“The purpose of studying economics is not to acquire a set of recipe responses to economic questions, but rather to learn how to keep economists from deceiving us.”—Joan Robinson, English economist (1903-1983).

At the start of each new six-year presidential term, the World Bank (WB) has for some years undertaken an in-depth study on Mexico, in order to come up with economic policy recommendations for the incoming government.  The study undertaken for the Vicente Fox administration is called “Mexico: A Comprehensive Development Agenda for the New Era” and was published in April 2001, a few months after the December 2000 start of the new administration. (1)  This extensive study (almost 750 pages) takes care to avoid any insinuation that the recommendations made therein are requisites for obtaining loans from the World Bank.

Yet there is no doubt that the recommendations are in fact requirements for Mexico to continue enjoying the WB’s largesse .  This has historically been the case, it is the way the WB operates in other countries, and until agreements signed by the government and the WB are made public and prove otherwise we posit that this is Mexico’s situation. The fact is that the WB loans on average US$1.5 billion per year to the Mexican government, in exchange for fulfillment of its recommendations in matters of economic policy (2)

The World Bank’s “Comprehensive Agenda” is revealing insofar as it clarifies why Vicente Fox has chosen certain policies over others.  The report amounts to a guide to what his administration must achieve, or at least attempt, during Fox’s six years at the country’s helm.  Just about everything is here.  Obviously the exhortation to continue deepening neoliberal reforms is here, by “removing barriers against private capital flows though the gradual liberalization of sectors currently dominated by public or quasi-public monopolies (such as energy and housing)” (p.2)  The  call for a 15% value-added tax on (presently exempt) food, medicines, books and education is also present (p.5), as is the admonition that “the government’s near-monopoly in textbook production will need to be eliminated to give room to creative competition” (p.13).  So too is the advice to reform the Federal Work Law (p. 15).  The “Agenda” also recommends that the “politically most difficult step” be taken by allowing prices to “reflect scarcity by removing, in all sectors, explicit and implicit subsidies on water, energy, and basic grains” (p.17).

The “Comprehensive Agenda” explains why the Fox government must pay no heed to demands from the campesino (small producers) sector to open negotiations in those NAFTA (North American Free Trade Agreement) chapters having to do with the agricultural sector.  For the WB, NAFTA is going great guns and the “distortions” still remaining in the rural sector must be eliminated, by “completing the liberalization of the grain sector...to foster a shift toward higher-value crops” (p.12).

The “Agenda” also helps to explain why the Fox government has flatly rejected the call by governors to transfer additional funds to their states, with the additional income that the Treasury [Hacienda] is receiving from the sale of Mexican oil, now that petroleum prices are at historic highs due to the US invasion of Iraq.  The WB’s recommendation is very clear on page 19:

[...] the core policy challenge [...] is to put the process of decentralization on a sustainable path.  The outgoing government [of Ernesto Zedillo] sought to ensure that sustainability by imposing hard budget constraints on states and municipalities (3).  It achieved this by renouncing, in the federal budget for 2000, its own powers to hand out discretionary transfers [...] [T]he new Administration will be well advised to maintain those hard budget constraints, by continuing to renounce discretionary transfers in the federal budgets”.

If the Mexican Electrical Workers’ Union (SME) complains of silent privatization due to the picking apart of the Federal Electricity Commission (CFE), it need look no further that the “Comprehensive Agenda” to see how it was planned.  The “Agenda” suggests the creation of a “new institutional organization breaking up CFE into generation, transmission, and distribution and allowing competition at both ends,” charging, in addition, “cost-recovering electricity prices” (p.11).

It would be unjust to say that the Fox administration has no ideas of its own in economic matters that have not been previously articulated by the World Bank.  But what does surface from this volume of “recommendations” is that there is little in Fox’s economic policies that runs counter to what has been stipulated by the WB.  In the broad brush strokes, but also in the details, the Fox government coincides fully with this economic guide for his administration.  Hence, a logical corollary becomes obvious: Vicente Fox equivocated after his election in 2000 when he called repeatedly on civil society to come up with public-policy alternatives and proposals. His government had no intention of heeding the proposals, if they ran counter to WB guidelines.

We do therefore recommend reviewing the WB’s “Comprehensive Agenda”, because readers will find herein what Fox is doing, what he wants to do, and, if society lets him, what he will do.

