WB? no, thanks!

Patrick Bond pbond at wn.apc.org
Wed May 2 01:54:59 PDT 2001

> Date: Tue, 01 May 2001 17:30:26 -0400
> From: Wojtek Sokolowski <sokol at jhu.edu>
> I hate to act like a wet blanket, but autarky-based development has been
> tried without much success - x-USSR, China to name a few. Isolation is bad
> for development since the beginning of history.

Not autarchy, comrade, "partial delinking."

Such isolation from trade/finance/investment was GREAT for development in many semi-peripheral countries during the 1930s-40s; for South Korea during the 1950s-60s (when no MNCs were allowed); for Malaysia (on int'l financial flows) since September 1998; etc...

> Attacking WB is like biting
> a stick instead of the man who wields it.

You've never been in a Third World country, like Poland during the 1990s, and seen the WB beating the people? It's pretty horrific. I hope you come to Jo'burg soon, Wojtek; I'll buy you a glass of water. Here's an example from our new AIDC WB-watchdogging newsletter (sorry if I've posted this here, can't remember...):


The World Bank in the age of cholera

One of the most painful preventable diseases known to humankind, cholera, continues to spread, affecting hundreds of people a day. At press time, more than 80 000 had become sick over the course of eight months, and more than 180 had died, mostly in KwaZulu-Natal province. In early April, four died of cholera in Alexandra township, within a couple of kms of leafy Sandton, the Third World's richest suburb.

In September 2002, Sandton will be the main site hosting the World Summit on Sustainable Development ("Rio+10"). Overpaid bureaucrats from the United Nations, aid agencies and World Bank will wander around the faux-Italian Sandton Square, no doubt presuming that all is right with South Africa, since environmental affairs minister Valli Moosa has already declared water to be a central theme of the summit.

But Alexandra residents will still be burdened with paying for the World Bank's latest Lesotho dam, rife with corruption and constructed nearly two decades years too soon, according to many industry experts. Their water bills have soared in relation to hedonistic residents of Sandton, whose huge English gardens, swimming pools and water-washed cars generate far more waste-- and require more long-term dam construction-- than the average Alexandra household consumes for cooking, washing and hygiene.

It is a safe bet that by September 2002, the free water promise will not have been kept. Moreover, the "Egoli 2002" water commercialisation scheme--named after Johannesburg's nickname, "City of Gold" or Egoli in the Zulu language--will continue to generate pollution in the Johannesburg water table because of substandard (pit latrine) sanitation installations in informal settlements.

Already in February, the E.coli bacteria was found in large quantities near one of Sandton's school boreholes. As a consequence of the commercialisation pressure implicit in "E.coli 2002" (as it has been renamed by critics), water cutoffs will continue to cause cholera and diarrhoea, exacerbating AIDS, and transferring an awesome burden to women.

The most proximate cause of South Africa's 2000-2001 cholera epidemic and ongoing death and disease caused by inadequate water access is the government's "neoliberal" (market-oriented) policy: specifically, decisions to cut off supplies to those who are unable to afford them, and to refuse subsidisation sufficient to allow installation of taps and sanitation in all low- income, rural households, due also to limited affordability.

The broader macroeconomic environment is also crucial. South Africa has adopted a neoliberal "homegrown" austerity plan: the misnamed Growth, Employment and Redistribution strategy, which has in reality generated economic decline mass unemployment and polarisation. The plan was concocted in 1996 by a team of 15 economists, including two from the World Bank, using an econometric model drawn in part from the World Bank.

But what role did the World Bank have in the two main decisions--to promote water cut- offs and to discourage installation of sufficient taps and toilets to low-income South Africans?

