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World
Bank: THE THREAT TO BASIC SERVICES (WATER, HEALTH AND EDUCATION)
THE
WORLD BANK GROUP'S PRIVATE SECTOR DEVELOPMENT (PSD) STRATEGY
This
Action Alert contains an overview of the PSD Strategy, plus key
messages to send to decision-makers, especially the World Bank's
Board of Executive Directors. We urge you to communicate with
Board members before January 25, 2002 to influence their final
decisions on the PSD Strategy.
I.
OVERVIEW OF THE PSD STRATEGY. The PSD Strategy would expand four
types of operations financed by the World Bank Group: structural
adjustment, privatization of infrastructure and services, social
funds, and microfinance.
Two
arms of the World Bank Group would partner to privatize infrastructure
and service provision, especially in low-income countries: the
World Bank's private sector affiliate, the International Finance
Corporation (IFC) and the World Bank's soft loan arm, the International
Development Association (IDA). The IFC will increasingly take
the lead in expanding private provision of services, while IDA
will work with governments to design subsidy and other schemes
to offset the costs of private provision to low-income consumers.
In
the past several months, the Bank's Board of Executive Directors
considered, debated, and rejected successive drafts of the PSD
Strategy.
Some
officials said that they had never seen the U.S. -- the main proponent
of the Strategy -- in such an isolated position. The Board has
postponed decisions on the PSD Strategy for several weeks. In
a related decision, the IDA Deputies also postponed action on
a U.S. proposal to convert half of IDA's resources from loans
to grants.)
The
three prongs of the PSD Strategy would:
A.
Launch a new and expanded generation of structural adjustment
programs (SAPs) with policy conditions intended to induce borrowers
to adopt "minimum investment standards." The launch
of this investment initiative comes just after the announcement
by the World Trade Organization in November of a new round of
negotiations on investment rules (which will revive the Multilateral
Agreement on Investment). Bank promotion of output-based aid (see
"B," below) depends, among other things, up on easier
private sector entry into markets of low-income countries.
B.
Accelerate the privatization of infrastructure and basic services
(e.g., health, education, water) on a commercial basis- that is,
with cost-covering user fees. The International Finance Corporation
(IFC) would help spearhead this process by, among other things,
urging governments to employ more output-based aid (OBA) schemes.
OBA schemes delegate basic service provision to private firms
(and NGOs) under contracts that tie provision of financial support
to the outputs or services delivered.
These
schemes can be risky, especially in poorly regulated environments.
Also,
because OBA schemes provide back-loaded finance, they often favor
international actors with "deep pockets" rather than
domestic enterprises. The U.S. is pressuring the shareholders
of the World Bank to convert IDA resources from loans to grants
so that, among other things, grant financing can subsidize private
provision of services, including OBA schemes.
C.
Launch more aggressive efforts to expand the reach of markets
by supporting small and medium-sized enterprises, mainly through
expanded business development services and microfinance schemes.
The
Bank plans to revise its operational policies to ensure that finance
is provided on unsubsidized terms. Some loan operations contain
microfinance schemes to enable low-income consumers to borrow
at market rates in order to purchase basic services, such as water.
II.
Key Messages
1.
Undermining Democratic Processes. The World Bank and other creditors
and donors should not use pressure tactics to induce recipient
governments to privatise basic services. Examples of pressure
tactics include: failing to involve the public and affected unions
in privatization decisions, failing to publicly disclose information
about privatization plans; withholding aid until recipient governments
agree to privatize; running "public information" campaigns
to persuade publics to privatize; and supporting biased cost-benefit
analyses of policy options. Important political decisions about
modes of service delivery should be made by domestic groups, including
poor and vulnerable groups, without outside interference.
2.
Privatizing Social Services. The World Bank Group poses as a "knowledge
bank," but the PSD Strategy states that there has been no
evaluation of operations that privatize social services. Yet,
new loans show expanded support for such privatization!
3.
Imposing User Fees. People may be deprived of basic services because
(a) exemptions and subsidizes for private primary education and
basic health care may fail to reach the people who need them;
(b) low-income groups may not be able to afford fees, especially
for non-compulsory levels of education and secondary/tertiary
health care; and (c) the PSD Strategy practically overlooks the
necessity for regulation of social sectors.
4.
Privatizing into Poorly Regulated Environments. The World Bank
Group is "harmonizing" regulatory standards with those
of other development institutions. In this process, World Bank
safeguard (and other) policies are being weakened with adverse
implications for poor and vulnerable groups and the environment.
(Ultimately, this process may be guided by the WTO's ambiguous
emphasis on "least burdensome" regulation.)
5.
Sidelining Domestic Actors. Output-based aid (OBA) schemes compensate
service providers AFTER services have been delivered. Back-loaded
finance will favor international actors with "deep pockets"
over domestic service providers. Domestic actors should not be
sidelined, especially in service sectors.
6.
Providing Grants rather than Loans. The Bank has not disclosed
the uses to which grants might be put and, in particular, whether
grants would subsidize OBA schemes. Many groups feel that grants
are inappropriate in certain circumstances. [For instance, according
to Bank publications ("Note on IDA13 and PSD," November
2001), the Bank envisions subsidizing corporations that have not
recouped costs through tariffs.]
7.
Increasing Fiscal Burdens. The PSD Strategy overlooks off-budget
fiscal risks implicit in privatization schemes (e.g., the failed
Enron project in Maharastra). Acknowledgement of risks would undermine
claims that the PSD Strategy would shift performance risk to private
actors and Northern taxpayers
8.
Deepening World Bank - WTO Collaboration. The World Bank Group
has not disclosed the ways in which the PSD Strategy will pave
the way for a new WTO agreements on investment and services, which
are currently in the works.
9.
Expanding Ineffective Operations. The World Bank's own evaluators
have demonstrated the ineffectiveness of PSD operations in low-income
countries. The Bank should not expand ineffective operations.
For
further information, see "News & Notices for IMF and
World Bank Watchers," Winter 2002. The Overview and Conclusion
are attached (below). The entire issue can be viewed at:
http://www.CHALLENGEGLOBALIZATION.ORG/html/news_notices/winter2002/Winter02N&N.pdf
A
LIST OF BOARD MEMBERS CAN BE ACCESSED AT http://www.challengeglobalization.org/html/ta_menu6.shtml
ANALYSIS
OF THE PSD STRATEGY can be found in the Winter 2002 issue of "News
& Notices for IMF and World Bank Watchers" at http://www.CHALLENGEGLOBALIZATION.ORG/html/news_notices/winter2002/Winter02N&N.pdf
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