1 STRICTLY CONFIDENTIAL DO NOT REPRODUCE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Thursday, October 4, 2007 Washington, D.C. The meeting of the Executive Directors of the Bank and IDA convened at 10:57 a.m., in the Board Room, 1818 H Street, N.W., under the chairmanship of Mr. Robert B. Zoellick, President, followed by Mr. Graeme Wheeler, Managing Director. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 2 STRICTLY CONFIDENTIAL DO NOT REPRODUCE C O N T E N T S AGENDA ITEM: PAGE 1. Minutes of Previous Meetings (M2007-0061[IDA/M2007-0061]) -- 2. Honduras - Land Administration Project - Inspection Panel Investigation Report and Management Report and Recommendation in Response to the Inspection Panel Investigation Report (INSP/R2007-0003;/1-2) 4 Introduction by Mr. Kiene............5 Presentation by Ms. Brown Weiss......5 Statement by Mr. Diop................12 Statement by Ms. Palacio.............16 Ms. Jakubowicz.........18 Mr. Hasan..............21 Mr. Khan...............23 Mr. Choi...............26 Mr. Alvarez............26 Mr. Berger.............37 Mr. Familiar...........39 3. Record of Previous Approvals: 44 (a) Official Representation of Executive Directors at the 2007 Annual Meetings (R2007-0193[IDA/R2007-0243]) (b) Sao Tome and Principe - HIPC Initiative - Revised Schedule of IDA's HIPC Debt Relief (IDA/R2007-0244) (c) Extension of the Closing Date of the Trust Fund for Lebanon (R2007-0197[IDA/R2007-0245]) 4. Other Business 45 5. Date of Next Meeting 45 B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 3 STRICTLY CONFIDENTIAL DO NOT REPRODUCE P R O C E E D I N G S MR. ZOELLICK: As all of you know, our first topic is to discuss the Inspection Panel Report on the Honduras Land Administration Project related to the issue of indigenous peoples' land rights. I had an opportunity to talk to the Panel yesterday about their work, and I very much appreciate the effort that they have put in. I know these are very time- consuming. As I think all of you probably see, there are three key problems that they identified. One is the consultation and conflict resolution process, second is supervision of the project, and third is adjustment to changed legal circumstances. We have Management's Response. What I want to add to that is that in the discussions that I had last night with the Panel, it is my understanding that two representative groups of the indigenous peoples, OFRANEH and ODECO, walked out of the consultations. So, while I recognize the difficulty of engaging them in this process, we think we need to try to do so, and the Inspection Panel has some additional thoughts and suggestions about approaches to do so. So I have spoken to our Latin America team about ways to try to consult with the Inspection Panel B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 4 STRICTLY CONFIDENTIAL DO NOT REPRODUCE about those thoughts as an alternative or a complement to the Mesa Roundtable. With that as an opening, again I want to thank the Panel for their work, and I would like to ask Werner Kiene to introduce it, and I believe Edith Brown Weiss has done a lot of the work on this, so I think she will be making the presentation. MR. KIENE: Thank you, Mr. Chairman. You can see I am new here and don't know which button to push. We are glad to be here, and I am particularly happy to be here with our new team, the current Panel. I have on my left Professor Onchan from Thailand and Roberto Lenton from Argentina, and I am from Austria. Since Edith Brown Weiss was not only our previous Chair but also was the lead inspector in this process of going after the requests, we have asked her to help us today, and she will be the one to lead the discussion--the presentation first and then the discussion. So, Mr. Chairman, with your permission, Edith will continue. MS. BROWN WEISS: Mr. Chairman, members of the Board of Executive Directors, Management and staff, I am B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 5 STRICTLY CONFIDENTIAL DO NOT REPRODUCE pleased to present the Inspection Panel's Investigation Report for the Honduras Land Administration Project. My then fellow Panel member, Tongroj Onchan, co- directed the Panel's investigation. The Panel thanks its experts, Professor Edmund Gordon, who is with us today, and the members of the Board who have provided written comments for today's meeting. The Panel also expresses its appreciation to the Government of Honduras and to the many people with whom it spoke. The Panel recognizes the importance of regularizing land titles in Honduras and the complexity of doing so. The Panel's investigation focused on the project component concerned with collective land titles and issues of concern to the indigenous Garifuna people. The Panel notes the charged atmosphere of the project on the North Coast of Honduras, which has been home to the Garifuna people for more than two centuries. Lands are increasingly appropriated for tourist residences, fenced farming, and palm cultivation. The Panel found that the Bank, to its credit, complied with policies and procedures in important B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 6 STRICTLY CONFIDENTIAL DO NOT REPRODUCE aspects--the preparation of an Indigenous Peoples Plan, consultations during project preparation initially, the identification and the environmental assessment of overlap between protected areas and ethnic lands and development of a process framework for addressing such cases, and the commitment in project documents to having indigenous communities manage or co-manage protected areas that include their lands. However, the Panel also identified important problems and issues of noncompliance and concern. First, the project established a system of regional mesas outside the already established traditional institutions to represent the interests of the Garifuna people. The only two major pan-Garifuna organizations, OFRANEH and ODECO, should have been recognized as representative organizations within the meaning of OD 4.20. Historically, these have been the two major partners with the Government in land titling issues. However, they are not participants. This is not a question of being held hostage to one organization's veto. The two major players are not at the table. The Panel found that this does not comply with Bank policy on indigenous procedures and that it could B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 7 STRICTLY CONFIDENTIAL DO NOT REPRODUCE divide the Garifuna people and thus weaken their efforts to ensure registration of collective titles for their ancestral lands and preservation