within DPLs and ensuring the proper accountability as a pre-requisite for eligibility.
2. IEG DPL Evaluation: The apparent missed opportunities to learn from the SEM DPL experience at different stages in the project cycle suggest a more widespread lack of knowledge about DPL performance that would benefit from a full, independent and rigorous evaluation of DPLs.
3. Open OP 8.60 for revision: OP 8.60 should be formally revised within the context of the ongoing Investment Lending Review and Safeguard Policy Review at the World Bank to improve DPL design and implementation guidance in the following areas:
a. Clarify Cost Benefit Analysis of DPLs –Justification of DPL Cost. DPLs require better cost effectiveness accountability. All DPLs should include an explanation about how the total operation amount was derived, the type of DPL required, and how the specific instrument was compared to other alternative instruments. If the DPL is associated with any budget allocations, this relationship should also be clarified.
b. Improved consultation and transparency is necessary to ensure legitimacy and likely achievement of chosen DPL prior actions and triggers.
DPLs are not adequately transparent or properly consulted, which in turn undermines the quality of the design and outcomes. Improved guidance on minimal standards for acceptable transparency and consultation is required that establishes greater advisory capacity by a wider range of stakeholders at key moments in the project/reform cycle but provides flexibility for Bank-client negotiation. These standards should clarify reporting criteria for DPLs that include mandatory translation of program documents, disclosure of policy matrix prior to Board approval, qualitative evaluation techniques, wider use of stakeholder feedback mechanisms.
c. Guidance on assessment of environmental and social impacts in the design of DPLs under OP 8.60 is ambiguous and therefore subject to excessive discretion in the alignment of the DPL with the magnitude of risk. Compared to the Bank’s safeguard framework for traditional investment loans, DPL Operational Policy provides significantly less accountability to affected communities that may want to defend or challenge the proposed DPL conditions or the process in which these conditions were negotiated or implemented. Guidance on DPL design should narrow this discretion by providing clear, mandatory criteria for assessing social and environmental risk and a country’s institutional capacity to manage that risk
d. DPL Operational Policy has an inadequate framework for measuring institutional capacity, which diminishes the ability to demonstrate DPL effectiveness and clarify World Bank additionality. DPL policy should ensure evidence-based results that begin with a robust monitoring and evaluation framework differentiated by institutional setting but guided by standardized metrics that emphasize building demand for accountability.
e. No differentiation among DPLs regarding coherence with relevant Bank investments or planning commitment for longer time horizons.
To sustain momentum for reforms, the Bank’s use of DPLs might be more intentional in anticipating and compensating for the likely institutional instability that may precede or follow a DPL by privileging a menu of complementary support options for sustaining dialogue and the reform process itself within a framework that extends beyond a single DPL. This menu includes investment operations, technical assistance, fee for knowledge services, among others. Such an integrated approach should articulate DPLs better with other Bank instruments and invest more deeply in civil society based accountability mechanisms. While the SEM DPL attempted some of these measures, little of these efforts are adequately documents, which suggests greater attention to dedicated learning in this area.