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THE fifth estate: Dead in the Water
The World Bank> Printer Version

Broadcast March 31, 2004

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.

The World Bank provides billions of dollars in loans and grants to improve water supply and sanitation in developing countries.

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.

Joseph Stiglitz says the World Bank embraced principles of free-trade and privatization in the early 90's.

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.

One of the first privatization schemes involved bringing water connections to the slums around Buenos Aires.

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.

Quote from: Efficient, Sustainable Service for All? World Bank Operations and Evaluation Department Review of Assistance to Water Supply and Sanitation, September, 2003 (see resources for more information)

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.”

Jamal Saghir says that now getting clean water to the poor is a priority - and private funds may not be enough.

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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the fifth estate: DEAD IN THE WATER
Broadcast on the fifth estate Wednesday, March 31 2004 on CBC-TV at 8PM

Water Stats - France - North America - Argentina
California - South Africa - The World Bank
Interviews - Resources