Nice article... The Bank has, indeed, been very active in Haitian privatisation, at least since 1995 when Aristide was in his last months in office and was then (though maybe not so much anymore) an excellent anti-neoliberal. The low quality of International Finance Corporation business plan analysis struck me at the time. Part of a paper prepared in 1997:
2. IFC studies of Haiti's parastatals
2.1 Pressure to privatize
The key moment at which privatization was identified and resisted by Haiti's popular movement, was mid 1995. A failed attempt at privatization, emblematic of the broader structural adjustment program recommended to Haiti by the Bank and International Monetary Fund (IMF), even led to the forced resignation of former Prime Minister Smarck Michel in October 1995. Pressure was increased on the Haitian government through relatively vulgar means -- blackmail by the US Agency for International Development (US AID) -- but as an analyst at J.P. Morgan put it in mid 1996, "All the countries of the region with the exception of Cuba and Haiti are going after what's known as the Washington Consensus on economic policy" (New York Times, 7/13/96).
To understand why privatization was not politically feasible notwithstanding official rhetoric to contrary, requires considering President Jean- Bertrand Aristide's ouster not long after his landslide election victory in late 1990. To gain the permission of the United States for returning to power, Aristide had to present, in August 1994, a "homegrown" structural adjustment program. Shortly after returning to the presidency, Aristide signed a Standby Arrangement with the IMF in February 1995, which made vague commitments to reopening the state- owned cement factory and flour mill with private investment. Aristide's arm was clearly being twisted to support privatization.
There were two intellectual rationales. The first was that privatization would generate increased foreign investment -- and boost both budgetary resources and foreign reserves -- and that this was crucial to Haiti's economic recovery. There was often reference to the potential of the assembly sector, a low-paying export processing zone in Port- au-Prince that at its peak employed 60,000 Haitians but which in 1995 hosted just 18,000 workers in the wake of economic sanctions against the 1991-94 coup regime. Today the assembly sector has just 16,000 workers. According to Weisbrot,
In 1990 (the last year of normal economic
activity before the coup and embargo), 84%
of this sector's exports were composed of
imported inputs. When one takes into
account that much of the profits are taken
out of the country, the net contribution to
Haiti's foreign exchange earnings of this
sector is negligible. This point cannot be
over-emphasized, since all of the arguments
about the need to privatize and modernize
particular parts of the country's
infrastructure, keep real wages from
rising, and generally assure a favorable
investment climate are based on the need to
attract foreign investment to the assembly
sector.
In short, the lack of backward and forward linkages in the assembly sector made it difficult to reconcile with Aristide's desire for a better- balanced, developing economy. Vulnerability to fickle export markets and to hostile international economic conditions -- such as the rise in global interest rates and oil prices during the early 1980s -- would be amplified if state-owned companies were placed in the hands of foreign investors.
The second rationale was the alleged ability of private sector managers to manage the state-owned enterprises better than the Haitian government. The latent potential for much better performance from the state firms was not disputed, of course. Based on a long history of corruption and mismanagement, Haitian state enterprises failed miserably in supplying even basic services.
2.2 Haiti's state-owned enterprises
To illustrate, just one out of every 40 Haitians has access to metered electricity, and only one out of 100 has access to a phone. Neither the state cement company nor the flour mill were operating since 1993, and the vegetable oil complex -- closed during the 1980s -- was in a state of complete disrepair. The port was notoriously inefficient and corrupt. And the two state-owned banks not only suffered from severe internal shortcomings, they did not attempt to meet the credit or deposit needs of the vast majority of Haitians.
But the state-owned enterprises were, in total, running a surplus, and did provide some limited services to some customers and some employment (partly patronage for former Duvalierists but also many unionized jobs held by supporters of Aristide). The National Bank of Credit, for example, has a far larger branch network than any private bank. Many Haitians also opposed privatization in the interests of protection of national sovereignty and potential for increased revenues (especially from the profitable Teleco phone company).
