IDB Plan to Sell the Public Sector
Edwards, Beatrice
According to the Inter-American Development Bank, the regional inter-governmental bank and largest multilateral lender for Latin America, Latin America is poor because its people are inadequately...
...Summing it all up, Colombia's Auditor General Carlos Ossoa Escobar said simply, "The history of privatization in Colombia leaves much to be desired because one can almost suppose that behind each case lies a theft...
...who thinks everything looks like a nail, the Bank has the same response to every dilemma...
...Still the IDB does not relent...
...4. "For millions, another 'lost half-decade,"' Latin American Weekly Report, November 12, 2002, pp...
...Leslie Crawford, "U.S...
...Initially entail only a voluntary rather than compul- sory retirement and involve consultants with exper- tise in Caribbean labor relations," p. 2. Consultants retained to design "consensus building" activities were paid $50,000 from this IDB grant...
...This faith is based almost entirely on fiction...
...This is the case whether Why is t the IDB experts are looking at a starved and strangled govern- committed t ment service like health care in Nicaragua, or a prosperous, even though efficient public revenue pro- Watergal ducer, such as many of Colombia's municipal enterprises...
...The risks may include 1) a militant labor force and 2) a volatile political envi- ronment in the run up to elections at the end of 2000...
...1 0 udging from the general state of uproar in Latin American politics, most people already know this without bothering to read the IDB reports...
...It seems that the continent's consumers are not convinced that the Bank's privatization prescriptions to cure poverty are all that useful...
...9 According to the IDB's own statistics, as privatization proceeded, income inequality widened and deepened throughout the region, despite increased economic growth...
...7 The following month, two prominent long-time advocates of privatization released data showing that the impact of privatization on income gaps in the region was negative to "mixed...
...2 2 It's a sort of super-fast-track operation for whole sector budgets...
...Next, we'll need a grant from the Social Entrepreneurship Program to provide training so that the layoff victims can join women, indigenous, incapacitated and other marginalized groups in hopeless efforts to boost their incomes by washing windshields or something...
...The trail of corruption is long and wide...
...Sixty-three percent of Latin Americans feel their countries have not benefited from it.5 If the Bankers ask us-which they generally do not-we can explain this...
...And the scheme is pretty well screwed up: Argentina, Latin America's premier privatizer, defaulted on its public debt in December 2001...
...Pereira Potable Water and Sanitation Program, approved September 1999, Inter-American Development Bank, <<http://www.iadb.org...
...promenading along it we find Alberto Fujimori and Alan Garcia, presidents of Peru, Arnoldo Alemdn, president of Nicaragua, Carlos Menem, president of Argentina, Fernando Collor, president of Brazil, Ernesto Samper, president of Colombia, Carlos Andres Pdrez, president of Venezuela, Carlos Salinas, president of Mexico-must we go on...
...So despite the much-heralded return the congresses because the presidents are, without to democracy in Latin America and the celebration of exception, haunted by debt commitments and deter- a diversity of political cultures, we see a striking uni- mined to avoid defaulting during their terms...
...Gerard M. la Forgia and Roberto Gutierrez, "Growing Pains, The Nicaraguan Social Insurance Health Model in Transition,' presented at "The Challenge of Health Reform, Reaching the Poor," sponsored by the the World Bank and the Inter- American Development Bank, San Jos6, Costa Rica, May, 2002, p. 9. 16...
...1 6 For an institution continually compelled to fault the public services of Latin America and charge them with failure to produce results and lack of program evaluation, the IDB is curiously tolerant of its own shortcomings...
...Then suppose the consortium borrows another $300 million from the IDB just before neglecting maintenance and concentrating its services where bill paying is most secure, ultimately providing to the unlucky consumers saddled with the higher rates and the public debt only intermittent flows of brownish liquid containing potentially brain-damaging levels of nitrates and flecked with unattractive bits of fecal matter...
...While we're at it, we might also reform the IDB...
