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The World Bank’s Rules for Engaging with Fragile States

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International Development Organizations and Fragile States

Part of the book series: Governance and Limited Statehood ((GLS))

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Abstract

This chapter provides a detailed analysis of how the World Bank has adapted the rules of its legal and policy framework to support its growing involvement in fragile states. The analysis focuses on a number of internal rules, so-called Operational Policies, which the Word Bank has adopted or modified to engage in countries with no formal government, and in countries where the government has only very limited capacity. In conclusion, the chapter discusses whether being seen as fragile constitutes an advantage, or a disadvantage for a member state in its dealings with the World Bank.

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Notes

  1. 1.

    The World Bank, ‘Annual Report 2015’ (2015), p. 58.

  2. 2.

    See only Christopher L. Gilbert, et al., ‘Positioning the World Bank’, in Christopher L. Gilbert & David Vines (eds), The World Bank. Structure and Policies (Cambridge University Press, 2000), characterizing the World Bank as a global player in development; or Nicolas Stern & Francisco Ferreira, ‘The World Bank as “Intellectual Actor”’, in Devesh Kapur, et al. (eds), The World Bank. Its First Half Century. Volume 2: Perspectives (Brookings Institution, 1997).

  3. 3.

    In 2015–2016, the “Harmonized List of Fragile Situations” included 35 countries and territories. The OECD relies on the Bank’s list for its annual report on resource flows to fragile and conflict-affected states.

  4. 4.

    CPIA assessments follow an internal administrative practice whereby Bank staff measure a country’s policies and institutions in the areas of economic management, structural policies, policies for social inclusion and equity, and public sector management and institutions. The resulting scores inform the performance-based allocation of resources between IDA-eligible countries, with those countries with a higher score receiving a higher per-capita allocation.

  5. 5.

    ‘Fragile situations’ are classified as having a composite World Bank, African Development Bank (AfDB) or the Asian Development Bank (ADB) rating of 3.2 (out of 6) or the presence of a UN and/or regional peace-keeping or peace-building mission during the past 3 years. Three assumptions follow from this classification: the weakness of a country’s institutional and policy framework serves as a proxy for fragility; fragility mostly concerns low-income countries, as the CPIA score for middle-income countries is not disclosed; and post-conflict countries form a sub-group of fragile states.

  6. 6.

    The definition is thus out of sync even with the World Bank’s own evolving understanding of fragility as captured, for instance, in the WDR 2011. In 2013, the Independent Evaluation Group (IEG) therefore criticized the CPIA-based definition and asked the organization to develop a “more suitable and accurate mechanism” to identify fragile states. Independent Evaluation Group, ‘World Bank Assistance to Low-Income Fragile- and Conflict Affected States’.

  7. 7.

    It is increasingly acknowledged that indicator-based assessments like the CPIA have the potential to considerably impact on individual or collective perceptions and behaviour. For instance, the Bank’s definition of a country as fragile could influence how other donor countries or development organizations deal with a country, including how they assess the risk of engagement and how much resources they allocate.

  8. 8.

    The ‘ World Bank Group’ in turn consists of five institutions: the IBRD; the IDA, as well as the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). The World Bank Group as such has no legal personality. Maurizio Ragazzi, ‘World Bank Group’, in Rüdiger Wolfrum (ed) Max Planck Encyclopedia of Public International Law (Oxford University Press, March 2010), para. 5.

  9. 9.

    IBRD Articles Art. V, Sect. 2 lit. (a) and (b) and IDA Articles Art. VI, Sect. 2 lit. (a) and (c).

  10. 10.

    IBRD Articles Art. V, Sect. 5 (a) and IDA Articles Art. VI, Sect. 4 (a). The Executive Directors work on-site at the World Bank’s headquarters, where they meet twice per week to determine its general policies, decide on all loans or grants to be awarded, and exercise oversight.

  11. 11.

    IBRD Articles Art. V, Sect. 5 and IDA Articles Art VI, Sect. 5.

  12. 12.

    See IBRD Articles Art. V Sect. 5; IDA Articles Art. VI Sect. 5.

  13. 13.

    On the primary and secondary law of international (development) organizations, see also supra Sect. 1 in Chap. 4.

  14. 14.

    The Articles explicitly authorize the Board of Governors and the Executive Board “to adopt such rules and regulations as may be necessary or appropriate to conduct the business of the Bank”. See IBRD Articles Art. V, Sect. 2 lit. (f) and IDA Articles Art. VI, Sect. 2, lit. (h).

  15. 15.

    Operational Policies and Bank Procedures (OPs and BPs) are the Bank’s traditional instruments. In 2014, the Bank has reformed and restructured its system of internal rules and introduced the so-called Policy and Procedure Framework, in order to clarify how the different types of policies and procedures are developed and managed. In this context, the Bank has established a clear hierarchy of different rules, clarified which organ is responsible for developing them, and introduced Bank Policies and Directives.

  16. 16.

    See the Bank Policy on the Policy and Procedure Framework (January 2014), Bank Policies are equivalent to the Bank’s Operational Policies, though they follow a more standardized format. They are the highest level of Bank-internal rules, and are approved and issued by the Board.

  17. 17.

    Bank Directive on the Policy and Procedure Framework (January 2014).

  18. 18.

    As noted in supra Sect. 1 in Chap. 4, I will not hinge on the question whether or not we want to call these rules “law”, but rather demonstrate why we should consider and assess them in legal terms—even if the Bank itself refuses to do so.

  19. 19.

    See the Bank Policy on the Policy and Procedure Framework, Sec. III, paras. 2 and 3; and the Bank Directive on the Policy and Procedure Framework, Sec. II, paras. 1 a) and b) on the hierarchy and mandatory nature of the Bank’s different rules.

  20. 20.

    Bank Policy on Access to Information (1 July 2013), para. 6.

  21. 21.

    The Inspection Panel has the power to control whether staff members have complied with Policies and Procedures during the planning and implementation stages of Bank-financed operations, and can receive complaints directly from a party affected by the Bank’s operational activities in a country, where those have caused harm. See IBRD Resolution 93–10 of 22 September 1993, para. 12. On other institutional guarantees for the implementation and monitoring of the Bank’s policies, see Bradlow & Naudé Fourie, ‘The Operational Policies of the World Bank and the International Finance Corporation. Creating Law-Making and Law-Governed Institutions?’, 37–40.

