Introduction

1. In response to the growing emphasis by its member countries on efficiency and effectiveness in the operations of multilateral organizations, the Bank completed in January 1994 a major review of its operations with a view to enhancing the quality of its portfolio, as reflected in the Report of the Task Force on Improving Project Quality. One of the Report's recommendations, which is now being implemented by the Bank, is to promote greater beneficiary involvement in the preparation and implementation of Bank projects. The call for greater efficiency and effectiveness in multilateral organizations has also included a demand for greater accountability and transparency. Recognizing the relevance of these concerns, the Bank adopted in September 1994 a policy on confidentiality and disclosure of information to increase public access to information about the Bank's operations.

2. As a result of this new Bank policy, the public will be able to obtain more information about the Bank's operational policies and procedures, as well as pending and ongoing projects. In addition, intended beneficiaries of Bank-financed projects can expect greater opportunities to participate in the processes of formulating and implementing those projects. However, if a group affected by a Bank project believes that the formulation or implementation of the project is inconsistent with Bank policies and procedures, to the material detriment of that group, no formal procedure now exists for airing such a grievance. Related to a general interest in improving their governance, accountability and transparency, other multilateral organizations have established or are considering establishing forums, independent of their respective managements, in which such grievances could be heard. It has been proposed that the Bank also consider creating such a forum to complement its other efforts to increase transparency and accountability, and also complement the Bank's existing supervision, audit, and evaluation systems.

3. This paper first considers the rationale for establishing a body independent of the Bank's Management to review complaints concerning the Bank's compliance with its operational policies and procedures in connection with proposed and ongoing Bank projects. The paper then reviews the approaches taken by the World Bank and other multilateral organizations to create an independent inspection function for their operations. Finally, the paper outlines a proposal for the creation of a special committee of the Bank's Board of Directors to consider complaints concerning the formulation or implementation of Bank projects, with assistance from a roster of independent outside experts. 4. In this paper, the Bank's "operational policies and procedures" are defined as the Bank Policies and Operational Procedures set forth in the Bank's reorganized Operations Manual (OM) and, to the extent applicable, corresponding sections in earlier editions of the OM, but do not include Guidelines on Operational Procedures and similar documents or statements. The Bank's "operational policies and procedures" also include Staff Instructions that relate to the formulation, processing or implementation of Bank projects and that are intended to be incorporated eventually into the OM. A Bank "project " is defined as any public sector (1) loan , guarantee or technical assistance grant financed or to be financed in whole or in part from Bank resources, or administered or to be administered by the Bank. A "proposed " project refers to a project under preparation that has not yet been approved by the Bank's Board of Directors, while an " ongoing" project refers to a project that has been approved by the Board.

Rationale

5. The rationale for establishing an inspection function independent of Management includes the following:

(a) Establishment of an inspection function and related inspection procedures would be consistent with the Bank's policy of encouraging transparency and accountability in its operations;

(b) Establishment of such a function would complement the Bank's policy of allowing greater public access to Bank documents and publications, as well as the Bank's increased emphasis on beneficiary participation in the formulation and implementation of projects;

(c) Independent investigation of the facts underlying the grievance of a group arguably affected by the Bank's failure to follow its operational policies and procedures would permit a fair hearing of the views of the affected group;

(d) The activities and recommendations of an inspection body would help to educate the public at large about the variety and complexity of issues involved in development programs in the region; and

(e) The existence of an inspection body would foster greater confidence in and support for the Bank and its operations.

6. At the same time, it should be recognized that the Bank already has in place a number of well-developed supervision, audit, and evaluation systems. The Bank's Office of the General Auditor (OGA) regularly audits the Bank's financial, accounting, administrative, project-related and other activities; OGA reports directly to the President, and its activities are reviewed extensively by the Audit Committee of the Board as well as the Bank's independent outside auditors. The Post-Evaluation Office (PEO), which also reports directly to the President, conducts selective audits of completed Bank projects, as well as impact evaluations and other special studies of post-evaluated projects. In addition, Management Review Meetings, Staff Review Committee Meetings and Loan and Technical Assistance Coordination Committee Meetings provide mechanisms for relevant Departments, Divisions and Offices to review and comment on proposed projects, with respect to both the project's merit and its conformity with Bank policies and procedures. In particular, the Bank's Office of the Environment and Social Development, which reports directly to the President, considers the environmental and social issues raised by proposed projects. Finally, the Board of Directors itself reviews each proposed project on the basis of a Report and Recommendation of the President (RRP); this review often involves intensive scrutiny by member country governments.

