Public Services International Research Unit

Hungary - Cuts Watch December 2011 - Dec 2011David Hall

Hungary

Cuts Watch brief

Last updated: 19 December 2011

Author: David Hall

In the 2000s Hungary’s economy grew because of a growth in consumer spending, but with a large trade deficit. Banks – mostly foreign-owned, following privatisations - were borrowing money from western Europe in Euros or Swiss francs, and lending it to Hungarians as mortgages to buy houses: by 2008 more than half of all mortgages were in foreign currencies. As the financial crisis began to affect the economy, Hungary’s currency, the Forint, began to depreciate against the Euro and the Swiss franc. As a result, the cost of mortgages to Hungarians increased sharply, and many Hungarians would have defaulted on their payments and lost their homes.

In November 2008 the Hungarian government agreed a €20bn IMF-EU package to support the forint. The IMF required major cuts as conditions of the loan, including cuts in pay of public employees, cuts in public services, social security benefits and pensions, a rescue package for banks, and a target of reducing the government deficit to 2.6%. Following strikes and demonstrations, the package was modified, and the deficit target relaxed to 4.6%, but it still included a wage freeze and a loss of annual bonus for higher paid workers, and public spending was cut by 8% in real terms. New taxes on property were also introduced.

A general election in May 2010 was won by the populist rightwing Fidesz party, which had campaigned against the package. The cuts in spending were maintained, but in July 2010 the new government introduced a levy on banks equivalent to 0.7% of GDP. This provoked a strong reaction:

“The IMF immediately suspended its Hungary programme, predicting a severe market reaction and the possible withdrawal of foreign banks. Such a withdrawal never materialised. While committed to the deficit target initially agreed with the IMF for 2010, in October the new government sought to stimulate private demand by cuts in both income and corporate tax. To maintain revenue it instead imposed temporary 'crisis' taxes on businesses in the highly profitable retail, energy and telecoms sectors, and shifted pension funds from private financial institutions to finance the deficit – all measures condemned by the IMF.”

In response, the government announced it was terminating the agreement with the IMF as being unnecessary.

In 2011 the government passed legislation which set a ceiling for mortgage borrowers’ losses on foreign exchange loans – and thus forced the banks to absorb an estimated €900m of losses resulting from fluctuations in the value of currencies. This too was criticised by the European Central Bank and by the banks themselves, and credit rating agencies have downgraded Hungary. The government also introduced new labour laws, cutting severance pay and overtime for public employees and making it easier to dismiss worker; has taken steps which undermine the independence of the courts; and exploited its two-thirds majority to draft a new constitution which has been widely criticised, including for its failure to mention trade union rights or the minimum wage. Public support for Fidesz fell sharply. In November 2011 the government decided to ask the IMF for a new ‘insurance’ agreement, in order to encourage markets to lend at lower rates.

1.1.Healthcare

Public spending on healthcare was cut by HUF 30billion, and healthcare contributions were increased from 11% to 27%

1.2.Pensions

Pension age will be increased from 62 to 65 for men and women. The value of pensions will by cut by abolition of the annual bonus and an 8% reduction i9n the base of calculations.

Sources:

- Daniela Gabor 18 February 2011 The IMF's new conditionality Crafting change, lessons from Eastern Europe http://www.brettonwoodsproject.org/art.shtml?x=567716

- Bretton Woods Project. 13 February 2009 Will IMF loans hurt the poor this time around? http://www.brettonwoodsproject.org/art.shtml?x=563607

- FT December 16, 2011 Hungary v IMF: another row

- OECD 2011 Pensions at a Glance 2011: Retirement-Income Systems in OECD and G20 Countries http://www.oecd.org/document/49/0,3746,en_2649_34757_42992113_1_1_1_1,00.html

- OECD (2011) Restoring Public Finances http://www.oecd.org/dataoecd/51/58/47558957.pdf

Authors:

Iceland - Cuts Watch December 2011 - Dec 2011David Hall

Iceland

Cuts Watch brief

Last updated: 19 December 2011

Author: David Hall

In the 2000s the economy of Iceland grew rapidly led by a surge in financial activity. In 2008 the three major banks which had been at the centre of this boom collapsed, leading to a devaluation of the currency and a sharp rise in national debt. The government asked for a loan package from the IMF. The terms of this deal included a cut in public spending of 16% of GDP. Following strikes and demonstrations, the government resigned and was replaced by a red-green coalition in 2009, which introduced a smaller package, which was still equivalent to 12% of GDP. Part of this was achieved through higher taxes, and the package was designed to affect the poorest least, but part also through cuts in spending on pensions, child benefit and healthcare. Due to these measures and the fall in the value of currency, Icelandic households experienced a fall in real income of about 30%.

However, unlike other countries, Iceland allowed the banks themselves to collapse, with their creditors bearing the losses. Account-holders were given priority over creditors – it is expected that all depositors will in the end receive the full value of their deposits. The state created and capitalised new banks, to which they transferred Icelandic assets at a negotiated ‘fair price’. There was no ‘socialisation’ of the banks’ losses. Governments of other countries including the UK and Netherlands demanded that all their citizens who had opened accounts with the collapsed banks should be repaid in full by the Icelandic government, but this was rejected by massive majorities when put to a referendum in Iceland. In effect Iceland allowed the banks to collapse, and did not transfer the losses. It also introduced capital controls, to prevent volatile movement of finance.

By 2011, the Icelandic government was being praised by economists for refusing to socialise the losses, for imposing capital controls, and for enabling a recovery to start on the least painful terms.

- FES 2011 Arne Heise and Hanna Lierse March 2011 Budget Consolidation and the European Social Model - The Effects of European Austerity Programmes on Social Security Systems. FES http://library.fes.de/pdf-files/id/ipa/07891.pdf

- IMF 03 November 2011 Iceland's Unorthodox Policies Suggest Alternative Way Out of Crisis http://www.imf.org/external/pubs/ft/survey/so/2011/CAR110311A.htm

- Iceland´s Recovery—Lessons and Challenges http://www.imf.org/external/np/seminars/eng/2011/isl/index.htm

Authors:

Italy - Cuts Watch - December 2011 - Dec 2011David Hall

Italy

Cuts Watch brief

Last updated: 19 December 2011

Author: David Hall

In response to the financial crisis of 2008, Italy committed a total equivalent to 4% of GDP to rescue its major banks, and subsequently introduced a stimulus package.

Italy introduced its first package of cuts in 2010, with a target of reducing the deficit below 3% per annum by 2012. This package includedan end to the stimulus package and:

- a 3-year freeze on public sector pay, cuts of 5% or 10% for higher earners, recruitment

- cuts in pensions by increasing retirement age for women;

- cuts in local public services through reducing government transfers to local governmentsby the equivalent of 0.5% of GDPcuts in capital spending.

In 2010 the deficit fell to one of the lowest in Europe, although the level of debt remained high. In 2011 the bond markets imposed higher and higher interest rates on Italy, and the EU imposed greater pressures on the Italian government to introduce stronger cuts in public spending. The European Central Bank added to these pressures by sending a list of demands, including further cuts in pensions, public service pay and joib security, and “large scale privatizations” of local services. After failing to deliver such a package quickly enough, the government of Silvio Berlusconi was forced to resign and was replaced by an appointed government headed by a banker, Mario Monti.

In December 2011 the Monti government proposed reaching a ‘balanced budget’ with zero deficit by 2013, and introduced a €30billion package. This included raising €18 billion in extra taxes on property, higher VAT, and a tax on luxury goods; and €12 billion in further cuts in public administration; and cuts in pensions through raising the pension age to 62 from 60 for women and to 66 from 65 for men, basing pensions on contributions rather than final salary, and freezing pensions in payment by cancelling annual inflation-linked increases. About €10billion will be used to provide tax relief and incentives for small businesses, and support for younfg people and women. There was however no proposal for a wealth tax, which had been discussed even by the Berlusconi government, but was strongly opposed by bankers.

Sources:

IMF 2010: A Status Update on Fiscal Exit Strategies 2010 http://www.imf.org/external/pubs/ft/wp/2010/wp10272.pdf
ETUI 2010 Vera Glassner The public sector in the crisis Working Paper 2010.07
Reuters 07 December 2011 Monti popularity dips over austerity, unions call strikes
Guardian 5 Dec 2011 Mario Monti's austerity measures lack the innovation Italy needs

Authors:

India - Cuts Watch - Oct 2011 - Nov 2011David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/India-cwbrief-Oct2011.pdf

Cuts Watch brief

Last updated: 25 November 2011

Author: David Hall

India

India is not introducing ‘austerity’ cuts in public spending. It introduced a stimulus package in 2009, which increased the government deficit to 6.8% of GDP, to boost the economy; and committed to continued public ownership of banks and financial institutions. The government was confident it could borrow enough to finance this deficit: half of India’s savings in the banking system “is channeled to the government through mandatory lending or through treasury bill sales”.

The budget included long term plans for taxes. Central government revenue is now 12% of GDP, with over 50% coming from direct taxes, which is more progressive. The government plans to continue increasing the proportion of direct taxes, including corporate taxes. It is also continuing to improve tax administration, the importance of which was recognised by the finance minister: “Our tax collectors are like honey bees collecting nectar from the flowers without disturbing them, but spreading their pollen so that all flowers can thrive and bear fruit.”

Spending on urban infrastructure is being rapidly increased, including a policy for replacing slums, and investment in infrastructure is intended to reach more than 9% of GDP per year by 2014

The 2009 budget aimed for growth of 9% in 2010, and actually achieved growth of 10.1% in that year. This growth generates higher tax revenues which automatically reduce government deficits, which is expected to fall to 5.1% of GDP in 2011, and government debt is expected to fall gradually to about 68% of GDP in 2015.

The 2011 budget stated that:

- In 2010 tax revenues grew by 25% as a result of economic growth and stronger tax collection

- Public spending on education would rise by 24% in 2011

- Public spending on healthcare would rise by 20% in 2011

Sources:

IMF Fiscal Monitor April 2011

Livemint/WSJ India Budget 2011

Government of India: Union Budget of 2011

· UN ESCAP 2011 The Promise of Protection

· PSIRU 2010 Why we need public spending

Authors:

- Presidential address on state budget 2012, Jakarta, 16 August 2011

Indonesia-Cuts Watch -Oct 2011 - Nov 2011David Hall

Download pdf version of this brief here: http://www.psiru.org/sites/default/files/Indonesia-cwbrief-Oct2011.pdf

Cuts Watch brief

Last updated: 25 November 2011

Author: David Hall

Indonesia

In 2009 Indonesia introduced a €8.1 billion stimulus package, It has planned for its deficit and debt levels to decline gradually over the next 3 years, to 2014, as a result of economic growth and improved tax collection measures. In practice, because of rapid growth, the deficit has fallen even faster than expected.

The government is not introducing austerity measures. Rather, in September 2011, the government stated that it plans to introduce further economic stimulus, to offset the recessionary effect of European economies. This could include further spending on infrastructure investment.

Indonesia still has a very low level of public spending on healthcare. On the other hand, it has announced a 35% increase in military spending in 2012.

Sources:

- The Jakarta Post September 16, 2011 Govt plans fiscal stimulus amid uncertainties in global economy

Authors:

Argentina is expanding, not reducing, its public sector

Argentina-Cuts Watch-Oct2011 - Nov 2011David Hall

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

Argentina

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/Argentina-cwbrief-Oct2011.pdf

Its entire history of the last 20 years is a perfect demonstration of what is wrong with the austerity policies advocated by the IMF and the EU, and why the public sector is a crucial engine of growth and social development. In the 1990s, Argentina was subject to austerity and privatisation programmes imposed by the IMF, which “created situations of widespread socio-economic hardship and an economic collapse, as the economy shrank by 20% between 1998 and 2002.