...There is little evidence to suggest, for example, that public institutions and their employees are actually to blame for increasing poverty and unemployment...
...Such tales have become commonplace...
...Inter-Amencan Development Bank, Washington, D.C., 2001, p. 1 . 11...
...5. "The Privatization Paradox " Latin American Economic Policies Second Quarter 2002, Inter- American Development Bank, Washington, D.C...
...It has turned telecommunications, social security, kindergarten, hospitals and electricity generation over to the private sector for operation and profitseeking...
...Suppose a government borrows about $100 million from the IDB (plus $550 million from the World Bank) to fix up the water company in the capital and install a planeload of hardware and software to track costs...
...SINTRAEMCALI, "Llega la crisis maquinada a EMCALI," <<http:// sintraemcali.com/historia...
...The IDB never answers for the programs that failed, for the millions (billions...
...3 Despite such hefty shifts of infrastructure and public responsibility to the private sector (where jobs were to be generated and better services provided) unemployment and poverty rates are higher than ever across the region...
...Frequently wrong but never in doubt, the Bank relentlessly enforces privatization, despite broadening political protests from public sector workers and citizens...
...1 5 Undeterred, in 2000, the IDB came forward with a $1.7 million grant to "...support and promote private sector participation in the health care services market in Nicaragua by improving and broadening existing regulations and creating a more stable and predictable investment climate conducive to government contracting with such agencies as the Ministry of Health and the Nicaraguan Institute for Social Security...
...1998, p. 13...
...Numerous companies had to be sanctioned...
...1 3 It was when the International Monetary Fund, the World Bank and the IDB began to insist on cuts in public budgets to resolve the continuing debt crises in favor of the bankers themselves that these services began to deteriorate so markedly and instead of expanding, infrastructure started to crumble...
...In the IDB's new Social Development Strategy, we are told that "by 2005, Bank lending should exhibit a substantial increase in the share of these operations in the social sectors...
...No wonder those consultants get the big bucks...
...Pledge Gives a Boost To IMF Bailout Effort," Washington Post, August 27, 2002...
...Subsequent adaptations to pol- it has failed...
...9. Lourdes Trujillo, et al., "Macroeconomic effects of private sector participation in Latin America's infra- structure," World Bank Policy Research Working Paper 2906, The World Bank, Washington, D.C., October 2002...
...it's a public institution that spends way too much when you consider what it actually delivers...
...Pan American Health Organization, Basic Indicator Series, <<http://www.paho.org...
...How popular do you suppose that policy is going to be...
...Cute...
...Sheila McNulty, "A-rated Duke admits round trip trades," Financial Times, July 16 2002...
...1 In 2001, the Report once again blamed Latin America's institutions for the hemisphere's ills, zeroing in on public health care, education and infrastructure as the public agencies responsible for poverty and unemployment...
...In Colombia, legislators reported, they rarely receive supporting documentation for an IDB loan...
...In perhaps the best-known case of resistance, a coalition of popular organizations forced the Bolivian government to withdraw from a contract that would have handed the operation of the water system in Cochabamba over to Bechtel, a U.S...
...6 Following 14 NACLA REPORT ON THE AMERICAS NACIA REPORT ON THE AMERICAS 14PRIVATIZATION IN THE AMERICAS the default, the government was obliged to devalue its currency by more than 60 percent, and during May and June of 2002, the Argentine economy was shutting down at the rate of 50,000 lost jobs per week...
...According to almost everyone else, most Latin Americans are uneducated, sick and stuck because they are poor and not the other way around, but the IDB has the billions, so what it says goes...
...In fact, the record on public social services in Latin America is not too bad...
...The politicos then take the proposal to the IDB Board for approval, which is made up of persons not unlike themselves and their old friends from graduate school...
...2002, p. 1 6. Dean Baker and Mark Weisbrot, "The Role of Social Security Privatization in Argentina's Economic Crisis," Center for Economic and-Policy Research, Washington, D.C., April, 2002...