7. It would be unnecessary and undesirable to duplicate the activities of these offices and mechanisms in a newly established inspection body. However, such a body could augment the Bank's existing system of controls by providing a mechanism for external parties to raise concerns about the Bank's compliance with its own policies and procedures in the formulation or implementation of projects. Such a mechanism would, in turn, complement and strengthen the Bank's existing quality control systems.

The Inspection Function in Other Multilateral Organizations

A. The World Bank's Independent Inspection Panel

8. In September 1993, the Executive Directors of the World Bank approved the establishment of an Independent Inspection Panel (the WB Panel), which is comprised of three individuals of different nationalities nominated by the President of the World Bank and appointed by the Executive Directors. Members of the WB Panel are appointed for five-year staggered terms and yearly elect from among themselves a chairman. The WB Panel reports to the President and the Executive Directors. All reports and recommendations of the Panel are subject to the approval of the Executive Directors.

9. The function of the WB Panel is limited to receiving and acting upon requests for inspection presented by affected groups of two or more people (including organizations, associations, societies and other groups of individuals) who can demonstrate that their rights or interests have been or are likely to be directly affected by an action or omission of the World Bank involving a failure to follow its operational policies and procedures with respect to design, appraisal and/or implementation of a World Bank-financed project.(2) Under the Board Resolution establishing the WB Panel, the Panel can only consider a request with respect to a World Bank-financed project if: (a) the World Bank's alleged failure to follow its policies and procedures has had or threatens to have a material adverse effect on the group; (b) the alleged violation of its policies and procedures is of a "serious character"; and (c) the issue has already been raised with the World Bank's Management, and Management has failed to demonstrate that it has followed or is taking adequate steps to follow World Bank policies and procedures. The following requests will not be considered: (a) complaints that do not involve any act or omission by the World Bank; (b)complaints against procurement decisions of World Bank borrowers brought by suppliers or losing tenderers; (c) requests filed after the Closing Date of the loan financing the relevant project, or after the loan has been substantially disbursed; and (d) requests relating to matters as to which the WB Panel has already made a recommendation, unless justified by new evidence or circumstances.

10. Once a request for inspection has been submitted to the WB Panel, Management is first required to notify the Panel of any action it has taken or is considering taking with respect to the request. After receipt of this notification, the WB Panel must assess whether the request for inspection meets the eligibility criteria outlined above, and on this basis the Panel makes a recommendation to the Executive Directors as to whether the matter should be investigated. This recommendation is presented on a no-objection basis. If the Executive Directors decide that an investigation is warranted, an inspection of the request is then carried out by one or more WB Panel members. When the inspection has been completed, the Panel makes a recommendation to the Executive Directors and the President. The initial decision of the Executive Directors as to whether to proceed with an inspection (together with copies of the request for inspection and the WB Panel's recommendation thereon) is made publicly available, as is the final report of the WB Panel on any inspection and the World Bank's response thereto.

11. The country in which the relevant project is located, and the Executive Director representing that country, must be consulted on any request for inspection, both before the WB Panel's recommendation as to whether to proceed with an inspection and during any inspection. Inspection in the territory of such country cannot be held without its prior consent.

12. During its first year of operation, the WB Panel reviewed four inspection requests, one of which--concerning the proposed Arun III Hydroelectric Project in Nepal--resulted in a full inspection; the second and third inspection requests were dismissed on the basis that each failed to meet the relevant eligibility criteria; and, although the fourth inspection request was found eligible by the WB Panel, the Board of Executive Directors has instructed the Panel to obtain more information about the materiality of the adverse effects alleged before the Board authorizes an inspection to proceed. The budget for the WB Panel's first year of operation was $1.5 million. Despite substantial start-up costs, and including the expenses of the Arun III inspection, the WB Panel's actual expenses for the first year are expected to be substantially under budget. Given the uncertainties concerning the volume of inspection requests that may be received over the next year, the World Bank's Management has budgeted $1.5 million for the Panel's second year of operation. Although only four formal inspection requests were considered by the WB Panel in its first year, the Panel and its staff devoted considerable time to responding to inquiries and requests for information from individuals and groups outside the World Bank. To handle the volume of informal inquiries, as well as formal inspection requests, two World Bank professional staff members are currently assigned to serve as Executive Secretary and Alternate Executive Secretary to the WB Panel.