  22. 22.

    See the Bank Policy on Operational Policy Waivers (April 2014), whereby waivers can be approved by the Board if they are proposed prior to the approval of a loan to which the policy deviation relates.

  23. 23.

    As noted in supra Sect. 1 in Chap. 4, it is not unusual for international organizations to issue instruments that were not foreseen in their statutes.

  24. 24.

    Supra note 16.

  25. 25.

    The revision of the Bank’s policy on Indigenous People that involved a relatively extensive process of external consultation constitutes a prominent example. In detail, see David Hunter, ‘International Law and Public Participation in Policy-making at the International Financial Institutions’, in Daniel Bradlow & David Hunter (eds), International Financial Institutions and International Law (Kluwer, 2010).

  26. 26.

    IBRD Articles, Art. V, Sect. 3 and IDA Articles, Art. VI Sect. 3. The unequal influence of the Bank’s largest shareholders on the organization’s decision-making has drawn much criticism given the Bank’s leverage over many developing countries. In response, the Bank has increased the voting power of all developing countries and provided for one more Executive Director to represent countries from Sub-Saharan Africa. See The World Bank, ‘Repowering the World Bank for the 21st Century. Report of the HighLevel Commission on Modernization of World Bank Group Governance’ (2009), and with a critical assessment, Daniel Bradlow, ‘The Reform of Governance of the IFIs: A Critical Assessment’, in Hassane Cissé, et al. (eds), The World Bank Legal Review. Volume 3. International Financial Institutions and Global Legal Governance (The World Bank, 2012).

  27. 27.

    Galit A. Sarfaty, ‘The World Bank and the Internationalization of Indigenous Rights Norms’, 114 Yale Law Journal, 1791 (2004–2005), 1792.

  28. 28.

    IBRD Articles Art. VIII lit. (a) and IDA Articles Art. IX lit. (a). Amendment procedures are typically much more cumbersome than interpretations, not least since the plenary organs of international organizations are often blocked by political struggles and considered as less productive or effective. von Bernstorff, ‘Procedures of Decision-Making and the Role of Law in International Organizations’, p. 786.

  29. 29.

    IBRD Articles Art. IX lit. (a); IDA Articles Art. X lit. (a).

  30. 30.

    On this practice of interpretation, see Rigo Sureda, ‘Informality and Effectiveness in the Operation of the International Bank for Reconstruction and Development’, pp. 593–595, explaining how the Bank has preferred “informal interpretations” of its mandate, “made possible by the fact that the organ approving new policies or operations has the power to interpret formally the Articles of Agreement.”

  31. 31.

    On the important role of the World Bank’s General Counsel, see Ibrahim Shihata, ‘The Creative Role of Lawyers: Example: The Office of the World Bank’s General Counsel’, 48 Catholic University Law Review (1999).

  32. 32.

    IBRD Articles, Art. I (i).

  33. 33.

    IDA Articles, Art. I.

  34. 34.

    On the permissible use of IDA resources, see also IDA Articles, Art. V Sect. 1 (a), (b), (c). Eligibility and terms of repayment for IDA’s lending are laid out in Annex D of OP 3.10, last updated in September 2013.

  35. 35.

    Of the 78 countries and territories eligible for IDA assistance in 2015, 26 were considered ‘fragile’.

  36. 36.

    R. Dañino, Legal Opinion on Human Rights and the Work of the World Bank (Jan. 27, 2006), para. 3. The Bank’s legal department understands itself as “problem-solver and innovator”, committed to “lawyering that is proactive, creative, flexible and responsive.” Legal Vice Presidency, The World Bank, ‘Annual Report FY 2011: The World Bank and the Rule of Law’ (2011), p. v, 10.

  37. 37.

    Operational Policy 1.00 on Poverty Reduction was first approved in 1991, and has been revised several times to reflect the Bank’s evolving understanding of poverty.

  38. 38.

    Supra Sect. 2.1 in Chap. 2.

  39. 39.

    IBRD Articles, Art. I (i).

  40. 40.

    It became necessary not least when the World Bank increased its narrow focus on rebuilding infrastructure and began supporting demobilization and disarmament, community-based rehabilitation programs, and broader issues of governance in post-conflict countries. The World Bank, ‘The Role of the World Bank in Conflict and Development. An Evolving Agenda’ (2004), 5.

  41. 41.

    See OP 2.30, paras. 1 and 3; and infra Sect. 3.1 of this chapter. The link between peace and development was first elaborated in the “Framework for World Bank Involvement in Post-Conflict Reconstruction”, endorsed by the Executive Directors in May 2007. The Framework provided the first conceptual and operational guideline for staff working in post-conflict situations, at a time when USD 400 million in grants had already been given to post-conflict countries and to support humanitarian operations of United Nations agencies. See The World Bank, ‘Post-Conflict Reconstruction. The Role of the World Bank’ (1998).

  42. 42.

    OP 8.00, approved by the Executive Directors on 1 March 2007, lists the activities that the Bank can pursue with an emergency operation. This includes support to partners in carrying out activities that fall outside of its own mandate, in order to bridge the gap between short-term relief and reconstruction activities (para. 5).

  43. 43.

    Legal Opinion on Peace-Building, Security, and Relief Issues under the Bank’s Policy Framework for Rapid Response to Crises and Emergency, prepared on request of the Committee on Development Effectiveness on 22 March 2007, and annexed to the Report “Toward a New Framework for Rapid Bank Response to Crises and Emergencies” (revised version R2007-001012, dated March 2007).

  44. 44.

    IBRD Articles Art. III Sect. 5, lit. (b); IDA Articles Art. V, Sect. 1, lit (g). Moreover, IBRD Articles Art. I (i) state that the IBRD must direct its resources towards “productive purposes”. The provision figures prominently in the travaux preparatoires of the Articles, and has been reiterated and concretized in World Bank policies ever since. On standards of effectiveness in the law of international development organizations in general, see supra Sect. 2 in Chap. 4.