Argentina recovered by defaulting on $100billion in debts owed to banks, refusing to borrow from the IMF in future, and rejecting the IMF austerity policies austerity in favour of expansionist policies and a stronger role for government services. Government spending rose from 14%of GDP in 2003 to 25% in 2010, through public investment in housing – 400,000 new low-cost homes have been built; transport - including public transport systems and roads such as a modern 400 kilometer highway between provincial capitals; social benefits, including a statutory minimum wage, higher pensions, and a new universal child benefit scheme, introduced in 2009, worth over 0.8% of GDP; and low-cost loans for small businesses. In 2009, like other countries, Argentina expanded government spending even more, as a stimulus to protect the economy form the effects of recession.

The economic and social results have been excellent. Economic growth has been over 6% per annum for 7 of the last 8 years, and in 2011 was running at 8% per annum – second only to China. Argentina’s policies have been recognised by articles in the New York Times – “an achievement that President Obama and Congress should look to for inspiration” and the Financial Times – “an economy firing on all cylinders…. an enviably low debt burden”.

It is continuing with these policies. It has no plans to cut back public spending, rather the opposite. It is increasing tax revenue by clamping down on tax avoidance, forcing the rich to disclose their credit card spending, purchases of luxury cars, and private school fees.

Argentina does not need and does not seek to borrow from or sell bonds to people or institutions outside the country: “Over the next few years, the authorities expect their financing needs to be satisfied by domestic sources, including pension funds, with very little dependence on external financing.”^{^[i]}

Sources:

New York Times September 1, 2011 Argentina’s Turnaround Tango
Associated Press Sep 22, 2011Argentine economic plan: Raise spending, salaries
FT June 27 2011 Fernández looks set for poll victory
IMF: 2010 A Status Update on Fiscal Exit Strategies

[i] IMF 2010

Authors:

Australia - Cuts Watch - Oct 2011 - Nov 2011David Hall

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/Australia-cwbrief-Oct2011.pdf

Australia

The Australian government has a very low level of debt, representing only 20% of GDP, and a deficit in 2011 of less than 3%. The government is expecting the deficit to fall as economic recovery leads to higher tax revenues, and is allowing public spending overall to continue growing by up to 2% in real terms per year – but this is slower than the growth of the economy, which is expected to expand at about 4% per year, with unemployment falling below 5%. As in other countries, state and municipal levels of government suffered a loss of tax revenues as a result of the recession, but they have also maintained spending on services by running budget deficits.

The 2009 stimulus package of extra spending to counter the recession is being allowed to expire, but in 2011 there was another major spending programme to repair the extensive damage of floods and cyclones, which is being financed by a special tax. In 2011 the budget included plans to increase spending on education and mental health and reduce defence spending. In July 2010 the government introduced a new tax on iron and coal mining companies – a “mineral resource rent tax (MRRT)”, partly offset by a reduction in general corporation tax. In 2011 it introduced a ‘carbon tax’.

So although Australia is reducing its government deficit, it is doing so by allowing economic growth to reduce it, not by making cuts in spending on public services.

- Jobs and pay

There is no policy to reduce the number of public sector employees. There is no expectation that the policies on spending will reduce the overall number of public sector employees. In June 2010 there were about 1.8m. public sector employees, about one-sixth of all employees.

Healthcare

The government is reforming the Australian healthcare system, but this is intended to result in higher levels of expenditure and in particular higher levels of employment and training of doctors and nurses.

Pensions

In 2009 cuts were made to the state pension system. The retirement age for state pensions is being raised from 65 to 67, and conditions for eligibility have been made more restrictive.

Sources:

Australian Government National Health Reform
Australian government May 2011 Budget Overview 2011-2012
IMF 2010 A Status Update on Fiscal Exit Strategies

Authors:

Brazil-Cuts Watch - Oct 2011 - Nov 2011

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/Brazil-cwbrief-Nov2011.pdf

Brazil

In 2008 Brazil introduced a stimulus package to combat the recession. In 2010 the Brazilian government planned to withdraw some of the tax reliefs that were in the stimulus package, but to continue with other spending and tax reliefs. Brazil has a small government deficit – about 2.5% of GDP in 2011 – and debt levels of about 65% of GDP. By 2010 Brazil’s main problem was its economic success, and it introduced controls to limit a rush of speculative money into the country.

In February 2011 the government announced that it would reverse the stimulus package, and cut budgeted public spending by 2.5% (50 billion Reais, $30billion). This included a freeze on civil service recruitment, commitment to efficiency savings, cutting travel and other expenses for civil servants, and an audit of all public sector employees. A rise in the national minimum wage – to which public sector salaries are linked – was also deferred. Although the deficit declined faster than expected in 2011, the government still announced that it would aim to reduce the deficit further.

In August 2011 the government announced a pay freeze for civil servants in 2011 and 2012. The government is also creating a new pension scheme for public servants, replacing the previous scheme which had a large deficit.

At the G20 meeting in November 2011 Brazil rejected the policies of austerity and cuts advocated by Germany and other European countries, and warned they were creating unemployment and social divisions.. Instead, Brazil supported the ILO plan to create a global ‘bolsa familia’ to transfer

Sources

IMF 2010 A Status Update on Fiscal Exit Strategies
Brazzilmag 10 February 2011 Brazil Cuts US$ 30 Bi from Budget, Freezes Hiring and Starts Crackdown on Fraud
Brazzilmag 30 August 2011 While Rich Cut Social Benefits We're Investing More, Says Brazil's Finance Minister
CUT 13/09/2011 CUT e Condsef repudiam iniciativa de criação de Previdência Complementar dos servidores públicos (CUT and Condsef reject the proposed pension scheme for civil servants)
G20 Information Centre: Brazil at Cannes summit November 2011

Authors:

Bulgaria - Cuts Watch - Nov 2011 - Nov 2011David Hall

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/Bulgaria-cwbrief-Nov2011.pdf

Bulgaria

Bulgaria wanted to join the Euro in 2010, but the EU said it needed to demonstrate more ‘fiscal prudence’ and reduce the rate of inflation. So the Bulgarian government set a new target year of 2013, and wanted to impress the EU “by garnishing the application with a targeted balanced 2010 budget, and the smallest 2009 deficit in the EU”. In 2008 it introduced a ‘flat tax’ of 10% for incomers and company profits – the lowest tax rate in the EU; and in December 2009 it cut VAT rate from 20% to 17%. It announced special drives against tax evasion by musicians and footballers.

In 2009 the newly elected rightwing government decided not to seek an IMF loan, although GDP fell by 6.5%, but adopted its own ‘austerity’ budget for 2010, including:

- No change to the flatrate 10% tax on incomes and profits, or taxes on alcohol

- An increase of 43% in tax on cigarettes, and a new 15% gambling tax

- Social security payments cut by 2% from January 2010

- A freeze on the minimum wage and pensions

- cuts in funding for education, science and universities

- healthcare and social security reforms (see below)

- Privatisation of 29 companies to raise 80 billion lev (€40 billion),

During 2010 unemployment rose by 31% (EAPN), and the forecast government deficits for 2010 and 2011 had to be revised upwards, due to lower tax revenues and higher social security payments a- the effects of continued recession. The privatisation programme delivered very little: the government managed to sell only 9 companies, for a total of 2.9 billion lev. The budget for 2011 introduced further austerity to try and meet the EU target: social security contributions were raised by 1.8% points, in a meeting boycotted by trade unions, and the Christmas bonuses of government staff were cancelled in 2011.

The effects of the cuts have led to demonstrations and protests by unions, students, teachers, police, musicians, filmmakers, librarians and many other groups. A coalition was formed to ensure that different groups did not simply fight each other for limited spending, but instead demanded that 5% of GDP should be spent on healthcare, instead of the planned 3.8%; 5% on education, instead of the envisioned 3.3%, 1% of GDP for science, and 1% for culture.

1.1. Healthcare

As in other countries in central Europe, there is a great battle over healthcare ‘reforms’, which include cuts, closures, patient charges and privatisations. The government plans since 2009 have included:

- Reduced rights: 380 000 Bulgarians lost their rights to free healthcare

- cuts in healthcare spending: the state budget for hospitals was cut by 24% in 2009 alone, and the overall budget for 2010 was cut by 16%. Total healthcare spending fell to 4.2% of GDP, far lower than other European countries.

- closing 21 large hospitals, and closing or reducing 130 other centres – out of a total of 350 hospitals.

- Privatisation of hospitals and services: the health minister stated in 2010 that “Privatisation is the way to go. There must be privatisation of both hospitals and the services provided by hospitals”.

- imposing ‘co-payments’ of 20% by patients for hospital treatment – but there would no longer be a requirement to be referred by a GP.

There has been massive opposition from the public, doctors and nurses, and health providers. Two health ministers were forced to resign during 2010 because of this public opposition, and accusations of misuse of national Health fund. By the end of 2010 the government had been forced to restore many of the budget cuts.

1.2. Pensions

In addition to freezing the level of pensions in 2011, the government is increasing the retirement age and the years of service required

- Retirement age: in November 2011 the government announced that the retirement age would be raised with immediate effect, in 2012, from 63 to 64 for men, and from 60 to 61 for women. (The previous ‘reform’ plans included an increase in retirement age, but not until 2021, followed by further gradual increases until it reached 65 for men in 2024 and 63 for women in 2026).

- Years of service: in 2010 the government decided to increase the years of service required from 37 to 40 for men, and from 34 to 37 for women. This would be phased in by adding an extra four months each year from 2012 to 2020.

Sources:

Novinite www.novinite.com : various reports, including The Bulgaria 2010 Review: Health ; The Bulgaria 2010 Review: Education ; The Bulgaria 2010 Review: Society ; Bulgaria Ups Retirement Age in 2012 in U-Turn Change ; Bulgarian Cabinet Passes Latest Retirement Reform Plan

Reuters Feb 4, 2010 Bulgaria looks to privatise hospitals after reform

Authors:

China - Cuts Watch - Oct 2011 - Nov 2011David Hall

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/China-cwbrief-Oct2011.pdf

China

China is not making any ‘austerity’ cutbacks – quite the opposite. In 2008, China introduced a large stimulus package, which was very effective in protecting China – and indirectly many other countries – from the effects of recession. One result of the stimulus was an increase in borrowing by municipalities, which are now being allowed to raise money by introducing property taxes and issuing bonds.

Further policies announced in 2011 are intended to improve incomes by increasing wages, extending social security, providing affordable housing, and reducing the tax burden on the lower paid.

a promise to raise average wages by 15% per year and so double average wages by the end of 2015.
build 35m units of low-income housing over the next five years.
lift its official poverty line from the current income level of $0.50 a day to $0.63.This would more than triple the number of people officially living in poverty from 27m to 100m, all of whom would be entitled to rudimentary but improving government welfare assistance.
Raising the income tax threshold by 50%, so about 50m. people will no longer pay income tax
Introducing a property tax to curb speculation and inflation in house prices, and provide local governments with more secure incomes

By September 2011 minimum wages had been increased by 22% on average in 21 out of 31 Chinese provinces.

The government is also massively increasing spending on universal healthcare and pensions.

1.1. Healthcare

In healthcare, China is abandoning the failed experiment of a market-based system, and instead developing public healthcare services aimed to cover 90% of the population by 2011. UN ESCAP summarise this under the heading ‘China’s march towards universal healthcare’.

“Since the 1980s, China has experienced rapid economic development and the marketization of medical services.By the late 1990s, however, the majority of rural and urban residents, children and migrants were still not covered by any health insurance system. Rising out-of-pocket medical expenditure led to a decline in equity and access to health services as well as impoverishment of families.

At the dawn of the new millennium, health financing and health reform were placed on China’s political agenda. In 2003, China launched the New Cooperative Medical System (NCMS), a medical mutual assistance system for the rural population, jointly financed by the central Government, local governments and participants. As of 2008, well over 90 per cent of the rural population in China, over 800 million people, had joined NCMS.

To extend health protection to the urban poor, an Urban Resident Basic Medical Insurance was launched in 2007, targeting mainly urban residents without formal employment. It was initially carried out on a trial basis in 79 cities and aimed to cover all cities by 2010.