Death by bureaucrat

The climax of the Bank's South African water policy-making climaxed fatally in August 2000 when the cholera epidemic erupted near Richard's Bay, north of Durban. A Bank- friendly cost-recovery strategy was introduced in Ngwelezane, Empangeni. But the R51 ($7) connection fee was unaffordable for thousands of people. The Mhlathuze Water Board therefore cut off their water supply (using a "pre-paid meter" self-disconnection strategy), saving a few tens of thousands of rands--but costing the provincial health authorities and the sick people tens of millions of rands. As Ingrid Salgado of the Sunday Times reported:

This week, a startling picture emerged of the sequence

of events that led up to the outbreak around

Ngwelezane. Authorities discovered that some areas

were still receiving free water in terms of a 17-year

initiative of the former KwaZulu government to deal

with the 1983/4 drought. "It was eventually noticed,

and it was decided to switch off the supply," said the

chief executive of the Uthungulu Regional Council, B

B Biyela. "The people were given sufficient warning

and the supply was cut off at the beginning of August." Are World Bank fingerprints to be found at the scene of the crime? Ultimately, who issued the execution orders imposed upon poor people by South African bureaucrats like Biyela? And who typed up the orders in the first place?

Pretoria's main water and infrastructure policy-makers were informed by Bank missions during the early 1990s, and a key Bank official (Piers Cross) even took leave to serve as the leader of an NGO, Mvula Trust, which began substandard water delivery prior to the 1994 democratic election. The delivery philosophy was to limit supplies to 25 litres per person each day maximum, in non-hygienic communal taps which spread more disease than it abated, charging consumers full cost-recovery for maintenance and operations.

By November 1994, Bank staff led by Juneid Achmad had drafted the main sections of the Urban Infrastructure Investment Framework, and a final draft was issued four months later under the auspices of the Reconstruction and Development Ministry in the Office of President Mandela. The framework called for communal taps and pit latrines to be provided to households which had less than R800 per month income. Cross-subsidies from national government to local authorities were explicitly ignored as financing sources by Bank staff. The environmental and public health costs of pit latrines did not feature in the Bank report, nor were benefits ("positive externalities") from higher standards calculated: e.g., gender equity, economic spin-offs from higher infrastructure standards (microenterprises, higher productivity, etc.), and geographical desegregation.

Meanwhile, central government was in the process of cutting the "Intergovernmental Grant" by 85% in real terms (from 1991-99), as macroeconomic pressure intensified to lower the state budget deficit to 3% of GDP. Microeconomic pressure also increased for municipalities to cut off water supplies to those who could not afford. Beginning in 1997, mass water cut-offs reflected the combination of declining subsidy funds on the one hand, and fast-rising costs of water supply on the other. The problem was acute in the Johannesburg area, partly thanks to water cost increases flowing from huge Lesotho dams haplessly promoted by the World Bank.

The costs of dams

Extremely expensive water began rushing down to Johannesburg through tunnels from the $2.5 billion Katse Dam far up in the Maluti Mountains in early 1998. And the Bank taskmanager for the Lesotho Highlands Water Project, John Roome, had already drawn up plans for a second dam, Mohale ($1.5 billion).

Katse had been controversial because of the Bank's explicit violation, in 1986, of anti- apartheid financial sanctions (through a special fund to allow Pretoria access to hard-currency financing was established in London). The Bank worked closely with foreign minister Pik Botha and the military junta that Pretoria had helped install in Maseru, ignoring calls by the African National Congress to boycott the apartheid regime.

As a result of the undemocratic character of what has become Africa's largest water project, the Bank upset the fragile ecology of the Lesotho highlands, initially failed to do any environmental impact assessment, ignored downstream "instream flow requirements" for the Senqu/Orange River, allowed huge cost overruns in lining the transfer tunnel with cement, ignored glaring problems in managing displacement of thousands of Basotho peasants, let labour relations deteriorate to the point that several workers were killed during a 1996 protest, and failed to anticipate destructive earthquake tremors from the impacting of the dam water.

But most importantly from the standpoint of water costing, Roome's colleagues had overestimated the physical demand for Gauteng water by an extraordinary 40%. In order to lend Pretoria more than 5% of Katse's cost, the Bank officially pretended that Lesotho was the borrower--but in one report let slip that the project's main "political risk" was default by the apartheid regime.

