PHA-Exchange> WB Private Sector Dev Threatens Basic Services

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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 undermine country
decision making. Background information and critical analysis can be found
at 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.

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/Winter
02N&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 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 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 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, 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 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 entire issue can be viewed at:
http://www.CHALLENGEGLOBALIZATION.ORG/html/news_notices/winter2002/Winter
02N&N.pdf   (Please note that this is in PDF format and you need the Adobe
Acrobat
Reader from http://www.adobe.com )
Contact: ncalexander at igc.org

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