B. The Inter-American Development Bank's Independent Investigation Mechanism

13. In August 1994, the Board of Directors of the Inter-American Development Bank (IDB) approved the establishment of an independent investigation mechanism (the IDB Mechanism), which will perform a function similar to that of the WB Panel. Although the IDB Mechanism mirrors the WB Panel in many respects, it includes two key differences. First, in place of a permanent panel of outside experts, the IDB Board of Directors has appointed a roster of ten individuals of different nationalities, from which the Board will select panels of three or more individuals to investigate particular complaints. Second, whereas the WB Panel will initially screen each request for inspection and make a recommendation to the Executive Directors as to whether an inspection is warranted, the IDB Board of Directors will first decide whether an investigation is warranted, based on a review of the complaint and Management's written response, and will convene an investigation panel only after making such a finding. In addition, while WB Panel members are precluded from any future employment by the World Bank, members of the IDB Roster will be precluded from working for the IDB for only two years following their term on the Roster.

14. The IDB Board of Directors has not yet approved a specific budget for the IDB Mechanism, but rather intends to allocate funds for particular investigations at the time they are approved. To date, the IDB has received no investigation requests.

C. Other Inspection Mechanism and Proposals

15. The United Nations Joint Inspection Unit, which has existed since 1966, consists of 11 inspectors of different nationalities, who are appointed for five-year staggered terms by the General Assembly of the United Nations. The Unit is responsible to the General Assembly and to the legislative bodies of participating United Nations agencies. The members of the Joint Inspection Unit have broad powers of investigation in all matters having a bearing on the efficiency of services provided and the proper use of funds by participating agencies. Acting singly or in small groups, the Inspectors may conduct inquiries and investigations either on their own initiative or at the request of the legislative bodies or executive heads of participating agencies. Despite its broad mandate, the Joint Inspection Unit has been concerned primarily with issues of audit and detection of fraud. In this respect, the Unit more closely resembles the "inspectors general" that have been established within the executive branches of some member country governments.

16. The Managements of the African Development Bank and the European Bank for Reconstruction and Development have been asked to develop proposals for an inspection panel along the lines of the WB Panel, but these proposals are still under consideration. The Management of the International Monetary Fund had made a proposal to its Board of Directors in December 1992 for the establishment of an independent evaluation office, but decision on that proposal was deferred, and no new proposals are now being considered. Although IFC is an affiliate of the World Bank, its operations are not subject to review by the WB Panel, and thus far its Board of Directors has not considered any proposal to establish its own inspection panel.

Proposal for an ADB Inspection Function

17. As discussed above, inspection of third-party complaints by a body independent of the Bank's Management would complement existing systems for quality control in the Bank's operations. To be effective, however, this independent mechanism must be tailored to the needs of the institution. The WB Panel and the IDB Mechanism present two possible models, each with certain advantages. The WB Panel has the following attractions: (a) it may appear more "independent" than the IDB Mechanism since the WB Panel initially reviews each inspection request, although the decision whether to proceed with an inspection ultimately rests in both cases with the Executive Directors; (b) the WB Panel relieves the Executive Directors of the task of initially screening inspection requests, although the Executive Directors must eventually consider the Panel's recommendations concerning such requests; and (c) the WB Panel may be a more cost-effective option for processing a large number of inspection requests, since a permanent panel could review several requests (and conduct multiple inspections) simultaneously. At the same time, the IDB Mechanism is appealing in several respects: (a) a roster of ten outside experts permits broader representation of nationalities and technical expertise than does a single three-member panel; (b) a roster from which panels of experts can be drawn as needed should be more cost-effective than a permanent panel if only a limited number of inspection requests are received; and (c) by involving the Executive Directors in the inspection process from the beginning, the IDB Mechanism emphasizes the role of the Executive Directors in ensuring compliance with IDB policies and procedures.

