IMF Forces Water Privatization on Poor Countries

by Sara Grusky
Globalization Challenge Initiative
sgrusky@igc.org
Website : www.igc.org

February 2001
A random review of IMF loan policies in forty countries reveals that, during 2000, IMF loan agreements in 12 countries included conditions imposing water privatization or full cost recovery. (See Table I)

In general, it is African countries, and the smallest, poorest and most debt-ridden countries that are being subjected to IMF conditions on water privatization and full cost recovery. Ironically, the majority of these loans were negotiated under the IMF's new Poverty Reduction and Growth Facility (PRGF), a reform announced with great fanfare in 1999 when IMF officials claimed that the new loan facility would re-focus the IMF's controversial structural adjustment measures on activities that borrowing government's would identify as leading to poverty reduction.
Rather than contributing to poverty reduction, water privatization and greater cost recovery make water less accessible and less affordable to the low income communities that make up the majority of the population in developing countries.
The most immediate impact of reducing the accessibility and affordability of water falls on women and children. More than five million people, most of them children, die every year from illnesses caused from drinking poor quality water. When water become more expensive and less accessible, women and children, who bear most of the burden of daily household chores, must travel farther and work harder to collect water - often resorting to water from polluted streams and rivers.

The significance of finding such a high number of conditions relating to water privatization and water cost recovery in IMF loans is twofold. First, in the hierarchy of international financial institutions the IMF is at the top. Compliance with IMF conditions enables governments to receive the "seal of approval" that permits access to other

international creditors and investors. Thus IMF conditions weigh especially heavily upon borrowing governments. Second, it is quite common that World Bank loans have, as their first condition, compliance with certain IMF conditions. This is known as "cross conditionality." In the division of labor between the two institutions, it is the World Bank that has primary responsibility for "structural" issues such as the privatization of state-owned companies.

Therefore, it can be presumed that in every country where IMF loan conditions include water privatization or full cost recovery, there are corresponding World Bank loan conditions and water projects that are implementing the financial, managerial, and engineering details required for such "restructurings."

Table I below identifies the 12 countries and paraphrases the specific IMF loan conditions relating to water privatization or water cost recovery. Eight of the 12 countries identified are in sub-saharan Africa. In six of the countries, the IMF conditions require some form of privatization, in four countries the conditions require both privatization and greater cost recovery, and in two the focus is just on cost recovery.



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