| THE WORLD BANK: A PRIVATE-SECTOR
FIX FOR A PUBLIC WATER CRISIS
The World Bank was founded in 1944
to aid and finance post-war reconstruction. Today
its focus is on poverty and development issues around
the world. The Bank is made up of 184 member countries,
which are jointly responsible for the funding and
mission of the organization. Every year, the institution
provides billions of dollars in loans and grants
to poor and middle-income countries in a wide range
of areas, from infrastructure to health care to
education.
Loans for the water sector accounted
for about 16 per cent of the World Bank’s
overall lending in the last decade. Seventeen billion
dollars was divided equally between water supply
and sanitation, irrigation and drainage, hydropower,
and water resource management.
THE DUBLIN PRINCIPLES
The World Bank, along with several international
water organizations, upholds a set of beliefs about
the nature of water resource management known as
The Dublin Principles.
They are: the “ecological principle”
which maintains a focus on the environment; the
“institutional principle” which insists
all stakeholders have a voice in water resource
management; and the “instrument principle”
which argues that water is a scarce resource, the
allocation of which should be guided by economic
principles.
It is this last idea – that
how we use water should be subject to economic principles
– that is most relevant and most contentious
in the debate about water privatization. While some
say that treating water as an economic rather than
social good is a fundamentally wrong commodification
of one of life’s necessities, others argue
that putting a price on water reflects the reality
that it is a scarce resource which must be protected
and valued appropriately.
The World Bank’s view on who
should be supplying water has changed over the last
few decades. In the 1970s and 1980s, all funding
in water supply and sanitation was directed at the
public sector and left governments in charge of
affordable, reliable water delivery. But a consensus
increasingly grew that public utilities were vulnerable
to inefficiencies, political interference, unsustainable
water prices and a lack of skill and professionalism.
THE WASHINGTON
CONSENSUS
When Margaret Thatcher’s Conservative government
privatized water utilities along with several other
industries in 1989, the World Bank saw another way
to approach water supply, and started funding projects
that included long-term concessions to private companies.
At the same time, a political ideology
was born that became known as The Washington Consensus.
The term was first coined in 1989 to refer to policy
advice given by Washington-based institutions such
as the International Monetary Fund, the World Bank
and the U.S. Treasury Department to countries in Latin
America. It has come to symbolize free-trade, privatization
and deregulation. Joseph
Stiglitz, former Chief Economist of the World Bank:
With the Reagan-Thatcher kind
of ideology, it became all focused on - let the
markets take care of it, let trade take care of
it, liberalize, privatize, get inflation down, minimize
the role of the government and lo and behold, growth
will occur and poverty will be reduced.
Jeffrey Sachs, Economist:
Where did this urge for privatization
come from? Party ideology. And it’s partly powerful
corporate interests, no doubt. A lot of very powerful
companies got into the game. They thought they were
going to get involved. They find their ways into the
votes of the IMF and the World Bank. There’s
no doubt about it. (read
an interview with Jeffrey
Sachs online) THE
ARGENTINE EXPERIMENT
One of the first water privatization schemes funded
by the World Bank was in Buenos Aires (see chapter
on Argentina). The
World Bank advised the Argentine government on the
bidding and contracting out of the concession, which
became a model around the world.
A recent Bank document explains the
impact of the Buenos Aires private water contract:
The success of the Buenos Aires
concession spurred widespread interest in PSP [private
sector participation]. Supported by research, dissemination,
and technical assistance, PSP became de rigueur
in most regions, starting with Latin America, but
rapidly spreading to the Middle East, East Asia
and the Pacific, Africa, and South Asia. The pendulum
swung far, and came to favor PSP as a panacea to
the perceived performance problems of the Bank’s
water supply and sanitation portfolio.
THE FAILURE
OF WATER PRIVATIZATION
During the 1990s, the number of water privatization
projects funded by The World Bank increased ten-fold.
The Bank is often criticized for making privatization
a condition of its water loans and in some instances
this is true. Between 1990 and 2001, 31 per cent
of all water supply and sanitation projects funded
by the World Bank included private sector participation
as an “objective.” Thirty-eight per
cent had PSP as a “component,” and seventeen
per cent had PSP as a “covenant.”
However, several high-profile failures
of water privatization have caused the Bank –
and the world – to re-think the role of the
private sector in delivery this essential service.
Among them was a contract in Cochabamba, Bolivia,
where skyrocketing water prices led to street riots
and the death of a protestor.
This is the Bank’s own evaluation: “As
a consequence of this failure, governments, international
lending agencies (among them the Bank), and the
private sector have acquired a more nuanced view
of PSP [private sector participation]. It is not
a panacea to deep-seated problems and cannot be
expected to substitute for decisions that only governments
have the power and obligation to make.”
PRIVATE COMPANIES LOSE
MONEY
Another reality facing the Bank and other advocates
for private water delivery is a growing reluctance
on the part of water companies to do business in highly-volatile
developing countries. Suez, one of the world’s
2 largest water companies, has suffered huge financial
losses in places like Buenos Aires and Manila because
of currency exchange risks and collapsing economies.
Pressure from shareholders has forced the company
to greatly reduce its exposure to “emerging
markets” as a way to create a more attractive
bottom line. Despite
some dramatic failures in the privatization of water,
the World Bank still sees a role for private companies
in water delivery. Today, the Bank is developing
ways to bring back private sector investment and
mitigate the risks that dissuade rich companies
from doing business in the developing world.
Jamal Saghir, Director of Energy and Water, The
World Bank: What's happening
right now is a recognition that the private sector
alone will not be enough. The donor community, including
The World Bank, has to be involved to leverage the
private money. We cannot wait anymore. The poor
cannot wait anymore for connections.
(read an interview
with Jamal Saghir online)
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