Sunday, August 7, 2011

A Case Study on Neoliberalism: The Water War in Bolivia in 2000

Water Privatization in Cochabamba: A Policy Evaluation

The recent history of Latin America (and much of the rest of the developing world) is littered with the attempts at development and growth via the Washington Consensus. In general, policies of increased privatization and liberalization of Latin America has had the effect of widening wealth gap and slowing economic growth in the region. 

Furthermore, when the people resist, they are all too often met with deadly force. The next morning in Washington, policy makers usually say something like "In order to pursue to modernization, a government of strong political resolve is needed"

What it really means is "If you privatize and liberalize, it will make the poor worse off, and they might protest. When that happens, you have to be ready to fire on the protesters" 

In the case of, Bolivia the country privatized its railways, telephone system, national airlines, and hydrocarbon industry. This policy analysis tells one story: The story of the privatization of the water works in the city of Cochabamba, the dramatic rate hikes which resulted, the protests and the use of force against the protests. It was known as "La Guerra del Agua". Sadly, the lesson was not learned immediately afterwards. Four years later, privatization of gas reserves lead the story to be repeated as "La Guerra del Gas". 

Of course, no criticism can be complete without offering a respectable and viable alternative policy. The counter-factual analysis in this paper examines the water reforms in Chile, where water reform was done as a municipalization rather than a privatization. The involvement of both the private sector (as consultants) and the central government (who was generally from opposing parties to the municipal governments) kept transparency and responsibility levels high. The result in this case was full water-coverage in the capital for the first time in the history of Chile. 


This article evaluates the failure of the Bolivian government to regulate private sector concessions in urban water supply in Cochabamba Bolivia through a policy evaluation along logical framework lines of the 40-year concession contract awarded in September 1999 to Aguas del Tunari, which ultimately lead to the Cochabamba water riots in 2000. This paper evaluates the policy effectiveness, transparency, sustainability, relevance of the contract in question, and makes a recommendation for future policy improvement based on counterfactual analysis.

About the Author:
Max Berre is an economist who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands. 

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