...One of the more revealing is the Country Program Evaluation for Peru during the authoritarian government of Alberto Fujimori...
...A for- countries and sectors at the IDB: From Argentina to mer executive director at the IDB observed off-the- Guyana, from Belize to Colombia, the purpose spelled out in project documents is to "support" and "promote private sector participation" and "reform...
...If the consultants are especially astute and detect the rumblings of discontent about massive outsourcing and layoffs, they tack a "consensusbuilding" component onto the loan to provide funding for focus groups and advertising campaigns that flog privatization...
...While the President, his political cronies and his secret police network plundered public agencies, the IDB's internal assessment asserted that the Peruvian authorities undertook structural adjustment and pro-market reforms "with great enthusiasm...
...We'll begin with the "Nonreimbursable Technical Assistance to Promote IDB Strengthening," program, which would consist of a grant for a million or so to identify the 50 percent of the staff slated for summary dismissal...
...And finally, we'll need to kick off an "IDB Institutional Modernization Enhancement Project" to update the information system so that at long last we can find out where all that money has gone and why everybody we know is still so poor...
...2 In other words, the problem is public social services, and the solution is simple: privatize them...
...To be an economist at the IDB is to accept one single article of faith: private is better than public...
...Social Development Strategy," September 2002 draft, Inter-American Development Bank, unpub- lished, p. 38...
...There are more of them-and these are just the presidents...
...probes afleqed money laun- dering by BBVA," Financial Times, luly 16 2002...
...It is not uncommon for loan documents to be written only in English, with no available Spanish translation...
...see "Bolivia," p. 34] Ignoring the conclusions of its own opinion surveys, as well as the increasingly vocal and visible opposition to privatization, the IDB claims that this policy represents a response to the popular will, and that the Bank does only the bidding of democratically-elected presidents...
...The chief economist at the IDB identifies three countries-Bolivia, Peru and Brazil-in which the value of accumulated privatizations exceeded 10 percent of GDP during the period, and six countries-Argentina, El Salvador, Guatemala, Mexico, Venezuela and Colombia-where the value was greater than 5 percent...
...The fact that certain crucial infrastructural and social functions remain in public hands is, apparently, screwing up the whole scheme...
...Before they came to grief in the United States, Vivendi, Enron and WorldCom also sacked the public sectors of Latin America...
...Competitiveness: The Business of Growth...
...See "Cleaning Up After Fuijimori: Peruvian Panel Probes 'Economic Crimes' Linked to Privatization," NACLA Report, Vol...
...Next door in Brazil, the value of the currency became so precarious that two months after Argentina went belly-up, operatives of the U.S...
...Like the kid with a hammer Vol XXXVI, No 4 JANUARY/FEBRUARY 2003 Beatrice Edwards is a research analyst based in Washington, D. C. who monitors the multilateral development banks for Public Services International <http://www.world-psi.org> 13PRIVATIZATION IN THE AMERICAS Dried-up marble waterfall in the IDB lobby...
...In its rhetoric, the Bank encourages accountability and fiscal responsibility for the public sector in the Americas, but in practice, alone among government institutions, this one is above the law...
...If the already skewed income distribution of the 1980s had simply been maintained instead of aggravated over the period, 45 million fewer people in the region would have found themselves living below the official poverty line during the 1990s...
...Then there are the ministers, vice ministers, deputy ministers and chiefs of staff...
...Pan American Health Organization, Trends and Analysis <<http://www.paho.org...
...1 8 As a result, the evaluators gleefully reported, Peru was a focal point for development assistance during the decade...
...Meeting with Colombian legislators (Guillermo Rivera, Pedro Arenas, Edmundo Maya, Wilson Borja, Lorenzo Almendra, Gustavo Petro, Pedro Pardo), Bogota, Colombia, July 26, 2002...
...All of these guys were forced to resign, indicted, jailed, exiled or impeached, except for Samper, whose Cali cartel connections prevented overt legal action against him...
