The Jakarta Post, Year-end Edition, 30 December 2002

Challenges in public services delivery

by Yanuar Nugroho
Director, Business Watch Indonesia
Lecturer, Sahid Univ. at Surakarta
Researcher, Uni Sosial Demokrat Jakarta
yanuar-n@unisosdem.org

Clean water, health care and access to energy are the three most essential of basic human
needs, with education perhaps the fourth. All people are entitled to these things. Yet the reality is
completely different, with people around the world having less and less access to what are basic
human needs.

According to the UN, there are 1.2 billion people worldwide who live on less than US$1 a day,
113 million children who do not attend school, 11 million young children who die every year and
more than one billion people who still lack access to safe drinking water (UNDP, 2002).

It is obvious that these marginalized people should be the highest priority for public services.
Otherwise, the situation will simply continue to deteriorate.

But public services for many of the world's poor have become more of a dream than a reality. The
agenda of public sector reform in developing countries is being radically changed within G-7
governments, the multilateral lending institutions they control and transnational corporations that
influence both groups. Disappointment with decades of foreign aid has transformed that agenda
into a debate about how -- rather than whether -- to privatize basic services (CNES, 2002). What
is the argument for privatizing basic services?

The World Bank says, "In low-income countries, poor people have very limited access to modern
infrastructure. In particular, where state sponsored systems do not reach many people, the only
alternatives for poor citizens are private forms of service delivery" (World Bank, 2002).

This is a very serious flaw. As most of the poor do not even receive basic utility services -- like
water or electricity -- such a policy will only make matters worse. In other words, it is no different
from allowing poverty to continue for the sake of "market" principles. Why? Because basic
services are commodities in the eyes of market systems.

Take water, for example. The World Bank predicted in 1998 the water market could reach $800
billion, revising this projection to $1 trillion in 1999. It seems that water in the 21st century will be
as valuable as oil was in the 20th. We must take a wider perspective to understand the motivation
behind privatizing services: international trade in commercial services was valued at $1.35 trillion
in 1999 -- about one-quarter of the global trade in goods -- up from some $400 billion in 1985 and
from $1.2 trillion in 1995. Moreover, services account for 60 percent (about $210 billion) of annual
foreign direct investment, much of which is connected with the privatization of state entities. How
does this take place?

First, indirectly, rich countries in their role as major shareholders in International Financial
Institutions (IFIs) push the privatization of services. So-called Structural Adjustment Programs
(SAP) are the toll road for rapidly privatizing services.
In Indonesia, for example, the government sought budgetary assistance from the International
Monetary Fund in October 1997 and agreed to overall macroeconomic adjustments that were
mandated by the IMF, the World Bank, the Asian Development Bank and other donors. In
exchange for a $46 billion bailout package, the Indonesian government is required to restore its
balance of payments and implement critical policy reforms, including public sector expenditure
(subsidy cuts), privatization of state-owned enterprises and the expansion of private sector
participation. To support this, the WB and the ADB have provided loans that are tied to a number
of mandated reforms through an integrated package of adjustments, as shown in the table below.

Loans … For … From …

US$ 1 billion Policy Reform Support Loan (PRSL) The World Bank
US$ 500 million Policy Reform Support Loan (PRSL II) The World Bank
US$ 600 million Social Safety Net Adjustment Loan (SSNAL) The World Bank
US$ 300 million Water Resource Sector Adjustment Loan The World Bank
(WATSAL)
US$ 400 million Power Sector Restructuring Program Asian Development Bank
US$ 300 million Health & Nutrition Sector Development Program Asian Development Bank
US$ 320 million Community & Local Government Support Sector Asian Development Bank
Development Program
US$ 300 million Deregulation & Small-and-Medium Enterprise Asian Development Bank
(SMEs) Support Program
US$ 200 million Corporate Governance of State-Owned Asian Development Bank
Companies (SOEs) Support Program

Reformulated from Motoyama & Widagdo (1999)

Second, directly, the privatization of public services is also being pushed through bilateral aid
programs, especially through pressure on developing countries in the World Trade Organization
to include their utility sectors in the General Agreement on Trade in Services (GATS). Particularly
under threat from this are public services -- health care, education, energy, water and sanitation.
GATS sets out rules governing international trade in all services, never defining what it means by
"service". GATS makes no distinction between public services and those provided on a for-profit
basis. Thus, GATS is both ambitious and ambiguous.

Although GATS seems to make exceptions for public services, i.e. those supplied in the exercise
of governmental authority, such as health care, education or utilities, it defines government
services narrowly as any service that is supplied neither on a commercial basis or in competition
with one or more service suppliers. So, the exception is for the most part meaningless in practice.

If a government contracts out any part of its public services or if private companies supply
services also provided by the government, then those services could be ruled by a WTO dispute
panel as not being a government service and thus subject to GATS; that is, subject to competition
from operators from abroad. As a result, companies can gain access to a wide range of public
services in many countries, particularly utilities (water, energy, health).

These explanations constitute the main reason that hiding behind IFIs and governments,
transnational companies in developed countries have extraordinary power to influence poor
countries to open up traditionally government-operated sectors such as water, energy and
transportation for their own benefit.

It is all a fait accompli, there is no other option but say "yes" to public services privatization in
most developing countries. The decision to privatize, moreover, is not regularly subject to public
discourse. Even elected representatives are often unaware of detailed plans to reduce or
eliminate the role of government in the provision of basic services.
Up to this point, we might have seen the challenge for the near future, i.e. whether the provision
of public services will be brutally taken over by private companies, left in government hands or a
combination of the two. Let us look into this matter further.

First of all, of course, there is no absolute good and bad inherent in any approach. The public
services delivery of the centralized government has both successes and failures. Thus the
framework for the provision of such services should consider all stakeholders without exception,
i.e. those who have both power and interests -- public agencies (including donors) as
policymakers, the market (including the private sector) as providers, and communities as users.
The failure to establish any of these relationships can result in overall failure.

In this light, systemic or institutional reform (as opposed to mere managerial reform) of public
services might be difficult to achieve for several reasons. First, there is history, politics and social
norms. Second, it changes the power relationship among the key actors.

Another aspect of the debate over public services is if they have to be financially self-sustaining.
This is by no means a technical issue. People pay for goods and services through taxes, rather
than -- or in addition to -- direct fees. We might be able to agree that water or electricity should
not blow a large hole in the national budget. But there are always options between fiscal chaos
and full-cost recovery.

This also applies to education, which is a public good: society in general is better off because its
people are well-educated. But if that is the case for literacy, it is no less the case for access to
water or electricity, which are critical for public health and economic productivity.

Thus, solutions for the provision of essential services are political choices, not technical
imperatives. And this is precisely the arena of struggle. Privatization alone is not always good,
which is also true of government-led public services.

Certainly, the provision of public services will play a significant role in building up the nation -- and
this will require our concern and support. Beware, however. Within the worldwide logic of a
"global market" never let "consumers" replace "citizens", as this would indicate the surrender of
our public sovereignty to market domination.