18. In the Bank's case, several considerations favor the establishment of an inspection function that more closely resembles the IDB Mechanism: (a) the Bank's experience does not suggest that there is a need to establish a permanent outside inspection body; (b) the establishment of a roster of experts who could be called on to assist the Directors as needed would allow for greater diversity of backgrounds and expertise than a single panel of experts; and (c) participation by the Directors in the entire inspection process, including the initial review of inspection requests, would contribute to the discharge of the Board of Directors' responsibility for directing the general operations of the Bank.

19. As a variation on the IDB Mechanism, it is proposed that a new standing committee of the Board of Directors be created, which initially will review inspection requests (in consultation, as needed, with an independent outside expert), select a panel of outside experts from an approved roster to conduct particular inspections authorized by the Board, and supervise such inspections. The creation of such a Board Inspection Committee (BIC) will emphasize the importance placed on the inspection function by the Bank and its Board of Directors. The BIC should also provide for more efficient and effective consideration of inspection requests, since a Board committee will be able to devote more concentrated attention to inspection requests and to the conduct of inspections than the full Board. Such a committee will discharge functions external to the Bank's Management, but will be familiar with Bank policies and procedures, and therefore can also provide useful assistance to any panel of outside experts conducting an inspection.

20. The inspection procedures described below are consistent with the provisions of the Bank's Charter dealing with the respective powers and functions of the Board of Governors, the Board of Directors and the President. Under Article 28.1 of the Charter, "[a]ll the powers of the Bank" are vested in the Board of Governors, but not every act must be performed by the Board of Governors or its delegatee (the Board of Directors). Article 31 provides that the Board of Directors is responsible for "the direction of the general operations of the Bank..." [emphasis added]. The responsibility of the Board of Directors under the Charter, therefore, relates to the "general operations" as distinguished from "particular operations" of the Bank, and in respect of the general operations, its responsibility is to "direct" rather than to "administer" or "execute" the same. Under the Charter, the latter functions are allocated to the President. Article 34.5 empowers the President, as "chief of the staff of the Bank", to "conduct, under the direction of the Board of Directors, the current business of the Bank". It is in the context of this differentiation of functions between the Board of Directors and the President that Article 14(iv) provides for the consideration of a loan proposal by the Board of Directors on the basis of a report, based on a staff study, presented to it by the President. The primary responsibility for preparation and processing of loans and other Bank projects, therefore, rests with the President.

21. Under the inspection procedures described below, the President will continue to have primary responsibility for processing and implementing projects, while the Board of Directors, in the discharge of its responsibility for directing the general operations of the Bank, will have an opportunity to assess and ensure compliance with the Bank's policies and procedures. The proposed inspection procedures, therefore, require an affected group to first raise its grievance with Management. Only if the group is not satisfied with Management's response can it make a request to the BIC for inspection of the grievance, in which case Management will have an opportunity to respond to the request filed with the BIC. Based on its consideration of the request and Management's response, the BIC will decide whether or not to recommend an inspection to the Board of Directors. If the Board determines that an inspection is warranted, the Board will then authorize the BIC to convene a panel of outside experts to investigate the grievance.

22. The inspection procedures described below are intended to assist the Board of Directors in ensuring the Bank's compliance with its own operational policies and procedures. Accordingly, the scope of any inspection will not include consideration of policies and procedures of other development finance institutions (except to the extent that the Bank's own policies and procedures expressly refer to those of other institutions). Similarly, an inspection will not include consideration of the laws, policies and regulations of any borrowing member country or executing agency (except to the extent directly relevant to the Bank's compliance with its operational policies and procedures). Because the focus of any inspection will be on the Bank's conduct in connection with a particular project, the conduct of other parties, including the relevant borrowing member country and its agencies, will not be the subject of an inspection, and may be considered only to the extent directly relevant to an assessment of the Bank's compliance with its operational policies and procedures.

23. The procedures described below are intended to ensure that requests for inspection are treated in a fair and transparent manner, and that any inspection authorized by the Board of Directors is complete and impartial. It should be understood, however, that the panels of outside experts convened to inspect particular Bank projects will be advisory, not adjudicative, in nature. Based on a panel's independent review and report and Management's response to such report, the Board of Directors will determine what, if any, changes may need to be made to the project under inspection to ensure compliance with the Bank's operational policies and procedures. The proposal set forth below is not intended to provide judicial-type remedies such as injunctions or money damages.