...Between 1960 and 1995, the ministries of education built the schools and hired the teachers necessary to provide virtually universal access to primary education and to cut illiteracy from 34 to 13 percent.11 Through public health care, rural clinics, vaccination campaigns and public hospitals, life expectancy dramatically improved during the same period...
...Not very...
...Fujimori is currently a fugitive from justice, such as it is in Peru for the likes of him...
...That's my bet...
...2 8 One thing the IDB is right about, though: The public sector in Latin America needs reform...
...536-537...
...Suppose the new consortium, which has itself invested only about $30 million, then fires, say, 50 percent of the public company's employees, and immediately starts agitating to raise water rates over the amount specified in the 30-year no-exit contract...
...Federal Reserve gathered Brazil's principal creditors together in New York and begged them to keep lending in order to prevent economic collapse...
...Spokespersons for the Bank deny that it shills for the private sector and insist that the institution has no policies of its own other than to endorse democratic processes and good governance...
...Tractebel Accused of Corruption," Oil Daily, June 19,2002...
...Country Program Evaluation, 1990-2000, Office of Evaluation and Oversight, Inter-American Development Bank, Washington, D.C., May, 2002...
...Even Carlos Menem went to jail...
...This gift consists of a couple of million or so for contracts, plane tickets and spending money for IDBapproved consultants to study a sector and recommend reform measures...
...Late last year, the national legislature twice passed a law-since overturned-to prohibit the sell-off of the public health care system...
...The resulting recommendations are uniform: private sector participation...
...See for example Guyana: Nonreimbursable techni- cal-cooperation funding for the design of the public sector modernization program...
...Nonetheless, the past 15 years have been busy and profitable ones for the privateers in Latin America: 396 sales and transfers of public assets to the private sector between 1986 and 1999, representing more than half the value of all privatizations in the developing world...
...2 0 The consultants then write the loan proposal, often including lucrative budget slots for their own future employment, h te suggests W "follow the plus the pork for designated political beneficiaries in the office of the presidencia or atop the relevant ministry...
...Hispanics - Dominican Republic/Protests Three Shot in Dominican Protests over blackouts," EFE News Service, July 16, 2002...
...Third, we'll need the investment loan for, oh, $50 million maybe, to crank up the currently non-functioning waterfall in the IDB foyer again...
...NACIA REPORT ON THE AMERICAS 18PRIVATIZATION IN THE AMERICAS Employees of Argentina's national airline, Aerolineas Argentinas, protesting the closing of the company in 2001...
...Since the early 1990s, when the IDB first began to support and execute the package of punitive neoliberal policies called the Washington Consensus, the Bank has funded the privatization of waste water treatment, airports, roads, secondary education and pension funds...
...They note with confidence, but without substantiation or definition, that the unemployment associated with privatization is only short-term...
...Of most concern is the Multi-Phase Loan, designed to provide the flexibility a head of state is going to need when dealing with sensitive issues like busting unions or shrinking pensions...
...3. "The Privatization Boom in Latin America," Latin American Economic Policies Second Quarter 2002, Research Department, Inter-American Development Bank, Washington, D.C...
...Meeting with K. Burke Dillon, Executive Vice President, Inter-American Development Bank, Santiago,Chile, March 16, 2001...
...For example, in 1990 and 1991, the new Nicaraguan government, under pressure from the multilateral banks, cut its health budget in half-from $132 million to $67.5 million a year-just like that.14 After reporting that "public complaints about the [health care] system had become frequent," in 1993, the World Bank cobbled together a $15 million loan to finance the concession of public hospitals to autonomous operating authorities and sub-contract health care services to for-profit companies...
...An IDB reform would require a new Multi-Phase Loan approach, which we should have no trouble shoving past the Board...
...Menem was under house arrest, but he's loose now and thinking of running for President again...
...corporation...
