MODULE 27

THE WORLD BANK AND ESC RIGHTS
USING MODULE 27 IN A TRAINING PROGRAM

The Purpose of Module 27

The purpose of this module is to provide information and resources about the World Bank in order to encourage an understanding of the Bank’s role in both promoting and undermining ESC rights. 

The module

• frames some of the human rights issues in which the Bank is a relevant actor;
• summarizes key Bank policies that relate to  human rights protection;
• identifies what human rights activists need to know about the Bank in order to address these issues;
• suggests possible advocacy training methodologies; and
• lists key resources that activists should find useful.

Why Is the World Bank Important to Activists Promoting ESC Rights?

The World Bank has an enormous impact on the lives and livelihoods of millions of people in the developing world.  Projects it has financed have disrupted indigenous communities, forcibly displaced millions of poor people, and caused widespread environmental damage in the Bank’s borrowing countries, including deforestation and biodiversity loss, air and water pollution, destruction of fisheries, and alteration of wetlands and riverine ecosystems.  Its structural adjustment programs have required reductions in state spending, the dismantling of state agencies, the devaluation of currencies and the privatization of state-owned enterprises, which, in turn, have impoverished millions of people.  The Bank’s economic policy and sec­tor reform loans have greatly influenced the content of legislation in its borrowing countries.  It could be argued that the Bank has more influence on government budgets and operations than most legislative bodies.  Meanwhile, most Bank loans and country assistance strategies are developed and decided without the informed participation of the borrowing countries’ citizens.

The Bank is essentially a vehicle for delivering the economic policy agenda of the G-7 coun­tries. In this way, it acts as more than a bank and more than a development institution.  It is an economic policy architect and a conduit for multinational corporations and private sector actors.  It has a pivotal role in determining investments, institutional development and public policy in developing countries. Through loans and guarantees, and more importantly through macroeconomic policy prescriptions, the World Bank is the most influential development institution in the world. The World Bank Group includes the International Bank for Recon­struction and Development, the International Development Agency, the International Finance Corporation and the Multilateral Investment Guarantee Agency.

The World Bank lends between $20 and $28 billion annually to developing countries.  These funds catalyze billions more from other multilateral development banks, bilateral aid agen­cies and the private sector.  The Bank lends for productive sectors, such as agriculture, fish­eries and mining; for infrastructure projects, like roads, dams, water and sanitation works, and power plants; and for human development including education, health, nutrition and population.  About 40 percent of its lending currently is committed to structural adjustment programs and sector reform in its borrowing countries, including, during 1997 and 1998, sub­stantial loans to bail out the failing economies of Indonesia, Korea, Thailand, Russia, Brazil and Argentina.

In 1998 the Bank loaned nearly $8.5 billion to its borrowing countries for projects in the so­cial sectors, including health, nutrition and population, education and social protection, amounting to almost 30 percent of its overall lending ($28.6 billion).  "Social protection” lending is defined as social protection measures that are undertaken to offset the negative so­cial effects of structural adjustment.  Those effects include, for example, unemployment, pension reform, social investment funds, policy reform in labor markets, etc.  Social sector lending has increased over the past several years, in part due to the negative impacts of structural adjustment and widespread criticism of the Bank’s structural adjustment programs.

Structural adjustment programs, meanwhile, have been responsible for cutting state spending and undermining the state’s capacity to fund and administer social programs, giving the Bank even more influence in designing social policy through its social sector lending (see more discussion below).

Origins and Structure

Created at the end of World War II, the World Bank is a multilateral development bank (MDB) which promotes economic development in the world’s developing countries.

Because it was established parallel to the creation of the United Nations and the International Monetary Fund, the World Bank is formally part of the UN system as a specialized agency. While it is considered a specialized agency of the UN, it has no obligation to abide by UN agreements or decisions. The Bank maintains that it has the "discretion” to consider UN agreements.

The World Bank is a public institution owned by its 181 member countries.  However, unlike the United Nations, the World Bank does not follow a "one country, one vote” system of governance, but is governed by the principle of "one dollar, one vote.”  The Bank is essen­tially divided into two parts: the Part I countries are the donors that together own 62 percent of the Bank’s voting shares; the Part II countries are the borrowers that together own 38 per­cent of the voting shares.  There are currently 26 Part I and 155 Part II countries.