24. Under the procedures described below, in appropriate circumstances individual Board members as well as communities and other groups will be able to raise concerns about particular projects, initially with the Bank's Management and thereafter with the BIC. However, these inspection procedures are not intended to affect or limit existing rights of Board members individually or collectively to request or initiate reviews of Bank policies and procedures.

A. Composition of the BIC

26. It is proposed that the BIC will comprise six members of the Bank's Board of Directors, including four regional members (at least three of whom must be from borrowing member countries) and two non-regional members. In accordance with the Board's Rules of Procedure, the President will appoint members of the BIC after consultation with the Directors, and will designate a Chairperson of the BIC. Members will serve for two years (3). Replacements and reappointments of BIC members will be made in accordance with usual Board procedures. The Office of the Secretary will serve as the Secretariat for the BIC.

B. Composition of the Roster of Experts

26. It is proposed that a roster of experts (the Roster), consisting of at least ten individuals of different nationalities from the Bank's member countries, will be nominated by the President and appointed by the Board of Directors to serve five-year, non-renewable terms. The President will nominate individuals to the Roster following consultation with each Director to identify qualified candidates from diverse backgrounds and disciplines. The Roster will be composed of individuals of integrity and recognized competence in areas related to development and who have indicated a willingness to serve on investigation panels as necessary.

27. No right to compensation will arise solely on the basis of appointment to the Roster. Members of the Roster can be removed from the Roster for cause by the Board of Directors, or may resign by written notice to the Board. In the event that a Roster member is removed or resigns before the end of his/her term of appointment, the Board of Directors may appoint a replacement to serve for a five-year, non-renewable term beginning on the date of his/her appointment. Former staff members of the Bank (including for this purpose employees, consultants, Directors and their staff) will not be eligible for appointment until at least two years have elapsed since the termination of their services to the Bank. Members of the Roster also may not serve as staff members of the Bank (as defined above) for a period of at least five years following completion of their term on the Roster.

C. Parties Who Can File a Request

28. As development projects normally affect communities or other groups, it is proposed that, except as provided in this paragraph and in paragraph 29 below, requests for inspection may only be filed by communities, organizations and other groups residing in the borrowing member country in which the relevant Bank project is being or will be implemented, or residing in a member country adjacent to such borrowing member country. It is not necessary for an applicant to be a legal entity, as such a requirement could exclude groups with legitimate grievances. Applicants must present reasonable evidence that their rights or interests have been or are likely to be directly, materially and adversely affected by an action or omission of the Bank as a result of the Bank's failure to follow its operational policies and procedures (as defined in paragraph 4 above) (4) in connection with a proposed or ongoing Bank project (as defined in the same paragraph). A request for inspection may be filed on behalf of such a group by (a) a representative of the group residing in the same country, or (b) in exceptional cases when no appropriate local representative is available and the Board of Directors so agrees at the time it considers the request for inspection, by a non-local representative; provided that, in either case, the request must include reasonable evidence that the representative is authorized to act on behalf of the group.

29. To discharge their responsibilities under the Charter, in special cases involving allegations of serious violations of Bank operational policies and procedures in respect of an ongoing (5) project, one or more Directors may also make a request for inspection to the BIC after first raising their concerns with Management . Such a request will be subject to paragraphs 30 and 31 below.

D. Requests That May be Entertained

30. It is proposed that a request for inspection made to the BIC must be in writing and must assert that: (a) the Bank has failed, in the formulation, processing and/or implementation of a proposed or ongoing project, to follow its operational policies or procedures; (b) this failure has had or is likely to have a direct and material adverse effect on the applicant group's rights and interests; and (c) this failure was brought to the attention of the Bank's Management, which failed within a period of 45 days to demonstrate that the Bank had followed, or was taking adequate steps to follow, its operational policies and procedures.(6) The request must state all relevant facts known to the applicant, and annex any evidence in the possession of the applicant of the validity of its allegations or indicate where such evidence may be obtained. The request must indicate which of the Bank's operational policies and procedures have not been followed, how the alleged failure by the Bank has had or is likely to have a direct and material adverse effect on the applicant, the steps already taken to bring the allegations to Management's attention, and Management's response to these allegations.

31.