of their communities and way of life- -the guiding principles of the Bank's Indigenous Peoples Policy. Bank project documents also did not consider the already existing Inter-Sectoral Commission established by the Honduran Government under the National Agrarian Institute, INA, to negotiate and facilitate indigenous land titling. Both OFRANEH and ODECO were members of the Commission, which met up until the time regional management approved the project concept document. We note that Management states that it was unaware until late 2006 of the Commission and its key role in communal land rights negotiations, even though it planned to use existing land titling mechanisms that would have necessarily involved INA and the Commission. Secondly, the Panel notes with concern that this project constitutes the first phase of an Adaptable Program Loan and that the adoption of an adequate legal and regulatory framework for indigenous peoples is only required for the second phase, the second loan. This is not consistent with the spirit of Bank Operational Policy on B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 8 STRICTLY CONFIDENTIAL DO NOT REPRODUCE Indigenous Peoples. If the Bank was going to finance titling activities on ethnic lands, the Bank could have required that the legal and regulatory framework be in place for the first phase, the first loan. When the Bank approved the project, a new draft national property law was pending and, several months later, approved, which contained significant changes affecting land titling for indigenous peoples. The Bank did not assess the implications of the new law for the project and its beneficiaries. The Panel doesn't question the provisions in the new property law, but the Panel notes that in relation to indigenous peoples and their claims over ancestral lands, the law has several impact aspects. The property law enables granting legitimate title to individuals with uninterrupted possession of land. There are many examples of conflicts between Garifuna, who claim collective title, and third parties who occupy the land. Under the property law, the title of third parties who occupy communal lands illegitimately can be annulled. However, and most importantly, if the titles are annulled, the third parties do not have to move off the land unless they are compensated for any improvements they may have made to the land. No funds have been designated to move people B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 9 STRICTLY CONFIDENTIAL DO NOT REPRODUCE off communal lands if titles are annulled. This has significant implications for the viability of the collective titles component and Garifuna claims over ancestral lands. But the Bank did not address this in project preparation documents. The property law also sets forth a new set of procedures for resolving disputes which differ from those provided in the Bank-funded projects and from past practice. The Panel found that Requesters and other ethnic people are faced with a confusing array of potential dispute and settlement avenues which they do not trust. The Bank did not address this issue during project preparation or deal with it during implementation. The Panel notes that under the current system, municipalities can extend their territorial jurisdictions, issue title to lands that are declared urban, including lands that are also claimed as communal lands, and that the new National Property Institute is responsible for registering the titles and for potentially resolving these disputes. Project documents before or after Board approval do not assess the implication for collective titles and indigenous peoples. The Panel notes that supervision of the project B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 10 STRICTLY CONFIDENTIAL DO NOT REPRODUCE does not meet the relevant OD 13.05. There was no effective strategy for communicating about the project with indigenous peoples and insufficient expertise on the ground to follow and actually tackle the problems. The Bank has developed a constructive Action Plan in response to the Panel's Report. The Panel notes, however, the importance of working with the Inter-Sectoral Commission and informing or reconstituting the Mesa Regional, or in developing a collaborative alternative institution to ensure participation by OFRANEH, ODECO, and key stakeholders. The Panel also notes the important issue of indemnification of third parties whose titles are annulled. Management states that the Garifuna and other indigenous peoples have a choice as to whether they participate in the title registration program. However, these economically and politically vulnerable communities may face a choice of participating in a project which they believe as currently structured does not represent their interests, or attempt to opt out of the project and face significant challenges from non-indigenous peoples occupying and claiming rights over their ethnic lands. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 11 STRICTLY CONFIDENTIAL DO NOT REPRODUCE In closing, the Panel notes that the project is important for Honduras because it has the potential to ensure badly needed determination and registration of land titles, particularly communal land titles; but at the same time, unless the Bank fully complies with its policies and procedures, the project could facilitate the disintegration of the impoverished Garifuna communities and their way of life and not bring the benefits of development to them. We are indeed heartened by the opening remarks today from the President that the problems should and may be resolved. I thank you very much for this opportunity to present the Report to the Board today. MR. ZOELLICK: Mr. Diop? MR. DIOP: Thank you, Mr. Chairman. I am here representing the LAC Region, and I am accompanied by my colleagues, Jane Armitage, who is the Country Director for the Region, and Mr. Jorge Munoz, who was the Task Team Leader during the time of the project. Mr. Chairman and members of the Board, Management would like to thank the Inspection Panel for the detailed Investigation Report on the Bank's compliance with its policies and procedures on the Honduras Land Administration B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 12 STRICTLY CONFIDENTIAL DO NOT REPRODUCE Project. Management understands that three issues are at the center of this investigation--first, the approach to address the pressure on Garifuna communal lands on the Honduras North Coast; second, consultation and participation mechanisms under the project; and third, the nature of legal safeguards under the project. First, Management concurs with the Inspection Panel's finding that there is a need to address issues related to Garifuna land claims. Therefore, in response to this need, Management decided to include regularization of ethnic lands with appropriate safeguards under Phase 1 of this three-phase APL. Second, Management acknowledges that lack of participation by the Requesters in the Mesa Regional Garifuna is sub-optimal. To address this, Management has agreed with the Government that the Inter-Sectoral Commission for Protecting Land Rights of Garifuna and Miskito Communities will need to address the Requesters' concerns about the project. Management is also of the view that both--both--the Mesa Regional Garifuna and the Commission are needed to allow for a broad representation of Garifuna stakeholders, as indicated in OD 4.20. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 13 STRICTLY CONFIDENTIAL DO NOT REPRODUCE As mentioned, Management in its Management Response, notes that staff will work with stakeholders to clarify the link between the Commission and the Mesa Regional Garifuna. Third, Management notes that indigenous peoples in the project area are protected by the Development Credit Agreement and Operational Manual as far as titling of lands under the project is concerned. To date, no physical demarcation, surveying, or titling of any lands in Garifuna regions of Honduras have yet taken place under the project, and therefore, no claims have been affected. Management will continue to work with the Government of Honduras in the assessment of the relevant legal framework for consistency with OD 4.20. We appreciate the comments and useful suggestions from Messrs./Mmes. Aass, Almofadhi, Debevoise, Ketsela, Mota Pinto, and Shah related to the project's consultation framework, communication strategy, legal framework, capacity building, and supervision, which we will take into consideration in the implementation of the Action Plan. We tried to address some of the questions in our written answer. Mr. Chairman, Management reaffirms its commitment B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 14 STRICTLY CONFIDENTIAL DO NOT REPRODUCE to, first, take prompt action should events threaten compliance with project safeguards or other legal covenants the protect the interests of the indigenous peoples under the project; second, maximize the participation of Garifuna peoples in project consultation and participation mechanisms; third, ensure that the Regularization Manual for Ethnic Lands under the project is consistent with Bank safeguard policies; fourth, conduct a revised legal analysis to guide an updated IPDP and Operational Manual for project- sponsored regularization of ethnic lands; and fifth, closely supervise the Inter-Sector Commission and the Mesa Regional Garifuna as project consultation fora. And we are here to ask for the Board's endorse of this work. Thank you very much for your attention. We would be glad to answer any further questions you might have. MR. ZOELLICK: Thank you very much, Mr. Diop, for your efforts to try to deal with what I know is a very challenging issue. I also want to acknowledge the presence here of Jane Armitage. While she is now moving to a different post, when I had a chance to visit with a number of the Central American Finance Ministers during the nomination process, there was universal acclaim for her work; it was a wonderful B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 15 STRICTLY CONFIDENTIAL DO NOT REPRODUCE sense of the difference the Bank makes in the field. I have worked extensively with the Central American countries at different times in my career, and I was absolutely delighted that the Bank had such strong representation. So, while she is moving to another post, I want to thank her for that. Ana Palacio wanted to make a few comments on some of the core legal issues. Ana? MS. PALACIO: Thank you, Chairman. May I start by saluting the work that the Inspection Panel does for the Bank and in keeping the Bank in strict compliance not just with the rules, the policies and procedures, but in strict compliance with the strict interpretation of any legal framework. I think this is healthy. However, as Management has pointed out, the business of development often takes place within complex and sub-optimal legal institution settings. In this context, legal principles have to be taken into account. I think this is a clear case where this general legal principle is applicable, and in particular, two principles--proportionality and effectiveness. It is true, B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 16 STRICTLY CONFIDENTIAL DO NOT REPRODUCE I think, that Management does not dispute that more things can be done and will be done in the implementation--and I will finish with this--but it is also true that if you take into account these two principles, proportionality and effectiveness, I think they put into context the comments made by Edith Brown Weiss. It would be unreasonable to burden a project and consequently encumber achievement of its development objectives while waiting for a perfect legal and institutional setting in which the project could take place. Instead, it is reasonable and proportionate for Management to act with an eye toward achieving positive project utility and effectiveness while in parallel attempting to improve the local context in which the project operates using legal remedies to prevent harm. The Honduras Land Administration Project attempts this delicate balance. Our reading of the Panel's Report suggests that there is no finding that the Requesters would be better-off without the project, and Management presents a case that on- the-ground reality for the Garifuna in the project areas would indeed be significantly worse without the project. While the Panel notes that the current legal B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 17 STRICTLY CONFIDENTIAL DO NOT REPRODUCE situation could have significant implications, from a legal standpoint, we note that Management is committed to development of this project within an acceptable legal framework and agrees on requirements for full compliance with the Operational Policies. Thank you. MR. ZOELLICK: Thank you. The floor is open. Ms. Jakubowicz? MS. JAKUBOWICZ: Thank you, Mr. Chairman. At the outset, we want to thank the Panel for its in-depth analysis and Management for its comprehensive response. First, we would like to reiterate our support for the Bank's involvement in land titling, whose importance for economic development is beyond question. Dealing