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Down to Earth IFIs Factsheet Series

No 22, March 2002

IFIs in Indonesia

This series of monthly factsheets on International Financial Institutions (IFIs) will include information on the World Bank Group, the International Monetary Fund (IMF) and the Asian Development Bank (ADB), focussing on their involvement in Indonesia.

The Asian Development Bank's Inspection Function

The ADB Inspection Function -- set up through the Bank's Inspection Policy in 1995 -- is intended to provide a mechanism for project affected communities to raise concerns about the Bank's involvement in public sector loans, guarantees, and technical assistance grants. The Inspection Function is one of the two available accountability mechanisms of the ADB. The other mechanism is through the ADB Anticorruption Unit. There has been much criticism of the fact that the multilateral development banks (MDBs) cannot be held accountable in any local, national, or international courts, nor in any form of accountability mechanisms other than their own.

Despite many complaints from communities by ADB-funded projects, it took six years until the first case was authorised for an inspection under this mechanism: the Samut Prakarn Wastewater Management Project in Thailand. While the Samut Prakarn case is near completion, it has revealed serious flaws in the Inspection Policy. The flawed mechanism has been a subject of international criticism in the past years. The ADB is currently preparing a review of the Inspection Policy and will invite public comments on how the Policy should be revised in the coming months. This update provides a summary of the current mechanism and a review of its fundamental problems. A tentative timetable for the review process is also included to warn civil society groups on the upcoming events.

How does the Inspection Function work?

There are five key players that participate in a series of procedures that comprise the Inspection Function:

The role of the Inspection mechanism is to investigate whether the Bank's relevant policies are complied with in the project concerned. It cannot investigate whether the project concerned is in line with national and international laws as well as other policies. There are also no appeal mechanisms available for requests that are rejected by the Inspection Function.

A more detailed explanation of the steps involved in an Inspection Panel claim is shown in the text box.

Steps in the Current ADB Inspection Function

  1. The Project Affected Community (the claimants) must first file a complaint in English about a Bank project to the President of the ADB. The complaint will have to mention what Bank policies are not complied with in the project and what material harms will be or have been caused because of the non-compliance.
  2. Bank management is required to respond to the claimants and sends a copy of this response to the Inspection Committee. (45 days)
  3. If the claimants are dissatisfied with Management's response, they must send in an official request for inspection to the Inspection Committee.
  4. Bank management has a second chance to respond to this request. (30 days)
  5. The Inspection Committee then evaluates whether or not an inspection is warranted. If it is, the Inspection Committee makes a recommendation to the Board to authorize an inspection. (14 days)
  6. If they decide it is not warranted, they must confer with a member of the Roster of Independent Experts before denying investigation. If they suggest that the investigation is worthwhile, the Board of Directors must authorize the inspection. (21 days)
  7. If an inspection is authorized by the Board, the Inspection Committee informs the claimants (7 days) and then selects a panel of 3 or more members from the Roster of Experts.
  8. The Inspection Panel conducts the investigation and provides a report to the Inspection Committee.
  9. Management responds to this report. (30 days)
  10. Both the panel report and the management response along with the Inspection Committee's recommendations are submitted to the Board of Directors (14 days) which then makes a decision on the panel report. (21 days)
  11. The claimants then receive the response, the report, and the final decision about the project. (7 days)

Fundamental Problems of the Current Function

Given the fact that some ADB funded projects and programs pose great potential for adverse impacts to project affected communities, the Inspection Function plays a critical role in holding the ADB accountable for its projects and programs. However, there are several fundamental problems with the Function that hamper its effectiveness for claimants. Not only is it complicated and cumbersome for claimants to file a claim to the Inspection Function, once a claim is filed, the process is not conducive to just treatment. Until the following problems are sufficiently addressed, the Inspection Function will continue to provide only minimal protection and a superficial accountability mechanism to project affected communities.

Problem 1: Inspection Committee and Panel Are Too Transient

The Inspection Committee is a standing committee of 6 Board of Director members. The IC members are rotated every 2 years, and Board members are also often in flux. There was a time in mid-2001 that 4 of the 6 positions for the IC were unfilled because the Board members' terms were ending. This lack of stability in membership can be detrimental to the process as it can cause time lags and does not provide for institutional learning. In addition, because it is a rotating position and because Board members are simply overloaded with work, the Inspection Committee is only one of many things they do. Finally, there is a potential conflict of interest between the Board members' role of approving loans and representing their country versus their role in accepting and reviewing claims on these same projects, and in supervising the Management.

There are several problems with the current system in which an Inspection Panel is comprised of members who are selected from the Roster of Independent Experts for each investigation. First, panel members do not have the opportunity to really understand the workings of the Inspection Function before conducting an investigation. Because each claim is likely to be reviewed by a brand new panel member, there is no continuity or learning from claim to claim. In addition, there is no institutional capacity for promoting and explaining the panel's function within the Bank or to the outside community. This is especially important given the complexity of the Function. Without a stable membership, it is difficult for both outsiders and Bank staff to trust the Panel. Finally, it can be difficult to find roster members who can invest time to conduct an investigation at short notice. The establishment of an Inspection Panel for the first ADB inspection case, the Samut Prakarn project in Thailand, has already experienced problems with finding available panelists within an acceptable timeframe.

