In the 1980s, multilateral development bank-supported projects around the world were criticized for imposing unacceptable environmental and social costs on borrowing countries. The World Bank, the oldest and largest of the multilateral development banks, was the focal point for much of this criticism. Several World Bank projects became the targets of highly publicized international campaigns aimed at convincing officials to withdraw bank support. Two examples—both the subject of congressional inquiries—were the following: The Polonoroeste Project: This project, which received major World Bank support beginning in 1982, encouraged impoverished Brazilians to take up farming in a previously inaccessible area of the Amazon basin. In 1985, the Bank suspended payments to Brazil when it became clear that the region’s soils could not actually support farming and that, rather then alleviating poverty, the project was resulting in environmental destruction and maltreatment of local indigenous people. Bank support for development in the region was renewed after the adoption of measures to protect the environment and local peoples. The Sardar Sarovar Dam: In 1985, the World Bank committed to supporting this project—a portion of a larger Indian government plan for developing the Narmada River basin—even though a full assessment of the project’s likely environmental and social impacts had not been completed. The Bank ceased supporting the project in 1993, after years of controversy centering on the forced relocation of tens of thousands of people and the publication of an independent assessment that found substantial flaws in both project preparation and implementation. Concern about such projects prompted Congress to convene a series of hearings on the environmental impacts of bank-supported projects. One Senate report resulting from these hearings concluded that the banks had not “adequately considered the potential unacceptable environmental consequences of many of the projects that are selected for funding” before deciding to proceed. These inquiries and other critiques provided the impetus for the introduction of bank policies requiring environmental assessments (EA) on proposed projects. Figure 1.1 describes the EA process. Throughout most of their existence, the banks imposed few requirements on project sponsors (borrowing government agencies or private companies) regarding public consultation on proposed projects. The banks also made few provisions themselves to permit or elicit public involvement in bank decisions on whether to support sponsor proposals. The extent of public consultation in decision-making was regarded as lying within the discretion of individual borrowing governments. The banks themselves did not, as a rule, independently engage the public in dialogue on proposed projects. When working with private companies, the banks also cited the need to safeguard information submitted by these companies so as not to compromise their competitive positions as a reason for limiting public involvement in project development. Bank critics said that the relatively closed nature of the processes the banks used to develop projects was an important cause of unsatisfactory project results. While these processes differ in many details, the banks employ a broadly similar procedure for developing project plans. This process is outlined in figure 1.2. Bank critics raised two distinct but interrelated problems with the banks’ project development processes. These were inadequate consultation and a lack of transparency. Bank critics believed that greater public consultation was needed throughout project preparation. They argued that public consultation could improve the quality of the EA process, as well as decisions deriving from it, by helping to ensure that (1) all important issues raised by a proposal would be identified and examined from diverse points of view and (2) alternatives and possible mitigation measures would be fully explored. The critics’ main concern was that the measures employed by project sponsors to consult with local people—that is, those living in the vicinity of proposed projects—while preparing project proposals for bank consideration were inadequate. Bank critics noted that project sponsors often did not conduct meaningful consultations with those who would likely be directly affected by the proposed project and other concerned members of the public (for example, local nongovernmental organizations—NGO). The lack of consultation during the early phases of project development (including EA preparation) was of particular concern, as opportunities for the public to affect project designs are greater in these early phases, when alternative designs and approaches can still be explored at comparatively little cost. The banks critics’ main concern about bank transparency was that there was almost no access to EA reports for proposed projects. Critics believed that interested members of the public, both within borrowing countries and in the broader community, should have access to these documents in advance of final action by the banks’ boards of executive directors. This access would permit them to review the EA reports’ content and bring matters of concern to the attention of bank staff, project sponsors, and/or executive directors. Bank guidelines did not provide for making such information available for public review before projects were taken up by the executive directors. The banks did not require project sponsors to share information on such matters, nor did the banks themselves provide public access to EA reports or related documents through either their headquarters offices or their field offices in borrowing countries. Critics contended that this limited the banks’ accountability to the public. They said that because of