Plunder and Profit
The IMF and WorId Bank continue
to push privatization,
in spite of its massive failures.
by David Moberg
In These Times magazine,
In September 1999, Bolivian officials
signed a 40-year contract with a private company named Aguas del
Tunari to take over the municipal water system of Cochabamba,
the country's third largest city. The company, largely owned by
U.S. construction giant Bechtel, was the sole bidder for the contract,
which guaranteed 15 percent annual profit in inflation-indexed
With the encouragement of the International
Monetary Fund (IMF) and the World Bank, since 1985 Bolivian governments
have sold national public assets to foreign investors and opened
their markets to global trade. Despite the promise of development
by following the "Washington consensus" of economic
liberalization, it remained the poorest country in Latin America.
But World Bank officials still insisted that Bolivia privatize
Cochabamba's water utility and that residents, no matter how poor,
pay full cost of the service without subsidy.
Two months after Bechtel's subsidiary
took over, it roughly tripled local water rates, telling the poor
they could pay one-fourth of their income for water or have the
spigot shut o£ There were massive protests for several months
until the contract was cancelled.
But a few months after signing the contract,
Bechtel surreptitiously added new investors and reincorporated
its subsidiary in the Netherlands. When it lost the contract,
Bechtel sued Bolivia-under terms of a bilateral investment treaty
between Bolivia and Netherlands-for damages of at least $25 million
for loss of profits it might have made, even though it had invested
less than $1 million. Last month, the Bolivian government argued
in secret hearings before an investment tribunal affiliated with
the World Bank that the treaty doesn't apply, partly because Dutch
nationals never controlled Aguas del Tunari.
Cochabamba remains a celebrated battle
ground in the intensifying worldwide dispute over the privatization
of public services, from water and electrical utilities to education,
healthcare and pensions. Its ongoing legal struggle reflects the
ways in which poor countries often are pressured to privatize
a wide range of public assets and services, and then locked into
failed policies by international trade agreements.
Free Market Faith
Rich countries-working through international
institutions like the World Bank-rarely help poor countries modernize
and strengthen public services. But they often push them to privatize
and commercialize public services, a move that they themselves
would never make. Leading the tide of globalization, international
financial institutions are aggressively and undemocratically promoting
an ideological agenda of privatization and commercialization.
"The IMF, the World Bank and the
World Trade Organization care about dismantling the state,' says
Nancy Alexander, director of the Citizens' Network on Essential
Services (CNES), a research and advocacy group. "They're
faith-based organizations. They don't care who dismantles the
International financial institutions claim
that such reforms help reduce poverty, but they often simply are.
promoting the interests of multinational corporations in water,
energy, telecommunications and other industries. Multinational
corporate investment in privatization peaked in the late '90s,
and many firms have since pulled back in response to protests
or financial difficulties. So the World Bank, IMF and related
institutions are increasingly offering financial aid, subsidies
and guarantees to private multinationals to induce them to privatize.
"In the end, it's not an argument
about economics. That's not the bottom line,' says Doug Hellinger,
executive director of the Development Group on Alternative Policies,
which is critical of the IMF and World Bank. "It's ideological,
but it's also about giving access to companies on terrific terms.
It's really about the IMF representing its northern countries
and their corporations"
The World Bank theoretically acknowledges
a role for the public sector, but in practice it has pushed privatization
since the mid-'80s. This year's budget for water privatization,
for example, is triple last year's, and over the past decade the
portion of the bank's lending for water projects tied to privatization
soared. In 2002 it adopted a strategy that emphasized development
led by private corporations, and it works closely with the WTO
to impose on poor countries the kinds of pro-corporate policies
other countries have the freedom to negotiate.
When countries suffer from financial crises
or crippling debt, the IMF and World Bank often insist on privatization
of state-owned enterprises, utilities and social services as a
condition for financial help. But sometimes, Alexander explains,
they push privatization indirectly. For example, they typically
require cuts in government budgets, public services and aid to
localities. They press for decentralization of public services,
dismantling of utilities into smaller units, assessment of market
prices for services and elimination of cross-subsidies that may
reduce costs for the poor. Financially squeezed by these policies,
municipalities may be tempted to privatize the decentralized services.
The multinationals then cherry pick the most profitable pieces
serving more affluent urban areas, leaving the government responsible
for poor and unprofitable rural areas or urban shantytowns.
While some public services in developing
countries work well, others are deeply flawed. But as CNES economist
Tim Kessler argues, the World Bank acts as if the only alternative
is privatization, not improving public services with outside financial
and technical aid and with greater citizen accountability. In
any case, privatized utilities need strong public regulation,
which is difficult and expensive to do well. Paradoxically, weak
and corrupt governments, whose public services could most benefit
from reform, are least able to regulate privatized systems. Often
they sell public goods on the cheap to cronies and patrons, making
privatization really "briberization," says former World
Bank chief economist Joseph Stiglitz.
Advocates argue that privatization increases
efficiency and investment, fosters competition, shrinks deficits
and improves services. There are many instances, such as in Chile,
where privatized public enterprises increased efficiency and improved
service. But in developed countries public utilities generally
are as efficient as or better than private.
In developing countries, there also are
countless horror stories of price gouging, poor service, meager
investment and discrimination against the poor from every continent
and in every arena of privatization. For example, Suez, one of
two multinationals controlling at least 7o percent of the world's
private water contracts, recently lost or abandoned water operations
in Argentina, Philippines and Puerto Rico once hailed as model
successes. A newly released study by a network of citizens groups
that collaborated with the World Bank, Structural Adjustment:
The SAPRI Report," concluded that privatization did not accelerate
growth and the form of ownership did not determine efficiency
of services as much as management policy.
Despite the failures of privatization,
the World Bank and IMF have not shifted their focus to strengthening
and democratizing public services. Instead, they are increasing
funding to subsidize, to commercially guarantee and to promote
privatization (as head of an expert panel on water infrastructure
sponsored by the World Bank and multinational water companies).
Former IMF managing director Michel Camdessus who recommended
last year that there should be more subsidies and guarantees for
water privatizers and that the bank should deal more with state
and local governments (which typically are less savvy in negotiating
with giant multinationals than national governments).
At the WTO, the richer countries want
to include more services under the General Agreement on Trade
in Services (GATS), potentially opening historically public functions
to competition that would benefit multinational service corporations
and would indirectly privatize. Once a service is opened under
GATS, countries cannot reverse course-for example, make healthcare
an exclusively public service-without paying every country that
claims it lost a trade opportunity GATS rules also would severely
restrict domestic regulation of service industries.
If the rich countries, along with the
World Bank, IMF and WTO, persist in their current privatizing
strategies, Cochabamba may turn out to have been an early skirmish
in a much wider war.
International Monetary Fund (IMF) & World Bank