The World Bank and Human Rights

For most of its more than fifty year history, the Bank has maintained that it has a limited mandate that restricts it to purely economic activities, as outlined in its Articles of Agree­ment:

The Bank and its officers shall not interfere in the political affairs of any member, nor shall they be influenced in their decisions by the political character of the member or members concerned.  Only economic considerations shall be relevant to their deci­sions, and these considerations shall be weighed impartially in order to achieve the purposes stated in Article I. [1]

Thus the Bank has historically avoided the recognition or promotion of civil and political rights, and does not have a human rights policy.  The application of the limitation argument, however, has not been consistent over the years.  For example, during the 1990s, the Bank has either withheld or reduced loans to Malawi, Kenya, Zaire and China (following the Tian­anmen Square massacre) on political grounds, due to issues of governance and human rights.

However, the Bank has made some shift regarding its view of itself in relation to human rights. For example, the central message of the World Bank’s publication commemorating the fiftieth anniversary of the Universal Declaration of Human Rights is that development is a human right:

The World Bank believes that creating the conditions for the attainment of human rights is a central and irreducible goal of development.  By placing the dignity of every human being-especially the poorest-at the very foundation of its approach to development, the Bank helps people in every part of the world build lives of purpose and hope. [2]

While activists who have monitored the Bank for many years might consider this message to be good for public relations but devoid of practical effect, the fact that the words are on paper signals a shift in the Bank’s view.  Clearly, the Bank’s rhetoric and actions are evolving away from a merely technocratic and purely economic approach to development, to a more nuanced perspective that recognizes the role of democracy and human rights in assuring eco­nomic development.  In particular, the issue of governance has become a high priority for the Bank in recent years.  While the Bank is motivated by the effect of governance on countries’ economic performance and aid effectiveness, it is increasingly widening the space for human rights considerations.

The Bank and ESC Rights

The Bank asserts that its contribution to human rights is strictly within the framework of economic and social rights.  With the Bank’s mission articulated as "helping borrowers re­duce poverty and improve living standards,” [3] and its lending in the social sectors, the Bank believes that it "makes its greatest contribution to development . . . by continuing to focus on the important work of economic and social development.” [4]   Within this frame, the primary means by which the Bank characterizes its contribution to the promotion of economic and social development is through social sector lending, and by incorporating poverty alleviation strategies into structural adjustment lending.

Structural adjustment programs and ESC rights

Since the 1970s, structural adjustment programs (SAPs) have comprised approximately 25 percent of the Bank’s overall lending.  An important area of focus for ESC rights activists is the impact of these programs on the enjoyment of ESC rights, and thus an understanding of SAPs is essential.

When a country is experiencing serious economic stagnation and unmanageable external debts, the government has little choice but to turn to the International Monetary Fund (IMF), the World Bank and regional development banks to provide the country with fast-disbursing loans.  These institutions, however, need assurances that the country will (1) have the capac­ity to pay back the loans and (2) undergo necessary steps to ensure the country’s budgetary survival in the short term.  These assurances are extracted from governments through mandated programs known as stabilization and structural adjustment programs.  Activities under such programs include, among others, reducing the size and structure of government expenditure, privatization of state-owned industries and decreasing government controls over the public sector, and restructuring economic sectors to conform to liberalized trade rules. 

SAP negotiations are almost exclusively carried out between the Bank, IMF and finance ministries without the participation of civil society.  Public information about structural ad­justment loans is for the most part unavailable.

While the main purpose of the stabilization and structural adjustment programs is macroeco­nomic stability, these programs have unfortunately brought about adverse impacts, particu­larly in the short term.

The following chart shows how adjustment impacts the health and education sector.

Because of widespread criticism of the impacts of structural adjustment on the most vulner­able populations in borrowing countries, the World Bank has begun to incorporate poverty reduction objectives into structural adjustment lending.  However, a country experiencing economic stagnation and balance-of-payment problems is usually in bad shape.  The gov­ernment’s capacity and its political legitimacy are often deteriorating. The country may also face serious corruption and bureaucratic problems.  These may render any prevention pro­gram ineffective.  

Moreover, currently, neither the government nor the IMF, the World Bank or regional devel­opment banks have accurate information about who is affected, where the affected people are, how many there are, and how they are affected by SAPs.  Without such basic data, it is very difficult to target prevention efforts effectively.   The Bank has undertaken to study the impacts of SAPs in a joint Bank-Government-NGO process called the Structural Adjustment Policy Review Initiative (SAPRI) that is looking at the effects of the policies on those who have not benefited.  The Bank has not, however, used this initiative as a means to reconsider its approach to economic reform.  Moreover, the Bank does not acknowledge the relationship between ESC rights and increased poverty under structural adjustment.  "It is not, therefore, economic reform lending that should raise concerns about human rights, but rather, how those programs are implemented, and what measures are taken to ensure that the needs of the poor are not neglected.” 6

World Bank project funding and ESC rights

As mentioned above, the Bank also provides project funding in the productive sectors (agri­culture, fisheries and mining, etc.); for infrastructure projects (roads, dams, water and sanita­tion works, and power plants, etc.); and for human development (education, health, nutrition and population, etc.).  These projects can themselves have negative affects on the enjoyment of ESC rights. 