In January 2009, the State Council announced its plan to spend more than USD 120 billion over the next three years to strengthen the nation’s health-care system by rapidly expanding insurance coverage, revamping public hospitals and improving access to medical treatment. Its goal was to extend the provision of medical insurance to 90 per cent of China’s population by 2011 and make “basic health-care services” available to all of China’s 1.3 billion citizens.”

1.2. Pensions

In addition to its existing pension scheme for the urban population, in December 2009 it launched a new basic pension scheme for 700 million rural residents. This aims to offer a universal pension starting at a minimum of CNY 55 (USD 8) per person per month, which is payable to all rural residents aged 60 and above on the condition that her/his family has participated in the new rural pension system.

Sources:

UN ESCAP 2011 The Promise of Protection

FT April 20 2011 China to alter taxes in attempt to cut wealth gap
FT January 27 2011Chinese cities to pilot property tax
FT October 25, 2011 China labour costs soar as wages rise 22%

Authors:

Denmark - Cuts Watch - Oct2011 - Nov 2011David Hall

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/Denmark-cwbrief-Oct2011.pdf

Denmark

In October 2011 the newly elected social democratic government of Denmark decided to deal with the recession by increasing public spending and investment – the opposite of the austerity policies adopted in other countries. The new policies aim to create 135,000 new jobs by 2020 – a 5% rise in the total number of jobs.

The measures include:

- Investing an extra €1.3bn. Euros in roads, railways, cycle paths, and improving insulation of public and private housing

- Temporary tax credits for companies investing in new technology

- Income tax reductions, the details of which will be negotiated with unions and employers

The government will not however restore an early retirement scheme which was cut by the previous government.

The new government will also reverse the anti-immigration policies of its predecessor, restoring immigrants’ rights to equal benefits and removing border controls.

The government is a coalition led by the Social Democrats in coalition with a centrist party (the Social Liberals) and the Socialist people’s party, and with the support of the left Red-Green Alliance.

Source: Financial Times October 3, 2011 Denmark to spend way out of economic crisis

Authors:

France - Cuts Watch - Oct 2011 - Nov 2011David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/France-cwbrief-Oct2011.pdf

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

France

In 2009 France introduced a stimulus package and rescued a number of banks by providing guarantees and funding worth over 16% of GDP. The government deficit rose to 7.6%, but the recession was short and shallow in France, lasting only a year.

Since the beginning of 2010 the government has introduced a series of ‘austerity’ measures, with the aim of reducing the deficit to 3% by 2013. These include cuts in public spending and public services, as well as some tax increases.

The largest measure has been cuts in the pension scheme, announced in June 2010. The minimum pension age has been raised from 60 to 62 – originally fixed for 2018, but brought forward to 2017 by the second emergency package of 2011. The age for receiving a full pension is being raised from 65 to 67. Public sector pension contributions have also been raised. Despite massive public opposition, led by the unions in a series of demonstrations and general strikes, the government continues to implement these changes.

Other measures in 2010 included cuts in planned spending on healthcare - which by 2011 had already resulted in cuts of €3billionper year; a freeze in money terms on funding for local government; €7 billion from a 3 year pay freeze and job cuts for public employees; further cuts from a policy of only replacing one in every two retiring public servants - expected to cut public sector employment by 150,000 over five years. In addition there were €15 billion euros cut by not renewing stimulus measures and one-off tax breaks, and €10 billion saved by limiting tax exemptions.

In August and November 2011 France introduced further ‘emergency’ packages. The August measures contained an extra €11billion cuts for 2012. The November measures include an additional €7billion cuts in 2012 and €11.6billion in 2013, including real cuts in some state benefits and public healthcare by cutting or ending the index-linking of amounts.

IMF 2010 A Status Update on Fiscal Exit Strategies
France government: 7 novembre 2011 Discours du Premier ministre sur le Plan d’équilibre des finances publiques http://www.premier-ministre.gouv.fr/premier-ministre/discours-du-premier-ministre-a-la-conference-de-presse-sur-le-plan-d-equilibre-des-
Reuters Wed Sep 29, 2010 France ducks steep cuts in 2011 budget
CGT 6/10/ 2011 Faillite de DEXIA La Cgt exige la création immédiate d’un pôle financier public

Authors:

Germany - Cuts Watch - Oct 2011 - Nov 2011David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/Germany-cwbrief-Oct2011.pdf

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

Germany

1. Policy

The recession originally hit Germany hard, and the German government responded with a massive stimulus programme in 2009, which included €5billion of public spending to support short-time working (‘Kurzarbeit’) by paying workers 2/3 of their lost wages and half or more of employers’ social security contributions. Over 1.5 million workers were supported by this scheme, and unemployment levels in Germany remained lower than before the crisis.

This enabled the German economy to recover quicker than others. The response of the government in 2010 was to prioritise cutting public spending. A constitutional amendment was introduced in May 2010 which limits the deficit of the federal (central) government to 0.35% of GDP, with effect from 2016, and prohibits the lander (regional governments) from having any deficit at all from 2020. These constraints are even more severe than the EU limit of 3% of GDP

The government then introduced in June 2010 one of the biggest packages of cuts in public spending in the last 60 years (known as the Zukunftspaket - “Package for the Future” -through the Supplementary Budget Act (2011) and the medium-term Financial Plan (2010–2014)). It provides for cuts of €80billion euros by 2014, equivalent to about 0.8% of GDP, and expected further cuts will be needed to reduce the deficit to 0.35% in 2016.

More than one-third of the package consists of cuts in social security benefits. There are also cuts in the defence budget and cuts in public service employment. There was also an increase in some taxes, such as a levy on airlines, a tax on nuclear energy, and a proposed financial transactions tax.

The government has refused to alter the planned cuts despite tax revenues being higher than expected in 2010 and 2011. In one year, the government budget deficit fell from -4.3% in 2010 to -0.8% in 2011 – the target for 2014. Continuing with the cuts package means further reduction in demand. In October 2011, economists sharply reduced their growth forecasts for Germany for 2011 from 2.9% TO 0.8%.

2. Jobs and pay

About 15,000 public sector jobs will be lost as a result of the cut of 10,000 posts by 2014, and ‘efficiency gains’ in public administration and public healthcare. There is also a freeze on the Christmas bonus of public employees from 2011 onwards.

Yet many argue that the pay of German workers need to rise in order to increase demand and help stave off recession. Since the year 2000, despite relative economic prosperity, wages and salaries in Germany as a whole have not risen at all in real terms, unlike those in other European countries.

Source: Spiegel Online 09/08/2010 Despite Boom, Little Hope of Big Pay Hikes in Germany

3. Effects of austerity

The main elements of the package are cuts in public employment and cuts in social security benefits. It is deliberately aimed at the unemployed, supposedly to create stronger incentives to work. The cuts include:

- abolishing state contributions towards pension rights for the unemployed

- abolishing heating subsidies for the unemployed

- reductions in parental benefits, with the greatest reductions for the unemployed

- flat-rate increases in health insurance

4. Healthcare

The health budget deficit of €11 billion is being cut as part of the package. The German government proposed to impose a flatrate increase in health insurance contributions of €30 per capita, but was forced to change this to an increase of 0.3% of salary by both employers and employees. In addition,the cost of drugs is being reduced by freezing prices at 2009 levels and requiring drug companies to give discounts of 16% to insurerance funds, instead of 6%.

5. Pensions

Pension reforms, including a gradual increase in the retirement age from 65 to 67 years by 2029, had already been adopted pre-crisis. The value and coverage of state pensions has also fallen as a result of these reforms.

Sources:

· Spiegel Online 30/12/2009 Germany's Massive Job-Saving Program Could Still Fail

· FES 2011 Arne Heise and Hanna Lierse March 2011 Budget Consolidation and the European Social Model - The Effects of European Austerity Programmes on Social Security Systems. FES http://library.fes.de/pdf-files/id/ipa/07891.pdf .

· IMF 2010: A Status Update on Fiscal Exit Strategies 2010 http://www.imf.org/external/pubs/ft/wp/2010/wp10272.pdf

· FT June 7 2010 Merkel spells out €80bn spending cuts; FT August 16 2010 Merkel to stick with cuts despite growth; FT October 13, 2011 German economists halve GDP growth forecasts

· IMK Report no. 65 Oktober 2011 German economy in downward spiral

· The Lancet 4 September 2010, German health reform compromise under attack

Authors:

Overview: how cuts suppress employment - Nov 2011David Hall

Download PDF version here: www.psiru.org/sites/default/files/Overview-cwbrief- jobs.pdf

Cuts Watch brief

Last updated: 22 November 2011

Author: David Hall

Overview: how cuts suppress employment

1. Europe: austerity reverses public sector protection of jobs

In Europe, there are over 3.7million jobs have been lost since the start of the crisis. But job growth of 2.1million in public services has prevented an even greater loss. This has mattered in each country, not just at the level of the EU as a whole – there is no country in Europe in which private sector employment has yet recovered to the same level as in 2007, just before the crisis. Even in Germany, where there are 414,000 more jobs than 4 years ago, all these have come in public services.

The overall picture in Europe is set out in the table below. [1]

However, this picture is already changing in some countries with sharp ‘exit strategies’. In the UK for example employment in government sectors peaked at the end of 2009 and has fallen by 120,000 a year later.

Table 1. Employment changes in EU during crisis

Changes between 2007 Q$ and 2010 Q4

	Numbers (‘000s)	%

Total	-3,679	-1.7%
Private	-5,790	-3.5%
Public sector	2,111	3.9%
of which:
Public administration and defence; compulsory social security	-54	-0.3%
Education	884	5.8%
Human health and social work activities	1,256	5.9%
Water, sewerage, waste management and remediation activities	25	1.6%

Sources: Eurostat database Employment (lfsq_egan2, lfsq_egana) downloaded 08/07/2011 http://epp.eurostat.ec.europa.eu/portal/page/portal/employment_unemployment_lfs/data/database

2. USA: public sector job losses wipe out private job gains

At federal level, where there are just over 2million civil servants, there was no policy to cut or freeze jobs up to the last quarter of 2011. However, the loss of tax revenues due to the recession has meant that states still faced a ‘funding gap’ even after the stimulus package money. There were some tax increases in some states, but nearly all have reduced spending on services.

As a result, the number of people employed by state and local governments in the USA fell by 535,000 from August 2008 to May 2011. For example, New Jersey and Tennessee have each cut 2000 jobs through early retirements and layoffs; the state of Washington is cutting 4,000 jobs as the result of a recruitment freeze. Cuts in 2012 could lead to the loss of a further 650,000 jobs unless federal government support is continued.

The charts below show this decline, and show the clear difference between the level of jobs in federal government – which were able to continue growing as a result of the stimulus package, which itself was possible because of the freedom to adopt Keynesian deficit-financing to maintain demand – and the falls in state and municipal employment (a much larger part of the public sector in the USA), where such deficit-financing is illegal.

Chart A. Employment in government in USA June 2007-December 2010

Source: BLS 2011 Employment loss and the 2007–09 recession: an overview http://www.bls.gov/opub/mlr/2011/04/art1full.pdf

These trends have a demonstrable negative effect on employment recovery in the USA. The October 2011 employment figures showed a rise of 1.8million jobs in the private sector in the previous year, but in that period the public sector had shed 323,000 jobs, thus offsetting more than half of the job gains in the private sector.

Table 1. Job changes in USA Oct 2010 - Oct 2011 (thousands) (seasonally adjusted)

	Oct 2010	Oct 2011	Nos. Change annual	% change annual
Private sector	107,713,000	109, 537,000	+1,824,000	+1.8%
Government	22,302,000	21,979,000	-323,000	-1.5%
Total	130,015,000	131,516,000	+1,501,000	+1.2%

Source: BLS July 2011 Employees on nonfarm payrolls by industry sector and selected industry detail http://www.bls.gov/news.release/empsit.t17.htm

[1] The Eurostat quarterly data does not have a public-private sector classification, so the table sets out data assuming that all jobs in public administration, education and healthcare are public sector. This in effect exaggerates the size of the public sector, as some of this work is done privately. In the UK for example this approach assigns nearly 9 million workers to the public sector, whereas official statistics assign less than 6 million.