Problem 2: Management is Too Involved in the Early Stages of the Function

The current process takes too much time for a community's complaint to reach a party other than Bank management. For the first 75 days that the claimants send in their complaint to the President of the Bank, their only response is from the same Bank management. By definition of the process, any affected parties that are considering the extraordinary effort of filing a claim already believe that the management is either unable or unwilling to consider their concerns seriously. In addition, this time lag provides management a chance to develop "action plans" to avoid an investigation. These plans may look good on paper, but there remains no mechanism for holding the Bank accountable for their implementation and adverse impacts caused by their operations. In the Samut Prakarn case, in anticipation of an Inspection Request, the Bank Management and the Thai Government commissioned an "Independent Review" which concluded that the project was viable and should proceed, while the potential adverse impacts could be mitigated. This "independent review" did not involve the Requesters and affected communities in the planning, development of the terms or reference, or the review itself. Only at the end of the process were the findings presented a workshop with affected communities.

Finally, in the Korangi Wastewater Management Project in Pakistan (Loan 1539-PAK), the first claim brought to the attention of the ADB president following the Inspection Function procedure, the claimants were expected to provide additional information to the Bank Management and the Board. This forced the claimants into a dialogue with management when what they wanted was the objective investigation that the Inspection Function was intended to be. The initial procedures that the claimants need to wade through before they are recognized by an objective Inspection Committee or Panel are a significant deterrent to filing claims.

Problem 3: Process is Cumbersome and Intimidating

The process is extremely difficult to navigate for the project affected communities who the Function is intended to serve. There are three primary problems that make the Inspection Function especially cumbersome. First, the ADB requires that all claims are written in English. Given the fact that many of the claims come from rural and impoverished areas, many of the project affected communities do not have the proficiency in English to file a claim in their non-native language.

Secondly, as confirmed by the numerous steps in the text box above, the process is long, involved and intimidating. There are no "user-friendly" resources at the ADB from which project affected communities can request help. Since 1995, only two projects have been considered by the Inspection Function: the Korangi Wastewater Management Project and the Samut Prakarn project. In response to the Korangi project, two Pakistani NGOs attempted to make claims. Both claims were rejected on the basis that the NGOs were not eligible claimants. If there was some resource to help these communities understand the complicated claim process, they may have been able to meet the eligibility requirements.

Finally, the Inspection Function requires the claimants to (a) cite certain ADB policies that are not complied with in the project concerned and (b) to prove that material harm would result or has resulted from a direct violation of the ADB's policies. Once again, language poses a barrier as all of the policies and guidelines of the ADB are in English. In addition, this requirement assumes that claimants can access and thoroughly understand the ADB's policies without help from the ADB. Only organizations that specialize in analyzing operations and rules of the ADB and familiar with the western legal framework can be expected to fully understand the process and know how to word a Request for Inspection.

Problem 4: Inspection Panel's Field Visit is Not Guaranteed

A field visit to the site of the project or program being inspected is a key component to an effective inspection. However, the current Inspection Policy requires the Panel to obtain an approval from the borrowing member country where the project is located, prior to a field visit. In the Samut Prakarn case, the Thai Government put a set of conditions that basically made the Inspection Panel's visit to the project site impossible. The Samut Prakarn inspection was concluded without a site visit or a meeting with the claimants.

Problem 5: Lack of Transparency and Participation

Once the claimants have sent the Inspection Request for the Inspection Committee, it can take 75 days until the claimants learn whether the Board of Directors have authorised the Inspection. During this time, the Inspection Function does not require involved bodies (Inspection Committee, Management, Board of Directors) to communicate with the claimants. During the Inspection process and until the end of the process, i.e. the Board makes a decision on the policy violation and remedial changes, the claimants are also left uninformed about how the Inspection is proceeding and what status of the process is. The Inspection Policy does not require any of the involved parties to notify the public on the process until it is completed.

The current Inspection Policy also lacks provisions on participation. The claimants, much less the public, are not notified or involved in the development of the Panel's terms of reference. Claimants do not have access to Management Responses to their Complaint or Inspection Request. They also have no opportunities to provide comments on the Panel's report, while the Management does.

In short, the Claimants are left in the dark in most parts of the inspection process.

The Inspection Committee prepares annual reports in which it summarizes the cases filed to the mechanism and how they have been handled.

Problem 6: Private Sector Operations are Not Eligible for Investigations

Currently, private sector loans, investments and guarantees are outside the scope of the Inspection Function. The ADB's new Private Sector Development Strategy promotes public-private partnerships in all Bank operations. If the private sector is not governed by the Inspection Function, most of the Bank's operations will be exempt from the Inspection Policy. Because Bank operations with the private sector continue to have serious and often adverse impacts, they too should be subjected to an accountability mechanism.

Problem 7: Anonymity is Not Guaranteed in the Process

The current process does not provide anonymity for the claimants and actually requires the release of claimants' identities to the management. This is particularly important given the highly politicized nature of claims, the potential human rights abuses or other unacceptable pressure that may be placed on project affected communities, and the lack of democratic guarantees in some countries.

Review of the Inspection Function

The ADB is planning a review of the Inspection Function which, according to the Bank, will take into consideration lessons learned from ADB's experience with ongoing inspections, current thinking in this field as well as comments from individuals and groups that have been involved in the inspections. The tentative schedule of the review is as follows:

Individuals and citizen groups interested in this process should pay attention to the events and various working drafts that will be produced throughout the review process. A group of NGOs from northern and southern countries are currently preparing recommendations on how the policy should be revised.

Jill Drilon, secretary of the ADB Board of Inspection Committee.
Robert Dobias, ADB NGO Center

Arimbi Heroepoetri, debtWATCH Indonesia,
Violeta Corral, NGO Forum on the ADB
Nurina Widagdo, Bank Information Center

ADB website on Inspection Function
Bank Information Center, et. al. Strengthening Public Accountability. Recommendations to the Asian Development Bank (ADB) for Revising Its Inspection Policy. visit

This IFI factsheet is published by Down to Earth, the International Campaign for Ecological Justice in Indonesia.

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