There are two World Bank policies that recognize human rights protection, both of which have been developed a result of serious human rights violations in Bank-financed projects.  These policies are:

• Operational Directive 4.20 on Indigenous Peoples
• Operational Policy 4.30 on Involuntary Resettlement.

OD 4.20 on Indigenous Peoples: The purpose of the policy is to ensure that indigenous peo­ples benefit from Bank-financed development projects and to avoid or mitigate potentially adverse affects.  The policy explicitly states:

The Bank’s broad objective towards indigenous people, as for all the people in its member countries, is to ensure that the development process fosters full respect for their dignity, human rights and cultural uniqueness.

To accomplish this, the policy requires the informed participation of indigenous peoples in the development process.  OD 4.20 is currently in the process of being revised, in consulta­tion with indigenous peoples’ organizations and NGOs around the world.  Until the revision is completed, OD 4.20 remains in place. 

The Indigenous Peoples Policy is not adequately implemented in the Bank’s projects.  Spe­cific cases of noncompliance are found in several claims brought to the Bank’s Independent Inspection Panel.  Of the thirteen claims brought to the panel to date, five have cited viola­tions of the Indigenous Peoples Policy as reasons for bringing the claim.  In addition, the policy has not been applied in sector reform loans or other nonproject loans of the Bank, even though sector reform, particularly in areas of agriculture and energy, has had adverse impacts on indigenous peoples.

OP 4.30 on Involuntary Resettlement: Millions of people in the Bank’s borrowing countries have been forcibly displaced by Bank-financed projects.  Displacement has been caused by the construction of large hydroelectric dams, urban slum upgrading, water and sanitation projects, and by the development of coal-fired power projects among other things.  The aim of the resettlement policy is to ensure that those displaced by development projects "receive benefits from it.”  The principal consideration, however, is that "Involuntary Resettlement should be avoided or minimized where feasible.”  Where resettlement is unavoidable, the policy requires full compensation and assistance to those displaced with the aim of "restoring or improving their former living standards, income earning capacity, and production levels.”

While the policy is designed to protect rights, of all the Bank’s project-related human rights violations, probably the greatest number occur in those projects involving involuntary reset­tlement.  Internal Bank evaluations and external case studies have documented that the Bank’s policy, while sound, is frequently not implemented.  A 1994 internal Bank report noted:

The potential for violating individual and group rights under domestic and interna­tional law makes compulsory resettlement unlike any other project activity. Carrying out resettlement in a manner that respects the rights of affected persons is not just an issue of compliance with the law, but also constitutes sound development practice.  This requires not only adequate legal frameworks, but also a change in mind-set-towards recognizing resettlers’ entitlements, rights, needs, and cultural identities.7

Violations of the Resettlement Policy have also been cited in seven of the thirteen cases brought to the World Bank’s Inspection Panel, and have been documented in numerous case studies undertaken by NGOs and by the Bank’s Operations Evaluation Department.

The Bank has other "safeguard policies” that are designed to protect the environment and vulnerable populations from the negative effects of Bank-financed operations.  These may prove useful to ESC rights activists.  They are: OD 4.01, Environmental Assessment; OD 4.04 Natural Habitats; OP 4.36, Forestry; OP 4.09, Pest Management; OP 4.12, Involuntary Resettlement; OPN 11.03, Cultural Property; OP 7.50, Projects on International Waterways; and OP 7.60, Projects in Disputed Areas.

Other policies that may be of interest to ESC rights activists but which do not fall into the safeguard category include: OP 4.15, Poverty Reduction; OP 4.20, Gender Dimensions of Development; OP 8.60, Adjustment Lending; OD 13.05, Project Supervision; GP 14.70, In­volving Nongovernmental Organizations in Bank Supported Activities; BP 17.55, Inspection Panel.  All of the Bank’s policies are available on their website, or can be ordered from the Infoshop.  (See the Bank Information Center’s Toolkits, listed in the Resources section at the end of Part I, for a critique of how the policies are applied in Bank projects and for more in­formation about what it is possible to do when policies are not complied with.)

