Water Privatization: Bolivia's Battle For Their Basic Right

The privatisation of water in Bolivia has been a highly contentious issue, leading to widespread protests and social unrest. The push for privatisation came from international organisations like the World Bank and the International Monetary Fund (IMF), which made it a requirement for the Bolivian government to retain access to loans. This resulted in two major concessions: one to Aguas del Illimani S.A. (AISA), a subsidiary of the French company Suez, and another to Aguas del Tunari, a consortium involving the Bechtel Corporation. These concessions led to significant increases in water prices, with some residents' water bills doubling or tripling. This sparked strong dissatisfaction, particularly among the poorest communities, who already lacked access to the water network and were paying more for lower-quality water. Protests, known as the Cochabamba Water War or La Guerra del Agua, erupted in early 2000, with thousands of people taking to the streets and clashing with the police and military. The protests were met with violence, and a state of emergency was declared, resulting in the death of a 17-year-old protester, Víctor Hugo Daza, who was shot by the army. The Bolivian government eventually revoked the concessions and returned water management to public control. The privatisation process highlighted the importance of rooting policies with the public and ensuring social participation, transparency, and good governance in the administration of essential services like water.

The World Bank and the International Monetary Fund's role in privatisation

The World Bank and the International Monetary Fund (IMF) played a significant role in the privatisation of water in Bolivia. In 1998, the IMF approved a $138 million loan for Bolivia to help control inflation and stimulate economic growth. However, the loan came with the condition that Bolivia sell off all remaining public enterprises, including Cochabamba's local water agency, SEMAPA. This privatisation was a requirement for the Bolivian government to retain ongoing state loans.

The World Bank also exerted pressure on Bolivia to privatise its water sector. In its Bolivia Public Expenditure Review, the World Bank advised against subsidising the increase in water tariffs in Cochabamba. Countries receiving loan assistance from the World Bank and the IMF are often discouraged from subsidising public services as it goes against their formulas for reducing debt, controlling inflation, and attracting foreign investment.

In September 1999, after closed-door negotiations, the Bolivian government signed a $2.5 billion contract with Aguas del Tunari, a multinational consortium of private investors, to privatise Cochabamba's municipal water system. The consortium was led by a subsidiary of the Bechtel Corporation, which had offered a deal to the Bolivian government to privatise water and profit.

The privatisation of water in Bolivia led to increased water rates, with some residents' water bills doubling or tripling. This sparked widespread protests, including the Cochabamba Water Revolt, and ultimately resulted in the termination of the privatisation concessions.

The impact of privatisation on water affordability

The privatisation of water in Bolivia had a significant impact on water affordability for the country's residents. In Cochabamba, the water rates were raised drastically, with some residents' water bills doubling or tripling. This was due to the Aguas del Tunari consortium's need to finance the 16% annual profit demanded by the companies involved, as well as the cost of expanding and upgrading the city's water infrastructure. As a result, many people, including those from the poorest neighbourhoods, struggled to afford clean water and ended up paying far more for lower-quality water from alternative sources such as trucks and handcarts.

The situation was similar in El Alto, where the privatisation of the water system by the French water giant Suez and the World Bank led to tens of thousands of poor families being left without access to water altogether. The cost of getting a water and sewage hook-up was unaffordable for many, exceeding half a year's income at the minimum wage. This meant that even basic sanitation was out of reach for a large portion of the population.

The Bolivian government's response to the protests was to declare martial law and a “state of siege”, which allowed for mass arrests and the restriction of travel and political activity. However, the protests ultimately led to the reversal of privatisation in both Cochabamba and El Alto. In Cochabamba, the Aguas del Tunari consortium was forced to leave, and the water works were returned to the state utility company SEMAPA. In El Alto, the water concession led by Suez and the World Bank was cancelled by a decree from the president.

The privatisation of water in Bolivia highlighted the disconnect between economic theory and the reality of how privatisation impacted the affordability of water for the country's residents, particularly those from lower-income backgrounds. It served as a lesson that water affordability and access should be carefully considered in any privatisation efforts, and that the voices and needs of the local population should be central to policy-making.

The Cochabamba Water War and its outcome

The Cochabamba Water War, also known as the Bolivian Water War, was a series of protests that took place in Cochabamba, Bolivia's fourth-largest city, between December 1999 and April 2000. The protests were sparked by the privatisation of the city's municipal water supply company, SEMAPA, and the subsequent increase in water prices.

In September 1999, the Bolivian government signed a contract with the international consortium "Aguas del Tunari", granting them exclusive rights to provide water and sanitation services to the residents of Cochabamba. The consortium, which included a subsidiary of the Bechtel Corporation, was the sole bidder for the privatisation of Cochabamba's water system.

In January 2000, protests against the privatisation and the increase in water prices began, largely organised by the Coordinadora (Coalition in Defense of Water and Life), a community coalition. The protests included strikes, roadblocks, and marches, with tens of thousands of people taking part. The protesters consisted of various groups, including peasant irrigators, retired factory workers, union members, students, and street vendors.

