Privatization of Utilities Falls Out of Favor in Latin America
By Monte Reel
Washington Post Foreign Service
Monday, March 27, 2006
LOMAS DE ZAMORA, Argentina -- Carina Grossi turned on the tap in her kitchen sink and raised a glass of water to the light, her eyes narrowing in disgust.
"Look at that," said Grossi, 32. "Look how cloudy the water is, how dirty."
"It's a disaster," said her father, Eduardo, a 65-year-old grocer. "That's what is making your mother so sick."
Like many of their neighbors in this working-class suburb of Buenos Aires, the Grossis are convinced that their water is contaminated -- and they now use bottled water to make soup and tea. They blame the problem on the French company that has provided water and sewer service since the federal government privatized the utility in 1993.
Across Latin America, a growing number of people say the privatization of public services, a movement that swept the region in the 1980s and 1990s, has failed. Protests have erupted over the issue in several countries, and some governments are beginning to reverse these policies. Last week Argentina announced it was rescinding its 30-year contract with the French company Suez and reinstating government control of the water supply.
The Grossis, among many others, have welcomed the about-face.
"The trains, the water, the electricity -- I say it all needs to come back to national control," Carina Grossi said. In her suburb, authorities estimate about 30 percent of homes lack water and the majority are without sewage service. "We pay money out to these foreign companies and get nothing in return," she said. "This is our country. We should stop selling it out to others."
The backlash against the private sector has been building for several years in many pockets of the region. In some cases, such as Bolivia and Mexico, it has been actively promoted by grass-roots leaders in tandem with their demands for limiting the influence of foreign interests.
In 2000, street protests in the Bolivian city of Cochabamba prompted the state to annul a water contract with Bechtel Corp.; last year more demonstrations in El Alto, a city adjacent to the capital, La Paz, led to the suspension of a contract with a subsidiary of Suez.
In the past year, protests against the privatization of other sectors, including electricity and energy, have broken out in Peru, Ecuador, Guatemala and Mexico. Last week, several thousand demonstrators marched through Managua, the capital of Nicaragua, to demand the government improve water services without privatizing them.
Last week, representatives from 148 countries gathered in Mexico for the World Water Forum, held every three years to discuss global water supplies. The forum voted to issue a decree stating that governments -- not private companies -- should hold primary responsibility for providing safe drinking water. Bolivia, Cuba, Venezuela and Uruguay attached a separate statement noting their "profound concern" about the possible negative impacts of international investment agreements and free trade.
Some officials and experts who promote the role of the private sector in development of basic services said the swing toward nationalization seems like a case of collective amnesia: People are forgetting that many state-run utilities were a mess, they say, wracked with debt and in need of bailouts.
"It would seem that so many years of bad service and very high costs weren't enough to demonstrate that these roads lead to failure," said Adrian Menem, an Argentine congressman and nephew of former president Carlos Menem, who led the privatization efforts of the 1990s. "We are returning to the blind state of the past century."
President Nestor Kirchner's decision to terminate the French contract and put water in the hands of a new state-run entity is not without precedent. In 2003, he took the nation's postal service out of private hands, and it has since turned a profit.
A desire to replicate that experience in part fueled the decision on water service, said Nicolas Ducote, an analyst with the Center for the Implementation of Public Policies Promoting Equity and Growth, based in Buenos Aires. But popular politics, he said, was just as important.
"The president knows that it's politically popular to bash the private sector," Ducote said. "That sort of approach focuses only on the short term. Six months down the road, if there is one problem with someone's water, he'll pay a price for this."
Suez officials countered Kirchner's criticisms of their performance, saying that the company improved service despite being handcuffed by the government's mandated price freezes after a national economic collapse in 2001. A spokeswoman said the company invested at least four times more than the previous state-run enterprise did, added more than 3,700 miles of new pipes and provided more than 2 million new customers access to drinking water.
The company also said Kirchner's claim that it made "hundreds of millions" of dollars in Argentina was wrong; it asserted it lost nearly $900 million on the deal.
"In certain countries we've found that the governments are not living up to their side of the bargain," the spokeswoman, Luan Greenwood, said in a telephone interview from Suez's Paris headquarters. "We've learned that. We're not going to be burned again."
The financial markets have taken note as well. In the days after the contract was cut, Argentine stock trading slowed considerably. In Bolivia, foreign investment has slowed since President Evo Morales, elected in January, vowed to partly nationalize the energy sector.
In Peru, financial markets took their sharpest tumble of the year this past week when an opinion poll showed that the front-runner in next month's presidential election is Ollanta Humala, a nationalist who is promising to rewrite contracts to make the state an equal partner in the mining and energy sectors.
In Lomas de Zamora, a community of small brick houses and cobblestone streets, some residents say their only concern is getting access to clean, safe drinking water. Marta Guzman, 47, said she had stomach problems earlier this year and attributed them to contaminated tap water.
"Whether it is the state or a private company, I don't care," Guzman said. "All I want is good water. I don't care who I get it from."
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