Other Bank policies and procedures related to human rights8

Information Disclosure: Since 1994, the World Bank has had in place a policy that makes certain Bank documents publicly available.  The World Bank Policy on Disclosure of Infor­mation was established as a result of intense international pressure by NGOs and US con­gressional leaders during the 1980s and early 1990s who demanded greater transparency and accountability at the World Bank.  The policy states:

The Bank recognizes and endorses the fundamental importance of accountability and transparency in the development process.  Accordingly, it is the Bank’s policy to be open about its activities and to welcome and seek out opportunities to explain its work to the widest possible audience.

The policy makes available a number of World Bank documents and has led to the creation of a website that has improved the distribution of Bank information to the general public.  However, implementation of the policy remains problematic, as citizens in the Bank’s bor­rowing countries have often found it difficult to obtain public documents from the Bank’s resident offices.  In addition, the policy itself is weak.  For example, project documents that describe Bank loans, called Project Appraisal Documents, are only available after the loan has been approved, thus making it difficult for NGOs and affected people to understand proj­ects or to participate effectively in their creation.  Most Bank documents are also prepared in English, and are not routinely translated into the language of the borrowing country-including project documents related to the country and the Bank’s operational policies.  Thus it is virtually impossible for most citizens and even government officials to have access to Bank-generated information.

Governance

In 1992, the World Bank published its first report on the subject of governance, which it de­fined as "the manner in which power is exercised in the management of a country’s eco­nomic and social resources for development.”  Governance and Development recognized the need for accountability, transparency and a strong legal framework in public sector manage­ment, and aimed to contribute to the growing debate among aid and development agencies that emerged from public criticism of aid that supported corrupt, undemocratic regimes.

While the Bank does not identify governance as a distinct lending sector (such as agriculture or education), it has tried to define its work in governance by integrating the following ap­proaches into its lending program: (1) Public sector management; (2) accountability; (3) transparency and information; (4) legal framework; (5) policy dialogue; (6) participatory ap­proaches; (7) military expenditures; (8) human rights (vis-à-vis poverty reduction and social safety nets); and (9) internal procedures (including raising governance issues within the Country Assistance Strategy).

In its Twelfth Replenishment of IDA (the International Development Agency, which func­tions as the "soft-loan window” of the Bank), the Bank has declared that governance is one of four priority areas for Bank lending during the IDA-12 period.  The IDA deputies agreed that economic development is hindered by poor governance and corruption, and suggested that the Bank use its lending leverage to secure policy changes from governments.  The agreement defines good governance as (1) accountable and competent public institutions; (2) transparent economic and social policies and practices; (3) predictable and stable legal frameworks; and (4) participation by affected groups and civil society.  The IDA agreement also sets out new governance criteria for evaluating a country’s performance, which will ul­timately affect lending levels.  For example, the agreement recommends that "lending to countries with weak governance should be scaled back or stopped entirely if necessary.”

While governance issues are increasingly prevalent within the Bank’s lending activities, the extent to which the Bank’s efforts contribute to sustainable, equitable development remains questionable.   Within the context of ESC rights, for example, governance conditionality may be less useful for citizens than for the private sector.  As David Gillies notes, such condition­ality is "primarily aimed at reforming and enhancing state administrative capacities for ‘sound development management’ and in nurturing an ‘enabling environment’ for a dynamic market-oriented economy with a flourishing private sector.”9  He has concluded that "the governance agenda has simply widened the range of conditionalities that may be potentially applied by the World Bank.”  Structural adjustment loans have in many cases weakened state capacity for implementing and managing economic development activities.

Others have criticized the Bank’s efforts in judicial reform programs as similarly oriented towards enhancing the economic environment for the private sector while forgoing issues such as access to justice.  In its study of Bank-financed judicial reform in Venezuela, the Lawyer’s Committee for Human Rights found:

Bank-supported judicial reform initiatives have stressed distinctions between what are deemed economic and non-economic elements of judicial systems.  There is a Bank proclivity to work on commercial codes and civil procedures but to avoid penal issues and procedures and judicial entities that may protect constitutional rights generally but are not seen to have "direct” relevance for commerce or investment.10

The Bank’s continued failures to be transparent or foster citizen participation in the design and implementation of its projects, and its profound lack of compliance with its own policies, have led critics to question the credibility of the Bank as a promoter of good governance.  While progress on these issues is evident, continued civil society monitoring and advocacy are needed to ensure that Bank rhetoric moves closer to reality.