Authors:

http://www.vanguardngr.com/2011/08/obasanjo-singlehandedly-approved-concession-of-ajaokuta-against-due-process-sada/

Africa Newsletter 2 - Nov 2011Sandra Van Niekerk

1. Privatisation News

Nigerian Senate investigates failure of privatisation

Earlier this year an adhoc committee was set up the Nigerian Senate to investigate the extensive privatisation programme undertaken in the country since 1999. Although privatisation as a policy had been adopted as long ago as 1986, it was when Olusegun Obasanjo became President and promulgated the Public Enterprises Privatisation and Commercialisation Act of 1999 that privatisation took off.

Since 1999, about 120 entities have been privatised. Today about 80% of these privatised companies have either collapsed or are operating less efficiently than they were as public entities. The state body responsible for carrying out the privatisation programme, the Bureau for Public Enterprises, came under the spotlight during the Senate hearings.

Numerous problems with the privatisation programme were raised during the hearings. These included:

· Pervasive fraud and corruption.

· Those acquiring the privatised companies lacked, in many cases, the required technical expertise, experience and financial resources. For instance, in the ports, 25 concessions were granted to different companies. It is alleged that these port concessionaires have not done more than 10% of the concession agreement.

· Some of the privatised companies were simply used as collateral to obtain huge loans from the banks. For instance, Jimoh Ibrahim bought Nigeria Re-Insurance Corporation, worth 50 billion Naira, for 1.5 billion naira, and then used it as collateral to get a bank loan of 41 billion Naira.

· Some of the new private owners stripped the entity of assets once they had acquired it. For instance, it is alleged that NICON Insurance was stripped of assets by Global Fleet Group (owned by Jimoh Ibrahim), who bought the enterprise. This has a huge impact on policy holders and pensioners who rely on the money that they should be receiving from NICON Insurance.

· The state entities were sold off way below their market value – collectively the 122 privatised companies raised about N146 billion, which is more than 100 times below their actual market value. For instance, Delta Steel, valued at $1.5 billion, was then sold for $30 million, allegedly to a company fronting for the former president, Olusegun Obasanjo. Ajaokuta Steel, worth $1.5 million, was sold for $30 million. This concession was eventually cancelled because Global Holding, an Indian company who took over Ajaokuta Steel, was involved in so many questionable activities, such as asset stripping. ALSCON (aluminium smelting company) was worth $3.2 billion, but was auctioned to a Russian company, Russel, for $250 million, who then only paid $130 million. The balance of the money was meant to be used to dredge the Imo River to allow the company to ferry its equipment. Five years later, however, no work has been done on the dredging exercise, and the company is using the Onne Ports to ship its good instead.

For details, see for instance

http://www.thisdaylive.com/articles/privatisation-senate-panel-demands-details-of-earnings/96298/

http://sundaytrust.com.ng/index.php?option=com_content&view=article&id=7552:privatisation-another-multi-billion-naira-drawback-from-obasanjo&catid=54:lead-stories&Itemid=127

Some of the individuals who testified before the Senate hearing have argued that the problems are ones of implementation, or the actions of specific individuals, rather than problems with the policy of privatisation as a whole. And yet, the experience of other countries shows that these are not one-off problems, or individual problems, or problems specific to Nigeria – they are problems that occur again and again when privatisation takes place. They are problems endemic to privatisation. See the PSIRU paper “Public disaster and private gain – the proposed privatisation of electricity in Nigeria” at http://www.psiru.org/reports/public-disaster-and-private-gain-proposed-privatisation-electricity-nigeria

Despite the major problems raised through the Senate hearings, at least two privatisation processes are currently underway in Nigeria. The first of these, NITEL, has been an ongoing problem, with the government struggling to privatise the telecommunications entity since 2002. (See Africa Newsletter 1/2011 at http://www.psiru.org/node/16065)

The other major privatisation exercise underway is in the energy sector. At least one newspaper report has suggested that potential private sector investors are now getting jittery about investing in this process because of the Senate hearings. (Daily Independent (Lagos) 14 August 2011 http://allafrica.com/stories/201108150303.html)

One of the major implications for workers of the failed privatisation programme has been the massive job loss that has occurred. For example, before privatisation the steel companies employed 20 000 workers. They now employ a mere 4000 workers. The Electricity Meter Company of Nigera, privatised in 2002, has recently fired about 90% of its workforce. See http://dailytrust.com.ng/index.php?option=com_content&view=article&id=23198:senate-probes-privatization-of-government-companies&catid=1:news&Itemid=2

Not surprisingly, the unions have come out strongly against privatisation – holding protests against it in September. During these protests, the unions have called for those found to have defrauded the country during the privatisation process to be punished (see the statement of the Nigeria Labour Congress (NLC) at http://www.nlcng.org/search_details.php?id=289 ). See also the following Nigeria Labour Congress (NLC) statement on their response to the Senate hearings and their intention to hold a protest in September - http://www.nlcng.org/search_details.php?id=287 .

See http://dailytrust.com.ng/index.php?option=com_content&view=article&id=28411:fuel-price-hike-protesters-besiege-national-assembly&catid=2:lead-stories&Itemid=8

for more details of the protests.

A full report of the Senate Hearings is due out very soon.

2. Sector News

Prisons – South Africa

In a major turn-around, the South African cabinet, on October 26 2011, approved the cancellation of four proposed public-private partnerships (PPPs) for the construction of correctional centres. Tenders for these four prisons had been put out in 2003 already. Cabinet also agreed that the Department of Correctional Services should review other PPPs in the department, and that cabinet itself would review the PPP model across government. See http://www.dcs.gov.za/News/Speeches.aspx for the Minister’s speech and http://www.gcis.gov.za/newsroom/releases/cabstate/2011/111027.htm for the Cabinet report.

According to the Minister of Correctional Services, Nosiviwe Mapisa-Nqakula, the proposed PPPs were stopped because they were “structured to disadvantage government”. She went on to say that she did not believe it was correct to privatise correctional services as public security was a fundamental state responsibility. (Cape Times 28 October 2011).

This government decision came on the heels of a correctional services parliamentary committee meeting in May, which raised serious concerns with the department’s intention to enter into PPPs for the building and operating of correctional centres for the next 25 years. One of the questions raised in the meeting was about the cost of the exercise and whether it wouldn’t be more cost-effective for government to build the prisons themselves.

The two existing prison PPPs, in Bloemfontein and Makhado (Limpopos), are a huge drain on the financial resources of the Department of Correctional Services. The PPP to finance, design, build and operate the Bloemfontein prison was led by UK prison operator Group 4, and opened in 2001. The PPP for the Kutama Sinthumule prison outside Makhado was led by a US company, Wackenhut Corrections Corp. Group 4 and Wackenhut are now part of the same company, G4S. See the PSIRU link http://www.psiru.org/companies/g4s for more details of the company.

Not only is it questionable whether private companies, whose interest is in making a profit, should be running prisons which are fundamentally about public security; but the cost to the government of these PPPs has been astronomical. The fees that the Department pays for these two PPPs are the largest single cost in its budget. (See Greenberg, S (2006) The state, privatisation and the public sector in South Africa. SAPSN and AIDC)

3. Public Sector Labour Issues

Overview of labour issues:

Faced with the economic crises, governments everywhere are tightening the belt of public sector spending. Generally, they tighten it in ways that affect workers the most.

Public sector workers don’t only experience this belt tightening through no or small wage increases, as is the case with the Uganda teachers’ strike. As the Ghanaian doctors’ strike and the Nigerian strike over the new minimum wage show, governments also try to cut their spending by chipping away at the wage bill of the public sector in other ways.

Apart from trying to spend less on the public sector wage bill, governments also cut back on subsidies, which generally have been put in place to help the poor and most needy. This can be seen in the case of Nigeria where the Federal Government is threatening to cut the fuel subsidy.

Ghana – doctors strike

On October 27 2011, public sector doctors in Ghana ended a three week strike which they embarked on after negotiations over their migration to a Single Spine Salary Structure stalled. The doctors were demanding that professionals with similar skills and job descriptions should be on the same pay scales. A few days into the strike doctors decided not to attend to emergency cases in order to put more pressure onto the government. Just before the strike ended, doctors agreed to resume attending to emergency cases. Although the negotiations over the doctors’ demands are still happening, doctors decided to go back to work. One of the reasons for making this decision was the floods in Accra which were creating a humanitarian crisis and the doctors felt that they needed to be available for this disaster.

See: http://ghanaian-chronicle.com/features/the-strike-that-has-paralyzed-health-delivery-in-ghana/

Nigeria – strike over new minimum wage

In August the federal government finally reached agreement with the Nigerian Labour Congress (NLC) and the Trade Union Congress (TUC) over the implementation of the National Minimum Wage Act in the civil service. While the Act covers all sectors of the economy and brings the minimum wage up to N18 000, the unions and the federal government had not been able to reach agreement on its implementation in the civil service. The agreement finally reached made provision for the new minimum to be applied across the board, from grade level 1 up. This would ensure relativity was maintained.

However, despite having won the implementation at Federal Government level, civil servants had to fight similar battles in many of the States. For instance, civil servants in the Plateau State went on strike for seventeen days in October over the implementation of the new minimum. The strike ended when agreement was reached on the new minimum being implemented from 1 October 2011. Education and health institutions were particularly affected by the strike.

See: http://dailytrust.com.ng/index.php?option=com_content&view=article&id=145629:plateau-workers-suspend-strike&catid=1:news&Itemid=2

Uganda – teachers strike

Teachers organised under the Uganda National Teachers’ Union (UNATU) went on strike in July 27 and again in September over wages. Not only are teachers poorly paid, payment of their wages does not always happen on time. The strike was eventually called off temporarily in order to allow teachers to rally support more broadly in the communities. The union now accuses the government of continuing to harass those who participated in the strike. The teachers demands must be understood in the context of the government’s announcement in August that no increase for civil servants had been provided for in the 2011/12 budget.

See: http://www.monitor.co.ug/News/National/-/688334/1261696/-/bhhdynz/-/index.html and http://www.monitor.co.ug/News/National/-/688334/1217490/-/bkfy4az/-/index.html

Nigeria – Removal of fuel subsidy

In one response to the fiscal problems and the lack of infrastructure facing the Federal Government, the government has proposed the removal of the fuel subsidy. The government argues that the fuel subsidy is not reaching those it is intended for – the mass of the people. However, the Nigerian Labour Congress (NLC) has opposed the removal of the subsidy, and cuts in social spending more generally, arguing that it will harm workers the most.

See: http://www.thisdaylive.com/articles/labour-tackles-fg-on-planned-fuel-subsidy-removal/100696/ ; as well as the NLC statement http://www.nlcng.org/search_details.php?id=294

Kenya – power sector strike

Kenya Power, the state-owned distribution company, obtained a court interdict to stop a planned strike by its employees organised by Kenya Electrical Trade and Workers Union (Ketawu). The employer and the union are in dispute over the Collective Bargaining Agreement, which includes wages, that they have been negotiating since January. The outstanding issues include terms and conditions of service for permanent employees and the employment of casual workers. Despite the court order, Ketawu has threatened to go ahead with the strike.