with such sensitive matters is obviously not without risk, as illustrated by the case discussed today. However, we are of the view that the Bank should not refrain from engaging in this complex area because of this risk; on the contrary, we see value added in the Bank's presence in such complex issues. In the specific case of Honduras, we take comfort B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 18 STRICTLY CONFIDENTIAL DO NOT REPRODUCE in the Bank's engagement in the loan titling project. Indeed, at the time of its approval, we considered the project, like others, as an important instrument to support the Government's strategy in this area while providing protection to the indigenous peoples. Having said that, being fully aware of the risks and complexity of the issues the staff has to deal with, we take note of the Panel's conclusion that the Bank did not comply with some of its policies and procedures. From our understanding, its areas of negligence, mainly in staff supervision, account for some of the issues raised by the Panel, which means that those issues could have been avoided. For instance, it is regrettable to read that staff was not aware of the precise composition of the Mesa, and the staff learned about the existence of the Commission from the Panel. It is also regrettable that no indigenous peoples specialist monitored the project. At this juncture, we understand that no implementation activities have taken place in any Garifuna lands, and thus no harm has been done to the Garifuna people due to the Bank's project. In other words, our discussion is rather one of potential harm. In this context, we welcome the proposed Action Plan, which in our view B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 19 STRICTLY CONFIDENTIAL DO NOT REPRODUCE addresses the issues raised by the Panel and provides constructive steps that seem to us to be appropriate. We particularly welcome the nomination of a locally-based expert devoted exclusively to indigenous peoples issues in the Bank's portfolio in Honduras. Given the importance and the complexity of the issues dealt with by this Panel, we would appreciate a follow-up on the implementation of the Action Plan in the near future. In this regard, we support Mr. Debevoise's suggestion of a report in a year's time, with an opportunity given to the Requesters to comment on the progress achieved under the Action Plan. Lastly, as usual, we would like to encourage the Bank to draw lessons from the Panel for other projects. In particular, we wonder whether there are other projects in the Bank's portfolio dealing with land titling and raising issues with indigenous peoples. If such cases exist, we would strongly encourage the presence of a specialist in the field. Thank you, Mr. Chairman. [Mr. Wheeler assumes the chair.] MR. WHEELER: Thanks very much indeed. Mr. Hasan, please. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 20 STRICTLY CONFIDENTIAL DO NOT REPRODUCE MR. HASAN: Thank you, Mr. Chairman. We thank the Inspection Panel for their thorough investigation of the Request for Inspection concerning the Honduras Land Administration Project submitted by OFRANEH on behalf of the Garifuna population of Honduras. We also thank Management for their balanced response to the issues raised by the Inspection panel. We would like to make the following brief comments. One, the objective of the project of modernizing land administration in Honduras remains vital for the economic and social development of Honduras. Given its potential impact on reducing conflict and enhancing indigenous investment as such, we are pleased that the Government has met all the conditions to avoid suspension of disbursement and that the restructuring of the project is fully consistent with the Action Plan, will improve project performance and the achievement of the project objectives. Second, we note the concern of the Panel regarding the representatives of the Mesa Regional without the participation of OFRANEH and ODECO, and we appreciate the dilemma faced by Management in this regard. We recognize that the Bank made to engage the stakeholders, and we are B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 21 STRICTLY CONFIDENTIAL DO NOT REPRODUCE pleased that OFRANEH is now formally participating in the project consultations. We welcome the reactivation of the Inter-Sectoral Commission, and we note that they will be meeting to address the concerns about project implementation and the property law. An update by the staff on the consultation and meetings since August would be useful, in particular with respect to the clarification of the role of the Commission and the Mesa Regional Garifuna. We support Management's plan for the regular and continual specialization supervision by various experts working on the project. We are pleased with the findings of the February supervision mission which concluded that the local Garifuna community continues to be involved in the Mesa Regional Garifuna and recommended that the issue of regularization of the ethnic lands be swiftly addressed. We hope the local presence of the social scientists will enhance local dissemination of the information to the community regarding the project. Thank you. MR. WHEELER: Thanks very much, Mr. Hasan. We'll B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 22 STRICTLY CONFIDENTIAL DO NOT REPRODUCE certainly get you an update of the dialogue. Mr. Khan, please. MR. KHAN: Thank you, Mr. Chairman. We commend the Inspection Panel for highlighting items of noncompliance with some of the policies and procedures of the Bank relating to consultation, rights of indigenous peoples, and supervision and implementation of this project. We also thank Management for their response on this, and we are happy to note that the Management has taken a very positive and constructive approach on the Inspection Panel findings and has agreed to incorporate the recommendations in the Management Action Plan. We broadly endorse the course of action proposed by Management. Having said that, we have two general comments, Mr. Chairman. When we see the Requesters coming forward and complaining to the Inspection Panel, more or less what we saw here, it relates to mostly consultation and the people whose interests have been affected, mainly due to lack of consultation and effective communication strategy. So, generally, these are the cases which come to the Inspection Panel. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 23 STRICTLY CONFIDENTIAL DO NOT REPRODUCE It has been recognized by the Panel and also by Management that this is a complex project, and consultation when, how, and with whom in fact is a problem in all these kinds of projects. You deal with flood control, and you deal with land titling. So, our experience here is that mostly these kinds of projects give rise to complaints like this. In fact, when the question of consultation comes up--we have seen it in the report--some people are asked, they do not come forward, there are vested interest groups, et cetera--so it will always remain a problem, with whom do you consult, when, and how. And it is very difficult to resolve this issue, because things will be different in different country circumstances, because everywhere, the vested interest groups and the affected people are not the same. Their backgrounds are not the same. The things they are asking for are not the same things. So these kinds of problems will be there in these kinds of projects, and it is very difficult to find a standard and perfect model of consultation and communication strategy to address these problems. So, in fact what is needed is that we should learn from our experience in these kinds of projects from the B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 24 STRICTLY CONFIDENTIAL DO NOT REPRODUCE Inspection Panel in designing future projects, and even then, we will continue to have them, but may fewer complaints than we are having now. The other thing is the communication strategy, which should be a flexible one. In these kinds of projects, I think the communication strategy should start before finalizing the project document, because the communication strategy when going through project implementation will not be enough. So, more attention will have to be given to the communication strategy before the project is developed and also in the course of implementation so that you can adjust your strategy according to local circumstance. These are my general comments. Thank you, Mr. Chairman. MR. WHEELER: Thanks very much indeed, Mr. Khan, for those reflections, which are very valuable. Mr. Choi, please. MR. CHOI: Thank you, Chairman. I fully support Mr. Khan's points. I had an experience to take a look at a land titling project in Cambodia, and based upon my experience, I fully support Mr. Khan's points. Thank you. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 25 STRICTLY CONFIDENTIAL DO NOT REPRODUCE MR. WHEELER: Thank you. Mr. Alvarez? MR. ALVAREZ: Regarding the last point, what we have to ask is who is going to be paying the costs of doing that, going the extra mile for consultation and communication. Projects of this nature are very expensive, very costly. The Panel adds even more cost to the process. Colleagues here today and in their written statements have expressed the desire that the Bank do more of this. This is very naive. Countries have to bear the costs of going through the process, and although the standards at the Bank are very good, what the country may decide is to go through the process with the Bank standards and then finance themselves through other sources if they are available. In the case of the country in question, they may not have the choice, but other countries do have the choice. So, in many instances, the perfect may be the enemy of the good, and in that respect, I think I have to side with Legal Counsel in her views regarding being practical, trying not to derail the process that is ongoing in many countries. Legal procedures are important and in place, and legal systems are important and in place and being reformed with projects like this. And instead of killing the golden B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 26 STRICTLY CONFIDENTIAL DO NOT REPRODUCE goose, I think we should be practical and continue making inroads into reforming legal systems. Thank you. MR. WHEELER: Thanks very much indeed, Mr. Alvarez. There is always pragmatism and judgment in these sorts of issues, and tradeoffs about cost and degree of outreach. My bias would always be more rather than less. Let me hand over to Makhtar to respond. MR. DIOP: I will ask Jane and Jorge to take up some of the questions, and I'll come back at the end. Jane? MS. ARMITAGE: Thank you very much, first of all to the panel for their very thoughtful review which I think has given us a lot of areas where we can improve implementation of the project going forward, and we are grateful for that; and also for the many comments which have been made. We have the Task Team Leader here, and I am going to turn to him to share some of the specific technical points that have been raised. I would just like to say from a country strategy perspective that as many people have recognized, land administration services and land titling is absolutely B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 27 STRICTLY CONFIDENTIAL DO NOT REPRODUCE essential for growth and competitiveness, and in many countries in Latin America, we do this, and there is always a difficult discussion as to where do we start, which part of the country and which communities do we start. In this particular case, the project, the first phase of an APL, was $25 million, and most of it is taking place outside this one particular part that is the subject of the investigation, and there was a hot debate within the Bank as to whether we should include a small component for the Garifuna and for the Miskito. And of course, as I'm sure you are well aware, these are the poorest, most vulnerable groups, which are really facing land grabs by other, more well-connected rich and powerful groups. And some people argue that it would be better to wait until the legal regulatory framework was in place, and that was hotly debated within the group. We finally concluded that to wait for the second phase of the APL, or even forever, because if we were not going to get involved there and try to help the titling for these vulnerable communities until there was a satisfactory legal and regulatory environment, that might never happen. I mean, these laws take years and years. At the time, there was one in Congress being discussed, but we didn't know when B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 28 STRICTLY CONFIDENTIAL DO NOT REPRODUCE it would be approved and what it would look like and whether it would be satisfactory. So the question is do we wait, or do we have what is in fact a very small component. There is $2 million of the $25 million that is devoted to trying to help on a pilot basis with consultation and trying pilots to get titling for these very vulnerable communities, recognizing how complex it was. And then we put in a