Promoting privatization

Introduction

Despite World Bank contentions that it does not force privatization on the poor, research by ICIJ and the bank itself showed that privatization is playing an ever-increasing role in bank lending policies.

Using data available from the World Bank Web site, ICIJ analyzed 276 loans labeled “water supply” awarded by the bank between 1990 and November 2002. In about one third of the projects, the World Bank required the country to privatize its water operations in some form before it received funds.

The ICIJ analysis also showed that the number of loans with privatization as a condition tripled between the first and last half of that time period. Between 1990 and 1995, there were 21 loans with privatization as a condition. From 1996 to 2002, they increased in number to 61. Two are pending.

Privatization is an umbrella term that includes selling assets to a private company, tendering a water concession to a private company, or awarding management contracts to a private company. These projects received loans either from the World Bank or from its investment arm, the International Finance Corporation. The bank lends only to governments, but it can require government leaders to privatize state-owned assets, such as water utilities, before granting loans. The IFC can lend to businesses.

Because the World Bank often combines several of a country’s projects under one omnibus loan, it is impossible to determine how many drinking water programs the bank supports around the world. Instead, the ICIJ investigation examined only those 276 projects from 1990 to 2002 which the bank itself identified as “water supply” loans. The bank has many other “combo” projects that include drinking water delivery but are not labeled as “water supply” loans.

Of the bank’s 276 “water supply” loans, at least 84 were conditioned on privatization, the ICIJ investigation showed. The World Bank’s public information on loans is often not specific, and the bank acknowledges that it does not keep track of all information about private contractors on water privatization loans. Bank spokesman Richard Uku said the bank had neither the time, personnel nor money to do that.

The bank offers two categories of loans. Investment loans are long term, five to 10 years, and are used to finance specific projects involving goods, services and works. Structural adjustment loans are short term, one to three years, and help finance institutional reform. The loans ICIJ studied came from both categories.

A 2001 World Bank study of adjustment loans supports the ICIJ analysis that over the last decade, privatization has been an increasingly important aspect of bank loan conditions. The report does not break out loans specifically for water supply, but it does show that privatization is a major condition of public utility loans.

Of the 193 adjustment loans approved from 1996 to 1999, 112 – or 58 percent – had privatization as a condition, the report showed.

The bank’s adjustment loans increased substantially in the 1990s. During the 1980s, it made 191 loans to 64 countries totaling $27.1 billion. In the 1990s, there were 346 loans totaling $71.7 billion in 98 countries.

The report noted that beginning in the 1980s, “one of the Bank’s broad aims was to establish incentives for private sector development…” These incentives increasingly became requirements and by 1999, 70 percent of the adjustment loans had a private sector condition.

The bank said it created structural adjustment loans in the 1980s to help poor countries reform their public sector institutions.

The success or failure of the bank’s privatization policy is not evident from the data. However, bank officials claimed that internal records show that water projects with private sector participation perform better than those run by local governments, especially when the country has a strong rule of law and an honest, effective administration.

At the same time, the report notes that external studies done by organizations such as the British aid group Oxfam are highly critical of the bank. These reports have found that privatization creates social hardships by reducing income and increasing unemployment.

The World Bank does not force countries to privatize their waterworks in return for loans, and “it never has,” spokesman Uku said.

“The issue,” he added, “is not privatization. It is more about reform. Reform is the magnet for investment, and creating the conditions for reform is our first priority.”

(For more information on World Bank water loans, please see http://www4.worldbank.org/sprojects).