See: http://www.nation.co.ke/News/-/1056/1264288/-/10e3nc8z/-/index.html?relative=true&title=Kenya%20Power%20workers%20strike%20to%20go%20on:%20union

Authors:

[xii] See http://union.org.nz/sites/union.org.nz/files/Privatisation%20presentation_0.ppt

New Zealand - Cuts Watch - September 2011 - Sep 2011David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/NZ-cwbrief-Sept2011.pdf

Cuts Watch brief

Last updated: 30 September 2011

Author: David Hall

New Zealand

1. Summary

Country		New Zealand
GDP change 2009	-2.0	GDP declines further: -4.5% in 2010, -3.8% in 2011
Stimulus: % of GDP
Support for banks etc: % of GDP
Government austerity cuts: % of GDP	-6%	Reduced spending from 36% to 30.7% of GDP in 2014/15
Public sector job cut	3,400	2,400 by June 2011, 1,087 planned by 2013
Public sector pay cut
New privatisation		Partial sale of Air NZ, four electricity companies
Other cuts		Deregulation has led to mining accidents, crises with private savings, and thousands of leaky and damaged homes

Links:

NZ Treasury 2011 Budget Minister's Executive Summary 2011 http://www.treasury.govt.nz/budget/2011/execsumm/b11-execsumm.pdf
The Dominion Post (Wellington, New Zealand) September 10, 2011 'Timebomb' set as public service jobs are slashed http://www.stuff.co.nz/dominion-post/news/politics/5598198/Timebomb-set-as-public-service-jobs-are-slashed
The Dominion Post (Wellington, New Zealand) August 20, 2011 Legacy of Rogernomics: less red tape but.. by John McCrone http://www.eastonbh.ac.nz/?p=1522
New Zealand Public Services Association www.psa.org.nz/

2. Austerity package

The 2011 budget of the conservative government of New Zealand made cuts in public spending of $5.2 billion over 5 years, and announced plans to sell state shares in energy companies and the airline to try and raise $5-7 billion. [i]

This is despite the fact that government debt, deficit and spending figures are already very low by international standards. New Zealand’s public debt was 32% of GDP in 2010 – third lowest of all advanced economies, and far below the average of 98%. The government deficit was 6% of GDP – again below the average for advanced economies. And the level of public spending is lower than any other advanced economies except Hong Kong and Singapore. [ii]

3. Jobs and pay

The NZ government is cutting nearly 3,500 jobs from public services – a total cut of nearly 10%. The number of jobs fell by 2,400 between December 2008 and June 2011, and a further 1,087 jobs will be cut by June 2013. Most are in the Foreign Affairs and Trade Ministry, which will cut 200 positions; Inland Revenue, which will see a reduction of 346; and Work and Income, which will lose more than 100.

It has set a maximum limit of 38,859 on the numbers that can be employed.[iii]

There are already 3,543 unfilled vacancies. Research in June 2011 showed that women workers in public services in NZ “gift nearly two-and-a-half million hours of work annually. The monetary value of this unremunerated work, based on the average wage for PSA women members, is around $54.5 million – that’s the equivalent of 1360 full-time jobs....If based on the public sector average hourly overtime rate the gift would amount to $90.3 million.” [iv]

As part of this process, the government is restructuring and centralising departments such as Inland Revenue and department of Conservancy. This centralisation of work means the decentralisation of cuts . PSA national secretary Richard Wagstaff said the policy was “ripping badly-needed work out of the regions......the scarcity of work in provincial New Zealand makes them particularly difficult for those communities. Good jobs in the provinces bring benefits for the whole community, so local businesses feel the impact when jobs go."[v] Mergers are also part of the process: the Fisheries Ministry was merged with the Agriculture and Forestry Ministry, eliminating 241 jobs; local councils are also merging – in the proposed merger of Nelson Vity and Tasman District councils, for example, 68 jobs are due to be lost..[vi]

4. Impacts on community, women, homes

4.1. Community and women’s groups, family benefits

The cuts include an 11% cut in a $14m. fund , the Communities Organisations Grants Scheme, which is distributed to grassroots and voluntary organisations. Anti-poverty groups, rape crisis groups, and women’s resource centres have expressed concern about the effects of having to cut back on staff and other resources.[vii]

The government is also preparing to implement a major policy review of benefits, one of whose aims is to reduce the number of people receiving benefits in New Zealand by over two-thirds, from 360,000 to 100,000. It is also planning to privatise the long-established ‘no-fault’ accident compensation scheme by allowing private insurers into the market. [viii]

4.2. Removing red tape: deaths, bankruptcies, and leaking roofs

Some of these cuts are justified by the government as ‘removing red tape’ from businesses. But previous de-regulation by governments to remove ‘red tape’ has proved very expensive for people in terms of money and lives, as summarised in an article by John McCrone.[ix]

An explosion at the Pike River mine in 2010 killed 29 miners: the official enquiry has found that, after health and safety rules were relaxed in 1992, government inspectors were told that “it's the employer's responsibility, not yours, to identify their own hazards. You just go and audit them."

“reforms to the Health and Safety in Employment Act 1992 resulted in the disappearance of specialist mine inspectors and mining- specific safety laws as New Zealand switched almost overnight to generic performance-based standards. The result was that in mining, New Zealand went from a seven- strong inspectorate of well-paid specialists to just a pair of Department of Labour inspectors having to deal with the whole country, gold mines and quarries included. The DOL's head of health and safety policy, James Murphy, agreed the department had taken a hands-off attitude to the detail of mine safety - "and we're now thinking that actually we were too hands-off".

People’s savings were jeopardised, too:

“The same story with finance companies. Around $8.6 billion of life savings of 200,000 Kiwi investors frozen, and potential losses of perhaps $3b even with Government bail-outs and guarantees, following the domino collapse of some 60 weakly-regulated deposit-takers and investment trusts.....

.... The industry was largely self-regulated, relying heavily on the oversight of trustees and auditors the finance companies chose and paid for themselves. Their investment products were sold by financial advisors who needed no qualifications and worked on commission. It was all a cosy arrangement that for a few years generated spectacular growth until, from Bridgecorp to South Canterbury, they fell with a loud bang. When former chair of the Securities Commission Jane Diplock was asked why the agency had been so inactive, she replied: ‘The commission’s role is not and never has been to approve prospectuses or investment statements. The responsibility for the correctness of information contained in prospectuses lies with the promoters and directors themselves.’

Over 100,000 homes in New Zealand suffer from ‘leaky building syndrome, because of shoddy construction work in the last 20 years. This is a result of cutting regulation of the building industry in 1991, making it easier for firms to operate to lower standards without serious risk of inspection, and to use untreated timber, and a new kind of ‘monolithic cladding’ for roofs, both of which proved to be unsound and leaky.

“the 1991 Building Act was another case of an industry’s accumulated wisdom in the form of experienced inspectors and regulatory safeguards being stripped away so as supposedly to fast-track the economy. There was a shift to performance-based regulation where producer statements – paper promises that new building methods would work were allowed to replace detailed requirements on fixings and flashings. Even compliance became out-sourced to the market with private building inspectors starting to do the work certifications normally done by council housing departments.

..... Even the Governments Building Industry Authority, the supposed regulator that oversaw the use of untreated timber framing and plaster cladding without an internal ventilation gap, was hastily closed down and folded into the Department of Building and Housing as the writs began to fly....” [x]

“The eventual price tag for rebuilding soggy houses and rotten apartment complexes is going to be anywhere between $11b and $33billion”: that is between 6% and 18% of annual GDP for New Zealand – on the same scale as the expected cost of rebuilding Christchurch after the devastating earthquake in February 2011. [xi]

5. Privatisation

In the 1980s and 1990s New Zealand embarked on a large-scale privatisation programme. This has since been partly reversed, with both the airline and the railways renationalised in order to save the industries from collapse.[xii] The government nevertheless proposes to privatise four state-owned energy companies and sell shares in Air New Zealand, to try and raise $5-7 billion. [xiii]

[i] NZ Treasury 2011 Budget Minister's Executive Summary 2011 http://www.treasury.govt.nz/budget/2011/execsumm/b11-execsumm.pdf

[ii] IMF Fiscal Monitor September 2011 Table 5A

[iii] The Dominion Post (Wellington, New Zealand) September 10, 2011 'Timebomb' set as public service jobs are slashed

[iv] Women public sector workers gift millions of dollars in free labour 09 Jun 2011 http://www.psa.org.nz/newsroom/mediareleases/11-06-09/Women_public_sector_workers_gift_millions_of_dollars_in_free_labour.aspx

[v] The Nelson Mail (New Zealand)September 8, 2011 19 I R jobs to go in Nelson

[vi] The Dominion Post (Wellington, New Zealand)August 25, 2011 Capital feels pain of state job cuts; New ministry functions to be outsourced, streamlined

[vii] The Dominion Post (Wellington, New Zealand)May 28, 2011 Turia defends cuts in voluntary fund

[viii] The Press (Christchurch, New Zealand) June 4, 2011 National takes cautious approach to welfare changes

[ix] The Dominion Post (Wellington, New Zealand) August 20, 2011 Legacy of Rogernomics: less red tape but.. by John McCrone http://www.eastonbh.ac.nz/?p=1522

[x] The Dominion Post (Wellington, New Zealand) August 20, 2011 Legacy of Rogernomics: less red tape but.. by John McCrone http://www.eastonbh.ac.nz/?p=1522

[xi] The Dominion Post (Wellington, New Zealand) August 20, 2011 Legacy of Rogernomics: less red tape but.. by John McCrone http://www.eastonbh.ac.nz/?p=1522

[xiii] NZ Treasury 2011 Budget Minister's Executive Summary 2011 http://www.treasury.govt.nz/budget/2011/execsumm/b11-execsumm.pdf

Authors:

Overview: rich get richer – and what could be done with just a little of their money - Aug 2011David Hall

Cuts Watch brief

Last updated: 15 August 2011

Author: David Hall

Overview: rich get richer – and what could be done with just a little of their money

The richest people in the world became nearly 10% richer in 2010. This was not as good for them as 2009, when their wealth increased by nearly 20%. They have now fully recovered from the crisis, owning assets worth $42.7 trillion – 5% more than in 2007. This is more than all the government debt in the world.

All this vast wealth is owned by less 11 million people – about 0.15% of the world’s population. The rich try very hard to pay as little tax as possible, helped by their accountants and advisers. If instead they paid a little more tax on their fortunes, it could make a dramatic difference to countries in crisis.

If the wealthy individuals of Europe paid a one-off tax of 24%, they could reduce the government debt of all 27 countries to an average level of 60%, the EU’s arbitrary target
If they volunteered a one-off tax of just 14% they could pay off the entire national debt of Greece, and Portugal, and Iceland, and Spain
An annual tax of just 5% on these wealthy Europeans would reduce all the deficits in Europe to the EU’s target level of 3% of GDP
An annual wealth tax of only 1% on the wealthy individuals of North America would be enough to eliminate all the budget deficits of every state in the USA

Chart A. The wealth of the richest people in the world (trillions of US dollars)

Source: 2011 World Wealth Report, Cap Gemini/MerrillLynch .

Note: HNWI= ‘High net worth individuals’ defined as people with over $1million to invest, excluding the value of people’s homes.

Sources:

2011 World Wealth Report, Cap Gemini/MerrillLynch
Deficit and debt data for 2010 Eurostat 26/04/2011 http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-26042011-AP/EN/2-26042011-AP-EN.PDF

Authors:

Private care homes in the UK: bankruptcy, torture, and lack of regulation - Aug 2011

PSIRU Brief 13 June 2011 DH

Social care is becoming more important in European and other countries, partly because of ageing populations. Private companies operate a rising proportion of social care facilities: see the recent PSIRU reports Care Services for Older People in Europe and Care services, multinational companies and expanding European markets .

In the UK, where they already run over two-thirds of care homes, a series of problems over the finances of the companies, quality of care, and inadequate regulation have all erupted simultaneously, highlighting the dangers of private companies running care homes. A new PSIRU report provides an overview of the sector in the UK; this brief summarises the crisis as at June 2011.

Bankruptcy and financial crises

Southern Cross, the largest private operators of care homes in the UK, with 31,000 residents and 42,000 staff in 750 care homes, is facing bankruptcy. Cuts in local government spending have reduced its income by 15%. The company now has problems paying rents, because while it was owned by private equity firm Blackstones, it sold its homes and relied on borrowing money to pay rents – since the financial crisis, the cost of borrowing has risen sharply.