The World Bank casts its eye on Chiapas and the southeast of Mexico

Notwithstanding it almost 750 pages, the “Comprehensive Agenda for a New Era” has very little to say regarding particular problems on a regional or state level.  For example, it is silent on the grinding poverty that separates Mexico’s southeast from the relatively more prosperous central and northern regions.  Given these gaps, the World Bank suggested that more in-depth studies be undertaken of, in particular, Chiapas, Guerrero and Oaxaca, the three states that historically have rivaled for last place in socio-economic indicators, and that, in addition, have the most active armed movements in the country.  To no one’s surprise, the Fox government agreed with the Bank’s suggestion, and so in February 2002, a delegation of 35 World Bank consultants undertook a whirlwind tour of these three states, in order to generate tailor-made economic policy “recommendations”.  This well-attended delegation was in Chiapas barely one week, but there were additional smaller commissions in the ensuing months.

CIEPAC obtained documents produced by this World Bank exercise, in particular those having to do with Chiapas, and what emerges can be summarized as follows: (4)

--In spite of the consultants’ special tour, the analysis of the current situation in Chiapas lacks depth.  The state’s great complexity finds no expression in these documents.  Rather, neoliberal shibboleths prevail.  In fact this seems to be a characteristic of the multilateral banks, according to Joseph Stiglitz, ex vice-president of the World Bank.  Stiglitz criticizes the International Monetary Fund (IMF) and the WB for encouraging policies based on a rigid interpretation of neoliberal ideology, rather than on a full understanding of the complexities of underdeveloped countries.  Stiglitz’ analysis of the IMF, also applies to the WB: “the lack of detailed knowledge seems to be of little interest to it, given that it seems to adopt the same approach under all circumstances” (5).

--The documents obtained by CIEPAC clearly show the World Bank pushing forward structural adjustment policies (SAPs) in a decentralized manner.  Since the early 80s, the World Bank has pressured the Mexican government to implement structural adjustment policies leading to the opening of markets, deregulation of the economy, downsizing the government, all in an effort to promote privatization of the country’s economic and natural resources.   Successive loans from the World Bank and the IMF have rested on the successful implementation of these SAPs, as has the “thumbs-up” from these institutions for Mexico to obtain loans from private banks.

Now these policies have entered a new phase, as the World Bank is promoting them on a state and municipal level.  The same policies are to be enacted, using the “carrot” of low-interest loans if state and municipal governments fulfill WB recommendations, to be detailed in Part II of this Bulletin.  As is the case at the federal level, a compliant government will receive additional loans from the World Bank, as well as its endorsement in order to take on loans with private banks. (6)  But should there be disobedience, the “stick” will be a warning to the international financial community that a certain government has not implemented sound economic policy, thus eliminating not only additional WB and privately-syndicated loans, but conceivably direct private investment as well.

--The main goal of these structural adjustment policies is to push forward the privatization of services now provided by the state and municipal governments, particularly the distribution of water for human consumption.  At the behest of the WB, the Mexican federal government has carried out a decentralization of responsibility for public services such as health and education.  As this process is consolidated, the WB will call for subnational governments to privatize these services as well.  If, for whatever reason, privatization is not feasible in the short run, the objective will be to make these services more “efficient”, to then analyze how they should be privatized, perhaps bit by bit.

--In Chiapas, the WB has found an enthusiastic ally for its policies in Governor Pablo Salazar.  A pending loan of some US$40 million for the Salazar government rests on the successful implementation of structural adjustment policies carried out in stages during 2003, 2004 and 2005. (7)

--The prerequisites in Chiapas include creating a new legal framework conducive to privatization, decentralization and the (slow but steady) transformation of the role of the government.  The government’s role as a basic-services provider, endeavoring to assure universal access within states and municipalities, is due to change to one that solely “regulates” and “supervises” the creeping privatization of water, health and education.

The World Bank’s presence in Chiapas is consistent with policies that the Bank has been pushing worldwide in underdeveloped countries.  These general policies are articulated in reports that are released every year as the “World Development Report (WDR), written largely by WB economists.  When each year’s report is sufficiently advanced, the Bank, making much ado of its transparency, makes public an outline of the WDR on its web page.  The 60-page outline of the 2004 edition of the WDR is now available on the Bank’s page, complete with means to comment. (8)

The leading topic of the 2004 Report is no less than public services.  Indeed, the subtitle is “Making Services Work for the Poor”.  Although the entire Report will only be made public next year, the outline makes its orientation clear.  The WB’s basic premise is that governments have largely “failed” in their role as basic-service provider for the poor, and thus the door must be opened to the private sector, always a WB beacon of efficiency.  Thus the need to “retool” the government, from service provider to regulator, leaving private companies to exploit very lucrative basic services provision.

