IMF forces African countries to privatise water

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Globalization Challenge Initiative, 8 February - A review of IMF loan policies in forty random countries reveals that, during 2000, IMF loan agreements in 12 countries included conditions imposing water privatization or full cost recovery. In general, it is African countries, and the smallest, poorest and most debt-ridden countries that are being subjected to IMF conditions on water privatization and full cost recovery. 

- Ironically, the majority of these loans were negotiated under the IMF's new Poverty Reduction and Growth Facility (PRGF), says Sara Grusky from the Globalization Challenge Initiative. The reform was announced with great fanfare in 1999 when IMF officials claimed that the new loan facility would re-focus the IMF's controversial structural adjustment measures on activities that borrowing government's would identify as leading to poverty reduction.

An example is tiny Sao Tome and Principe. The island government has been put under pressure to pursue the implementation of a public enterprise reform through privatization and liquidation of nonperforming public enterprises for which buyers cannot be found. Nine public enterprises will be privatised, including the water and electricity utility and the national airline (Air So Tom). The objective is said to be "to increase access to safe drinking water through rehabilitation of the waterworks system," according to the IMF. Some 20 percent of the population does not have access to safe water at present, but this number could rise if market prices are set on the service.

Rather than contributing to poverty reduction, water privatization and greater cost recovery make water less accessible and less affordable to the low income communities that make up the majority of the population in developing countries. The alternative is to revert to unsafe water sources or more distant sources.

Countries with IMF-imposed water privatization and cost recovery policies
Country IMF Program Loan Condition Summary of policy
Angola Staff-monitored program  Structural benchmark: Adjust electricity and water tariffs in accordance with formulas agreed with the World Bank. Reduce accounts receivables of the water and electricity companies to one month of sales revenue  Adjust water tariffs periodically to recover costs, including a reasonable return on capital.
Benin Poverty Reduction and Growth Facility (PRGF) Other measure: After the revision of regulatory framework, the government expects to complete the privatization before the end of the third quarter of 2001 Privatize the water and electric power distribution company (SBEE)
Guinea-Bissau Emergency Post-Conflict policy Structural benchmark: Transfer of electricity and water management to private company Transfer of electricity and water management to private company
Niger Poverty Reduction and Growth Facility (PRGF) Other measure: Divestment of key public enterprises, including the water company, SNE. Privatization of the four largest government enterprises (water, telecommunication, electricity & petroleum) have been agreed with the World Bank with the proceeds going directly to pay Niger's debt.
Rwanda Poverty Reduction and Growth Facility (PRGF) Structural benchmark: Put the water and electricity company (Electrogaz) under private management by June 2001. The water and electricity company (Electrogaz) will be put under private management as a prelude to its privatization.
Sao Tome Poverty Reduction and Growth Facility (PRGF) Structural benchmark: The new adjustment mechanism for public water and electricity rates will be brought into operation by decree. The price structure will cover all production and distribution costs as well as the margin of the water and electricity company. The accounts 
will balance consumption and resources without recourse to government subsidies.
In May 2000, the government conducted a study of alternatives for the future of the water and electricity company (restructuring, leasing, concession or full privatization), with assistance from the World Bank. By December 2000, it will select one of the options and adopt a financial restructuring plan, and strengthen the revenue collection procedures.
Senegal Poverty Reduction and Growth Facility (PRGF) Other measure: Regulatory agency for the urban water sector will be created by end-2000. Transfer the recurrent costs of water pumping and distribution equipment to the communities. Increase the involvement of private sector operators. Encourage the involvement of private sector operators in the water sector. Assess the possibility of private sector operation and financing of the infrastructure required to meet Dakar's long-term water needs.
Tanzania Poverty Reduction and Growth Facility (PRGF) Condition for HIPC debt relief: Assign the assets of Dar es Salaam Water and Sewage Authority (DAWASA) to private management companies.

Assign the assets of Dar es Salaam Water and Sewage Authority (DAWASA) to private management companies.

Source: Letters of Intent and Memoranda of Economic and Financial Policies prepared by government authorities with the staffs of the International Monetary Fund and World Bank. Prepared by Sara Grusky.
The most immediate impact of reducing the accessibility and affordability of water falls on women and children. Worldwide, more than five million people, most of them children, die every year from illnesses caused from drinking poor quality water. "When water become more expensive and less accessible, women and children, who bear most of the burden of daily household chores, must travel farther and work harder to collect water - often resorting to water from polluted streams and rivers," says Sara Grusky.

This is confirmed by Ghanaian activist, Rudolf Amenga-Etego of the non-governmental Integrated Social Development Centre (ISODEC), who was in Washington recently highlighting the implications of having the poor pay "market rate tariffs" for water in Ghana. The World Bank has been pushing decentralisation in Ghana since 1988 and Ghana's Water Sector Restructuring Project is expected to be approved by the Bank's Board of Directors this year. "Where cost-recovery becomes the underlying policy, water will become unaffordable for many poor people in Ghana," Amenga-Etego told the news agency IPS. 

The significance of finding such a high number of conditions relating to water privatization and water cost recovery in IMF loans is twofold. First, in the hierarchy of international financial institutions the IMF is at the top. Compliance with IMF conditions enables governments to receive the "seal of approval" that permits access to other international creditors and investors. Thus IMF conditions weigh especially heavily upon borrowing governments. 

Second, it is quite common that World Bank loans have, as their first condition, compliance with certain IMF conditions. This is known as "cross conditionality." In the division of labor between the two institutions, it is the World Bank that has primary responsibility for "structural" issues such as the privatization of state-owned companies. 

- Therefore, it can be presumed that in every country where IMF loan conditions include water privatization or full cost recovery, there are corresponding World Bank loan conditions and water projects that are implementing the financial, managerial, and engineering details required for such 'restructurings', says Sara Grusky.

In Ghana, civil society has announced its intention to resist the privatisation pushed for by the World Bank. Figures from the Government of Ghana have shown that only 36 percent of the rural population have access to safe water and 11 percent have adequate sanitation within the existing system. Water is also scarce in the capital, Accra.In typical working class areas of Accra such as Medina, it would cost a family 3,000 cedis to use 10 buckets of water a day if prises were to follow market rate tarrifs. Yet, the minimum wage per day is 7,000 cedis.

Also in South Africa, protest is spreading. The South African Anti-Privatisation Forum, a collective of community based organisations and labour unions, has mobilised against the privatisation of local government services, including water. Various strikes over social issues have marked the last year. The recent spread of cholera in South Africa is directly linked to the poor water quality in many working class areas. More expensive water could exclude even more people from clean and safe water.

The table at the right identifies 8 African countries and paraphrases the specific IMF loan conditions relating to water privatization or water cost recovery, as mapped by the Globalization Challenge Initiative. In most of the countries, the IMF conditions require some form of privatization, and in several countries the conditions require both privatization and greater cost recovery.

Sources: IMF, Globalization Challenge Initiative and afrol archives Texts and graphics may be reproduced freely, under the condition that their origin is clearly referred to, see Conditions.

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