  45. 45.

    Anne-Marie Leroy, ‘The Bank’s Engagement in the Criminal Justice Sector and the Role of Lawyers in the “Solutions Bank”: An Essay’, in Legal Vice Presidency (ed) Annual Report FY 2013. The World Bank’s Engagement in the Criminal Justice Sector and the Role of Lawyers in the “Solutions Bank” (The World Bank 2013), 97.

  46. 46.

    It goes on: “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.” IBRD Articles, Art. IV Sect. 10 and with almost identical wording, IDA Articles, Art. V Sect. 6.

  47. 47.

    Moreover, the World Bank understands the clause to imply that it can only engage in a country upon the request of the government in power, and that it must be careful not to engage with actors outside of the government without its approval. This becomes clearer in The World Bank, ‘Guidance Note on Bank Multi-Stakeholder Engagement’ (2009), which provides guidance to staff on how to engage with a broad range of non-governmental actors, including parliaments, the media, civil society, the private sector, or community members.

  48. 48.

    Hassane Cissé, ‘Should the Political Prohibition in Charters of International Financial Institutions be Revisited? The Case of the World Bank’, in Hassane Cissé, et al. (eds), The World Bank Legal Review. Volume 3. International Financial Institutions and Global Legal Governance (The World Bank, 2012), 81.

  49. 49.

    Issues of ‘Governance’ in Borrowing Members: The Extent of their Relevance under the Bank’s Articles of Agreement, Legal Memorandum of the General Counsel, dated 21 December 1990 (SecM91-131). The Memorandum informs the Bank’s subsequent legal reasoning on governance issues and a number of key policy documents, e.g. the Guidance Note on Multi-Stakeholder Engagement (June 2009) and the Governance and Anticorruption (GAC) strategy, endorsed by the Executive Board on 27 March 2012.

  50. 50.

    For example, Legal Opinion of the General Counsel, dated 11 July 1995 (SecM95-707, 12 July 1995), reprinted in Shihata, The World Bank Legal Papers, 229. Shihata further argues that Bank-supported reform policies always depend on the existence of a “system which translates them into workable rules and makes sure they are complied with”, a system constituting “a basic requirement for a stable business environment; indeed for a modern state.” (p. 273).

  51. 51.

    For an in-depth analysis of the mandate conformity of good governance-related activities the Bank undertakes, see Stefanie Killinger, The World Bank’s Non-Political Mandate (Heymanns, 2003).

  52. 52.

    The World Bank, Operationalizing the WDR 2011, iii.

  53. 53.

    The Legal Note was issued by General Counsel Anne-Marie Leroy on 9 February 2012. For an overview of the Bank’s growing involvement with justice sector reforms in fragile states, see Klaus Decker, ‘World Bank Rule-of-Law Assistance in Fragile States: Developments and Perspectives’, in Amanda E. Perry (ed) Law in the Pursuit of Development. Principles into Practice? (Routledge, 2010), pp. 228–232.

  54. 54.

    See supra Sect. 2.1 in Chap. 3 on the state-centric paradigm of development cooperation, and Sect. 2 in Chap. 4 on the protection of sovereignty in the law of international development organizations, including the World Bank.

  55. 55.

    Supra Sect. 1.2 of this chapter.

  56. 56.

    The World Bank disengaged in 1991 when Somalia stopped paying its debts, and remained disengaged for more than a decade, due to the continuous insecurity but mostly the lack of a fully functioning government. Somalia’s development and humanitarian indicators are among the lowest in the world. See, for instance, UNDP, ‘Somalia Human Development Report 2012: Empowering Youth for Peace and Development’ (2012), pp. 26–32.

  57. 57.

    On the problems for Bank engagement in situations of severe political crisis, disorderly transfers of power, state dissolution or state failures, see already Robert Muscat, The World Bank, ‘Conflict and Reconstruction. Roles for the World Bank’ (1995), Chapter 2; and the summary of Board discussions on the Bank’s evolving engagement in post-conflict reconstruction, in The World Bank, ‘The Role of the World Bank in Conflict and Development. An Evolving Agenda’, pp. 6–8.

  58. 58.

    On the Bank’s evolving post-conflict work, see John D. Ciorciari, ‘Prospective Enlargement of the Roles of the Bretton Woods Financial Institutions in International Peace Operations’, 22 Fordham International Law Journal, 292 (1998), 297 ff.

  59. 59.

    IBRD Articles, Art. III Sect. I lit. a).

  60. 60.

    IBRD Articles I lit. i), Art. III Sect. 1 lit. i) and v), Art. IV Sect. 3 lit. a) and c) and Art. V Sect. 7, as well as in the IDA Articles, Art. I (Purposes) and Art. V Sect. 1 lit. a). In contrast to the IBRD, the IDA can also provide financing to a dependent or associated territory within the meaning accorded to Art. V Sect. 1, but the Bank did not recognize the West Bank and Gaza as such.

  61. 61.

    The Executive Directors accordingly passed a Resolution to confirm that due to the significant consequences of the economic circumstances of the Palestinian Territories for the Middle East peace process, the Bank’s involvement was in the interest of the organization’s membership as a whole. See the Legal Memorandum on World Bank Assistance to the West Bank and the Gaza Strip, R-93-163 IDA/R93-134, dated 20 September 1993; and Ibrahim F. I. Shihata, et al., ‘Legal Aspects of the World Bank’s Assistance to the West Bank and the Gaza Strip’ The Palestine Yearbook of International Law, 19 (1992).

  62. 62.

    Trust funds can disburse not only to governments, but also international organizations or non-governmental organizations, and can finance activities that are executed by the World Bank itself. Moreover, they usually come with their own governance structure, lending criteria, processing procedures and implementation modalities.

  63. 63.

    With the Palestinian Territories not being recognized as a state, they did not have a formal government either. Therefore, the World Bank (acting as trust fund administrator) concluded the necessary legal agreements with the Palestinian Liberation Organization (PLO).

  64. 64.

