Due west of Bogota, in the bosom of Colombia’s coffee country, sits the city of Pereira, the Pearl of the Otun River Basin. Pereira is nestled into the crossfire between narcotrafficking paramilitaries on retainer for the coffee barons and narcotrafficking guerrillas intermittently making revolution and money by kidnapping rich people. Like much of Colombia, the city suffers from occasional volcanic eruptions and the intrusive attentions of the Inter-American Development Bank (IDB), the predatory financial institution based in Washington that is largely responsible for dragging Latin America into a 21st century heavily encumbered by poverty, joblessness and debt.
The IDB has been active in Pereira lately, assisting the city with large-scale improvements in water and sewerage services, all of which cost multiple millions of dollars that local authorities have borrowed from the IDB. As usual, there is an unsettling twist in this “development” chronicle: By most accounts, the public services in Pereira were doing all right before they attracted the multi-millions of the IDB. Until 1997, water service was provided by Public Enterprises of Pereira (EEPP), a public utility that also supplied telephone, electricity and waste services. Like other municipal enterprises in Colombia, the EEPP operated on the basis of “cross subsidies,” established so that the rates paid by the users of a (relatively) optional service, such as telecommunications, also covered the costs of providing basic services, such as water, to those who could not pay. But just as the World Bank and the International Monetary Fund abhor a subsidy, so too does the IDB. A technical report from the Bank charged that the surplus revenues produced by telephone service allowed the company to “hide financial deficits for water supply and sewerage.”
So what’s wrong with that, we ask. “Surplus” revenues of all sorts also fund the Army, for example, which is not a profitable enterprise, either. And more surplus revenues pay the mortgage on the presidential palace and the monthly payments for all those bullet-proof limos, plus whatever is due for the boatloads of recently-acquired Blackhawks.
But never mind; poor people must somehow pay for their own water or they’re not going to get any, say the development economists. In response to IDB policy recommendations, then, the Colombian government separated the multi-service EEPP into its distinct functions, producing the new stand-alone water company, Aguas de Pereira (AAP), which, because it lost its base of subsidies, was instantly broke.
Now why in the world would a clever Banker do an apparently dumb thing like that? Let’s look at the workings of the water company, shall we, and see if we can’t figure it out. Two things made EEPP appealing to the IDB and its innovative corporate sponsors. First, EEPP’s water and sanitation coverage was very good: Virtually 100 percent of the city’s population had access to clean drinking water through the public system and over 90 percent had access to basic sanitation services. And second, much of the water provided to the poor and the near-poor was un-metered and unbilled. Until the arrival of the international development banks, Colombia’s public enterprises, in general, tolerated the distribution of un-metered water in poor urban neighborhoods and in many rural areas because universal access to clean water was necessary for public health reasons. The installation of water meters for consumption was therefore not a basic priority, nor were exact billing practices. So here’s a sizable water company with comprehensive tubes and taps, a good service record, about 40 percent of its water unbilled, little debt and a large concentrated, captive clientele. If, as an enterprising businessperson, you could arrange for yourself to own such a company, you could install meters, where needed, and simply start scooping up money. It’s as easy as turning on the tap. And if, as an even more enterprising businessperson, you could arrange for the city to borrow the money to install the meters for you, you could scoop up even more money. After that, you could raise water rates. Who’s going to stop you?
But if you’re going to own the company, you’re going to have to get the city to sell it ¿no? And how better to force the city to sell than to make the company appear to be bankrupt?
After the IDB got through with it, that is exactly how AAP stood. The IDB imposed “reforms” on the city’s public services that produced a water company that could not sustain itself and that created the conditions to justify the capitalization of the company through private investment. Next, the IDB appeared on the horizon with a loan of $61 million for AAP, available on the condition that the company be privatized. The many millions would fund the establishment of commercial and financial operating conditions at AAP; a private sector bidding and contracting process for the construction and operation of a waste water treatment plant; an increase in the metering of water distribution; access to water in new housing and in marginal neighborhoods as needed, and improved sanitation. These last two operations would be paid for, largely, by the poor themselves: They would build the infrastructure required and the government would give them the right of way. Subsequently, a private concessionaire would install the meters, paid for by the government, and start collecting.
Well, that’s just great. Immediately, the financial status of the new water company was further compromised by the new loan. In fact, AAP became hopelessly indebted in record time. To obtain the IDB loan, the company was required to put up about $40 million of its own capital, which it also borrowed. Additionally, to monitor the funds, the IDB required an extremely expensive and complicated administrative set-up, staffed by pricey international consultants, who cost roughly five times what the public service workers were making for doing the same jobs. Altogether, then, the plan to fix up AAP would cost just over $100 million.