this lack of transparency, neither citizens in borrowing countries, international NGOs with expertise on environmental and social issues, nor officials of the banks’ member countries were able to critique EA reports or raise concerns that may not have been adequately examined or addressed. While the United States cannot unilaterally mandate changes in bank policies and procedures, it has historically exercised considerable influence over bank operations. Within the executive branch, the Department of the Treasury has the lead role in working with the staffs of the U.S. members of the banks’ boards of executive directors to develop and implement U.S. policy regarding the banks. Since 1985, Congress has repeatedly called upon the Department and the U.S. executive directors to work for changes in bank policies and procedures that would improve the manner in which environmental impacts are taken into account during project development. Among other things, Congress instructed the U.S. executive directors to seek improvements in bank guidelines regarding (a) the steps that project sponsors take to engage in meaningful consultation with peoples whom the projects might affect and other concerned members of the public during project preparation and (b) the steps that the banks themselves take to improve transparency. In 1987, Congress enacted legislation calling upon U.S. executive directors to vigorously promote participation by borrowing country NGOs at all stages of preparation for loans that may have adverse environmental or sociocultural impacts. In 1989, the “Pelosi Amendment” instructed the Secretary of the Treasury to seek, through negotiations with other bank member countries and bank management, the adoption of policies and procedures within the banks that would (a) provide interested members of the public in all bank member countries with access to EA reports on proposed projects (or summaries thereof) at least 120 days prior to board action and (b) encourage public participation in reviewing project-specific environmental issues. The amendment’s legislative history emphasized the important role that international NGOs play in facilitating thorough public review of proposed bank projects. (See fig. 1.3.) In commenting on a draft of this report, the U.S. Agency for International Development pointed out that Congress has also mandated a substantial role for the Agency in identifying potential environmental and social problems associated with projects being prepared for consideration by the banks’ boards of executive directors. The Agency’s written comments, reproduced in appendix III, provide details on the legal provisions in question and the efforts that the Agency has undertaken in response. The Pelosi Amendment sought to bring U.S. influence to bear in favor of effective implementation of such policies by barring U.S. executive directors from voting in favor of certain proposed actions. U.S. executive directors were called upon to refrain from supporting projects that would have significant impacts on the environment unless project sponsors had prepared EA reports and made the reports—or summaries thereof—available for review by affected groups and local NGOs, as well as bank staff and executive directors, for at least 120 days before the executive directors vote on the proposed actions. It also required the Secretary of the Treasury, in his role as leader of the U.S. government’s interagency process for reviewing proposed loans, to take public comments on environmental matters into consideration in determining the position that the United States should take on proposed loans. In November 1997, Congress amended the International Financial Institutions Act to make clear that the Secretary of the Treasury should regard the Pelosi Amendment as applying to U.S. participation in the International Finance Corporation—a member of the World Bank Group that works exclusively with private sector partners—as well as to U.S. participation in the banks’ lending programs for developing country governments. The amendment also instructed U.S. executive directors to “strongly encourage” systematic consultation with local communities on proposed loans. In response to a request from Representatives Nancy Pelosi and Barney Frank, we reviewed the multilateral development banks’ record in ensuring that meaningful public consultation takes place on the projects they support. Our specific objectives were to describe the steps the banks have taken to ensure meaningful public consultation on the environmental implications of proposed projects and timely public access to project documents; evaluate the quality of consultation that occurs on bank-supported projects and the documentation on the consultation that is provided to executive directors; and determine the extent to which the banks provide broad, timely public access to project information on proposed projects, including environmental assessment reports. We also sought to identify factors that help to account for differences in the quality of the consultation practices employed in different types of projects. Our study included the World Bank, the Inter-American and Asian Development Banks, and the International Finance Corporation.Together, these four institutions receive approximately 90 percent of the amounts that Congress annually appropriates for the support of the multilateral development banks. As an agency of the United States, we have no direct authority to review the operations of the multilateral development banks. Through the Department of the Treasury and the staffs of the U.S. executive directors in each institution, however, we interviewed bank staff at all levels, including the presidents of the World and Inter-American Development Banks, and obtained official bank documents and reports.