The premise of government “failure”, and corresponding demand for privatization, seems to be part of the neoliberal “boiler-plate” that Stiglitz mentions, suitable for application by the WB and IMF anywhere.  A closer look would detect the following considerations: (9)

Government failure?

There is no doubt that the government has not always been able to deliver quality services to the poor.  At times services don’t even reach the poor, regardless of their quality.  But the ensuing demand for privatization of services is a leap of enormous proportion that is now hotly debated.

The WB overlooks obvious alternatives.  Why not explore means of strengthening governments’ capacity to extend service networks and improve quality?  From an historical perspective, today’s industrialized countries achieved universal access to quality public services through a proactive and dynamic government, with the political backing to carry out its mandate.  In our times, there are governments that have made services work for the poor.  The remarkable achievements in this regard by Cuba, Vietnam, China and Sri Lanka give credence to the notion that an active government is the best guarantee for achieving universal access to services.

When the government fails in its mandate, there are often reasons in the general economic situation that can explain why.  Motives might include slow economic growth, increasingly unfavorable terms of trade for developing countries, a lack of stable investment flows, and the weight of servicing the foreign debt.  Also, successive neoliberal governments have often strangled funding for maintenance and improvements, weakening public services delivery.

Public or private goods?

A debate just beginning in Mexico is how the line between public and private goods is to be drawn.  Worldwide there is abundant literature that grounds calls for guaranteeing universal access to public services on human-rights precepts.  Further, diverse studies point to the difficulty of drawing a clear distinction between public and private goods, given the relationship between water, health and education.  But unfortunately these debates are not echoed in the pages of the Bank’s WDR.  Rather, the Bank takes an enormous and poorly-argued jump over opposing opinion, and concludes that water, especially water for human consumption, should be treated as a private good, subject to market forces.

Nor does the WDR contain references to the numerous failures that have occurred as poor countries have privatized services.  Public monopolies are often simply replaced by private ones, followed by stiff rate increases that separate the poor from access to services, as well as abuses associated with private prerogatives.  Nor is anything said of the problems that occur when governments endeavor to enforce the terms of a contract granted to a private service provider.  This has become a mayor problem, especially in the area of water for human consumption, since companies in the field tend to be quite powerful multinational corporations.  Another factor is the hidden transfer of public resources to private companies by means of numerous “concessions” that companies demand of governments as a prerequisite for investment.

This context and the factors that World Bank documents fail to disclose should be kept in mind as we review in Part II of this Bulletin the Bank’s plans to bring structural adjustment policies to Chiapas.

Miguel Pickard

Notes in the text:

(1) World Bank, , Mexico: A Comprehensive Development Agenda for the New Era, Washington, D.C., April 2001.  The initial chapter, a synthesis of the areas of the Mexican economy examined by the Bank, is also translated into Spanish.

(2) Mexico’s present outstanding loan portfolio with the World Bank is US$11 billion.

(3) Municipalities are roughly equivalent to US counties.

(4) (a) “Estrategia de desarrollo para los estado del sur, Misión: Guerrero, Oaxaca, Chiapas,        Documento Conceptual”, December 3, 2001.

      (b) “Apoyo programático al estado de Chiapas: Notas preliminares con base en misión [sic] de septiembre, 2002”, October 10, 2002.

      (c) “Chiapas Programmatic Economic Development Loan (PEDL), Initiating Memorandum”, November, 2002.

(5) Stiglitz, Joseph, El malestar en la globalization, Taurus, Madrid, 2002, p.61.  Rendition into English by the author of this Bulletin.

(6) Mexico’s Constitution prohibits subnational governments (state and municipal) from taking on foreign debt or receiving foreign currency, but it is done through the Secretaría de Hacienda (Treasury Department).

(7) In the WB documents, the US$40 million figure is bracketed, meaning that it was in negotiation at the time of writing.

(8) The outline is available at http://econ.worldbank.org/wdr/wdr2004/

(9) The following is based mainly on a ActionAid document, “Response to World Development Report 2004 Outline”, published January, 2003, and available at http://econ.worldbank.org/wdr/wdr2004/library/doc?id=23491

Translated by Miguel Pickard for CIEPAC.  Our special thanks to Jessica Roach for her editorial assistance.

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