Requests regarding the following shall not be considered:

(a) Complaints with respect to actions that are the responsibility of other parties, such as a borrower or potential borrower, or that otherwise do not involve an action or omission by the Bank in violation of its operational policies and procedures;

(b) Complaints against decisions made by the Bank, a borrower or executing agency concerning the procurement of goods or services, including consulting services (which will continue to be addressed under existing procedures);

(c) Complaints relating to completed or substantially completed projects (i.e. where a request is filed after 95 percent of the relevant loan has been disbursed or after the closing date for withdrawals specified in the relevant loan agreement has passed);

(d) Complaints relating to matters that have already been disposed of under the Bank's inspection procedures, unless the applicant presents new evidence not known at the time of the original request;

(e) Complaints about the adequacy or suitability of the Bank's existing policies and procedures; and

(f) Complaints that fall within the jurisdiction of the Appeals Committee or the Administrative Tribunal, or that otherwise relate to Bank personnel matters.

E. Processing of a Request for Inspection (7)

(a) Management's Initial Consideration of a Grievance

32. The grievance of an affected group concerning a proposed or ongoing Bank project will not be investigated unless it has first been raised with the Bank's Management. (This requirement also applies to a request for inspection of an ongoing Bank project made to the BIC by one or more Directors, as provided in paragraph 29 above.) Initial complaints concerning Bank projects shall be submitted to the President. Within 45 days after receiving an initial complaint concerning a Bank project, Management shall complete its review of the grievance and provide the applicant with a formal response. This response, a copy of which will be furnished to the BIC, shall indicate what actions, if any, Management intends to take with respect to the complaint, and shall advise the applicant of its right to appeal Management's decision by filing a request for inspection with the BIC.

33. In the case of a project not yet circulated to the Board of Directors for consideration, any remedial steps proposed in Management's response will be taken into account in the relevant RRP presented to the Board for approval. If legal documents have already been negotiated with the relevant borrower or grant recipient, Management will obtain such party's consent to any necessary changes in the legal documents. If a project has already been approved by the Board, any remedial steps will be addressed through normal Bank procedures relating to changes in project scope or implementation arrangements (which require the consent of the relevant borrower or grant recipient, except as otherwise provided in the Bank's Loan Regulations or other relevant legal documents).

(b) Preliminary Review of a Request

34. Requests for inspection shall be filed with the BIC. If it is not shown that the grievance asserted in a request has been presented to Management, the BIC will promptly refer the request to Management for consideration as an initial complaint under the 45-day period described in paragraph 32 above. In all other cases, the BIC will promptly forward the request to Management for a written response, due within 30 days after Management's receipt of the request. However, if the BIC concludes that the request is clearly frivolous, it shall inform Management that a written response to the request is not required.

35. On the basis of its review of the request and Management's response (if required), the BIC will decide whether to recommend an inspection to the Board of Directors. In its deliberations, the BIC may consult with a member of the Roster designated for this purpose by the Chairperson of the BIC. If necessary, the BIC may also request additional information from the applicant or Management. If a request relates to a matter in which any member of the BIC has a personal or financial interest, which may be related to the country of which he/she is a citizen, or as to which he/she might otherwise appear to have a conflict of interest, such member must abstain from participating in the review of the request and any subsequent activities related to it.

36. Within 14 days after receiving Management's response to a request, the BIC shall submit a written recommendation to the Board of Directors (except that, if the BIC has requested additional information from the applicant or Management, the 14-day period will start from the date of receipt of such information or the date of receipt of Management's response, whichever is later, and if the BIC has informed Management that a written response to the request is not required, the 14-day period will start from the date that Management was informed). In the absence of consensus, the recommendation will convey the majority finding together with the minority view. Prior to making a recommendation that an inspection is not warranted, the BIC must consult with a member of the Roster, and its recommendation to the Board of Directors must recite that such consultation has taken place.

37. The President shall place the BIC's recommendation on the agenda for Board consideration within 21 days after circulation of the recommendation to Board members. Within seven days after the Board's decision thereon, the BIC shall notify the applicant in writing of the Board's decision and, if the decision is that an inspection is not warranted, the reasons therefor.