The company is now refusing to pay more than 70% of its rents. The UK government which has insisted on cuts in spending at the same time as supporting privatisation, is discussing using public money to bail out the company. (Guardian 1 June 2011 Southern Cross slashes rent to avoid mass care home closure )

Other private operators, such as Four Seasons, have also had financial crises and been unable to pay their debts. (Financial Times 1 June 2011 Care homes rivals circle Southern Cross ) The whole private sector boom has been driven by big private equity investments using high levels of debt in the expectation of growing profits: “Even those involved in the deal could not believe the lives of mentally ill people were worth so much money” (Financial Times 30 May 2011 Human cost forgotten in race to invest )

The UK unions GMB and Unison are demanding government intervention to support staff and patients. The GMB’s Southern Cross campaign includes a full list of care homes run by Southern Cross, with the name and email of the local member of parliament for each one, and a new research report on Southern Cross and its owners, called ‘The Greedy and the gullible’.

Systematic brutality and torture

A BBC TV programme has showed shocking abuse of patients at a private residential centre run by another private company, Castlebeck: “a group of men and women are subjected to a regime of physical assaults, systematic brutality, and torture by the very people supposed to be caring for them. The victims are some of the most vulnerable in society - the learning disabled, the autistic, and the suicidal.” (BBC Tuesday 31 May 2011 Panorama: Undercover Care: The Abuse Exposed.) The actions shown were described as ‘torture’ by some expert observers. Castlebeck was previously criticised by a coroner over the death of a resident. (Guardian 1 June 2011 Panorama care home investigation prompts government inspections ).

Bad care and weak regulation

An analysis of reports by the sector regulator, the Care Quality Commission, showed that they provide worse quality care in general: one in seven private homes were rated ‘poor’ or at best ‘adequate’ in reports in 2010 – much worse than the average for public sector or non-profit homes. (Financial Times 30 May 2011 UK care homes )

The regulator, the Care Quality Commission, is also weakened by cutbacks. The routine reports on standards were cancelled by the government in 2010, and it is nearly 300 staff short, including 133 unfilled vacancies for inspectors, as a result of the government freeze on recruitment imposed on all government agencies in 2010. The CGC also failed to respond to 3 warnings from the whistle-blower whose evidence led to the BB

C programme. (Financial Times 3 June 2011 Care home watchdog has staff shortfall )

‘Fundamental flaw in the private model’… ‘Greed is bad’

Remarkably, an editorial by the leading business newspaper, the Financial Times, blamed “the fundamental flaw in the private model. Private care providers seeking to maximise profits are tempted to cut back on the spending needed to provide the best possible care for those vulnerable people in their charge.” (FT 31 May 2011 , ‘The shameful state of UK care homes’). The same message was repeated by the newspaper’s Lex column: “lower prices almost always mean lower quality care. Non-profit care homes provide better care than privately-owned ones… because they spend a bit more on staff. The lesson should be clear; in this sector, without drastically better policing and regulation, greed is bad.” (FT 7 June 2011 Southern Cross: Greed is bad)

Authors:

UK citizens pay £24billion extra for PPPs, profits go to tax havens - Aug 2011David Hall

The Financial Times has published its own calculations concluding that the use of public private partnerships (PPPs) in the UK, mainly under the Private Finance Initiative (PFI) has cost over £20 billion in extra interest costs alone, with a further £2.5-4.0 billion in fees to lawyers, accountants etc. This is what critics of PPPs have been saying for many years.

The story was published in the FT on 7 August 2011 under the headline "Private finance costs taxpayer £20bn" at http://www.ft.com/cms/s/0/65068d1c-bdd2-11e0-babc-00144feabdc0.html#ixzz1USYJbCNy :

"The taxpayer is paying well over £20bn in “extra” borrowing costs – the equivalent of more than 40 sizeable new hospitals – for the 700 projects that successive governments have acquired under the private finance initiative, according to calculations by the Financial Times. In addition, lawyers, financial and other consultants have earned a minimum of £2.8bn and more likely well over £4bn in fees over the past decade or so getting the projects up and running. The extra interest being paid on PFI contracts over the cost if the government itself had borrowed the money for conventional procurement was 'a shocking amount of money', said Richard Bacon, a Conservative member of the public accounts committee, parliament’s spending watchdog."

"The extra cost is calculated on recent evidence given to the public accounts committee by David Metter, chairman of the PPP Forum, the PFI industry’s trade body. He told MPs that up to 2008 – and deals have become more expensive since the credit crunch – the average extra cost of private sector capital over conventional borrowing had been only 2.2 per cent a year. Compounded over the life of a PFI contract, however, and allowing for a portion of the debt to be paid down each year, that adds up to £20bn in extra borrowing for the £53bn of capital cost of signed projects, if the average life of a PFI contract is 20 years. If the average life is 30 years, it amounts to £25bn.Consultants and lawyers have also earned at least £2.8bn and probably well over £4bn advising on the deals. Figures from the National Audit Office show that the public sector spent, on average, 2.6 per cent of the capital cost of projects buying in such advice, on top of officials’ time. Private sector costs will be at least as large, so the minimum in fees earned on deals signed so far is £2.8bn. Another way of interpreting the NAO’s data gives a figure of more than £4bn."

In a further article the same day at http://www.ft.com/cms/s/0/fdb098aa-c138-11e0-b8c2-00144feabdc0.html#ixzz1UXa8c1O7 the FT used other government figures to show that the overall cost of financing infrastructure through PPPs will amount to over three times the value of the investment:

"Since PFI was first devised in 1992, more than £70bn ($114bn) of capital has been raised to provide new hospitals, schools and prisons, new roads and defence projects. These services are being provided now. But payment for them – including their running and maintenance – will cost taxpayers, including children yet unborn, £240bn to 2050. This is equivalent to about one-seventh of current national income."

A recent report by the European Services Strategy Unit also showed that PFI projects had been sold on repeatedly, generating profits of over £10 billion. At least 90 of the 700 existing PFI projects are now owned by companies based in tax havens, so that UK citizens did not even receive tax revenues on these profits made out of government spending. http://www.european-services-strategy.org.uk/news/the-ps10bn-sale-of-shares-in-ppp-companies-new

Authors:

See http://www.thecitizen.co.tz/news/4-national-news/12545-salary-budget-goes-up-by-40-per-cent.html and http://www.tzonline.org/pdf/payreformandcorruptionintanzaniaspublic.pdf

Africa newsletter 1/2011 - Jul 2011Sandra Van Niekerk

Botswana: Public sector workers’ strike

Nearly 100 000 public sector workers recently went on a two month wage strike in Botswana. It was the first time that public sector workers had been on a legal strike, or a strike of such length. But after three years of no pay increases, workers had finally had enough. In contrast to the government’s initial offer of 0%, later increased to 3%, the unions demanded 16%. After the strike the government refused to re-instate the essential service workers it had dismissed, instead re-employing workers. There are fears that the government will use this opportunity to outsource various government services.

See http://www.psiru.org/node/16057

Tanzania: public sector wage increase

In contrast to the Botswana government, the Tanzanian government recently decided to increase its wage bill by 40.2%. This will be used to increase the salaries of civil servants, increase the number of jobs in the public sector, and provide for promotions as well as pay arrears. It remains to be seen by how much the salaries of civil servants will be increased, as well as whether the increase will favour those earning low salaries, or those earning higher salaries. Currently the ration between highest and lowest earning is 1:30. This increase should be seen in the context of ongoing attempts to reform public sector pay structures, after workers experienced real wage declines in the 1980s and 1990s.

Senegal: Ongoing power cuts

Senegal, facing ongoing severe energy shortages, which have led to frequent power cuts, erupted into protests again in June 2011. These protests took place a mere few weeks after similar protests against the government’s plans to change the constitution. Power shortages have been an ongoing problem in Senegal for many years, even before President Abdoulaye Wade came into power in 2000. Senelec (Senegal National Electricity Co), the state owned electricity company is unable to meet electricity demand largely because of aging infrastructure, and insufficient funds to buy the diesel and gas used to generate electricity. In attempts to increase the available power, Senelec has opened up generation of electricity to IPPs (Independent Power Producers).

See http://www.africareview.com/News/Senegal+rioters+set+government+buildings+on+fire/-/979180/1190556/-/ilj6xv/-/index.html

Nigeria: Privatisation of NITEL on hold again

The most recent attempt to privatise the NITEL (Nigerian Telecommunications) and its mobile arm (MTel), has failed. The liberalisation of the telecommunications industry in 2001, allowing private companies to operate in the sector, set the scene for the privatisation process. After an attempt to privatise in 2002 failed, a Dutch company, Pentascope was given a contract to manage NITEL until the government could find a buyer. However, Pentascope mismanaged NITEL, and failed to extend the telecommunications network. As a result, the government terminated their contract. The most recent attempt to privatise, started in 2009, was the fifth attempt. Preferred bidders, New Generation Consortium, a Chinese company, failed to provide the necessary 30% security bid. New Generation is made up of China Unicom of Hong Hong, Minerva Group of Dubai and Nigeria’s GiCell Wireless Ltd. The government is now considering alternative ways of privatising NITEL.

See http://www.thisdayonline.com/ and http://www.leadership.ng/nga/articles/1398/2011/07/03/nitelmtel_privatisation_can_bpe_ever_get_it_right.html

Authors:

Greece - Cutswatch - Nov 2011 - Jul 2011David Hall

Download PDF version of this brief here: http://www.psiru.org/sites/default/files/greece-cwbrief-Nov2011.pdf

Cuts Watch brief

Last updated: 23 November 2011

Author: David Hall

Greece

Summary

Country		Greece
GDP change 2009	-2.0	GDP declines further: -4.5% in 2010, -3.8% in 2011
Stimulus: % of GDP
Support for banks etc: % of GDP	5.0
Government austerity cuts: % of GDP	-15.4	2011 plus 2010 package, by 2015
IMF proposed extra cut by 2030: % of GDP	-14.0
Public sector job cut	-157,038	Cut of 20% from 2010 to 2015, plus 7,000 job cuts in quangos
Public sector pay cut	-21.3%	2010 cuts were 15%. The 2011 package includes increase in hours from 37.5 to 40 per week, equivalent to a further cut of -6.25%. Also cuts in pension entitlements. Inflation erodes value further.
Healthcare cut	-7%	Across the board cuts
Pensions cut	Yes	Pension age will rise from 55 to 65
New privatisation	Yes	€50billion package of specific asset sales, controlled by special commission not by govt, dedicated to paying off bonds
Municipal, regional,state level cuts	-7%	Across the board cuts

Links:

· European Commission 2011 The Economic Adjustment Programme for Greece - Fourth Review - spring 2011 European Economy. Occasional Papers. 82. July 2011.

· ETUI 2010 Vera Glassner The public sector in the crisis Working Paper 2010.07

· LRD 2010 The wrong target – how governments are making public sector workers pay for the crisis

· European Anti-Poverty Network (EAPN) The Social Impact of the Crisis and of the Recovery Policies 2011 http://www.eapn.eu/images/stories/docs/EAPN-position-papers-and-reports/crisis-report-2011-en.pdf

· Financial Times: Interactive timeline: Greek debt crisis 2009-2011

· Ekathimerini 19 November 2011 Ambitious budget eyes surplus

Debtocracy: a film on the Greek crisis April 2011 http://www.debtocracy.gr/indexen.html ; http://en.wikipedia.org/wiki/Debtocracy

1. Further austerity package June 2011 and new government November 2011

Following the resignation of George Papandreou as prime minister, a new government was appointed headed by a banker. A new budget in November 2011 aims to comply with the requirements of the June 2011 deal by bringing down the government deficit from 9% of GDP to 5.4% of GDP in a single year, despite a forecast that GDP will fall by 2.8%. The plans depend partly on banks agreeing to accept a loss of 50% on government bonds, partly on €9.3 billion revenue from privatisations, and partly on further cuts in spending.