According to Weisbrot (writing in 1996),
Haiti's state-owned enterprises have, as a
group, continued to operate at a profit,
despite the IMF's requirement that Haiti's
central bank deprive them of the credit
needed to undertake even necessary
maintenance and repair.
The national telecommunications company
(Teleco) is immensely profitable and earned
$71 million in foreign exchange in 1994.
Revenue from the telephone company has
amounted to 3% of Haiti's Gross Domestic
Product over the last decade. The World
Bank's own study of Haiti's state-owned
enterprises, for which it was paid $2
million, indicated that an additional $150
million per year could be generated by
expanding phone service. The new investment
required could therefore be financed
primarily from Teleco revenues. If the
Haitian government were to lose this source
of revenue and foreign exchange, it would
be difficult if not impossible to replace
it. This would greatly increase Haiti's
dependence on foreign borrowing and make it
even more difficult to finance national
development and social needs such as
education and health care. In short,
privatizing the telephone company would be
an enormous mistake for any Haitian
government.
The electricity company (EdH) is
presently neither profitable nor capable of
meeting current demand. However, most of
its problems are due to the fact that only
about half of the electricity produced is
actually billed for, and of this amount,
only about 25% is paid. Much of the unpaid
electricity goes to established businesses
and residences, and not just to illegal
connections in poor neighborhoods.
Privatization will not solve these
enforcement problems, which would remain
the responsibility of the state.
Privatization of EdH would leave Haiti with
a powerful private monopoly able to exploit
its market power through unreasonably high
prices, especially in the absence of a
developed regulatory structure. Electricity
is also essential to any overall
development strategy. For example, rural
electrification could play a vital role in
developing agro-processing industries and
employment in the countryside. And
electrification must be part of an overall
energy policy, which among other things
must reduce the charcoal consumption that
is responsible for most of Haiti_s
continuing deforestation. A privately owned
company would have no reason to take any of
these needs into account in formulating its
investment, pricing, or other policies.
Even the closed-down cement company,
according to the Bank's own study, is
capable of producing 200,000 tons of cement
per year, at competitive costs, with very
minimal investment. And the availability of
reasonably-priced, domestically produced
cement could be important to any national
development strategy that required, for
example, large scale investments in
infrastructure.
2.3 IFC privatization reports
In May 1995, the IFC tabled eight "Draft Options Reports" -- effectively business plans for privatization -- regarding the main state enterprises, which at the insistence of the IFC were not disseminated beyond a select circle of economic experts. Moreover, according to an official of the Plate-form Haitienne de Plaidoyer pour un Developpemont Alternatif (PAPDA) (personal communication, 29/9/97),
The IFC terms of reference were to see how
to privatise, not to consider options for
improving the performance of these
companies. The IFC official I was arguing
with finally admitted this rather
sheepishly. Detailed reform proposals made
by workers and some managers at the Teleco
and EdH have thus always been completely
ignored. Their criticisms of inefficiency
and corruption are stronger than the
IFC's... The report has still not been made
available. We have been working from a
pirated summary.
By early August, two of the reports -- on the cement company and flour mill -- had graduated to the status of "Information Memorandum" and were provided to a few potential multinational corporate investors; bids were taken on the two companies and sealed until a privatization law was passed by parliament. But under conditions of secrecy and mistrust, the privatization process soon become embroiled in controversy, as street demonstrations occurred with increasing frequency and as anti-privatization graffiti filled Haiti's streets and villages.
The IFC business plans suffered from several contradictions: they failed to show how Haiti's citizens would receive better goods and services; they failed to address concerns relating to layoffs; they failed to confront the danger of greater economic concentration; they failed to respect Haiti's environmental sovereignty; they failed to collect the required data; and they were meant to be kept confidential, except insofar as multinational investors received copies. Each problem is considered in turn.
