Global Policy Forum

By David E. Sanger and Joseph Kahn

In a scathing internal assessment, a World Bank inquiry has found that the bank violated its rules when it approved a Chinese antipoverty plan that would involve relocating 58,000 farmers on the edge of Tibet.

The project raised a storm of protest last year from environmental and human rights groups. Those groups contended that the bank was aiding China's effort to dilute the minority Tibetan population, which the Communist leadership has long regarded as a problem.

Under the bank plan, $40 million would be spent to relocate some of China's poorest farmers to more fertile land, just outside the Tibet boundary. A result would be to put ethnic Han Chinese farmers into Qinghai, territory that Tibetans consider part of their homeland.

The Dalai Lama, the exiled spiritual leader of Tibet who was born in the resettlement region, met President Clinton last week. After the meeting, he said that the bank initiative "would be a source of more problems" and that the project should not proceed for the present.

But the arguments have expanded beyond questions of Tibet, becoming a test of whether the bank is sufficiently sensitive to the political and social ramifications of its projects.

In this case, the project pitted James D. Wolfensohn, the politically savvy president of the bank, against the Clinton administration, which recently reappointed him to his post while declaring its opposition to the China project.

Mr. Wolfensohn suspended part of the project last year and referred the case to the internal "inspection panel," after the United States, Germany and a few other nations had contended that the entire program had been mishandled within the bank.

The bank had planned to release the results of its harshly worded report last week, but decided against that at the last moment. A copy of the 160-page document was provided today to The New York Times by sources hostile to the project.

The report refers repeatedly to "confusion" within the bank staff, which seemed unable to agree on what standards to use in judging the project's effects. The report also describes a "disturbingly wide range of divergent and, often, opposing views" on how the bank should interpret its policies on environmental and social issues.

The study suggested, without quite saying, that the bank had bent its rules to accommodate China's leaders, who wanted to borrow millions of dollars interest-free for the project under a program for underdeveloped nations. The project was approved last year just days before China's eligibility for the loans permanently expired because of its rapid growth.

This is not the first time that the bank has been accused of ignoring its rules to bend to the wishes of a major customer. Another internal report, more than a year ago, found that the bank had overlooked the corruption of President Suharto's regime in Indonesia, another major client.

The most critical element of the new report was its finding that the bank had never seriously considered alternative locations for the farmers, sites that would not raise the sensitive questions of whether the bank was helping China dilute the concentration of Tibetans in the region.

The report prompted a sharp response from Mr. Wolfensohn in a private letter to board members. He argued that the guidelines for assessing projects like this one were not hard and fast. The inspection panel, he wrote, is trying to "push the bank in the direction of a literal and mechanistic interpretation of its rules."

Although administration officials view the report as vindicating their views, bank officials said the heavy-handed criticism sounded similar to complaints by charity and activist groups. "The panel is out to change the bank and this was a stalking horse," a bank official said.

The board is to decide on July 6 on a 15-month $2 million study on the environmental and ethnic effects of the resettlement.

The bank's spokesman for Asia, Peter L. Stephens, said the panel had made valid observations about the resettlement plan. He said bank officials now agreed that they should have classified the project as requiring more environmental scrutiny than they did originally. Bank officials also did an arguably poor job on the ethnic effects, Mr. Stephens said.

"There were clearly areas in the surveys that did not give confidence that the results were reliable," he said. "These were judgment calls, and they made some errors."

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