In June 2011 the Greek government agreed to impose a set of cuts required by the European Commission and the IMF as a condition for supporting the value of Greek sovereign debt. In total, this and the previous package amount to a re-adjustment of 15% of GDP

Table 1. Impact of cuts and tax rises as % of GDP 2011 package

cumulative impact as % of GDP by 2014

		change by 2014 as % of GDP
Total		10.5
Spending cuts
	Social benefits	1.9

	Wage bill	0.9

	Pharmaceutical spending	0.5
	Health care	0.3

	Extra-budgetary funds (finance for non-government agencies)	0.5
	Other expenditure (finance for local government)	0.4
	State-owned enterprises (subsidies)	0.4

	Operational expenses	0.3
	Investment spending	0.2
	Defence expenditure	0.1
Tax increases
	Tax policy	3.6
	Tax compliance	1.4

Source: European Commission 2011

1.1. Jobs, pay and conditions

Through recruitment freezes and other measures, over 150,000 jobs will be cut: “From 2010 to 2015, the total number of government employees is expected to be cut by 20 percent, from 727 thousand to 577 thousand.” The package also includes 7,000 jobs to be cut as a result of closing or merging over 150 quangos.

In addition to the pay cuts of 2010, there will be “an increase in the weekly working hours for public sector employees from 37½ to 40 hours and a reduction in overtime payments.” The increase in hours is equivalent to a pay cut of 6.25%.

1.2. Impact on services

The 2011 package includes, in addition to the cuts in public employee numbers and pay:

- Cuts in vbenefits (1.9% of GDP)

- Cuts in spending on healthcare and drugs (0.8% of GDP)

- cuts in funding to local government, non-governmental agencies and state-owned companies (equivalent to 1.3% of GDP)

- a cut of 7% across the board in operating expenditure , and cuts in investment and military spending (0.6% of GDP)

It also includes tax increases equivalent to 5% of GDP.

One critic described the health cuts as leading to:

“the loss of two key societal freedoms implicit in human security, namely, freedom from fear and freedom from want, which are now suspended in an uneasy limbo under the weight of job layoffs, diminishing family resources, removal of social safety nets, and the influx of vulnerable refugees with their basic human needs. If vulnerability creeps upwards, health status can take a beating worse than any ever seen.

There is great anger in Greece both with the political world and with dysfunctional institutions (justice, education, health and environment). Health is being chipped away and wellbeing has been compromised. Home loss and homelessness can grow, chronic disease can become exacerbated, resistance to infection can diminish and an epidemic of mental health problems can emerge, while mental health is still a taboo topic of discussion.” (Athens News 5 July 2011 Warning: The memorandum could damage your health )

1.3. Privatisation

Privatisation of a specific list of public sector operations is a core part of the measures. This is expected to raise €50billion by 2014, equivalent to over 20% of GDP. The list of those to be partly or wholly privatised includes: water services in Athens and the second city Thessaloniki, rail, gas, mobile telecoms, airports, motorways, the state electricity company,

Greece has been forced to give up its sovereignty over this process: it will be managed by a specially created private company overseen by EU appointees, with quarterly targets for the amounts to be sold. The proceeds are expected to be used to pay off the west European banks who hold Greek bonds.

Sources:

· European Commission 2011 The Economic Adjustment Programme for Greece - Fourth Review - spring 2011 European Economy. Occasional Papers. 82. July 2011.

· Athens News 5 July 2011 Warning: The memorandum could damage your health )

2. Impact of 2010 austerity measures

2.1. Jobs pay and conditions

The European Trade Union Institute (ETUI) summarised the impact on workers of the 2010 cuts as follows:

“In Greece pressures to cut public spending were particularly strong as the country received a loan of €110 billion from the EU and IMF. In order to reduce the budget deficit from 12.7 to 8.7% of GDP in 2010 and 2.8% by the end of 2013, the government announced, among other measures such as an increase in VAT and pension reforms, a cut in public sector wages, a 30% cut in special bonuses (e.g. holiday and Christmas bonus), a reduction in overtime pay and the suspension of recruitment of new workers. It is estimated that cuts in wages and bonuses will result in a de facto loss of income for public sector workers of 12 to 20%. Trade unions strongly rejected the ‘emergency package’ and repeatedly took industrial action, including several general strikes in 2010, with the most recent in October.”

The LRD summarised the impact of pay cuts for public service employees in Greece as equivalent to 14% to 15% pay cut over the year, and 20% after allowing for 5% inflation::

· January 2010: 10% cuts in allowances – equivalent to 4% reduction in pay

· March 2010: allowance cuts will be 12% rather than 10%,and 14th month salary reduced

· May 2010: allowance cuts will be 20% rather than 12%, and 13th and 14th month salary reduced

· July 2010: public (& private) sector pensions worsened

· Similar cuts imposed on those in publicly-owned companies

2.2. Impact on services

According to the IMF the 2010 cuts included, in addition to the cuts in jobs and pay:

“Other expenditure cuts involve employment reductions, cuts in discretionary and low-priority investment spending, untargeted social transfers, consolidation of local governments, and lower subsidies to public enterprises”

There was a major cut in the state pension scheme, including the rapid raising of the retirement age from 55 to 65 by 2015, a cut in the levels of pensions, and an overall ceiling on the total payable. The IMF summarises the pension reforms as:

“a major pension reform that will limit the increase in pension spending during 2010-50 to 2.5 percent of GDP. While the reduction in pensions will be phased in pro-rata starting 2013, the increase in the retirement age will be fully effective in 2015.” EAPN adds that: “The State will only guarantee a basic pension of 360 € for all.”

The overall effect of these cuts is that spending on pensions will be cut by a quarter by 2020 (equivalent to a cut of 2.4% in GDP) and a third by 2060 (equivalent to a cut of 4.6% of GDP)

Sources

· ETUI 2010 Vera Glassner The public sector in the crisis Working Paper 2010.07

· LRD 2010 The wrong target – how governments are making public sector workers pay for the crisis

· IMF 2010 “A Status Update on Fiscal Exit Strategies” IMF Working Paper WP/10/272 http://www.imf.org/external/pubs/ft/wp/2010/wp10272.pdf

· European Commission 2011 The Economic Adjustment Programme for Greece - Fourth Review - spring 2011 European Economy. Occasional Papers. 82. July 2011.

Authors:

Russia - Cutswatch - July 2011 - Jul 2011David Hall

Cuts Watch brief

Last updated: 15 August 2011

Author: David Hall

Russia

Country	Russia
GDP change 2009	-7.8
Stimulus: % of GDP	4.5
Support for banks etc: % of GDP	7.7
Government austerity cuts: % of GDP	-3.7	Announced 2010, but partly reversed 2011
IMF proposed extra cut by 2030: % of GDP	-7.5
Public sector job cut	-93,000	Planned 20% cut in civil service jobs 2011-2013
Public sector pay cut	No	Large real increases in pay of health, education workers 2011-2012
Healthcare cut	No	Extra public spending on healthcare announced 2011
Pensions cut	No	Increases in levels of pensions as part of stimulus 2009
New privatisation	Yes	Partial privatisations (10%) of some state enterprises announced 2010, continued contracting-out of public services measures.
Municipal, regional,state level cuts	No	Growth in municipal employment resumes 2010

1. Government policy on spending and services

Russia was badly hit by the economic crisis, because the recession reduced demand for the country’s oil and gas. In 2009 GDP fell by 7.9%, and tax revenues fell by 29%, but the government deliberately increased public spending by 27%, and ran a budget deficit - for the first time in 10 years, to stimulate the economy and protect the unemployed and others on low incomes. The stimulus package included large increases in pensions, but also the equivalent of $33 billion was used to support the banks.

In July 2010 the Russian government announced it would halve the budget deficit by 2013, and eliminate the deficit altogether by 2015. It proposed to do this by cutting public spending by 3.7% of GDP by 2015, and increase social insurance contributions, and taxes on oil, tobacco, petrol, and exported metals. The proposals also included job cuts, with a target to reduce the number of government administration employees by 20 percent by 2013, and privatisation, with plans to sell shares in many state-owned companies, to raise money worth 1.6% of GDP spread over 3 years.

In May 2011 government revenues were much higher than expected because of higher world prices for oil and gas. The government is using only about 30% of it for increases in social spending, most of which consists of increasing pensions and public sector pay in line with inflation: but much more is being used to build up reserves and to finance a new private equity fund.

In December 2010 the IMF criticised Russia for not cutting spending enough. It called for more than twice the cuts planned by the government (equivalent of 8.5% of GDP by 2015), as well as a reduction in taxes: “The problem, said the IMF, was that much of the increase in stimulus spending, such as the pensions increase, were permanent commitments which could not be easily rolled back….to unwind the stimulus, Russia will have to cut elsewhere and support this by fundamental reforms of the public sector….Russia should rely on the private sector, as the public sector is not an engine of growth”.

Sources:

Financial Times December 9 2010Moscow warned to cut deficit or face inflation

Russia Profile 25 April 2011 Moderating Spending Momentum.

RIA Novosti17/5/2011Russia got through crisis without cutting social payments -

IMF:8 December 2010 Russian Federation—Concluding Statement for the December 2010 Staff Visit

2. Public sector jobs, pay, pensions and union rights

The government announced in 2010 as part of its proposed cuts that it would reduce the number of national government employees by 20% by 2013. In June 2011 Finance Minister Alexei Kudrin confirmed that will be a reduction of 93,000 jobs, exactly 20% of the 435,000 civil servants: 23,300 in 2011, 23,300 in 2012, and 46,000 in 2013. This will save 33 billion roubles per year, but it will not result in a reduction in public spending because it will all be reallocated to increase pay or spending on other social programmes: “Half of that amount, 16.5 billion roubles, will go to raise the salaries of the remaining staff, and the rest will be used to fund various social and economic programmes as part of the optimisation of budget expenditure.”

Stated government policy is not to reduce the pay or conditions or pensions of public employees, but rather to increase their pay in relation to other workers, and provide specific funding to pay for these increases: in the budget statement for 2012-2014 President Medvedev stated that: “Wages in the public services sector must be more competitive compared to wages in other sectors. This goes above all for teachers and healthcare workers, whose wages will increase substantially over the next two years as part of the state programmes in these sectors.” As noted above, half of the savings from the civil service job cuts will be used to increase the pay of civil servants. The pay levels of health workers were about 60% of average pay, but in June 2011 the health workers union negotiated pay increases worth about 50%, to be paid over the next year: a substantial real rise, with inflation running at around 10%. A large increase in the health budget has been announced, one-half of it to finance this pay rise (see below). Teachers salaries are also being increased, with a specific budgetary allocation.

Municipal workers pay remains depressed as a result of a procurement law in 2005, which allowed corruption, awards of contracts without competition, and without protection of employment conditions. About 18,000 jobs were lost in Moscow alone as a result. This law may now be amended.

Sources:

Presidency of Russia 29 June 2011 Dmitry Medvedev presented the 2012–2014 Budget Address
Russian government 22 June 2011 Praesidium meeting 22 June 2011
Report to EPSU sub-regional meeting Moscow May 2011
PSIRU/EPSU June 2011: Pay of healthcare workers in Russia and Central Asia (Turning the Tide brief) www.epsu.org
Youtube May 2011: Interview with Mikhail Kuzmenko: President of the Health Workers Union of the Russian Federation

3. Services

3.1. Healthcare

Following the collapse of the Soviet Union, Russia introduced private health insurance and private providers. Public spending on healthcare fell, but the private systems have not worked - people’s health, including life expectancy, got worse. Since 2000 public spending on healthcare has increased, and life expectancy and infant mortality have improved.

Russia has also had some success in dealing with ‘informal’ payments to doctors, by ‘An unprecedented pay rise [double or triple pay] and increase in public financing of primary care services….illustrates that an aggressive increase in salaries for medical personnel can reduce informal payments.’