2.3.1 No plans for increased provision of goods
and services
The provision of goods and services to the citizenry, particularly the poor, was largely ignored in the IFC reports. Even where the IFC acknowledged the need for expanding access to goods and services -- regarding the EdH electricity company, for example, "The primary goals of the Government of Haiti which are to commercialize the electricity industry, to improve efficiency, to reduce the financial burden on the Government, and to provide a reliable electricity supply, must be balanced with the need to give a supply to all inhabitants and sections of the community as far as this is both practical and financially attainable" -- the business plan did not set out how these developmental goals could be achieved.
2.3.2 The threat of layoffs
Given the dire unemployment problem in Haiti, there were concerns about job loss that the IMF failed to incorporate. Although a May 1995 World Bank report noted that "the Government emphasized the need to assist those employees who might be affected by the democratization program in their integration in the private sector," the IFC projected enormous layoffs of workers with no contingency plans. At the cement plant, for instance, there were to be "massive, or even total dismissals, possibly followed by selective re-hiring." And notwithstanding "justifiable concerns about the labor unions striking work if port employees are laid off... There is an immediate need to rationalize the labor force at the port (APN has 800 employees excluding dockers, but should be able to function effectively with less than 100 employees)."
2.3.3 The danger of economic concentration
As a result of the fact that a handful of rich Haitian families own most of the country's resources -- the top one percent of the population receives half the income -- the IFC recognized that its "mandate" included the following: "The overall objective of the program is to avoid an increase in the concentration of wealth in Haiti while, for each enterprise, attracting investors to enhance its contribution to the Haitian economy." Yet the IFC's eight business plans did not spell out mechanisms for ensuring that the largest existing commercial empires in Haiti were insulated from investment opportunities. Nor did they advance the democratization of ownership for the Haitian citizenry as a whole (through mechanisms such as public investment trusts, employee share ownership plans or consumer cooperatives). Strikingly, no such policy options were considered.
2.3.4 Rejection of Haitian ecological
sovereignty
The IFC appeared to be insensitive to Haitian government ecological objectives. For instance, the IFC requested that prior to privatization of the cement plant, bidders would receive "assurances regarding environmental legislation"; the IFC desired that the government commit that protection of local air quality would not be imposed on a foreign investor in the cement plan.
2.3.5 Data shortcomings
The IFC also pushed privatization notwithstanding gaping holes in the available data. For example, in the case of the cement company, "Access to the Company's records was denied." As for the port, "An audit of finances and business activities is advisable... the financial statements provided appear to be understated." The Banque Nationale de Credit was Haiti's second-largest bank, but "A full financial audit is long overdue (the last one was carried out 10 years ago)... accumulation of interest on past-due loans could have overstated earnings and generated fictional profits." As for telecommunications, "It must be noted that the overall quality of the data available at Teleco is very poor." Notwithstanding poor access to data, the IFC pushed hard for a fast-track privatization programme to be announced in mid 1995.
2.3.6 Secret information and defective
participation
In part because of the secrecy associated with the process, the Haitian people were simply not informed of the options for privatization and had no vehicle to participate in designing any form of democratization process. This happened in spite of the general desire of the Government of Haiti for more transparent processes, supposedly shared by the IFC. In the case of the cement plant, the IFC even argued that "The process should be open to public scrutiny, possibly through an awareness campaign and open debates." The IFC also conceded that "If the rationalization of the labor forces at the port is to succeed, the Government must achieve both popular grass-root support and political consensus through a focused plan, which should include a public information campaign." Yet the IFC also requested that the details of its eight reports be kept confidential.
