WRITTEN QUESTION E-3105/01

by Yasmine Boudjenah (GUE/NGL) to the Commission

(13 November 2001)

Subject: Practices of international financial institutions

In several African and Latin American countries loans granted by the IMF and negotiated with local governments under the Poverty Reduction and Growth Facility have imposed various conditions, one of which being water privatisation. This privatisation of state-owned companies has led to a rise in prices, making water even less accessible to large sections of the population in these countries.

Is the Commission aware of the dangers and serious repercussions of such practices on the part of international financial institutions? What proposals will the Commission put forward to remedy them and to ensure that these loans make a real contribution to reducing poverty in the countries concerned?

Answer given by Mr Nielson on behalf of the Commission

(7 January 2002)

The donor community has been shifting the focus of its aid and policy dialogue in support of country-owned Poverty Reduction Strategic Papers (PRSPs).

The donor community is shifting gradually from the old practice of externally imposed policy conditionalities by the Bretton Woods Institutions (BWI), sometimes including rushed privatisations of public enterprises, which are not necessarily accompanied by an adequate regulatory framework and institutions.

Policy dialogue with beneficiary countries is the key for reaching a common understanding on macro-economic and sector policy reforms under PRSPs. The Commission, along with the Member States, has been working closely with the BWIs to ensure that policy dialogue covers both the expected impact on poverty reduction and on macro-economic stability. PRSPs endorsed by the BWIs imply that there is generally a common understanding on envisaged policy reforms. The Commission plays an important role in policy dialogue in the areas of concentration of its aid.

In its Poverty Reduction and Growth Facility, the International Monetary Fund (IMF) recognises country ownership and promotes more pro-poor oriented expenditures and selective policy conditionalities. The IMF is increasingly focusing on sound macroeconomic management secured through good fiscal, monetary, income and foreign exchange policies rather than through structural reform conditionalities, including privatisation.

The World Bank remains the key player in the area of structural and institutional reforms. If one of the PRSP priorities is to increase access to safe water at affordable cost, policy measures suggest how to achieve it. The policy choice will be agreed upon under a specific Bank operation. Well-conceptualised privatisation needs to be accompanied by creating or strengthening the legal and regulatory framework, as well as by institutional reforms to ensure that a private company will increase access to safe water by complying with price and technical/hygienic regulations and standards.

The Commission is constantly in a dialogue with the World Bank on the principles and practices of privatisation. Every case has to be judged on its own merit and the Commission has no ideological lias.

The Commission's policy on the provision of water and sanitation services is based both on equity and sustainability principles, taking into account needs of the poor. The policy choice is based on an analysis of technical and economic options with a view to bringing about better services. Privatisation is one of the options. However, experience seems to favour private/public partnership, with a strong participation by beneficiaries and civil society. The pricing aspect is essential for the viability and maintenance of the systems, and better management of water resources. Providing better services has a cost. In many instances the poor may be already paying more than the rich for a lower quality service. Accompanying measures to improve governance and management capacity, as well as training and awareness raising activities, play also a key role in reaching sustainability, efficiency and equity in the provision of services.