ETHICS

CE 397 Fall 2005

Paula Kulis

Charlotte Amato

What Happens?Lending bank

Government

Agencies

$Friends or Self

$

Contract, $$

people

Individual gain

Lesotho

• Slightly smaller than Maryland• Entirely 2000m above sea level• ~ 2 million people• Completely dependent on South Africa• 10 km2 irrigated land• Life expectancy at birth: 34.47years• AIDS prevalence: 28.9%• Main natural resource: water

Lesotho

http://www.lib.utexas.edu/maps/africa/south_africa.jpg

1986

Why?

• More Water for South Africa

• More Money for Lesotho– Hydropower!!!– SA buys water from Lesotho

Lesotho-SA Treaty: LHWP

• Militant Rule in Lesotho

• Partial World Bank Funding

• Privatization – Government is “middleman”

CORRUPTION

Getting Caught!

• 1993: Civilian Rule Audit LHDA

• Masupha Ephraim Sole– Investigations: “living far beyond his means”– Swiss Bank Accounts

What Happened?WORLD BANK

Lesotho Government

$

Foreign Contractors

Intermediary$ $

$Contract, $$

Who gets in trouble? EVERYONE

The Punishment

• Trials are still going on

• Sole given prison sentence

• Acres Int’l Barred from World Bank Funding

• Six other corporations in trouble

• World Bank has provided minor aid in prosecution

Significance

• Set a precedent of culpability for all involved, not just the government

• Independent investigation– Embarrass international agencies

• First poor nation to prosecute to this extent

Bolivia• Bolivia 1,098,580 sq km • Very poor nation

•purchasing power per capita $2,600• 64% below poverty line (12% USA)

• National average 41 Liters a day• Waterborne disease prominent• Natural resources: tin, lead, hydropower •Cochabamba 482,857 inhabitants (1996)

Why?

• Cochabambas water supply was in terrible condition and in need of repair and improvements far beyond the capability of the government.

• Bolivia was in a trend of privatization of many industries due to the economic ruin following the collapse of the tin mining industry.

• Pressure under the Multilateral Financial Institutions promise of debt relief contingent on privatization of water system

Cochabamba Water System Privatization

• Poorly constructed laws were hastily passed.

• In mid 1999 the system was sold to Aguas de Tunari, a subsidiary of Bechtel- the ONE bidder and created a monopoly.

• Privatization – Government is “middleman” that left themselves with no power of oversight.

CORRUPTION

Privatization(Unethical Monopoly?)

• 40- year exclusive contract.• Rate increases of 50%-400% under Betchel

(20% of the average citizens salary).• Contract allowed no government subsidies. A

condition placed by the WB.• Contract guaranteed 16% annual price return on

investment.• 7 months of protests forced the government to

break contract with Betchel and reverse some of the laws they had passed.

What Happened?World BankInternational Monetary Fund Inter-American Development Bank

Bolivian Government

$ Debt ReliefForeign Contractor (monopoly)

$ Citizen Burden

$ PrivatizationContract

$ All system improvements and guaranteed returns

The Punishment ?Not Exactly….

• Betchel is suing Bolivian government for $25 million (only $7 million invested over the 7 months of privatization)

• Cochabambans are left with the same inadequate dirty water supply they had to start with. – Sentiment that the affordable access to dirty

water is a basic right they prefer over the extorted cost of clean water.

Significance

• Riots resulted in bad press for the Multilateral Lending Agencies which has led to policy reformation.

– "European public water utilities should be enlisted to assist in meeting the water MDGs through not-for-profit public-public partnerships. In international fora, the EU must use its influence to reorientate the policies of the World Bank and other international financing institutions to end privatization conditions linked to financial support to those requesting it."

– Dutch NGO the Corporate Europe Observatory campaign letter to EU

Questions ?

• The Senate hearings clearly concluded that the development banks have some culpability for letting their funds be wasted. Do you think this is fair? Isn’t it the individual governments and companies who are to blame? Who is really responsible for changing things?

• Do you think the measures being taken, at least on paper, by the MDBs is sufficient? What else can they do?

• How do the problems explained above present themselves in the case studies of Bolivia and Lesotho (see required readings)?