    Bosnia is a successor state of the Socialist Federal Republic of Yugoslavia (SFRY). The SFRY seized to be a member of the Bank in 1993, but Bosnia had not yet become a new member in 1994. For an interesting account of how the US administration under Clinton convinced the Bank to become involved in Bosnia, see Sebastian Mallaby, The World’s Banker. A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations (Penguin Press, 2004), Chapter 5.

  65. 65.

    In Kosovo, for example, the World Bank became engaged following the adoption of UN Security Council Resolution 1244, UN Doc. S/RES/1244 (10 June 1999), which was adopted under Chapter VII and called for a coordinated international effort to support Kosovo’s reconstruction. See also the World Bank’ Transitional Support Strategy for Kosovo, Progress Report 2000.

  66. 66.

    Kosovo was placed under a UN administration that should enable its people to enjoy substantial autonomy and self-government within the Federal Republic of Yugoslavia, pending the final settlement of its legal status. See Security Council Resolution 1244. East Timor was placed under temporary UN administration before its independence became effective in 2002. See Security Council Resolution 1272, UN Doc. S/RES/1272 (25 October 1999).

  67. 67.

    See, for instance, the Trust Fund for East Timor Grant Agreement concerning an Economic Institution Capacity Building Project, dated 26 February 2001. Agreements were concluded first with UNTAET, then with “Eas t Timor as administered by [UNTAET]”, and following its independence in 2002, with East Timor itself.

  68. 68.

    Chopra recalls that whereas “the UN tried to circumvent the issue by reducing the status of the grant agreement to a memorandum of understanding between the two institutions”, “[t]he Bank refused and demanded that the agreement be accorded the stature of an international treaty between the IDA and a sovereign government.” Jarat Chopra, ‘The UN’s Kingdom of East Timor’, 42 Survival, 27 (2000), pp. 29–30.

  69. 69.

    OP 2.30 was first adopted in January 2001 and has so far been subject to only minor revisions in 2005, 2009 and 2013. It does not explicitly refer to fragile states, as it was adopted before the Bank began focusing on LICUS or fragile countries. On the role of OP 2.30 in outlining the scope of the Bank’s mandate in conflict-affected states and specific considerations for planning or maintaining operations in these settings, see supra Sect. 1.2 of this chapter; and Maurizio Ragazzi, ‘The Role of the World Bank in Conflict-Afflicted Areas’, 95 American Society of International Law Proceedings, 240 (2001).

  70. 70.

    OP 2.30, para. 3 lit. a).

  71. 71.

    OP 2.30, para. 3 lit. b).

  72. 72.

    OP 2.30, para. 3 lit. c). It is notable that the wording again refers to non-member countries, not territories. Strictly speaking, the provision would thus not apply to the West Bank and Gaza unless they were understood to belong to the territory of another (member or non-member) country.

  73. 73.

    IDA Articles Art. X lit. a). In practice, the World Bank’s Legal Department has rendered an interpretation of the Articles to justify engagement, and these interpretations were then authorized through a Resolution of the Executive Board. On the Bank’s practice of implied interpretations, see supra Sect. 1.1 of this chapter.

  74. 74.

    On the high practical relevancy of unconstitutional changes of government for development organizations, see IFAD, Guidelines on Dealing with De Facto Governments, Draft document EB 2009/98/R. 16 for approval by the Executive Board, Rome, 15–17 December 2009, at paras. 1–8.

  75. 75.

    The occurrence of coups in many developing countries has, however, been associated with low income and low growth more generally. See Paul Collier & Anke Hoeffler, Coup Traps: Why does Africa have so many Coups D’état? (Oxford University Press, 2005).

  76. 76.

    The link between conflict and unconstitutional changes of government is confirmed through mutual reference in OP 2.30 and OP 7.30 (“The issues addressed in this OP may arise in the context of a country emerging from conflict”).

  77. 77.

    Other definitions are listed in Stefan Talmon, Recognition of Governments in International Law: With Particular Reference to Governments in Exile (Clarendon Press, 1998), 60.

  78. 78.

    The UN General Assembly discussed the question of how to deal with situations where there is more than one government claiming power in its early days, but never agreed on specific criteria to be followed. See the UN General Assembly Resolution 396 (V) on Recognition by the United Nations of the Representation of a Member State (14 December 1950).

  79. 79.

    For instance, IBRD Articles, Art. III Sect. 4 states that “the Bank shall pay due regard to the prospects that the borrower, and, if the borrower is not a member, that the guarantor, will be in position to meet its obligations under the loan”.

  80. 80.

    In fact, a first policy-framework for dealing with de facto governments was already outlined in the Bank’s Operational Manual in 1964, and subsequently updated in 1978, 1991 and 1994. The Bank’s original concern with de facto government situations thus did not have to do with its growing engagement with conflict-affected and fragile states.

  81. 81.

    OP 7.30, para. 1. The definition’s focus on coup situations reflects that these were considered the most obvious examples, while other situations can also be considered under the policy. The application to interim or transitional authorities in the context of conflicts gained in importance only after the policy was drafted in 1994.

  82. 82.

    OP 7.30, paras. 2 and 3.

  83. 83.

    OP 7.30, para. 4 lit. a)–e), including further the requirement that the “government duly authorizes a representative for the purpose of requesting withdrawals”.

  84. 84.

    If the ousted de jure government of the country still exercises partial control or has some meaningful potential to regain power, the Bank must also be careful not to subvert its claim to power by engaging prematurely with a de facto government.

  85. 85.

    OP 7.30, para. 5 lit. b).

  86. 86.

    OP 7.30 para. 5 lit. a) and note 6 For instance, it has occurred that governments refuse to meet the obligations incurred by a previous, de facto government, on the grounds that it did not have the competence or legitimacy to enter into long-term obligations for the country.

  87. 87.

    The Country Director gathers relevant information about the new government and situation in the country, and initiates an internal, consultative process. The final decision rests with the Regional Vice President.

  88. 88.

    For instance, based on IDA’s General Conditions on credits, Art. VI, an unconstitutional change of government could constitute an “extraordinary situation”, “which makes it improbable that the Project can be carried out or that the Recipient or the Project Implementing Entity will be able to perform its obligations under the Legal Agreement to which it is a party.” General Conditions are incorporated by reference in all financing agreements, and are thus formally binding.