Bank officials even defended the corrupt manager of the Lesotho Highlands Development Authority, Musapha Sole, in a threatening letter to the Maseru government in December 1994. Sole was facing dismissal, but the Bank's protection allowed him to continue extracting at least $2 million in funds from the multinational corporations building Katse over the period 1988-98. Sole's Swiss bank account records are probably just the tip of the iceberg, for a Lesotho judge remarked that corruption appeared endemic in the dam project.

But Roome's role in making water expensive was not limited to pushing a dam, Mohale, that experts employed by Rand Water (the parastatal purchaser of most Lesotho water) estimated would not be needed for another 17 years. Roome was also confident to provide retail water advice.

Roome for water cuts, price hikes

In October 1995, Roome suggested to then-Minister of Water Affairs Kader Asmal several policy positions. Asmal should be "very careful" about letting small black farmers have new access to irrigation, Roome insisted. And he must implement a "credible threat of cutting service" to non-paying consumers.

Asmal was dissuaded from revising a water cut-off policy which had been put in place in 1994 by his own neoliberal bureaucrats. Water department director-general Mike Muller had, in Pretoria's first water white paper in December 1994, redefined the term "lifeline" tariff so as to require full payment of operating and maintenance costs (i.e., no ongoing subsidy), which in turn doomed hundreds of rural water supply schemes.

When questioned about the cholera disaster in January 2001, Muller finally admitted to SA Broadcasting Corporation's "Newsmaker" show, "Perhaps we were being a little too market-oriented." However, even after this extreme understatement, reports continued of municipal water cutoffs due to consumer inability to pay, with Pretoria standing idly by.

The prize-winning Western Cape municipality of Hermanus, once famous for water access and conservation, began evictions and attachments of poor people's homes to offset their water arrears in February. The next month, Johannesburg officials began cutting water services due to electricity account arrears, in a move experts say is constitutionally suspect. The impact of Bank-think on bureaucrats proved extremely durable.

Indeed, the Bank's 1999 Country Assistance Strategy had explicitly bragged that Roome's 1995 "power-point presentation" to Asmal was "instrumental in facilitating a radical revision in South Africa's approach to bulk water management."

Radical water?

In March 2000, the World Bank's "Sourcebook on Community Driven Development in the Africa Region-- Community Action Programs," which cites Roome as a contributor, again addressed the problem of affordability. According to the sourcebook, "work is still needed with political leaders in some national governments to move away from the concept of free water for all." (This sentence appeared one month after the post-1999 water minister, Ronnie Kasrils, first announced his intention to provide free water, in February 2000.)

In addition, the sourcebook continued, African governments should follow the neoliberal approach to water financing:

Promote increased capital cost recovery from users. An

upfront cash contribution based on their

willingness-to-pay is required from users to demonstrate

demand and develop community capacity to administer

funds and tariffs. Ensure 100% recovery of operation

and maintenance costs. When major delivery NGOs like Mvula Trust and the Independent Development Trust tried 100% cost recovery during the mid-1990s, they discovered that it led to systematic project breakdown. Pretoria's own community water projects only achieved around 1% cost-recovery, and most of the taps Kader Asmal had unveiled from 1995-99 ran dry.

Private-public partnership drought

The pressure to recover 100% of operating and maintenance costs comes in large part from the push to privatise.

Ironically, on 10 August 2000, just as the cholera epidemic began, Muller wrote in Business Day newspaper to endorse the private-sector water regulation of the Mozambique government: "We could learn from their recent experience, which saw them dismiss the managers of newly privatised water services in Maputo for allegedly contributing to a cholera outbreak by failing to maintain services during the recent floods."

Hypocritically, Muller did not dismiss Biyala (or resign, himself) once it became clear--e.g. during the World Health Organisation's investigation--that his department's failure to maintain water services was allegedly contributing to the continuing spread of cholera. Nor did he mention that the decision to privatise Maputo's water was forced upon national authorities as part of the Bank's blackmail strategy known as the Highly Indebted Poor Countries (HIPC) initiative. That strategy reached its nadir in a letter from Bank president James Wolfensohn to Mozambique's president Joaqim Chissano in March 1998, celebrating "sharp" increases in water tariffs and calling for even higher prices prior to privatisation.