trigger for the second phase. One of the triggers was a satisfactory legal/regulatory framework for indigenous peoples’ titlings for the next phase. Now, we have no control over that. That is clearly something that even the Executive in Honduras does not have control over. That's in the Congress. It could take a long time. In some ways, we were already holding hostage the second phase of the project. It could be that we wouldn't be able to advance with the second phase of the project to do titling all over Honduras, which is essential for growth and competitiveness, because that legal framework wasn't in place for the poorest and most vulnerable. We felt that that was important, and that's why it is a trigger for the second phase. We made the judgment to go ahead with this small B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 29 STRICTLY CONFIDENTIAL DO NOT REPRODUCE component because we felt that it would be worse, and indeed, our understanding is that outside the project area, there has continued to be loss of lands that belonged to the Garifuna and other groups. Obviously, what we have learned is that this component is enormously complex, and I would like Jorge to say a word or two, because indeed, during the whole preparation, there was a very thorough consultation process that involved OFRANEH and ODECO, and there was an attempt to set up a local-level consultation mechanism mainly to involve the local beneficiaries, as is required by OD 4.20, and then, as Jorge will explain, there was also this Inter- Sectoral Commission that is involved with national policymaking. But we decided to go ahead, and one of the things that I have learned is that that very small component needs enormous amounts of resources, dedicated specialist resources, to make it happen. Do I draw the lesson that we don't do it? No, because then we are saying let's do the easy stuff, let's do the 95 percent that's easy and cheap and quick. These countries have incredible inequality, and that will make inequality worse. And if we don't get involved with these very vulnerable communities, they will B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 30 STRICTLY CONFIDENTIAL DO NOT REPRODUCE lose their land and become poorer and poorer. Having said that, there is no question the Panel is right that there are many issues where we need to do it better. That will take a lot of resources. As laid out in our Action Plan, we are committed to put those resources in, but what we have is a small component that is going to require an enormous amount of resources. We welcome any advice. We welcome the suggestions of the Panel as to how to do that. I still believe it was the right thing to try to help those groups, and we have certainly learned a lot that I hope we'll be able to apply in other countries. I would like Jorge to say a word or two about the difference between the national bodies, the Inter-Sectoral Commission, the role that we see for the Mesa Regional and some of the other technical points. Thank you very much for your patience. MR. MUNOZ: Thank you. I would like to emphasize the fact that Management recognizes the participation of both OFRANEH and ODECO as legitimate representative organizations of the Garifuna as a fundamental aspect of participation in the project. The Government did invite OFRANEH, and they participated seven times during project consultations during preparation of the B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 31 STRICTLY CONFIDENTIAL DO NOT REPRODUCE project, and so did ODECO participate. So, from the outset, we were aware of the importance of participating in the project. However, as OD 4.20 makes very clear, one of our primary concerns in consultations is to ensure that the direct beneficiaries of the project be properly consulted, and that was why the Mesa Regional was created by the Government, and that's why Management found it an acceptable mechanism to ensure the participation of the direct beneficiaries. We also did consider the utilization of the Inter- Sectoral Commission as a national-level body, but at the time, the Government was not interested in activating that Commission. The Commission by its mandate is a national- level consultative body for policy-level issues, coordination of projects, and that's why Management agrees fully that that is an important forum for consultations for the project, and we fully support its continuation of work. However, as required by OD 4.20, we are also required to ensure the informed consultation of the participants at the local level to deal with project- specific issues--for example, implementation of the IPDP; for example, dissemination campaigns; for example, capacity- B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 32 STRICTLY CONFIDENTIAL DO NOT REPRODUCE building activities at the local level--that a national- level commission cannot do on its own. That's why we consider that both fora are complementary--they are not substitutes--and both are needed to ensure full compliance with OD 4.20. MS. ARMITAGE: I would now briefly like to ask Laura Tuck, who is the Director for Sustainable Development, to say a word or two about supervision and how we are approaching supervision. Laura? MS. TUCK: Thank you, Jane, and thanks to the Panel and thanks to those who raised the question of supervision. I want to assure you that Management takes this very seriously, and truly, we have from the start. Before the Panel looked into this project, we sent ten supervision missions during the first two years of the project, and we have sent 21 supervision missions since the Panel began its engagement. So I just want to assure you that even from the beginning, we have taken this seriously. Obviously, we have put more resources into it. As Jane said, one of the lessons we draw from this is how intense this experience is, and because of the sensitivity of these issues, we have learned that it is very B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 33 STRICTLY CONFIDENTIAL DO NOT REPRODUCE important to treat them right. We probably need to put more into it. Jane said this is a small component. In fact, the Garifuna component is 2 percent of the project, and yet it is taking a large part of the resources, and that's probably right, because it is so sensitive, and we understand--we will continue, and we are committed with the Country Director to follow this in the future and to be sure that we find creative ways to bring these two critical groups into the process. We recognize that we can't be successful if they aren't engaged and that we will find a