Many will remember the short-lived celebrations after last September's trade justice march on the Treasury in London, when it was told that the UK government was withholding £50 million of taxpayers' money from the World Bank. Short-lived because late last year the money was released.
But the problems caused by inappropriate conditions being forced on poor countries have not ended. On the contrary, the World Bank continues to promote reforms such as privatisations - a problem highlighted by events in Nicaragua.
Nicaragua is among the poor countries that have seen some of their debts written off. But debt relief is never provided without strings attached. In Nicaragua's case one of the central conditions was to fully privatise the electricity sector - a process which had started in 1998 under previous loan conditions imposed by the International Monetary Fund (IMF).
Privatisation was rushed through. Instead of a serious debate about what form it should take, the World Bank advised the country to ensure it made the sector 'as attractive as possible to foreign investors'.
As a result, the Nicaraguan government ended up selling off its assets on the cheap, granting a monopoly over electricity distribution to a Spanish multinational and signing a contract heavily weighted in favour of the Spanish company. Meanwhile, no attention was paid to how the regulator might ensure efficiency, discipline the companies or champion the interests of consumers.
The results of this mismanagement are all too evident in Nicaragua. Since 2006 the country has been in the grip of a severe energy crisis. Blackouts are common, often with daily 12-hour power cuts. The generators blame the distributor for not paying them on time. The distributor says it can't pay as it is making a loss. Even the World Bank concedes that the arrival of private companies has not brought any significant investment to Nicaragua.
While the blame game continues, ordinary Nicaraguans suffer. The blackouts have a huge impact on homes, businesses and the day-to-day running of essential services such as hospitals.
Douglas Borjorge ran a small photocopying business in a poor neighbourhood. He says: 'There was a power cut in September last year followed by a high voltage surge. Three of my machines were burnt out. I lost thousands of dollars of machinery and 11 months of earnings as I haven't opened since. I had to lay off my young employees. The bank now calls eight times a day saying they want their money.
'I had taken out a loan for $6,500 to start the business. I always used to pay it on time but now I just can't afford it. The debt is growing - I am scared to even find out how much I owe. As a result of the stress I suffered a small stroke. I don't know what my family is going to do.'
Francisco Carvajal, a bakery owner employing 30 people in one of Managua's poorest neighbourhoods, says losses mounted as power cuts interrupted production. So far Francisco has avoided laying off his workers but fears he may not be able to hold out much longer.
Ironically, as services worsen prices rise. Government-sanctioned increases have been accompanied by arbitrary charging practices, resulting in customers being over-billed or paying for services - such as street lighting - which are not being provided. This has taken a huge toll on poor customers who are confronted with spiralling bills which they often feel unable to contest. The National Consumer Defence Network - a small non-profit organisation operating in Managua – says that 76% of its cases are related to over-billing for electricity.
While customers - particularly the poor - suffer, the companies point to their losses and receive hefty government subsidies. Electricity sector simply cannot be run on a commercial basis in Nicaragua because the country's people cannot afford to cover the costs of making it a profit-making enterprise. Even a cursory investigation by the World Bank should have revealed this before privatisation.
The Nicaragua experience shows the damage that ill-advised privatisations can cause. The World Bank, however, is not learning from experience. A package of privatisations is now on the table for Afghanistan. The Afghan Ministry of Finance recently estimated that 14,550 employees - about half of the total - will be laid off in the imminent privatisation of state-owned enterprises. Given the level of instability in the country, this seems a dangerous moment to undertake controversial, potentially damaging reforms. What is the likelihood that the privatisations will be well-designed and well regulated by the Afghan state?
Many NGOs including Christian Aid are calling for an end to the practice of aid conditionality.
About the author:
Claire McGuigan is an advocacy officer with Christian Aid.
The above is an edited version of an article which was published in Christian Aid News Issue 37, Autumn 2007.