  89. 89.

    See BP 7.30 para. 4. The suspension of disbursements initially occurs as a temporary measure for which staff should seek an “informal agreement with the new authorities in the country”. The legal basis for this temporary measure is not specified. In practice, the Bank sometimes claims that the new government’s representatives must first obtain a new authorization to make withdrawals.

  90. 90.

    Otherwise, the Bank could have used policy waivers in particular cases. For instance, IFAD has extended loans and grants (i.e. not only trust fund resources) to the West Bank and Gaza, based on a policy waiver adopted by IFAD’s Governing Council, the equivalent to the World Bank’s Board of Governors. The waiver was adopted with the same (i.e. large) number of votes that would be required for a formal amendment. See Rutsel Martha, ‘Mandate Issues in the Activities of the International Fund for Agricultural Development (IFAD)’, 6 International Organizations Law Review, 447 (2009), pp. 465–472.

  91. 91.

    Supra Sect. 3 in Chap. 2.

  92. 92.

    On the practice of implied interpretations, see supra Sect. 1.1 of this chapter.

  93. 93.

    The deliberations fall under an exemption from the Bank’s Access to Information Policy Bank Policy on Access to Information, para. 16 lit. c).

  94. 94.

    For instance, in South Sudan post-independence and prior to becoming a member. Evarist Baimu, South Sudan: A New State is Born, The World Bank—Law, Justice and Development (September 2011), at http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTLAWJUSTICE/0, contentMDK:22994807~pagePK:210058~piPK:210062~theSitePK:445634~isCURL:Y~isCURL:Y,00.html (accessed October 2015).

  95. 95.

    The World Bank, ‘Interim Strategy Note for Somalia for the period of FY 08–09’ (21 June 2007), para. 18: “Now and in the foreseeable future the Bank’s engagement in Somalia is based on an explicit request from the international community.” Requests were sought from the Special Representative of the UN Secretary General for Somalia or the UN’s Resident and Humanitarian Coordinator. They took the form of letters that described the humanitarian need in Somalia, and—echoing the language of OP 2.30—called on the Bank’s Management and Executive Board to approve a particular project. Approved projects were mostly small-scale, concentrated on Somalia’s more stable regions, and were financed through trust funds. At no point did the organization enter into legal relations with Somalia’s transitional authorities, nor were any funds disbursed to or channelled through the government. Instead, funding was provided mostly to the UN.

  96. 96.

    This is in contrast, for instance, to the practice of the IMF, which leaves the decision of how to deal with a de facto government entirely to its member states. It conducts an informal poll among the Executive Directors, whose views are seen to reflect the majority view (in terms of voting power) of all members, and who determine.

  97. 97.

    The World Bank’s Inspection Panel, for instance, reviews staff compliance with Policies and Procedures during the planning and implementation stages only if a party directly affected by the Bank’s operational activities in a country files a complaint. The (de facto) governments of member states cannot call for an investigation. See supra note 21.

  98. 98.

    For an analysis of the application of OP 7.30 in Afghanistan and Iraq, see Michael Nesbitt, ‘The World Bank and De Facto Governments. A Call for Transparency in the Bank’s Operational Policy’, 32 Queen’s Law Journal, 641 (2007); and for an analysis of Bank practice in Honduras 2009, Cote d’Ivoire 2010, Tunisia 2011 and Mali 2012, Georgia Harley, ‘To Disburse or Not to Disburse? Strengthening the World Bank’s Response to Revolutions and Coups d’Etat’, 3 Sanford Journal of Public Policy, 20 (2012).

  99. 99.

    For example, Nesbitt, ‘The World Bank and De Facto Governments. A Call for Transparency in the Bank’s Operational Policy’, p. 643.

  100. 100.

    Harley thus explains why the World Bank rapidly continued its disbursements to Tunisia and Egypt following the Arab Spring revolutions, but was equally quick to suspend disbursements following coups in seemingly less important countries like Mauritania, Mali and Niger. Harley, ‘To Disburse or Not to Disburse? Strengthening the World Bank’s Response to Revolutions and Coups d’Etat’, 28. See also Nesbitt, ‘The World Bank and De Facto Governments. A Call for Transparency in the Bank’s Operational Policy’, 671, who concludes from his analysis of the Bank’s practice with regards to Afghanistan and Iraq that “the Bank has hurried to the aid of Western-oriented post-conflict societies”.

  101. 101.

    Supra Sect. 1.2 of this chapter.

  102. 102.

    Consider, for instance, the requirement for staff to assess the government’s commitment to honour its obligations under international law, namely financial obligations towards the Bank.

  103. 103.

    Other reasons why trust funds have become an increasingly popular financing instrument in conflict-affected and fragile states include the associated benefits of better donor coordination and risk sharing, funding predictability, transparency and other principles of aid effectiveness. See Oliver Walton, Governance and Social Development (GSD) Resource Center, ‘Helpdesk Research Report: Trust Funds in Fragile and Low Capacity States’ (2011); and with a more critical assessment of actual trust fund performance, Independent Evaluation Group, ‘World Bank Assistance to Low-Income Fragile- and Conflict Affected States’, pp. 115–120.

  104. 104.

    The IDA cannot provide assistance to a country if the government objects, so it is prima facie subject to interpretation what happens if there is no government to object. At least some provisions in the Articles of Agreement could have served as a basis for such an interpretation. For instance, the IDA may provide financing not only to a government, but also to “a public, or private entity in the territories of a member or members, or to a public international or regional organization” (Art. V Sect. 2 lit. c). Moreover, the IDA Articles generally accommodate the idea that there may be territories with no sovereign government, as the territorial application of the Articles extends to “all territories for whose international relations [each member] is responsible” (Articles, Art. XI, Sect. 3).

  105. 105.

    One limit for the use of interpretation as a means for adapting the statutes of international organizations consists in the statutes’ amendment procedures, which shall not be undermined by an excessive use of interpretation.

  106. 106.

