[stop-imf] WB considers intensified privatization

[Robert Weissman]

Truly remarkable proposals from the World Bank, even by Bank standards:

[snip]

More controversially, the paper also suggests the possibility of World
Bank group support for small-scale private projects that help poor people
gain access to basic utilities such as water and electricity.  This would
provide an alternative to current World Bank support for public utilities.

[snip]

Full text below

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Robert Weissman	<rob@essential.org>
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World Bank ponders the way it works
By Stephen Fidler
Financial Times
July 5 2001

    The World Bank is reassessing its private sector     activities in
developing countries, and may change the     way in which it subsidises
its products, and alter the sort     of projects it is willing to support.

    The reassessment is meant to be completed by the end     of this year.
A discussion document published last     month suggests three areas where
the bank can     improve its work with the private sector and three
disciplines to place on the World Bank group.

 The paper points out that most assistance to private companies is
ineffective when the basic policy and institutional framework within a
country is deficient. This suggests a need for a more systematic
assessment of the quality of the investment climate across companies and
across time, it says.

 More controversially, the paper also suggests the possibility of World
Bank group support for small-scale private projects that help poor people
gain access to basic utilities such as water and electricity. This would
provide an alternative to current World Bank support for public utilities.

 It would include backing for projects that clearly are not the most
efficient solutions, but may be the best that practically can be achieved
in the circumstances. Such support could back, for example, small-scale
private entrepreneurs such as those who provide poor people with access to
mains water in Paraguay, and in Yemen and Cambodia to electricity.

 "Critics of such approaches fear 'anarchy' among small-scale providers,
inefficient system development and pockets of private monopoly power," the
paper says. "The counter-argument is that problematic service that people
choose to buy is still better than no service at all." Poor water users,
for example, typically pay 10 to 40 times as much as those connected to
pipelines.

 Another controversial suggestion is the idea that the World Bank can help
encourage the development of private - both profit and non-profit -
providers of health and education. This again reflects disappointment with
public provision of such services and the experience that when poor people
have a choice, they often choose private providers.

 In taking these actions, the paper suggests three areas to improve the
bank's discipline. The first is a shift to "output-based aid", the idea
that aid should be benchmarked not on the amount of money that goes in,
but by what benefits it yields.

 This involves two main issues, the paper says: how to improve service to
the poor and how to ensure that any subsidy benefits the poor. "The key to
better service delivery is to shift performance risk more effectively to
service providers and away from taxpayers," it says.

 The paper also suggests that the World Bank group has more explicit
commercial disciplines in order to be surer that its intervention does not
encourage sub- standard projects to go ahead.

 It suggests an "unbund- ling" of the subsidies implicit in bank products
and a clear measurement of what these subsidies are. This would encourage
a third discipline - the targeting of these subsidies to ensure they
benefit the poor in developing countries.

 Dealing with the private sector has always been a challenge for the bank,
whose main arm can lend only to governments.

 To address shortcomings in its ability to deal with the private sector in
its client countries, two subsidiaries were created: the International
Finance Corporation, which makes loans to and takes equity stakes in
private companies, and Miga, which provides political risk and other
guarantees to encourage private investment. A private sector development
department was set up later within the bank's main lending arm.

 The discussion raises questions about whether the structure of the bank
is appropriate. One question is whether the division between the IFC and
the private sector department at the bank makes sense. Some bank insiders
say it would be logical to bring together the bank's private sector and
project departments, separating them from the bank's policy side.

 Some critics of the bank suggest that the mere fact that it has a
separate department for private sector work shows a lack of understanding
of the issue and that private sector operations should be subsumed into
the rest of the bank. The widely held concern here has been that this
would submerge the private sector beneath the bank's other priorities.