ESC Rights Advocacy with Respect to the World Bank

The Bank itself has acknowledged that compliance with its own policies is better where there is external scrutiny.  The experience of environmental organizations in pressuring the Bank for reform should be instructive for activists interested in ensuring that Bank-financed eco­nomic development promotes, rather than undermines, ESC rights.

One important element of the international reform effort by environmental organizations has been the creation of an effective transnational civil society of Northern, Southern, and Cen­tral and Eastern European NGOs and grassroots social movements.  Groups within the inter­national network and many smaller alliances-though loosely organized-now collaborate on a daily basis to share information, to wage campaigns around problematic Bank-financed projects, and to lobby the Bank’s Executive Directors and both borrowing and donor gov­ernments for changes in policy. 

NGOs in the North have used public education, media and lobby campaigns to influence the donor country decision-makers at the Bank, Ministries of Finance, Parliaments and Congress.  In many countries, campaigns have resulted in legislation that gives governments a mandate to promote environmental and democratic policies within the multilateral development banks (MDBs).  In the South and East, NGOs have been at the center of the campaign for demo­cratic reforms such as access to information, citizen participation, and accountability, and have shaped NGO input into the environmental and social policies that have been estab­lished.  Perhaps more directly, NGOs and citizen’s movements have both suffered from and documented the on-the-ground consequences of Bank lending, including the environmental and social impacts of projects and of structural adjustment lending.

The combination of transnational networking, case study documentation of problem projects, and lobbying decision-makers has leveraged some important policy changes at the World Bank and other MDBs, most notably in leading to the establishment of environmental and social policies, the information disclosure policy and the Independent Inspection Panel (see box below).

Navigating the World Bank Bureaucracy: The ability to reform the World Bank, whether at the project or policy level, requires some understanding of how the Bank functions, how de­cisions are made, and what channels civil society can use to exert pressure. 

Structure: The Bank is a complex bureaucracy, with about 7,000 employees working in Washington and in most of the Bank’s borrowing countries.  To understand who is responsi­ble for the Bank’s operations in countries, specific projects, Operational Policies, research, specific sectors (private sector, environment, gender, energy, etc.) or external relations, the following resources will be useful:

• Who’s Who In the World Bank.  Bread for the World Institute, 1999. This guide will help interested parties find out which Bank staff are responsible for specific regions, countries and sectors, and provide phone, fax and e-mail contact information.  Available from:

      Bread for the World Institute
      1100 Wayne Avenue, Suite 1000
      Silver Spring, MD 20910, USA
      tel.: (1 301) 608 2400
      fax: (1 301) 608 2401
      http://www.bread.org

• The World Bank Group Directory. The Directory has contact information for all Bank employees; organizational and functional listings; and lists of all the executive directors and which countries they represent.  Available from:

      The World Bank Infoshop
      701 18^th Street, N.W.
      Washington, D.C. 20433, USA
      tel.: (1 202) 473 2941
      fax: (1 202) 477 0604
      http://www.worldbank.org; click on Publications

Decision-making process: While the Bank’s board of directors is responsible for approving all loans and all Bank policy, it essentially rubber stamps proposals that come from the man­agement.  To understand how lending priorities are set and how projects are developed, and to find out how citizens can participate in and influence the processes, key information and resources include:

• Country Assistance Strategy (CAS): Each country negotiates its lending program with the Bank in 3-6 year strategies, which are written into the CAS document.  Resources in­clude: Who Shapes Your Country’s Future? A Guide to Influencing the World Bank’s Country Assistance Strategies, available from Bread for the World Institute (address above).
• The Project Cycle: Each loan and project that is identified within the CAS is developed following a series of steps that in some cases includes citizen participation and consulta­tion. Information about the project cycle is available from the World Bank Infoshop and from its web site.
• Board approval: Once a loan is developed, the loan proposal goes to the board of execu­tive directors for their approval.  Citizens can influence the board’s decision-making if advocacy strategies are applied early enough in the process.

Access to Information: Some Bank documents related to projects and policies are publicly available. To find out which documents are available, see: The World Bank Policy on Disclo­sure of Information (The World Bank, January 1994) and Bank Procedure 17.50: Disclosure of Operational Information (The World Bank, 1993).  Other resources are available at the Bank’s website and its Infoshop.  To understand the types of documents that the Bank pro­duces, their significance and availability, and to learn about which documents are not avail­able publicly but are important, see the Bank Information Center’s Toolkits.

Author: The author of this module is Kay Treakle.

USING MODULE 27 IN A TRAINING PROGRAM

NOTES