A similar dynamic was underway in South Africa. As Muller explained, "a decision was taken in 1997 that the use of the private sector for water service provision should be regulated within a structured framework, designed to ensure that all South Africans have access to water services."

But lower tariffs for poor people mitigated against private sector involvement. Roome had, in October 1995, criticised the Reconstruction and Development Programme promise of a free lifeline (low-consumption) supply of water needed by poor people, to be paid for by more expensive prices to large-volume users.

Such a "rising block tariff" was inadvisable, Roome told Asmal, because privatisation contracts "would be much harder to establish" if poor consumers had the expectation of getting something for nothing. (This was a correct, if inhuman, line of reasoning.)

A recent study by the Palmer Development Group confirms that since South Africa's liberation in 1994, most of the cities surveyed have been flattening the block tariffs, by charging relatively higher rates for the lower- consumption blocks, and relatively lower rates for the hedonistic users. Water ministers have done nothing to prevent this, until Kasrils' announcement of a free lifeline block.

In the meantime, in May 1997, the World Bank's private-sector investment subsidiary, the International Finance Corporation, announced it would take a $25 million stake in the Standard Bank "South Africa Infrastructure Fund." That fund anticipated gaining a return on investment of more than 30 percent in 90 percent of its projects. Notably, the IFC made no explicit effort to invest in a manner that either confirmed infrastructure access on a lifeline basis, or that would directly broaden ownership to the black majority.

While the IFC was looking for privatisation investments, the World Bank risked charges of conflict-of-interest, by continuing to promote hard-sell privatisation. In one city, Port Elizabeth, a Bank staffperson spent a week in 1996 building water pricing models that included only one institutional option: privatising the city's water works. Various claims about likely efficiency enhancements were made, some of which--such as the feasible reduction of staff from 6,5 to 3,5 per 1 000 water consumers, and a 1,2 percent interest rate advantage on capital- related borrowing for a private firm in contrast to the municipality--were based on highly dubious assumptions.

Will the World Bank infect Rio+10?

Evidence of World Bank intervention in South Africa's multiple water disasters is clear. During the late 1990s, the Bank and various allies--e.g., Banque Paribas, Rand Merchant Bank, Colechurch International, Development Bank of Southern Africa, Vivendi, Metsi a Sechaba Holdings, Sauer International, Suez-Lyonnaise and the US Agency for International Development also visited Port Elizabeth and lobbied national policy-makers--aimed to:  build large dams no matter the need or the corruption;  privatise South Africa's water;  change tariffs to lower the price to the rich and raise it for low-volume consumers;  deny low-income people access on grounds they cannot pay for full operating and maintenance; and  maintain extremely low standards of infrastructure (communal taps and pit latrines) even in dense urban areas.

It is only the combination of several factors in 2000, including the cholera epidemic, that may crowd out World Bank advice--but six years too late for many who have died or suffered preventable disease due to neoliberal water policy and practice.

And after all of this, still, bureaucrats cling to the cost-recovery model. A Draft Free Basic Water Policy issued by government consultants in March 2001 included this Bank-friendly provision: "the current view of national government is that municipalities should keep tariffs to commercial and industrial consumers as cost reflective as possible (no cross subsidies)."

A decade ago, just before the UN Conference on Environment and Development in Rio de Janeiro, World Bank chief economist Lawrence Summers signed an internal memo--leaked and published by The Economist in February 2002-- that includes the most famous sentence in development history: "I think the economic logic of dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that."

The World Bank has been partially responsible, in recent years, for the dumping of toxic neoliberal water policy in South Africa. With people still dying of cholera in Alexandra, Moosa's desire to showcase Rio+10 by using South African water policy and Egoli 2002's water commercialisation is farcical. But the initial tragedy was the naive decision by Pretoria and Maseru politicians and bureaucrats to let World Bank staff foul South African water in the first place.

(Next issue: Bank bureaucrats pollute water policy across Southern African.)

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