...Health Sector Reform Project, Republic of Nicaragua Staff Appraisal Report No...
...Economic and Social Progress in Latin America 2000 Report, inter- American Development Bank, Washington, D.C., 2000...
...icy or implementation may be Wisdom decided without substantive review by any elected official ve should or government representative, money...
...On the contrary, the Bank has concluded that the social and economic crises affecting Latin America continue because privatization has not gone far enough...
...An unwilling population borrows money for an advertising campaign to convince itself that it wants something that it doesn't want, and then has to pay the money back-with interest...
...It begins with a Trojan Horse of "non-reimbursable technical assistance" provided by the IDB to the potentially borrowing government...
...They remain puzzled, however, by a phenomenon they call "The Privatization Paradox:" although profits and efficiency increased with privatization, the policy is unpopular...
...Suppose the government then sells the revamped operation at a modest price to a consortium consisting of a French water company, a Spanish bank and some local banks made up of strategically placed brothers-in-law, exbusiness partners, ministers' mistresses and the like...
...XXXV, No...
...2 3 For voters, this means that no matter whom you elect next time, you are going to get pretty much what you got this time-and probably the time before...
...And it's about to become more unilateral still as the Bank promotes its innovative new lending products...
...Well, Watergate wisdom would suggest that we "follow the money...
...The loan generating process behind these projects is seamless, and it varies little across the continent, whether the Bankers are dealing with economies the size of Brazil or Belize...
...They're formity of loan and project objectives across both also cheaper to buy than legislative majorities...
...Economic and Social Progress in Latin America 2001 Report...
...In El Salvador, health care workers and doctors have protested since 1992 and gone on strike intermittently since 1999 to prevent the privatization of public hospitals...
...Typically, the IDB prefers to government for lost revenue after the facility is pri- deal exclusively with the executive branches of bor- vatized, and 30 percent for the actually stated objec- rowing governments: They're easier to manage than tives of the loan...
...How's that for consensus building...
...Sometimes these programs are rather expensive, but in the end, they really pay off...
...12393-NI, The World Bank, mimeo., November, 1993...
...Education in the Americas: Quality and Equity in the Globalization Process, Organization of American States, Washington, D.C...
...Winners and Losers: Assessing the distri- butional impact of rivatization," Working Paper Number 6, Center for Global Development, Washington, D.C., May 2002, p. 18...
...This arrangement establishes a sector reform loan disbursed over a period that is generally twice as long as the more conventional loan, and subject to unqualified adjustment as time goes by...
...e IDB so Typically, only the first phase of the loan is approved by the privatization Bank's executive directors...
...2 1 These last activities are presented publicly by the Bankers as initiatives designed to enlist civil society participation in IDB operations...
...See "Colombia," p. 37] At their July 2002 meeting, the Chilean Unified Confederation of Workers denounced Chile's current president for his allegiance to the privatization policies of the multilateral banks...
...4, January-February 2002, available online at <<http://www.nacla.org/art display...
...Only after the IDB Board approves the loan does the legislature in the borrowing country even see the proposal...
...1 9 16 NAI2LA REPORT ON THE AMERICAS 16 NALCA REPORT ON THE AMERICASPRIVATIZATION IN THE AMERICAS In stark contrast to its pro-democracy rhetoric, the cuff that the Bank's fast-disbursing privatization polBank has also insulated itself from meaningful popu- icy loans are typically spent in the following manner: lar pressures by structuring its loan approval process 30 percent for pork for the high-level political guys in such a way as to marginalize the influence of who have to sign on, 30 percent to compensate the national legislatures...
...Program of Support for the Strengthening of Private Health Care Service," (TC-99-05-04-8), Inter-American Development Bank, unpublished, approved October, 2000...
...php?art=532...
...However, relatively more risk is associated with the future implementation of the reforms to be designed, particularly the employment rationaliza- tion and retrenchment...
...Many of these enterprises were later shown to have been created solely for the purpose of accessing these contracts and to have lacked competence in health care service delivery...
