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The World Bank Letters

After the Democracy Center began publicizing the World Bank’s role in the Bolivian water takeover, Bank officials complained in writing. Below is their letter and the response from the Democracy Center’s executive director, Jim Shultz, and an American researcher in Bolivia, Tom Kruse.

The World Bank’s letter to us

Dear Mr. Schultz & Mr. Kruse:

We’ve received a few media calls prompted by incorrect information on your website under the title “Globalization and War for Water in Bolivia”. Your web articles erroneously suggest that the World Bank supported the recent Cochabamba water privatization project, in which the government of Bolivia accepted an offer from Consorcio Aguas de Tunari. In fact, the World Bank advised the government against proceeding with the privatization plan and water tariff increases that sparked tragic violence in Cochabamba last month.

Bolivian governments and the private sector have studied alternatives to increase water supply and expand water service in Cochabamba for more than 20 years. In 1997, the Bolivians asked the World Bank to analyze a water project, called Misicuni, whose $252-million financing requirement led to the tariff hike, and compare it with another proposal, known as the Corani Project. The Bank advised against proceeding with the Misicuni project, as our analysis was that neither the public nor the government could afford its high price tag. Instead, the Bank favored the alternative project, known as Corani, as offering a lower-cost, fully private-financed option under which no tariff increases would have been permitted for at least five years.

This note is to request that you correct the misleading information about the Bank’s role in the Bolivian water sector at the earliest opportunity. I would also be most appreciative if you would contact me to obtain more information about the Bank’s role, so that you can inform your readers more accurately about the World Bank’s acitivities. The Bank is working on many fronts to resolve the global water crisis. More than a billion of the world’s people do not have access to clean, safe water. Three billion don’t have adequate sanitation. A recent report by the World Bank-sponsored World Commission on Water estimates that demand for water will rise by 40 percent over the next 20 years.

Meanwhile, much water is wasted. In many countries, factories, farmers and middle-class consumers enjoy subsidies that shift the burden of paying for the water they use — and often waste — to the government. These costs leave governments unable to finance the water pipes, pumps, sewers and tunnels so urgently needed by the poor in the urban shantytowns and small rural farms of the developing world. Largely as a result of this, millions die each year from water-related diseases.

The challenge we face is finding the resources needed to provide clean water and sanitation for everyone. Many countries’ public sectors do not have the money or the expertise needed to deliver safe water to all their citizens. Consequently, they look to the private sector to build, maintain and manage water systems.

This has prompted opposition from those who, apparently, believe that public sector ownership is the only appropriate model for water service delivery. Others, including the World Bank, believe that shutting the private sector out of water services altogether will prevent the poor from gaining access to the water they need. That’s why the Bank is working with governments to involve the private sector in water delivery.

But there is an essential caveat. Governments need to set up the regulatory frameworks needed to ensure that a monopoly private provider delivers water at an affordable price to consumers. The Bank is helping many of them do that. This means governments negotiate with the private providers where and what kinds of water investments are made. They also provide subsidies targeted at those who need them, namely the poor. In Santiago, Chile, for example, the municipal government introduced a ‘water stamps’ program that covers part of the cost of water for low-income residents. The result is that more people have access to water, and water use is more efficient.

Christopher Neal
External Affairs Officer Latin America & the Caribbean
The World Bank Room I 8 – 178 1818 H Street NW
Washington, D.C. 20433
email: cneal1@worldbank.org
Phone: (202) 473-7229 FAX: (202) 522-3698

Our reponse to the World Bank

June 6, 2000

Christopher Neal
External Affairs Officer Latin America & the Caribbean
(via e-mail)

Dear Mr. Neal,

This letter is in response to your May 10 e-mail to us regarding the recent civic uprisings over water prices and water privatization here in Cochabamba, Bolivia. Please forgive our delay in responding. We were both traveling outside the country when your message arrived. We appreciate you taking time to represent the World Bank’s official view on the events that happened here. We assume that you are a person of goodwill whose concern for the poor is genuine. However, as residents of Cochabamba we must say that your representation of the World Bank’s role in the tragedy that occurred here is seriously incomplete.

As you well know, following the completion of water privatization here last January, the people of this valley saw their water bills climb by double and more. To seek recourse they were forced to shut down their city for a week, and to endure government tear gas, bullets, and repression which left a 17 year old boy dead and more than 100 others injured. While the World Bank may wish it were otherwise, the events that set this tragedy in motion lead directly back to the Bank and its heavy handed privitization policy in Bolivia.