mechanism--as many mechanisms as we can find--to be sure they are included in the process. MR. DIOP: Maybe if I could just add from the regional perspective, for us, it is critical to bring these two groups into the negotiation and discussion and consultation. We will do everything possible for us to move in that direction, and I think that from that point of view, we are totally in agreement with the Inspection Panel. There is no difference of view on that. We would like to emphasize that it is very important for us to give voice to the voiceless, and we think that the Mesa Regional is an opportunity for groups within the Garifuna who are not structured to be able to B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 34 STRICTLY CONFIDENTIAL DO NOT REPRODUCE express their views in the process, and therefore we think it is very much complementary. Also, coming back to the regional strategy on non- MIC countries, we think that is exactly where the Bank can make a big difference in addressing inequality in our Region. We think that if we don't address these difficult issues, if we are not able to help in implementation, if we are not able to help in giving voice to the voiceless in this discussion, the issue of inequality in our Region will not be addressed in the long run. So I think this is exactly, from our point of view, an area in which the Bank can make a difference in a Region like Latin America. Third, we do think that our involvement has been helping in at least stabilizing the situation in the area. Land titling has moved forward, and the counterfactual is that in other areas, land has been grabbed. So we think that supporting Bank involvement has helped in moving forward. And I think it is not only in the Latin America Region. If I can draw on my experience in other Regions, in Africa, for instance, the same types of issues are being raised, and without Bank involvement in giving voice to those communities, it would be difficult to address that. Lastly, we would be extremely delighted to get B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 35 STRICTLY CONFIDENTIAL DO NOT REPRODUCE some more help and guidance on how to address the issue of consultation in our project. It is a recurring issue. There has been a lot of discussion, as has been said by various Directors, and it is a complex issue because it is intimately liked to the political economy of a country and the social fabric. So we would really like to learn a bit more about it, and we are open to more guidance. Thank you. MR. WHEELER: Thanks very much, Jane and Makhtar and other colleagues for those very helpful comments, very reflective. Werner? MR. KIENE: We will ask Edith to respond to some of the questions, probably not to all, but Edith, please. MS. BROWN WEISS: Are there other comments? MR. WHEELER: Excuse me. Mr. Berger? MR. BERGER: I'm sorry. There was just one more point. Thank you, everybody. Thank you to the Panel for their diligent work, and thank you to Management for their professional and highly engaged response. I would like to know if it is possible to get a B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 36 STRICTLY CONFIDENTIAL DO NOT REPRODUCE commitment. This is something that we would like. I think we would like to continue to follow closely a commitment from Management for a review, and come back to the Board. I notice in Management's Response, they undertake regular Management reviews at the departmental and vice president level. Is it possible to get a commitment to come back to the Board with a report on the implementation of the Action Plan in a year's time? Thank you. MR. WHEELER: We'll come back to that. MS. BROWN WEISS: In response to the comments that have been made this morning, the Panel would like to make four points. The first point relates to the question of should you delay or should you do it now, when you have the titling component, when the actual law has not been passed. I think what the Panel wants to point out is that at the time it was approved, the law was passed only three months later, and that before the credit agreement became effective, the Operational Manual was finalized, and that was more than six months after the adoption of the law. So the Panel is concerned that no assessment was made of the implications of the changes for the Bank policies and for B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 37 STRICTLY CONFIDENTIAL DO NOT REPRODUCE the project, either then or subsequently. It of course wants to support any effort to move as quickly as possible. Secondly, the Panel would want to reiterate that for projects and a project component to be effective, you need the support of the people who are going to be affected by it, and if it is directed against indigenous peoples, and there are two main groups, the only two groups that are pan- Garifuna, that go across all the Garifuna communities, have decided not to participate in the program, and they have historically been the organizations that represent the people, that flags a problem and has very significant implications for the success of the project. Thirdly, we would note that the project areas that have been looked at for titling so far and have progressed are not the areas where there are serious conflicts, so there is a question about the causal relationship here--did titling essentially prevent conflicts? And our expert has indicated, and our own research has found, that in fact that's not the causal relationship, that the titling took place in the easier areas where the conflicts were not there, and that now there are other additional areas of conflict. Finally, I would simply close by saying that we B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 38 STRICTLY CONFIDENTIAL DO NOT REPRODUCE recognize very much the importance of this project. I have tried to convey that, the Panel tries to convey that. We recognize very much the importance of the Bank's work and the difficulty of the Bank's work, and we look forward very much to addressing and resolving these issues in the future. MR. WHEELER: Werner, did you want to say anything? MR. KIENE: I have nothing to add on substance. I just want to take this opportunity to thank Edith for being with us, and Edith, you might want to say something as your final words to this august forum. MR. WHEELER: We'll come back to that in a moment if we could. Mr. Familiar? MR. FAMILIAR: Thank you, Chair. On behalf of my Honduran authorities, I would like to thank the Inspection Panel for the report and also welcome Management's Response and thank my colleagues for their