2.4 Blackmail trumps participation
It may not have been the fault of the Bank and IFC, but once popular opinion had been felt (through riots, protests, ubiquitous graffiti, as well as through more measured opposition in the mass media and other fora), crude attempts at blackmail followed. In a September 1995 document titled "threat estimate," U.S. Major John Shissler, Chief Military Information Officer for the United Nations Mission in Haiti (UNMIH), revealed deep concern about the anti-privatization protests (reported in IPS, 1995):
UNMIH statistics indicate that there has
been a steady increase in demonstrations
with economic themes over the past six
months... (This) will have the effect of
scaring off potential investors and
damaging the economy, which will further
exacerbate the (security) situation.
Additionally, populist economic policies
have the potential to alienate the economic
elite, which in turn could lead to a more
serious security problem... Haitians may
perceive unwanted and excessive
international influence addressing the
above issues and may take out their
frustrations on UNMIH in the form of
demonstrations and/or protests which could
turn violent.
When protests continued and Michel was forced to step down as prime minister, US AID withdrew anticipated funding of $4.6 million that was linked to the unloading of an oil tanker sitting in the Port-au-Prince harbor in October. This was a starkly visible symbol of the ability of the US government to hold Haiti hostage until ransom -- privatization -- was paid. With the cut-off of balance of payments support, the Haitian currency rapidly lost a quarter of its value, causing inflation to rise by the same amount. In addition, according to the PAPDA official (PAPDA, 1997), "USAID spent a further $800,000 on a public relations campaign carried out by a Canadian PR firm called Gervais to sell privatization to the Haitian people. Needless to say, we were invited to none of their events." But none of the hard-sell or soft-sell tactics were successful in gaining popular consent for privatization.
2.5 Conclusion
Both Haitian officials and the IFC acknowledged the need to meet basic needs in the course of privatization, to address concerns about layoffs, to avoid intensifying the concentration of ownership, to get access to accurate financial information, to resolve conflicting government goals (which in the IFC reports are not prioritized in favor of development), and to promote informed public debate on the issue. Whatever the limitations of the Haitian government, it should be clear from the evidence above that the IFC failed to take these needs seriously.
This failure to engage the citizenry on their own terms was the most important reason why not even crude U.S. blackmail changed the government's mind. As Weisbrot concludes,
Most importantly, the popular resistance to
privatization in Haiti shows that such
organized opposition can have a significant
effect. To be sure, this is a small
victory, and not nearly enough to rescue
Haiti from the "American plan." But the
popular movements in Haiti are just
beginning to recover from the terrible
losses they suffered during the coup years
-- not to mention the thirty years of US-
sponsored dictatorship that preceded them.
As of September 1997, bids for the cement plant and flour mill had still not been officially opened. In this case, given the weaknesses associated with the preparatory work on privatization by the IFC, in a context mishandled more generally by the IMF, Bank and US AID, the onus for the failure of privatization to get off the ground clearly lies with the advocates.
Today, popular resistance to privatization and structural adjustment more generally remains extremely powerful, reflected in President Rene Preval's failure to appoint a prime minister for the past four months due to widespread conflict over economic policy. The privatization program remains stalled and highly secretive, even supporters acknowledge. According to the U.S. Ambassador to Haiti in a report to the U.S. Commerce Department (1997), "While the Council for the Modernization of State Enterprises was not prepared to offer details on decisions taken during the more than 20 meetings held since its formation on December 2, 1996, it does expect the process to be fully on track within the next two to three months." The World Bank has apparently offered technical assistance to the Council in January 1998, notwithstanding popular opposition (U.S. Commerce Department, 1997).
But foreign investment remains minimal and the economy is contracting. In this context, without an operative government in Haiti, continued pressure from Washington, DC to proceed with tendering the state-owned cement and flour companies, and further state-owned companies over the next two years, will almost certainly fail.
*** Patrick Bond email: pbond at wn.apc.org * phone: 2711-614-8088 home: 51 Somerset Road, Kensington 2094 South Africa work: University of the Witwatersrand Graduate School of Public and Development Management PO Box 601, Wits 2050, South Africa email: bondp at zeus.mgmt.wits.ac.za phone: 2711-488-5917 * fax: 2711-484-2729