Editor's Note: The following article is the introduction to Nancy Alexander's latest study for CNES, "Who Governs Water Resources in Developing Countries?: A Critique of the World Bank's Approach to Water Resources Management," available on the web at <www.servicesforall.org>.

On June 5, U.S. Treasury Secretary Paul O'Neill delivered a major foreign policy address on the future of international assistance. The address was delivered 55 years – to the day – from Secretary of State George Marshall's announcement of the Marshall Plan. Indeed, the U.S. Administration views its Millennium Challenge Account (MCA) – scheduled for a September 2003 launch – as the third great foreign policy initiative of the century after the Marshall Plan and the Alliance for Progress.
Secretary O'Neill dwelled on the importance of primary education, health (HIV/AIDS) and, especially, safe water. The MCA is expected to revolutionize service delivery, especially by working with governments, which agree to delegate such delivery to private and not-for-profit providers.

Indeed, the agenda of public sector reform in developing countries is being transformed within G-7 governments, the multilateral lending institutions they control, and transnational corporations that influence both groups. Decades of disappointment with foreign aid have transformed that agenda into a debate about how – rather than whether – to privatize basic services, especially water and power.

Powerful creditors and donors, such as the U.S. and multilateral lenders, may refuse to extend credit to those countries that choose to retain public water provision. Recently, the World Bank Director for Water and Power declared that water and sanitation loans to Africa will be "out of the question" unless they include private sector participation. This position represents an institutionalized hypocrisy. The industrialized countries that dictate conditions for access to development assistance maintain public provision of water for themselves, while requiring that developing countries renounce it. (The same double standard exists in other policy areas. For instance, the industrialized countries increase already high levels of agricultural subsidies, while requiring that developing countries remove theirs.)

Rejecting Public Provision
Powerful donors and multilateral lenders have many ways to influence politics in developing countries – mainly by withholding aid, credit, or debt relief until governments agree to privatize. The IMF has suspended debt relief when the governments were unwilling to privatize or to privatize rapidly enough.

The IMF is essentially the kingpin of a "cartel" of creditors and donors that obeys the IMF's signals about the acceptability of a government's policies. At present, the IMF is extending the time period within which Ghana must achieve full cost recovery for water and electric utility services. If the government of Ghana fails to comply with key IMF loan conditions, it could lose access to as much as $1.2 billion in foreign assistance from an array of donors and creditors. Donor governments also exert leverage. For instance, the U.K. government is withholding $300 million until the government of Ghana concedes to signing private concessions for the urban water system.

Usually, donors and creditors insist that developing countries take a step-wise approach to privatization. They may require that, as conditions for accessing aid and credit, governments take steps to: decentralize decision-making; pass water-related laws and regulatory provisions; prepare and implement bidding plans; withdraw credit to failing public water companies; and enhance cost recovery. Over the decade, seventy percent of water projects promoted decentralization of water resource management, despite country views that communities lack the capacity for such management. Bank surveys show that Bank staff members were three times more likely than country stakeholders to believe that small rural communities could plan and manage water supply systems.

The institutions recommend the "boil the frog" method of cost recovery, which involves gradual tariff increases. Just as a frog doesn't struggle as slowly increasing water temperatures ultimately lead to its demise, so too, consumers will not protest as the burden of higher water payments accumulates over time.

Not surprisingly, the World Bank does not disclose sectoral or structural adjustment loan documents that include the terms and conditions of water privatization, even after Board approval. As of 2002, borrowing country governments can voluntarily disclose their requests for such loans. However, few are likely to do so. How many governments will be anxious to disclose information and documentation that include requirements that subvert parliamentary or congressional processes (where they exist) by mandating the passage of laws, or by offering key assets, such as public water systems, for sale or concession?

Extolling Good Governance While Short-Circuiting Participation
While the creditor and donor communities publicly extol "good governance," they finance tactics that short-circuit the possibility of open and pluralistic decision-making. Indeed, the World Bank is requiring that governments undertake highly biased "information campaigns" to convince their citizens of the merits of water privatization.

The drive to privatize water is enveloped in rhetoric about the importance of participatory and demand-responsive approaches (DRA) to decision-making. However, popular participation in decisions about whether or not to privatize is seldom – if ever — sought. Privatization is often a foregone conclusion. Hence, participation is limited to issues such as water allocation decisions and cost recovery. Citizens lose their right to self-determination when they are engaged only to carry out policy decisions, rather than to make them.

Inducing Private Sector Participation
The Bank's draft Water Resources Sector Strategy (WRSS) takes the position that privatization and big infrastructure will go a long way toward solving water challenges of the future. However, rather than provide compelling analysis and evidence, the WRSS takes its controversial position as a given, and focuses on practical constraints to realizing its vision of private service provision
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For example, because it is the nature of private investors to avoid the kinds of risks entailed in water supply, sanitation, irrigation and drainage projects in developing countries, the World Bank Group (and its major shareholder, the U.S.) is inventing new ways to entice investors into high-risk environments. In addition to its traditional product line of guarantees to offset commercial and political risk, the World Bank Group plans to subsidize corporate investment in water systems with new grant flows. The World Bank Group is also expanding microfinance programs for independent water providers and for households that are unable to afford commercially priced services.

Towards the World Summit on Sustainable Development
The Rio Declaration on Environment and Development promotes peoples' right to participation in open decision-making processes. As the world's civic communities prepare for the World Summit on Sustainable Development (WSSD), or "Rio +10" in August 2002 in Johannesburg, they should unite in calling for bottom-up national decision-making about water provision. They should condemn any actions which short-circuit democratic processes and preclude the option of public provision of water services.

Agenda 21 – the product of the 1992 UN Conference on Environment and Development in Rio de Janeiro — states that water is not just an economic good, but also a social good. "In developing and using water resources, priority has to be given to the satisfaction of basic needs and safeguarding of ecosystems" and that "beyond these requirements, water users should be charged appropriately." As described below, the World Bank is in the process of finalizing three water-related strategies that may flout this injunction.

The Bank's proposed strategies also lack a focus on the need for affordable, safe water in rural areas where the vast majority of the world's poor people live. In order to meet the water-related Millennium Development Goals (MDGs) — halving the proportion of people without sustainable access to safe drinking water by 2015, enabling at least 100 million slum- dwellers to have access to improved sanitation facilities by 2020, and reducing the under-5 mortality rate by two-thirds by 2015 — the Bank will need to revisit the issue of how to empower poor populations (especially those in rural areas) and help to ensure their livelihoods.