38. The filing of a request for inspection, and the authorization of an inspection by the Board, will not suspend or otherwise affect the processing or implementation of a Bank project unless Management (in the case of a proposed or ongoing project) or the Board (in the case of an ongoing project) expressly directs otherwise. In exceptional circumstances, preliminary review of a request for inspection may, depending on the seriousness of the alleged violation of the Bank's operational policies and procedures and the extent of the possible harm caused or likely to be caused, suggest that interim measures should be taken to prevent or minimize such harm. In the case of a proposed project involving allegations of potential harm to a particular group, the urgency for interim measures is unlikely, and concerns relating to potential harm can be addressed at the time of Board consideration of the project for approval. In the case of an ongoing project, one interim measure would be for the Bank to suspend disbursements in respect of project activities pending an inspection of the project. However, this is an extraordinary step that would be authorized by the Board only in extreme circumstances, and after full consideration of the cost and other implications. Moreover, under Bank procedures, such a step would require the consent of the relevant borrower or grant recipient (except as otherwise provided in the Bank's Loan Regulations or other relevant legal documents).

(c) Inspection by the Independent Panel

39. In the event that the Board of Directors authorizes an inspection upon the recommendation of the BIC, the BIC will promptly select a panel (the Panel) from the Roster to conduct the inspection, and will provide the Panel with appropriate terms of reference and a suggested time period within which to conduct the inspection. A Panel will be composed of at least three individuals from the Roster, selected on the basis of their aptitude to deal with the matter at hand. An individual from the Roster may not serve on a Panel if the inspection to be conducted relates to a matter in which he/she has a personal or financial interest, which could be related to the country of which he/she is a citizen, or as to which a conflict of interest might otherwise appear to exist. Subject to the terms of reference provided by the BIC, the Panel members may select from among themselves a Chairperson, and may determine the procedures to be followed to conduct the inspection and prepare their report. The Office of the Secretary will provide the Secretariat for the Panel.

40. In conducting an inspection, the Panel shall have access to all Bank staff and pertinent Bank records, and may consult as necessary with officers or staff from relevant Departments, Divisions and Offices, as well as Management. In the conduct of its activities, the Panel will be required to adhere to the Bank's policy on confidentiality and disclosure of information.(8) If the Panel determines that it does not possess all the technical expertise required to conduct an inspection, it may propose the engagement of one or more consultants to the Chairperson of the BIC for approval.(9) In the event that a co-financing institution is conducting a separate inspection of the same project, the Panel, with the support of the BIC, shall coordinate its activities with those of the other inspection team to the extent appropriate.

41. The borrowing member country to which a Bank project under inspection relates, and the Director representing that country, shall be consulted during the inspection and given an opportunity to record its views. Any part of the inspection to be conducted by the Panel or its consultants in the territory of a borrowing country will be carried out only if the country has no objection. If the country raises an objection, the inspection nevertheless will continue to the extent feasible on the basis of reports and other information otherwise available to the Bank.

42. In the performance of their functions, Panel members will be entitled to enjoy the privileges and immunities accorded to experts performing missions for the Bank under the Bank's Charter. Panel members will be compensated for actual work performed, and reimbursed expenses, at a level or levels to be determined by the Board of Directors upon recommendation of the President.

43. In conducting an inspection, a Panel should endeavor to arrive at its findings and recommendations by consensus. In the absence of consensus, the view of each member of the Panel shall be expressly stated. Each Panel shall submit a written report to the BIC, with a copy provided to Management. This report shall (a) identify all relevant facts; (b) make a finding as to whether the Bank has compiled with its operational policies and procedures; and (c) make recommendations, if appropriate, for any remedial changes in the scope or implementation of the inspected project. In arriving at its findings, the Panel shall give due consideration to the exercise of professional judgment by the Bank's Management, Staff and Consultants in interpreting and applying the Bank's operational policies and procedures to the inspected project. Any information required to be kept confidential under the Bank's policy on confidentiality and disclosure of information shall be segregated and submitted as a separate, confidential supplement to the report. The complete report (excluding any such confidential supplement) shall be given to the applicant for inspection as provided in paragraph 44 below and will become publicly available as provided in paragraph 46 below.