constructive comments. The Honduran Government has worked closely with Management to incorporate the Panel's principle recommendations in an Action Plan and has already begun its implementation. The establishment and operation of an B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 39 STRICTLY CONFIDENTIAL DO NOT REPRODUCE integrated, decentralized land administration system is a high priority for the country, and the Government has expressed its full support for the Action Plan and is making great efforts to promote the participation of indigenous groups in all phases of the project. The authorities strongly believe that the representation problem detected during the first phase of the project will be resolved with the reactivation of the Inter-Sectoral Commission for protecting land rights of the Garifuna and Miskito people, and the roles and responsibilities of the Commission and the Mesa Garifuna will be clarified, as established by the Action Plan. The launching of the consultation process to finalize the Regularization Manual for Ethnic Land by Inter- Sectoral Commission will allow the participation of all of the indigenous groups. And let me stress that the Government of Honduras has made and will continue to make all efforts to encourage the participation of all the indigenous organizations. However, I do agree with Mr. Debevoise and Mr. Almofadhi, who stress that it would be inappropriate to assign veto power or unique authority over a project to any one group among shareholders, and there is only so much that B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 40 STRICTLY CONFIDENTIAL DO NOT REPRODUCE the Government can do. You can invite the groups, you can encourage the groups to participate, but in the end, that is as far as you can go. The Honduran Government has taken important steps toward harmonizing the legal framework related to land tenure and land property in the country. It will work very closely with Management to be sure that the project complies with the legal framework in protecting the legitimate rights of indigenous peoples. We support Management's decision to hire a Honduran lawyer to review all relevant aspects of the changed legal framework in Honduras as it relates to indigenous peoples' land rights, including the property law and other pertinent laws. Finally, we reiterate the Government of Honduras' interest in guaranteeing a successful implementation of the project, accomplishing the objectives set out by the PATH will allow fortification of land property rights and promotion of much needed investment in the country. The end of the first phase and the beginning of the second of the project is a good opportunity to implement the necessary change presented by the Inspection Panel. Thank you. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 41 STRICTLY CONFIDENTIAL DO NOT REPRODUCE MR. WHEELER: Thanks very much indeed. Let me thank EDs for all their comments and reflections in the written statement. As Mr. Khan said, this really is a very complex project, and I think Jane and Makhtar certainly talked about the different levels and degrees of complexity, and we continue to learn from these different situations, particularly in those difficult areas, as Mr. Alvarez talked about--the tradeoff between costs and degree of consultation. Bank Management did spend, as Laura mentioned, a great deal of time on the project--there were 21 missions-- and I think Ms. Brown Weiss did describe it as a very constructive Action Plan. But I think also, the LAC team will consult with the Inspection Panel to identify whether there are further steps to address the concerns of indigenous peoples. I believe Mr. Berger asked for a progress report, and I think it would be a good idea if Management did give a follow-up report to the Board in 12 months' time. So, let me conclude that EDs approved the actions set out in Section V of the Management Report and Recommendations, and let me just add one further concluding comment if I might. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 42 STRICTLY CONFIDENTIAL DO NOT REPRODUCE As you know, Edith completed her term as Chairperson of the Inspection Panel on August 31, 2007, and I think all of us on the Management side, and certainly with the Executive Directors' agreement on behalf of the Board, would like to thank you for your enormous commitment to the goals of development and the outstanding integrity that you have always brought to this tremendously important position, because the Inspection Panel really does perform a very valuable role for the Board and Management. I know you have returned to your position as the Francis Cabell Brown Professor of International Law at Georgetown University, and I believe we will be seeing you in the future, but we are enormously grateful for a really tremendous contribution. So, thank you. MS. BROWN WEISS: Thank you very much for those very generous and kind comments from Management and from the Board. For me, it has been a great honor and a great privilege to be on the Inspection Panel, to be able to serve the poorest communities in the world, to be able to serve the Board, to be able to serve civil society, and to be able to serve Management and staff. It is really a privilege of working for development. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 43 STRICTLY CONFIDENTIAL DO NOT REPRODUCE I think it is incumbent upon me to say that development involves taking risks, and the Board's wisdom in establishing the Panel for accountability and transparency really has enormous beneficial effects for the credibility of the Bank outside the Bank, and I have encountered this all over the world. So I really carry with me nothing but fond memories, but also the hope that accountability and transparency will continue to be one of the life veins of the Board to enhance the effectiveness of development. [Applause.] MR. WHEELER: Very good. Thanks very much indeed. Now let me very quickly conclude the meeting. Item 3 will record your previous approval of the three items listed on the agenda. Item 4 is Other Business, and if there is no other business, the date of the next meeting is Tuesday, October 9. The meeting stands adjourned, and we reconvene in a joint meeting of EDs of the Bank and Board of Directors of IFC. Let's take a two- or three-minute break. Thanks very much. B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903 44 STRICTLY CONFIDENTIAL DO NOT REPRODUCE [Whereupon, at 11:52 a.m., the Bank/IDA business was concluded.] B&B REPORTERS 529 14th Street, SE Washington, DC 20003 [202] 544-1903