First, despite your statement that the World Bank, “advised the government against proceeding with the privatization plan and water tariff increases,

” the facts are absolutely clear that the World Bank relentlessly forced privatization of the water system, over the clear objections of many Bolivian citizens and leaders. In February 1996 the World Bank told Cochabamba’s mayor that unless it privatized its water system the city could forget receiving any additional World Bank assistance for local water development. In July 1997 World Bank officials told Bolivian President, Gonzalo Sánchez de Losada, during meetings in Washington, that the privatization of the Cochabamba water system was also a pre-condition of receiving international debt relief from the World Bank, the International Monetary Fund and others.

Far from opposing privatization, the World Bank used every coercive power at its disposal to force water privatization on the people of Cochabamba. The process that resulted was carried out in a shroud of secrecy, with just one bidder, and by a government completely unequipped to adequately negotiate with or regulate a private monopoly.

Second, in your letter you place the blame for the water rate hikes entirely on the Misicuni dam project, which you explain was vigorously opposed by the Bank. We agree that the Bank’s opposition to the dam is well-documented, and we have never said otherwise in any forum. In fact, the Bank’s doubts about the project are shared by many here in Bolivia, despite the insistence by many local interests the project move forward. Yet, while you at the Bank argued the Misicuni project was absurd and overpriced, at no time did you disapprove of the tariff increases; just the opposite. The Bank insisted on price increases to cover costs of the Misicuni project despite knowing the project is commercially unjustifiable. The Bank staff wrote – in bold type – in its June 14, 1999 “Bolivia: Public Expenditure Review”, that “No public subsidies should be given to ameliorate the increases in water tariffs in Cochabamba…” By issuing that command to the Bolivian government, did you expect any result other than the public erruptions that occured here?

Third, the Misicuni project was clearly not the sole reason for the enormous rate hikes forced on people here. World Bank debt also played a key role. International Waters Limited and the Bechtel Corporation, the owners of the company that implemented the rate increases, claim that the Misicuni project was responsible for well-less than half of the increases (see April 25 letter from Mr. Didier Quint to Jim Shultz posted at www.Bechtel.com). Those increases were also forced by the company’s demand for a guaranteed profit (an average 16% per year, according to their contract) and by huge foreign debts agreed to by the Bolivian government – including millions owed to the World Bank. The World Bank made these loans to a public enterprise in which it evidently had no confience whatsoever, yet, nevertheless, it expects local water users to now pay off that debt in the form of higher water prices.

Fourth, another reason that rate hikes were so high, especially for the poor, is the World Bank’s insistence that all of the operating and maintenance and project costs be born entirely through water tariffs, with no opportunity for public subsidies. In a policy dictated with absolutely no input from the people actually affected, the World Bank made it abundantly clear to the Bolivian government that Cochabamba water users should pay whatever the market dictates. The World Bank seems driven by an economic theory that water prices for the poor must be kept high in order to keep families from wasting water. In addition to your statements, that theory was also articulated by World Bank director James Wolfensohn, when asked directly about Cochabamba in an April news conference in Washington. Mr. Wolfenshohn explained that people in Bolivia and elsewhere would waste water unless there was a “proper system of charging,” adding, “It’s just a fact that if you give public services away, I think everyone would agree that that does lead to certain waste.” In the world where clothes washers, dishwashers, water heaters, and automatic sprinkler systems are commonplace, perhaps using elevated prices to discourage waste makes sense. Here, however, families own none of those luxuries. Most have water entering their home for an hour every day or two. Market pricing for water here in Cochabamba goes well beyond discouraging waste. It threatens to put water entirely out of reach. It is no surprise that the end result of World Bank policy was the bloody fiasco that occurred here in April. To have demanded privatization under such conditions makes the Bank directly complicit in what followed. You can not send a boulder racing down a mountain side and then claim no responsibility for the damage caused when it hits its target. Let us be clear. We are not apologists for poorly run public enterprises. The former public water system was plagued by corruption and mismanagement. We are working closely with civic groups here in their effort to construct a public water system that is efficient and well-administered. Nor are we opposed to private investment and involvement in public services such as water. Clearly, private investment is critical in a poor country such as Bolivia.

The heavy-handed and anti-democratic approach to forced privitization that the World Bank implemented here is precisely the kind of policy that has led to the recent wave of international protest against the Bank. If the World Bank wants to be of genuine assistance in Cochabamba it should begin by looking at the debt it holds over water users’ heads, and negotiate forgiveness of that debt in exchange for water rates which the poor can afford. Rather than pursue its relentless demand for privatization, the World Bank should support genuine efforts to create well-run, well-financed public systems that allow local residents to keep control of their water. Finally, we would be delighted to invite you to come to Cochabamba. This would be an opportunity for you to bring in to the public light what the World Bank intended with its demand for privatization. Such a visit, by giving you an opportunity to hear from those directly affected, would also expand your understanding of what led to the violent rejection of water privatization. Sincerely,

Jim Shultz and Tom Kruse
Cochabamba, Bolivia