(d) Board Decision

44. Management shall submit to the BIC a written response to a Panel's report within 30 days after receipt thereof. In the event the Panel finds that the Bank has failed to follow its operational policies and procedures, to the material detriment of the applicant, the BIC will consult with both Management and the Director representing the relevant country concerning remedial steps that can be taken to address this failure. Within 14 days after receiving Management's response to the Panel's report, the BIC shall submit the report and Management's response to the Board of Directors together with a recommendation on the matter. The President shall place the matter on the agenda for Board consideration within 21 days after circulation of the report, response and recommendation to Board members. Within seven days after the Board's consideration of the matter, the BIC shall provide the applicant with complete copies of the Panel's report, Management's response and any Board decision with respect thereto.

45. If a Panel report recommends changes in the formulation of a proposed project, Management shall discuss the Panel's recommendations, and any actions taken during project preparation in response to those recommendations, in the relevant RRP. If a Panel report recommends changes in the scope or implementation of an ongoing project, and the Board accepts the Panel's recommendations, Management shall implement these recommendations within the period designated by the Board as appropriate to the circumstances. Any remedial changes in project scope or implementation (or, if warranted, the suspension or cancellation of the project) will be carried out in accordance with applicable Bank procedures (which require the consent of the relevant borrower or grant recipient, except as otherwise provided in the Bank's Loan Regulations or other relevant legal documents).

(e) Reporting

46. It is proposed that upon completion of an inspection, the full text of the Panel's report (excluding any confidential supplement), Management's response, the BIC's recommendation and any Board decision thereon will be made publicly available at the same time that those documents are provided to the applicant for inspection.

47. It is also proposed that the Office of the Secretary, as Secretariat for the BIC, will issue an annual report concerning requests received, inspections undertaken and their results. This annual report will be addressed to the Board of Directors and Management, and will also be made publicly available.

Budget and Resource Implications

48. It is proposed that the yearly operating expenses of the BIC and any Panels will be funded out of the Board of Directors' budget and administered by the Office of the Secretary. For as long as the inspection function is in operation, the Board will allocate a portion of each year's budget to pay that operating expenses of the BIC and any Panel conducting an inspection during that year. These operating expenses will include: (a) compensation and expenses of Panel members; (b) compensation and expenses of any consultants hired to assist a Panel; and (c) costs of administrative support to the BIC and any Panel, including expenses associated with the production of the BIC's annual report. In addition, the BIC and related inspection procedures will require additional staff time (particularly from staff of the concerned Projects Department, Office of Environment and Social Development, Office of the General Counsel and Office of the Secretary) to prepare Management's responses to initial complaints from affected groups, requests for inspection from such groups and any Panel reports thereon, and to communicate with the BIC and the Board of Directors concerning inspection requests and the results of inspections. (Based on the recent experience of the WB Panel, it can be expected that the Office of the Secretary and the Office of the General Counsel will be required to devote substantial additional resources to handling informal inquiries and requests as well as formal requests for inspection.) The inspection function will also entail certain start-up costs, including the staff time required to prepare an informational brochure relating to the inspection function.

49. A budget request of $500,000 is included in the 1996 budget documents that are to be presented to the Board, to cover the compensation and expenses of Panel members and consultants (if required), as well as the administrative expenses of the Secretariat for the BIC and any Panel. The Office of the Secretary will also require an additional staff position to fulfill its obligations as Secretariat for the BIC and any Panel, which position will be filled by redeployment from other areas of the Bank.

50. As mentioned above, Panel members will be compensated at a level or levels to be determined by the Board of Directors upon the recommendation of the President, and any consultants engaged to assist a Panel will be engaged on the same terms as the Bank's staff consultants.

Recommendations

51. The following recommendations are submitted for the consideration and approval of the Board:

(a) The proposal for creation of a Board Inspection Committee and related inspection procedures, as outlined in paragraphs 19 through 50 of this paper, should be approved;

(b) The President should appoint the members of the initial Board Inspection Committee within three months after Board approval of the proposed recommendations, and nominate candidates for the initial Roster within six months after such approval;

(c) The proposed recommendations should take effect upon the Board's approval of the initial Roster; and

(d)The operation of the Board Inspection Committee and related inspection procedures, and consideration of the application of these inspection procedures to the Bank's private sector operations, should be reviewed by Management within two years after the Board's approval of the initial Roster, and the results of this review, together with any proposals for improvements in the operation of the Committee or in the related inspection procedures, should be submitted to the Board.