    Interestingly, an earlier formulation of the policy still required the Board of Governors to approve Bank operations in such cases, not the Executive Board, where only 25 Directors vote according to a system of weighted voting. See The World Bank, ‘Post-Conflict Reconstruction. The Role of the World Bank’, 30, requiring “prior approval of the Board, where all Bank members are represented.”

  107. 107.

    See supra Sect. 1.2 of this chapter.

  108. 108.

    The IFAD has drafted a similar policy for dealing with de facto governments than the World Bank, but has explicitly sought to modify its criteria “to emphasize the practical over the political”, and therefore consider international recognition only where it directly impacts on the likelihood that IFAD’s projects can be carried out successfully. IFAD, Guidelines on Dealing with De Facto Governments, EB 2009/98/R.16 (17 November 2009), para. 12. The final draft of IFAD’s Guidelines approved in 2011, however, does not include such a specification, apparently because it was not in the interest of Executive Board members.

  109. 109.

    Though many states consider a government’s internal legitimacy when deciding to enter into diplomatic relations, traditionally, international legal doctrine knows only the “effective control” test to identify the government of a country. See Magiera, ‘Governments’, para. 18.

  110. 110.

    Cissé, ‘Should the Political Prohibition in Charters of International Financial Institutions be Revisited? The Case of the World Bank’, p. 66.

  111. 111.

    On the concept of responsibility to protect, see supra Sect. 3.2 in Chap. 2.

  112. 112.

    On the state-centric paradigm of development cooperation and its premises in terms of juridical and empirical statehood, see supra Sect. 2.1 in Chap. 3.

  113. 113.

    Which of the three instruments the Bank uses in a country generally depends on the circumstances of a country, including donor relations with the government. The respective reasoning is laid out in the Country Partnership Framework (CPF) , which is prepared by the Bank’s staff in consultation with national authorities. The CPF is a medium-term strategy that establishes the basic parameters of Bank assistance to a country.

  114. 114.

    The World Bank, ‘Annual Report 2015’, Table 19 (p. 58).

  115. 115.

    OP/BP 10.00 on Investment Project Financing was adopted in April 2013, replacing a Policy from 1994. The Policy forms the core of the Bank’s project-lending regime, regulating the process from project identification to approval. See also supra Sect. 1.2 on basic requirements under the Bank’s legal mandate.

  116. 116.

    Safeguard policies are Bank-internal policies aimed at preventing and mitigating potential harm to people and the environment caused by Bank-financed projects. Safeguards are currently contained in separate Policies and Procedures, for instance OP/BP 4.01 on Environmental Assessment and OP/BP 4.10 on Indigenous Peoples. In August 2016, the World Bank approved a new “Environmental and Social Framework” that consolidates the Bank’s requirements in the areas of environmental and social protection, involuntary resettlement, indigenous people, cultural heritage and other. The new framework is expected to take effect in early 2018.

  117. 117.

    The World Bank, ‘Post-Conflict Reconstruction. The Role of the World Bank’, at 33. Approximately two-thirds of countries recognized in the Bank’s list of fragile situations in 2012 had emergency operations between 2005 and 2012, and these were seldom in response to natural disaster. For instance, in Haiti, the World Bank used OP 8.00 to work with the government and the UN Peacekeeping mission to improve road access and refuse collection in highly insecure urban slams of the capital.

  118. 118.

    See, for instance, The World Bank, Operationalizing the WDR, Annex A, para. 4, explaining that fragility is “a long-term challenge rather than an episodic emergency”.

  119. 119.

    The revisions made to OP 10.00 are part of a broader effort to consolidate a complex and incoherent set of policies and procedures for investment lending, and to shift the Bank’s role from supervising how recipient countries implement projects on the basis of prescribed standards, to providing implementation support. See the Board paper “ Investment Lending Reform: Modernizing and Consolidating Operational Policies and Procedures” (1 November 2012).

  120. 120.

    OP 10.00, para. 11. Examples of Bank operations “in situations of urgent need or capacity constraints” include an involvement in the CAR to support a food response and to pay salaries of public servants; an operation in Somalia equally to pay salaries of public servants; and Bank support to the reconstruction of Northern Mali.

  121. 121.

    On the Bank’s CPIA-based list of ‘fragile situations’, see the introduction of this chapter.

  122. 122.

    Instructions: Preparation of Investment Project Financing—Situations of Urgent Need of Assistance or Capacity Constraints (2013), p. 6. Instructions are issued by the Bank to provide more detailed step-by-step guidance than contained in Bank Procedures.

  123. 123.

    All exceptions are established in OP 10.00, para. 11 lit. (a)–(e), and the procedural modifications particularly in BP 10.00, para. 47 lit. (c). OP 8.00 was accordingly revised and is now focused on establishing guiding principles, objectives and limits of Bank engagement in the context of crises and emergency.

  124. 124.

    OP 10.00, para. 11 lit. (d) permits the Bank to “enter into agreements with relevant international agencies, including the United Nations, national agencies, private entities, or other third parties”, or use grants or trust funds arrangements to implement activities itself.

  125. 125.

    Supra note 122.

  126. 126.

    See the definition of differential treatment by Philippe Cullet, Differential Treatment in International Environmental Law (Ashgate, 2003), 19, and on forms and instruments of differential treatment, pp. 32–36. I elaborate this thought in infra Sect. 1 in Chap. 7.

  127. 127.

    For instance, the World Bank approved US$750 million of budget support to the government of Ukraine, as the government was facing continued tensions on the eastern border with Russia in May 2014. While there were only five Development Policy Lending operations in fragile states in the fiscal years 2005–2007, by 2008, the number had already increased to almost 40. Still, fragile states received only 10% of assistance as direct budgetary contributions between 2009 and 2011, whereas the overall portion of Bank funding disbursed through budget assistance is 20%. The World Bank, ‘2012 Development Policy Lending Retrospective’ (2013), para. 17.

  128. 128.

    The Bank’s shift to Development Policy Lending (previously known as Structural Adjustment Lending) in the 1980s is partly owed to the experience that financing specific projects alone is ineffective or insufficient in countries with weak capacities and poor policies. See Carol Lancaster, ‘The World Bank in Africa since 1980: The Politics of Structural Adjustment Lending’, in Devesh Kapur, et al. (eds), The World Bank. Its First Half Century. Volume 2: Perspectives (Brookings Institution, 1997).