In February 2000, the protests turned violent, with riot police using tear gas and injuring an estimated 175 people. On April 8, 2000, the Bolivian government declared a "state of siege", similar to martial law, allowing for the arrest and detention of individuals without warrants and the restriction of travel and political activity. During this time, a 17-year-old boy, Victor Hugo Daza, was shot and killed by a Bolivian Army captain, Robinson Iriarte, who opened fire on a crowd of demonstrators.

On April 10, 2000, the national government reached an agreement with the Coordinadora to reverse the privatisation. The agreement included the withdrawal of Aguas del Tunari, granting control of Cochabamba's water to the Coordinadora, the release of detained protesters, and the repeal of water privatisation legislation.

The outcome of the Cochabamba Water War was a victory for the residents of Cochabamba and a significant blow to foreign investment in Bolivia. The protests also had a wider impact, with anti-globalisation activists around the world citing the Water War as an example of corporate greed and a reason to resist globalisation. The leader of the anti-water privatisation movement in Bolivia, Oscar Olivera, became a sought-after speaker at venues discussing how to resist resource privatisation.

The Cochabamba Water War highlighted the importance of public participation in the development of policies and legislation related to water resources management and the provision of water and sanitation services. It also demonstrated the potential consequences of privatisation, including increased prices, reduced access, and negative impacts on vulnerable communities.

The role of grassroots movements in opposing privatisation

The privatisation of water in Bolivia was met with strong opposition from grassroots movements, who played a crucial role in resisting the handover of water supply and sewage services to private corporations. The resistance culminated in what became known as the Cochabamba Water War, a series of protests that took place in Cochabamba, Bolivia's fourth-largest city, between December 1999 and April 2000.

The privatisation of water supply in Bolivia was driven by international financial institutions, such as the World Bank and the International Monetary Fund (IMF), which made it a requirement for the country to receive ongoing loans and financial aid. This condition was imposed due to the belief that privatisation would attract foreign investment and improve efficiency in the water sector.

However, the grassroots movements in Bolivia recognised the potential negative consequences of privatisation, especially for the poorest and most vulnerable communities. They argued that access to clean water is a human right and that privatisation would lead to higher water rates and reduced access for those who needed it the most.

The protests were largely organised by a community coalition called the Coalition for the Defense of Water and Life (La Coordinadora), led by union organiser and anti-globalisation activist Oscar Olivera. The demonstrations involved a diverse range of participants, including peasant irrigators, retired factory workers, union members, students, coca-leaf farmers, and street children.

The grassroots movements employed a range of tactics to oppose privatisation. They organised strikes, roadblocks, and mass gatherings in public spaces. They also utilised referendums and unofficial votes to demonstrate the overwhelming public disapproval of water privatisation. Additionally, they engaged in direct negotiations with government officials and water companies, demanding the cancellation of privatisation contracts.

The protests were met with violence and repression from the state, with the declaration of martial law and the deployment of riot police and military forces to disperse protesters. Despite the risks, the grassroots movements persisted and achieved significant victories. In April 2000, the national government was forced to reverse the privatisation decision and grant control of Cochabamba's water to La Coordinadora. This success was a testament to the power of grassroots movements in influencing policy and protecting the interests of local communities.

The implications for foreign investment in Bolivia

The protests against water privatisation in Bolivia, known as the "Water War", sent a strong signal to foreign investors that the country was not open for business in the same way it had been previously. This was especially true for industries that relied on access to natural resources, such as water, or those that were seen as essential services. The protests highlighted the risks of investing in Bolivia, particularly the possibility of social unrest and political instability. This was further exacerbated by the violent response of the Bolivian government, which resulted in the death of a 17-year-old protester, Víctor Hugo Daza, and injuries to many others.

The decision by the Bolivian government to revoke the privatisation contract with Aguas del Tunari further damaged the country's investment prospects. This was seen as a violation of the rule of law and property rights, and it called into question the country's commitment to free-market policies and foreign investment. The fact that the contract was revoked due to popular pressure also raised concerns about the stability and predictability of the country's policy environment.

The implications of the water privatisation protests and their aftermath were felt in the immediate term, with a subsequent auction to sell the La Paz telephone company attracting zero bidders. This was a clear indication that foreign investors were wary of investing in Bolivia following the events in Cochabamba. The US Embassy in Bolivia described the impact on foreign investment as a "pretty significant blow".

In the longer term, the protests and their aftermath may have contributed to a broader decline in foreign investment in Bolivia. According to one source, the country's foreign investment climate suffered a significant blow, with the perception being that "you can't trust Bolivia". This perception was likely to deter future investment, especially in industries that were seen as essential services or those that relied on access to natural resources.

Overall, the implications for foreign investment in Bolivia were negative, with the country's reputation damaged by the protests and the government's response. The decision to revoke the privatisation contract further undermined confidence in the country's commitment to free-market policies and respect for property rights. The events in Bolivia highlighted the risks of investing in industries that are seen as essential services or those that rely on access to natural resources, and they may have contributed to a broader decline in foreign investment in the country.

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