...In order to mitigate these future risks from the design stage, the project will develop flexible policy options rather than single recommendations...
...Frame of Reference for Bank Action in Programs for Modernization of the State and Strengthening of Civil Society " Inter-American Development Bank, unpublished...
...4 But profitability is up, the Bankers report cheerfully, and so is efficiency, which they define as revenue per worker...
...2. Competitiveness: The Business of Growth...
...If privatization policies are failures and they cannot deliver even minimal social improvements, why are the IDB and its sister institutions so single-mindedly committed to this course of action...
...According to the Inter-American Development Bank, the regional inter-governmental bank and largest multilateral lender for Latin America, Latin America is poor because its people are inadequately educated, sick and stuck...
...1 7 Evidence to the contrary is implicitly visible in many IDB documents...
...see "El Salvador," p.42] The Brazilian National Front for Environmental Health systematically fights the privatization of municipal water systems, and the municipal workers union in Cali, Colombia, successfully forced the government to withdraw for one year an IDB-endorsed privatization plan for their enterprise...
...One probable cause: the World Bank and IDB-sponsored privatization of the pay-as-you-go social security system deprived the government of the reserves it needed to weather cash flow problems...
...1 2 The expansion of public water systems also contributed to the extension of life expectancy, mostly through the reduction of infant mortality...
...Economic and Social Progress in Latin America 2001 Report, Inter-American Development Bank, Washington, D.C., 2001, pp...
...that were stolen, for the jobs that disappeared, for the savings that suddenly were worthless...
...We can, you know...
...Frequently they have no idea that a loan has been approved and disbursed until the executing agency shows up in their districts...
...This is, in fact, the case of Aguas Argentinas, the consortium that runs the water system of the Buenos Aires metropolitan area, and which defaulted on its corporate debt in April, 2002 leaving the future of the water company and the provision of services for Buenos Aires in limbo...
...8. For the country studies they reviewed, Nancy Birdsall and John Nellis concluded, "At least initially, and on average privatization has worsened wealth distribution (highly likely) and income distribution (likely...
...Juan Pablo Toro, "Peruvian Privatization Leads to Unrest...
...7. Paul Blustein, "Banks Vow To Maintain Brazil Credit...
...And "consumers" lack the mobility, ability and resources to shop around for the most suitable provider of such necessities as heat, water, health care and first grade...
...The Bank is making big loans to help governments drag supposedly obsolete and wasteful agencies into the efficiently entrepreneurial 21st century...
...8 And in October, 2002, the World Bank issued a report to show that privatization had done little or nothing to improve the fiscal position of Latin American governments...
...IDB Plan For Selling Off The Public Sector 1. Development Beyond Economics...
...In its 2000 Economic and Social Progress Report the Bank explained Latin America's failure to develop in terms of inefficient government institutions...
...If we do this right and inform no one, we can probably avoid complaints from displaced office workers until it's too late for them to stop us...
...even in cases where the govern- Smoney ment of the borrowing country changes over the life of the loan...
...Nor have the sales made a dent in the debt...
...2002...
...Not for long, but still...
...Inter-American Development Bank, approved, January 4, 2000...
...Throughout much of the region, governments lack the resources and ability to provide adequate oversight and regulation of the private sector, such as it is...
...Belgian buyer in protested Peru privatizations may have-bribed Fujimori," Agence France Press, June 2002...
...Then, of course, there are the private beneficiaries: Suez Lyonnaise, 2 4 Intergen, Duke Energy, 2 5 Endesa, Banco Bilbao Vizcaya, 2 6 AES, Citigroup, Uni6n Fenosa, 2 7 Microsoft and Sithe Energy...
...a reform that would clear out the thieves at the top instead of leaving them there to oversee their permissive new regulatory systems...
...Welfare and housing funds have been farmed out, together with vocational schools and vaccination programs...
Vol. 36 • January 2003 • No. 4