  129. 129.

    The World Bank & African Development Bank, ‘Providing Budget Aid in Situations of Fragility: A World Bank—African Development Bank Common Approach Paper’ (2011), pp. 15–17; and The World Bank, ‘2012 Development Policy Lending Retrospective’, pp. 34–37.

  130. 130.

    IDA Articles, Art. V, Sect. 1 (b). The Bank’s legal department has adopted a rather liberal interpretation of “special circumstances”, however, making sure only that loans are used in accordance with the productive purposes requirement of the Bank’s mandate.

  131. 131.

    OP 8.60 on Development Policy Lending (February 2012) establishes criteria that are further elaborated in non-binding Good Practice Notes on various aspects of Development Policy Lending. Moreover, recipients are required to commit in a separate document annexed to the loan agreement, the so-called Letter of Development Policy, to the broad objectives and policy, institutional, or legislative measures of government programs for which they seek Bank funding. The self-commitment contained in the Letter addressed to the World Bank’s President is a prerequisite for budget assistance to be approved by the Executive Board.

  132. 132.

    For analytical purposes, the Bank classifies those countries with a particularly low score in the CPIA as fragile situations. See the introduction of this chapter.

  133. 133.

    The Bank supervises the implementation of government programs supported through DPOs to verify the fulfilment of the agreed conditions.

  134. 134.

    OP 8.60 replaces Operational Directive OD 8.60 of December 1992, which contained no such exception. The old Directive instead explicitly stated “Adjustment lending is not advisable when the political commitment to adjustment is weak or highly uncertain”, which should be determined on the basis of the “capacity and willingness of country authorities to prepare acceptable Letters of Development Policy.”

  135. 135.

    OP 8.60, para. 32. The term “crisis” refers to financial crisis “with substantial structural and social dimensions”, or economic shocks. “Post-conflict” countries are those with urgent reconstruction needs but lacking a medium-term reform agenda usually required for the Bank to assess the government’s policies and commitment.

  136. 136.

    The World Bank, ‘Good Practice Note for Development Policy Lending. Development Policy Operations and Program Conditionality in Fragile States’.

  137. 137.

    Similar recommendations were later formulated in a Common Approach Paper of the World Bank and African Development Bank: The World Bank & African Development Bank, ‘Providing Budget Aid in Situations of Fragility: A World Bank—African Development Bank Common Approach Paper’, 11.

  138. 138.

    Between Fiscal Year 2006 and 2009, the World Bank implemented 13 Development Policy Operations in nine countries: in Afghanistan, Burundi, the Central African Republic, Côte d’Ivoire, Haiti, Laos, Liberia, Sierra Leone and Togo.

  139. 139.

    Demands came mostly from middle-income countries, which increasingly have access to other public, private or public-private sources of financing and could thus exert pressure on the Bank to adapt the services it offers. At the same time, PfoR is a brainchild of the Paris aid effectiveness agenda, providing donors with a tool to increase the results-focus, effectiveness and leverage of their funds.

  140. 140.

    The Bank Policy and Bank Directive on PfoR replaced the almost identical OP/BP 9.00 on PfoR, which was adopted in 2012 in the old format of World Bank policies and procedures. For an early analysis of the legal framework for PfoR, see Dann, The Law of Development Cooperation. A Comparative Analysis of the World Bank, the EU and Germany, Chapter 8.

  141. 141.

    Bank Policy on PfoR, para. 8 lit. (f).

  142. 142.

    The core standards deduced from the Bank’s comprehensive set of safeguard policies are condensed into one paragraph, para. 8. These standards are considered to the extent that they are “applicable or relevant in a particular country, sector, or Program circumstances”. Only programs that could have “significant adverse impacts” on the environment or affected people are generally excluded from PfoR (para. 9). The Bank’s financial management and procurement guidelines do not apply to co-financed government programs.

  143. 143.

    As part of implementation support, the Bank provides technical assistance for capacity- and institution-building in a broad range of areas, including fiduciary, environmental and social systems.

  144. 144.

    In para. 29, the Policy foresees that the Bank identifies the aspects of a country’s environmental and social systems that require strengthening, which can become part of the Program’s action plan and will be taken on during preparation and implementation of the program.

  145. 145.

    Commensurate to the recipient country’s capacities, the Bank continues its own risk assessments and monitoring during implementation, particularly to prevent and mitigate fraud and corruption. In connection with the Bank Policy on PfoR, the Bank has therefore adopted Guidelines on Preventing and Combating Fraud and Corruption, which become binding through the reference made in para. 15 of the Policy.

  146. 146.

    Bank Directive on PfoR, para. 13.

  147. 147.

    Bank Policy on PfoR, para. 14 and Bank Directive on PfoR para. 44. Also The World Bank, ‘A New Instrument to Advance Development Effectiveness: Program-for-Results Financing’ (29 December 2011), para. 78.

  148. 148.

    Rigo Sureda, ‘Informality and Effectiveness in the Operation of the International Bank for Reconstruction and Development’, pp. 585–588, arguing that the organization has often preferred to reach an informal agreement with the recipient country rather than suspending loans on the grounds of non-compliance with contractual obligations.

  149. 149.

    Besides, Operational Policy 2.30 provides an overarching framework to guide the Bank’s work in countries affected by or in transition from conflict. It does not, however, affect the rules whereby operations are planned and implemented. Supra Sect. 2.1 of this chapter.

  150. 150.

    A study commissioned by the German Ministry for Development criticized that most DPOs were in states that also received exceptional resource allocations from the IDA, i.e. post-conflict countries, countries in arrears, or countries re-engaging with the Bank. The authors suggest that the World Bank develops clear criteria for determining when it considers project lending the only adequate financing instrument in fragile states, and accordingly rules out the use of budget assistance. Rachel Folz & Manuela Leonhardt, Gesellschaft für Internationale Zusammenarbeit (GIZ), ‘The Engagement of the International Development Association in Fragile States. Proposals for a Reform Agenda’ (April 2012), pp. 41–43.

