AFRO-NETS> World Bank Private Sector Dev Strategy Threatens Basic Services

[Claudio Schuftan <aviva@netnam.vn>]

World Bank Private Sector Dev Strategy Threatens Basic Services
---------------------------------------------------------------

The action alert below concerns the new WB Private Sector Development 
strategy that would enhance support for private providers of basic 
health services. This would encourage further privatisation and un-
dermine country decision making. Background information and critical 
analysis can be found at:
http://www.challengeglobalization.org

The strategy will be discussed by the Bank's Board soon, but there 
still is time to share concerns with Board members. A strong and 
broad civil society response is important. 

Ellen Verheul, WEMOS


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ACTION ALERT
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.

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

A formated copy of this Action Alert along with the The Overview and 
Conclusion of this issue appear below.

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 infra-
structure and services, social funds, and microfinance.

Two arms of the World Bank Group would partner to privatize infra-
structure 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 Interna-
tional Development Association (IDA). The IFC will increasingly take 
the lead in expanding private provision of services, while IDA will 
work with governments to design subsidies 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 Strat-
egy. 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 pro-
grams (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 Or-
ganization 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, upon 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-recovery user fees. The International Finance Corporation (IFC) 
would help spearhead this process by, among other things, urging gov-
ernments 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 share-
holders 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 ex-
panded 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 mi-
crofinance 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 informa-
tion" campaigns to persuade publics to privatize; and supporting bi-
ased cost-benefit analyses of policy options. Important political de-
cisions 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 Strat-
egy states that there has been no evaluation of operations that pri-
vatize 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 edu-
cation 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 safe-
guard (and other) policies are being weakened with adverse implica-
tions for poor and vulnerable groups and the environment. (Ulti-
mately, 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 interna-
tional actors with "deep pockets" over domestic service providers. 
Domestic actors should not be sidelined, especially in service sec-
tors.

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 priva-
tization schemes (e.g., the failed Enron project in Maharastra). Ac-
knowledgement 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 entire issue can be viewed at:
http://www.CHALLENGEGLOBALIZATION.ORG/html/news_notices/winter2002/Winter02N&N.pdf
(Please note that this is in PDF format and you need the Adobe
Acrobat Reader from http://www.adobe.com )

Contact: 
mailto:ncalexander@igc.org

--
Claudio Schuftan
mailto:aviva@netnam.vn

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