Defending global essentials: Notes from Kyoto

Defending global essentials: Notes from Kyoto

Yanuar Nugroho, Director, The Business Watch Indonesia,
Surakarta, Central Java, yanuar-n@unisosdem.org

While 1.1 billion people do not have access to safe drinking
water and almost 2.4 billion do not have adequate sanitation,
according to the United Nations Development Program (UNDP), only
1.6 percent of development assistance is spent on providing water
and sanitation services. Over 2.3 billion people suffer from
water-related diseases, and it is the leading cause of death in
the world.

The Third World Water Forum (WWF) in Kyoto, Japan, from March
16 to March 23, failed to address the most important issue in the
water crisis: Providing populations, especially the needy, with
access to water.

The main message from various related fora prior to Kyoto was
clear: The most essential component in harnessing water's
potential is to implement reforms in water-related sectors --
water resources management, water supply and sanitation,
irrigation and drainage, hydropower and water/environment -- and
of course, to increase investments from the private sector. What
does this imply?

To the private sector, the gloomy arithmetic of water -- as
highlighted at the second World Wild Fund for Nature (WWF)
gathering in the Hague in the Netherlands -- is also the "gloomy
arithmetic of water financing".

The proposal of the chairman of the World Panel on Financing
the Global Water Infrastructure, Michel Camdessus, titled
Financing water for all, was released at the end of the third WWF
gathering to finalize the sequel.

The proposal, however, was rejected strongly by non-
governmental organization (NGO) activists at a massive
demonstration during and after the international panel. They
accused Camdessus, the former managing director of the
International Monetary Fund, of being a liar. Why?

First, Camdessus argued that there was widespread agreement
that the flow of funds for a water infrastructure had to roughly
double in size, with the increase to come from all sources.

Yet this is difficult when public agencies such as governments
have not really prioritized their water sectors because the
sector tends to be decentralized. Hence the need for reforming
water-related institutions if they are to absorb increased
funding.

Sustainable cost recovery is essential, both from generating
more internal funds and creating a stable framework for future
revenue transfers.

Second, to reach this goal, responsibilities for water have
indeed been delegated to local bodies, but without conferring
enough power, human resources and funds to make it work. Thus,
local community organizations and local businesses, vital to the
task of improving services, need resources and the power to do
this.

Third, although international loans and equity investment in
water have been low and falling, banks and private companies are
more aware than ever of the risk-reward tradeoff. Official aid
for the water sector has also been falling, but there are good
prospects for reversing this.

The sovereign risk of projects, including the foreign exchange
risk, is a key disincentive that has to be addressed if water
projects in emerging markets are to attract international loans
and equity.

The three basic notes in the proposal look very moderate, but
the implication would entail the following issues: (a) central
government action, (b) local government and water authorities,
(c) promoting local capital markets, (d) sustainable cost
recovery, (e) increasing managerial capacity, (f) corruption and
ethical practices and (g) the legal and regulatory environment --
as quoted from Camdessus' proposal.

And these following schemes -- which are imperative -- are the
very core of the idea on how to finance the projects. These
involve: (1) official development assistance, (2) multilateral
finance institutions, (3) international commercial lending, (4)
export credit agencies, (5) private investment and operation and
(6) community initiatives.

All these schemes assume a mutual public-private partnership.
But since water in this context is treated as a commodity, the
market logic would easily undermine the water sector itself.
Public and private partnerships would mean reinforced
privatization.

A quick analysis of Camdessus' proposal shows that if those
schemes are to apply, the main thing imposed would be opening up
the water sector with schemes 1, 2, 3 and 4, so that the private
sector would be able to take over in schemes 3, 4, 5 and 6.
Again, the classic arguments would be that the state has been
comparatively inefficient, ineffective, bureaucratic and corrupt.

The argument that the private sector would reduce the price of
water because of competition -- the main themes of b, d and g --
fails to recognize that the real competition is absent. What is
present is the concession among private players to share the
market, such as in the main themes of c, e and g.

To understand this proposal one has to seek the answers rooted
in the General Agreements on Trade in Services (GATS).

In GATS, all public services -- communication, water, health,
energy, transportation, education, housing and tourism -- are
treated according to market rules. Here lies the fundamental
problem, as not all such services are commercial.

Water, health, education and energy are essential to life.

Minister of Settlement and Regional Infrastructure Soenarno
said Indonesia had won a US$15 million debt-for-nature swap from
Germany during the Kyoto forum. This was part of a $321.89
million debt-for-nature swap that Indonesia was seeking from
Germany, France, Canada, Italy, Spain and Finland during the
forum.

The debt swap is to be used to assist water-related projects,
such as environmental conservation and food security programs. In
particular, it is to be used for coping with water pollution in
Garut, West Java and in Pekalongan, Central Java, rural
irrigation development and the improvement and rehabilitation of
ground water pumps in several other regions.

We should welcome this achievement in securing the debt swap,
but this is just one aspect. The biggest loss for common people
is that Indonesia will be opened up to private sector management
of water resources. This was done without the government putting
up any defense, as if there were no other alternatives to
privatization.

The key alternative would be public participation, in addition
to transparency and accountability of water resource management
for the sake of efficiency. The most important principle is that
people should not be treated merely as consumers of water -- and
that water provision is the role of public agencies, such as the
government and state-owned firms. Low public confidence in these
agencies is understandable given their lack of transparency, and
accountability and widespread corruption so far.

Yet there are alternatives to privatization. There are
successful cases of people's participation in water resource
management in Porto Allegre and Cochabamba of Latin America, and
in Bangladesh and Ghana. Local examples include the provision of
water in communities along the riverbanks of the Sungai Serayu,
which flows through Central Java, or the model of the Subak
traditional irrigation system in Bali.

As such, we can understand the words of the activists as they
shouted at Camdessus, "Water is for life, not for profit!"

The writer attended the recent Third World Water Forum in
Kyoto. He also lectures at the Sahid University in Surakarta and
is a researcher at Uni Sosial Demokrat, Jakarta.