To pay for all this, AAP then had to raise water rates and fire people. During the three years that followed the separation of the different service sectors of the original company, water rates for the poorest population groups in Pereira increased 238 percent, and widespread cutbacks of water workers occurred. When the City Council of Pereira divided EEPP into different companies, the labor union, SINTRAEMSDES, confronted the local government. In the process, local officials denied union leave, obstructed union assemblies and stepped up the program of early and (in)voluntary retirement, occasioning the departure of nearly 600 union members. At the same time, management at the company refused several times to extend union coverage to other municipal public service enterprises or to the decentralized companies spun off from them.
For its part, the IDB took every possible measure to weaken the union of water workers in order to grease the skids of the soon-to-be unemployed going out the door. The loan agreement stipulated that at least 11 percent of the capital to be invested in the new enterprise should be private, precisely the percentage necessary to re-designate the company as a mixed—rather than a public—enterprise. This reclassification of AAP essentially nullified the union’s collective bargaining agreement, which was based on the previous legal designation of the company as a public enterprise.
The loan documents also made it clear that the new business plan for AAP would include a proposal to raise water rates and ‘adjust’ environmental regulation to accommodate the new private operators.
As you might imagine, none of this was very popular. The first to protest was the union, but the complaints were not well received. Those union members most visible in opposing the privatization of AAP found themselves suddenly under surveillance. Some of them received impolite notes inviting them to leave the country. Others were simply terminated, and we do mean terminated. To date, five members of SINTREMSDES have been killed and three more had to leave the country. The paramilitary group responsible lets union leaders know who is next by sending a premature condolence letter to the person’s spouse. These guys are not subtle.
This particular form of persuasion, however, kind of makes you wonder who, exactly, are the entrepreneurs lining up behind the IDB to buy into AAP, doesn’t it? Here in the United States, for example, we’ve seen a number of heavy-handed business tactics in this season of corporate greed, but they usually stop short of serial killing. Not always, I’m sure, but usually. In Pereira, in contrast, apparently the water privatizers are the kind of businesspersons who, when they disagree with you, tie your thumbs behind your back and shoot you through the head.
Well, that’s not very nice, and the union didn’t think so either. So after setting themselves up with bodyguards, the leaders of SINTRAEMSDES began to fight back. The union contracted a study to determine a cost and a plan for modernizing AAP without privatizing it. The union’s study showed that the company could be overhauled for about $18 million instead of $100 million and still meet the efficiency benchmarks set up by the IDB. When the City Council members and the mayor saw the plan, they had a hard time shooting it down. Ultimately, they accepted it and recommended it to the IDB in 2002. In May 2003, after sending a technical team to evaluate the situation, the IDB rejected the union’s plan, but admitted that the Bank’s own plan was slightly over-priced and reduced it by $13 million. For a long time, though, it was impossible to find out if the new, marked-down IDB plan still included private investors for AAP, loss of union protection and higher water rates. Finally, in September 2003, the unpleasant truth leaked out. Most of the unappealing features of the IDB’s original plan had survived and reappeared in the new one.
No one was surprised. When they don’t want to tell you something, it’s because they know that you’re not going to like it. Fortunately, in this case, the city of Pereira just happened to be holding municipal elections in October and the local citizens took that opportunity to turn out the mayor and much of the City Council that had negotiated the IDB loan.
In November, SINTRAEMSDES, human rights organizations, consumer groups and environmental activists held a public hearing about the loan in Pereira, with Alexander Lopez Maya, one of the few trade unionists in the national Congress, presiding. Nearly 800 people turned out for the hearing to oppose the IDB loan and the privatization plan. The hearing debated the union’s plan and exposed the heavy financial padding crammed into the IDB loan.
Apparently, the new city government took note because in late January 2004, local authorities announced their intention to renegotiate the loan and to maintain AAP as a public enterprise. The IDB hustled around and cobbled together another technical team to visit Pereira and deal with the new city government, probably in early March 2004. The team may even offer to knock another $10 million or so off the loan. Who knows? Or cut the new city government in on the spoils.
It is hard to predict how this will turn out, given the pressures on both sides. But two things are clear. One, the city government has no stake in this loan and is not inclined to cave in to the IDB. And two, the loan figures that the IDB works out are, shall we say, alarmingly flexible. How is it that one proposal to modernize the company is roughly $82 million less than the other one? Or to put it another way: One proposal could reach the same efficiency goals at just under one-fifth of the cost of the other one. That is quite a point spread. Seems like the IDB needs to do a little work on its own efficiency goals, doesn’t it?
Gabriela Bocagrande reports on multilateral malfeasance for the Observer.