  151. 151.

    PfoR was introduced in 2012 without broad prior piloting. To limit its risks, the World Bank decided to provide only a maximum of 5% of IDA or IBRD funding through the new instrument during the first two years.

  152. 152.

    Arguably, the success of results-based disbursements in fragile states ultimately depends on the use of realistic indicators that are commensurate to the countries’ limited capacities, so as not to cause the abrupt suspension of aid in the case of non-compliance.

  153. 153.

    I return to the concept of differential treatment in infra Sect. 1 in Chap. 7.

  154. 154.

    Supra Sect. 1.2 of this chapter.

  155. 155.

    OP 8.60 suspends design considerations that relate to the distributional effects or effects on natural resources and the environment of operations.

  156. 156.

    On the objective of state-building prioritized in the Fragile States Principles and the New Deal, see supra Sect. 3.1 in Chap. 3.

  157. 157.

    On standards of effectiveness in the Bank’s legal framework, see supra Sect. 1.2 of this chapter.

  158. 158.

    Besides, the use of trust fund arrangements instead of the Bank’s normal lending instruments can be seen as an alternative strategy to ensure the effective use of resources in fragile and conflict-affected states. See supra Sect. 2 of this chapter.

  159. 159.

    While particularly relevant for operations in fragile states, the credo that risks need to be managed, not avoided, also constitutes a pillar of the Bank’s updated Governance and Anticorruption strategy, and is the subject of the 2014 WDR, The World Bank, ‘Word Development Report. Risk and Opportunity. Managing Risk for Development’ (2014). Given the Bank’s institutional culture that is often accused of being front-loaded and neglecting implementation, it remains to be seen whether the shift from ex ante requirements to ex post controls materializes in practice.

  160. 160.

    The Bank Policy on PfoR includes no specific provisions for fragile states. Since PfoR finances government programs that are implemented through country systems, it is generally supportive of recipient ownership.

  161. 161.

    Where governments request the Bank to execute certain activities on their behalf, this is usually accomplished using financing from trust funds like the State- and Peacebuilding Fund, which can also be used to provide resources directly to non-state actors—and in principle without involving the government. However, activities financed through the State- and Peacebuilding Fund are usually of a small scale only, and often pertain to analytical work.

  162. 162.

    For example, the majority of Bank-financed projects in Somalia rely on alternative implementation arrangements, often UN agencies. The World Bank, ‘Interim Strategy Note for the Federal Republic of Somalia’ (11 November 2013).

  163. 163.

    The World Bank, ‘IDA 15. Operational Approaches and Financing in Fragile States’ (June 2007), para. 25.

  164. 164.

    I discuss the shift to state-building as a strategic objective and regulatory theme in infra Sect. 1 in Chap. 7.

  165. 165.

    Boon criticizes the Bank’s extraordinary influence in supporting domestic reforms in post-conflict countries, Kristen E. Boon, ‘“Open for Business”: International Financial Institutions, Post-Conflict Economic Reform, and the Rule of Law’, 9 New York University Journal of International Law & Politics, 513 (2007).

  166. 166.

    For instance, the World Bank differentiates between countries eligible for IDA’s concessional loans or only IBRD loans. Some IDA-eligible countries receive loans with different maturities, and others can receive non-refundable grants. See also Dann, The Law of Development Cooperation. A Comparative Analysis of the World Bank, the EU and Germany, 207–209.

  167. 167.

    Also Leonie Guder, The Administration of Debt Relief by the International Financial Institutions. A Legal Reconstruction of the HIPC Initiative (Springer, 2009), 158–161; and supra Sect. 2 in Chap. 4.

  168. 168.

    For example, the 2013 Independent Evaluation Group’s review of “World Bank Assistance to Low-Income Fragile and Conflict-affected States no longer raises the same, fundamental question as the 2006 IEG review of the LICUS initiative did—questioning what the Bank’s declared state-building objective entailed; whether it was aware of the political and ideological connotations of such an agenda; and whether it had a response to the central state-building dilemma of balancing support for central government and non-state actors. See Independent Evaluation Group, ‘World Bank Assistance to Low-Income Fragile- and Conflict Affected States’.

  169. 169.

    Critical voices still question the Bank’s competence and legitimacy to engage in the highly politicized environments of fragile and conflict-affected states. See, for instance, Irfan Nooruddin & Thomas Edward Flores, ‘Financing the Peace: Evaluating World Bank Post-Conflict Assistance Programs’, 4 Review of International Organizations, 1 (2009), 22–23, arguing that the Bank had no positive effect on recovery in post-conflict settings; or Boon, ‘“Open for Business”: International Financial Institutions, Post-Conflict Economic Reform, and the Rule of Law’, 515, stating that the “absence of representative and functioning governmental counterparts that can bargain over proposed policy and legislative changes” made any type of Bank engagement in post-conflict environments more intrusive.

  170. 170.

    In practice, the World Bank has often sought to consult and involve actors outside of the government, e.g. civil society representatives or local community stakeholders, e.g. in Somalia and East Timor. From an operational as well as a legal perspective, however, engaging with non-state actors remains a “frontier issue” for the World Bank. Cissé, ‘Should the Political Prohibition in Charters of International Financial Institutions be Revisited? The Case of the World Bank’, 63.

  171. 171.

    Over the last years, the CPIA process has already become increasingly being structured, and mechanisms have been designed to ensure a certain level of transparency, reason-giving and review. With concrete proposals on how to increase the process’ conformity with such standards known from domestic administrative law, see Michael Riegner, “Governance Indicators in the Law of Development Finance: A Legal Analysis of the World Bank’s ‘Country Policy and Institutional Assessment’” Journal of International Economic Law (2016).

  172. 172.

    Michael Woolcock, UNU WIDER Working Paper 2014/097, ‘Engaging with Fragile and Conflict-affected States. An Alternative Approach to Theory, Measurement and Practice’ (July 2014), 4.

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    Marie von Engelhardt

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von Engelhardt, M. (2018). The World Bank’s Rules for Engaging with Fragile States. In: International Development Organizations and Fragile States. Governance and Limited Statehood. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-62695-6_5

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