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Privatization and the Environmental and Economic Impacts

Presented By: Jaime Echeverrķa from the World Resources Institute

Date: September 21, 2000

Summary: Privatization is building momentum in Latin America. There is a need for better allocation of water resources, which is easier to do in a private setting where it is easier to get access to capital and services can become more efficient. The advantages of privatization are evident in developed countries; however, undeveloped countries would suffer drawbacks to privatization. Natural monopolies would arise in undeveloped countries because in these countries it is not easy to start up a water business, distribution networks are not mobile, there is a presence of corruption, and there are poor capital markets. The threat of monopolies calls for the creation of incentives in the privatization process. The main problem is that in a private setting it is not profitable to distribute water to distant rural areas.

In developed countries, studies propose that capital markets should look at the environmental performance of companies. In developing countries, one of the problems with privatization is that the companies will lose money if their customers are low-income families and need subsidies from them.

The liberalization of a market through privatization may result in even greater regulation. The costs of monitoring procedures need to be considered. To minimize the danger of monopolies, it is necessary to create competitive incentives for different parts of the water system, such as distribution and treatment. When considering privatization, it is necessary to consider the economy of the country together with the level of transparency, capital markets, and other factors. For example, the United States is a good candidate for privatization schemes because it has important capital markets and a high level of transparency.

Comments: Short minutes of the presentation are on file, and provide the skeleton of the presentation that is outlined above.

 

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