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University of Iowa News Release


July 10, 2008

Law professor offers changes to improve World Bank accountability

A University of Iowa international development expert is proposing a new method of holding the World Bank accountable when its development projects damage communities in developing countries.

The proposal, by law professor Enrique Carrasco, would create a mediation and arbitration process that replaces the current Inspection Panel, which has come under considerable criticism since its inception.

Carrasco said that people harmed by a project financed and advised by the World Bank should, under certain circumstances, be able to bring an arbitration claim against the bank for damages if the bank did not follow its own policies and procedures.

"Our proposal would bring about real and effective accountability on the part of the World Bank because it eliminates the bank's paternalistic, biased and politically motivated approach to resolving claims," said Carrasco, who is also director of the University of Iowa's Center for International Finance and Development.

Holding the World Bank accountable has been an ongoing issue for the giant multilateral development bank. Formed after World War II, the World Bank helps developing countries build their economies by providing financing and advice to, among other things, help them construct the kinds of public infrastructure they couldn't afford to build on their own. Over the years the bank has helped countries build massive projects like dams, highways and power plants.

The bank has often been criticized, though, for financing projects that harmed people or communities in the country where the project was being built. This damage was often the result of the bank violating its own policies and procedures, but Carrasco said the people who suffered had no way to hold the bank accountable.

In an effort to allay these concerns, the bank created an Inspection Panel in 1993. The panel hears complaints from communities and determines what role the bank played in causing that damage by ignoring its own policies and procedures.

But Carrasco said the panel is generally regarded as ineffective. "The panel has very limited authority to recommend any type of remedial measure to the bank," said Carrasco. "The panel is not a problem-solving entity, and under its operating procedures it is expected to opine solely on whether the bank complied with its own policies. It also follows then that the panel has no authority to provide compensation to affected communities."

Carrasco said those communities often look to the bank's management for relief, but "it is not the bank's practice to provide compensation for harms the inspection panel identifies."

To replace this, Carrasco suggests a process of independent mediation and arbitration that would determine if the World Bank is at fault for damaging the community, how the damage can be fixed, and if it can't be, what compensation should be provided to the people most harmed by the development. In the first step, an independent mediator would be appointed who is agreed up on by both the bank and the community filing the complaint. The mediator would investigate the claim and determine whether the damage was caused because the bank ignored its policies and procedures.

Should the two sides disagree with the mediator's findings, an independent arbitration panel would be appointed, whose decision would be final. If the panel finds the bank was negligent, it would be required to either offer a plan to fix the damage or compensate the victims.

However, Carrasco said most cases would likely be settled at the mediation stage and not advance to arbitration.

The new process "gives the claimants a voice and a remedy they don't have now," Carrasco said.  It would also act as a check against the World Bank by compelling it to more closely adhere to its own policies, which would also improve its public credibility.

"Holding the bank accountable for damages resulting from its failure to follow its own policies and procedures in development projects would promote, rather than detract from, the bank's purpose," he said.

Carrasco's paper, "The World Bank's Inspection Panel: Promoting True Accountability Through Arbitration," is co-authored by University of Iowa College of Law alumna Alison K. Guernsey and will be published in a forthcoming issue of The Cornell Law Review.

STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Iowa City, Iowa 52242-2500

MEDIA CONTACT: Tom Snee, 319-384-0010 (office), 319-541-8434 (cell),