> 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/Winter02N
&N.pdf
>

> Key points 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 subsidy 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-covering 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 Overview
> and Conclusion are attached (below).  The entire issue can be
> viewed at:
>
> http://www.CHALLENGEGLOBALIZATION.ORG/html/news_notices/winter
> 2002/Winter02N
> &N.pdf
>
> (Please note that this is in PDF format and you need the Adobe Acrobat
> Reader from http://www.adobe.com )
>
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