In 2011 the government announced a review of inefficient hospitals, plan to spend an extra $10 billion on healthcare ‘over the next few years’, including money . It would be paid for by increasing social insurance contributions from 3.1% to 5.1%. Half of the new money will be spent on “raising the salaries of medical personnel, providing patients with medicines and food, and purchasing diagnostic equipment”

3.2. Pensions

Nearly half of Russian households depend on pensions for all or part of their income. The government has said it aims to raise the average pension to 40% of the average wage. Public pensions are paid from a state fund which is financed from social insurance contributions and tax revenues. There are pressures to raise the retirement age from 60 for men and 55 for women to 63 and reduce the rights of employees to take early retirement, but no decisions have been taken on these issues.

3.3. Other services

Municipal services have suffered from reforms intended to introduce market models based on the principles on new public management. The revenues of municipalities in Russia rely heavily on transfers from central government, and so were relatively shielded from the effects of recession in 2009.

Sources:

Novosti 17 May 2011Putin says Russia needs major health care reform, pledges initial investment of over $10 bln
RIA Novosti 13 May 2011 Pensions gap widens
Russia Profile 22 June 2010 There’s a Huge Hole in the State Pension Fund, and Kudrin Wants to Plug the Leak with Elderly Workers
OECD: 2006 Healthcare reform in Russia: problems and prospects
WHO/EOHSP 2010 Implementing Health Financing Reform - Lessons from countries in transition.
Ria Novosti 10/06/2011 Russia’s new political hybrid
Russia profile 29/04/2011 Who’s Got a Better Vision for Russia's Future?

4. Privatisation

Privatisation by outsourcing has been a major problem for municipal workers. A 2004 law effectively encouraged ‘cowboy’ contractors, with the result that tens of thousands of unionised jobs were lost, and replaced by migrant workers employed at exploitatively low wages by the contractors. In 2011the government has responded to union campaigns by promising a new tighter procurement law.

The 2010 budget announced a new privatisation programme, with plans to raise 1,000bn roubles between 2011 and 2013 by selling off stakes in 10 big state companies, including a 15 per cent stake in Rosneft, the state-controlled oil producer, and a 25% stake in Russian Railways, as well as 900 smaller companies.

Sources:

Report to EPSU sub-regional meeting Moscow May 2011
FT 17 November 2010 Moscow approves $32bn sale of state assets

Authors:

USA - Cutswatch - July 2011 - Jul 2011David Hall

Cuts Watch brief

Last updated: 15 August 2011

Author: David Hall

USA

Country	United States
GDP change 2009 %of GDP	-2.6
Stimulus: % of GDP	1.8
Support for banks etc: % of GDP	23.0
Government austerity cuts: % of GDP	0.0 (federal), -7.6 (states)	Compared with 2008: states cut services -4.2% in 2009, -10% 2010, -7.6% 2011
IMF proposed extra cut by 2030: % of GDP	-17.5
Public sector job cut	-535,000	Result of cuts at state level 2008-2011
Public sector pay and conditions cut	Yes	Some cut pay, pensions, healthcare, layoffs. Result of cuts at state level 2008-2012, federal pay freeze 2010-2012
Healthcare cut	No/Yes	Improved national health coverage but cuts at state level.
Pensions cut	Yes	Increased retirement age to 67
New privatisation	Yes	Some state level contracting-out, PPPs
Municipal, regional, state level cuts	Yes	Extensive cuts made by nearly all states

Links

· Center on Budget and Policy Priorities http://www.cbpp.org/

· AFSCME action centre http://www.afscme.org/action/

· SEIU on public services http://www.seiu.org/publicservices/

· AFT on public employees and financing public services http://www.aft.org/yourwork/pubemps/

1. Government policy on spending and services

1.1. National/federal level

In February 2009 the government introduced a massive stimulus package worth $787billion. This stimulus has supported employment throughout the economy through higher spending on benefits, infrastructure and support for state and local services, up to and including 2011. Details of the money and jobs supported in each state are on maps at http://www.recovery.gov/Transparency/MapGallery/Pages/maps.aspx#z.

However, the additional public spending in the stimulus is not being extended, due to political opposition by Republicans. The Republicans have also delayed authorising the deficit necessary for the USA government to continue its spending commitments in 2011, including the payment of civil servants’ salaries. For the same political reasons, the tax cuts introduced by the previous president Bush will be extended and made permanent – worsening the deficit by over 1% of GDP per year, without improving the money available for public services.

This is now jeopardising economic recovery: even the IMF warned in June 2011 that the USA recovery is so ‘tepid’ that reducing the deficit “should ideally be gradual and sustained, so as not to undermine growth prospects” ; this should include “revenue-raising tax reform", but "social sector spending and priority infrastructure investment must be preserved”.

If by contrast the Bush tax cuts were allowed to expire, then a return to economic growth would automatically boost tax revenues to increasingly higher levels. This would in turn match the rising public spending on old age pensions and healthcare which is forecast because of the relative ageing of the population. The chart shows how the current deficit could then be gradually eliminated by growth by about 2015, and then both spending and taxation could return to a long-term, rising but sustainable path (based on the assumption that military spending is gradually reduced over this period).

Chart A. USA federal Government spending and revenues, if Bush tax cuts expire

Source: CBO 2011 Long-Term Budget Outlook

1.2. State level

The recession has meant a drop in spending and incomes, which results in a fall in tax revenues for the states – at the same time as the needs for public service support increases. So when their revenue from taxes falls because of the recession. All states (except Vermont) are bound by law to have ‘balanced budgets’, so they have to rely on federal government to provide extra support to bridge the funding gap. The federal government stimulus provided about $158billion dollars to help states between 2009 and 2011, but this still only covered about 1/3 of their ‘funding gap’. The result has been a fall in spending on services: “states cut funding for services by 4.2% for fiscal year 2009 and an additional 6.8% for 2010… state spending for 2011 will remain 7.6% below 2008 levels.” (CBPP Feb 2011). The real effect on people is even greater, because the need for social services increases during a recession.

For 2012, the stimulus is not being extended. As a result, despite some recovery in tax revenues, states still face a shortfall of $97billion in 2012, so additional cuts are being made. These cuts are made worse where there is political insistence on tax cuts. In June 2011, for example, the largest state, California, agreed on a budget for 2011-2012 which included $15billion cuts in spending across all services: Republicans refused to agree to the extension of state tax increases which would have provided an extra $11.2billion and saved most of the cuts.

Chart B. Falling spending by states in USA on public services

Source: NGA/NASBO May 2011 Spring 2011 Fiscal Survey of States

Sources:

· CBO April 2011 An analysis of the President's budgetary proposals for fiscal year 2012

· CBO June 2011 2011 Long-Term Budget Outlook

· NGA/NASBO May 2011 Spring 2011 Fiscal Survey of States

· CBPP Feb 2011 An Update on State Budget Cuts

· CBPP June 2011States Continue to Feel recession’s Impact

· Wall Street Journal 29 June 2011 California Budget Deal Leaves GOP Out in Cold

· IMF June 2011 World Economic Outlook Update

2. Public sector jobs, pay, pensions and union rights

2.1. Public sector jobs

At federal level, where there are just over 2million civil servants, there has been no formal cut or freeze in recruitment. However, the expected growth in civil service is not producing many new vacancies.

At state level, loss of tax revenues due to the recession has meant that states still faced a ‘funding gap’ even after the stimulus package money. There were some tax increases in some states, but nearly all have reduced spending on services.

2.2. Cuts in pay and conditions

As in other countries, public employees in the USA are mostly paid less than their counterparts in the private sector in similar jobs, but there are political campaigns to cut public sector salaries, as well as the real pressure of the recession.

At national level,at the end of 2010, President Obama announced a 2-year freeze on the pay of nearly all 2 million federal civil servants. Republicans are calling for further cuts in pay and jobs.

At least 28 states have cut pay and conditions in various ways. One method, used by more than half the states, has been compulsory unpaid leave , known as ‘furloughs’: 250,000 workers were subject to this arbitrary layoff in New York and California alone. Because the USA has no national health service, health insurance is one important benefit threatened by these cuts.

In some cases these cuts have been imposed, in other cases negotiated through agreements designed to protect jobs as a priority (US unions have negotiated many such deals in the public sector at times of crisis, as far back as the crisis in New York City in the 1970s).

2.3. Pensions of public employees

Pension funds for state and municipal employees have deficits which are a result of the recession or past underfunding by employers, which can be dealt with by long-term solutions over many years. But in some states these deficits have been used as an excuse to cut the pensions of public employees or increase their contributions: in the first nine months of 2010 alone, 19 states implemented such cuts. In June 2011 the federal government was also reported to be considering increasing the pension contributions of federal civil servants.

In Illinois, proposals to impose big increases for pensions and healthcare benefits were abandoned in June 2011, after a state-wide campaign generated tens of thousands of phone calls and letters to elected legislators.

2.4. Union bargaining rights

In Wisconsin, Ohio and a few other states, right-wing republicans have used the crisis as an excuse for removing union collective bargaining rights. The governor of Wisconsin, Scott Walker, introduced a budget in 2011 which removes the right of collective bargaining from nearly all state employees, and imposed extra pension contributions equivalent to a 8% pay cut. Since February the unions in Wisconsin waged a lengthy campaign, including demonstrations, legal challenges and political campaigns, which won a remarkable level of public support. Tens of thousands of people have attended demonstrations supporting the right to collective bargaining, with students in particular actively maintaining a camp outside the state legislature. Most public opinion polls show a majority of people oppose what the republicans are doing. Unions from all over the world have sent messages of support.

Ohio has introduced similar legislation to remove or restrict the bargaining right, and the right to strike, of state employees, but a campaign to submit it to a referendum has been supported by over 700,000 signatures – 3 times the number required – so the law may yet be rejected by voters in November 2011.

Video interviews with USA trade unionists reveal the extent of the support for the unions’ campaigns and also the breadth of the attacks on rights, which include deliberate attempts to make it harder for poor Americans to vote.

Sources:

· J.Slater June 2011 The Assault on Public Sector Collective Bargaining: Real Harms and Imaginary Benefits

· Chicago Tribune 28 June 2011 After heated debate, Wisconsin union law takes effect

· Washington Post 29 November 2010 Obama announces 2-year pay freeze for federal workers

· CNN Money 10 March 2011 Federal jobs fast becoming an endangered species

· AFSCME 02 June 2011 Illinois Union Coalition Blocks Bills Attacking Public Service Workers

· Youtube June 2011: Interview with Mary Kay Henry, President SEIU

· Youtube June 2011: Interview with Candice Owley, AFT Wisconsin

· CBPP Feb 2011 An Update on State Budget Cuts

3. Impact on public services

3.1. Healthcare

President Obama succeeded in introducing some improvements in public spending on healthcare in the USA, but with little expansion of public sector services. In 2011 the Republican party opposition are attempting to cut federal spending on healthcare.

The pressure on states and local government has already led to cuts various healthcare programs in over 31 states. For example:

· California cut nearly all funding for services for HIV/AIDS patients, the state’s domestic violence shelter program and maternal, child, and adolescent health programs. It also cut funding for the medical needs of the poorest: according to CBPP “to make up for the lost funds, the nearly 1 million children in the program will have to pay more for visits to health care providers, and many will have to pay higher premiums as well.”

· Massachusetts cut HIV/AIDS prevention programs and cut support for dental care for 700,000 people on low incomes.

3.2. Pensions

In the USA old age pensions are part of the social security programme, funded by social insurance contributions. Under laws passed in 1983, the retirement age is being gradually increased from 65 to 67. As of June 2011, social security benefits have not been reduced, but social insurance contributions have been cut to provide ‘tax breaks’ for workers and employers. There is now growing pressure to cut pensions too, by measures such as raising retirement age, cutting benefits.

3.3. Other services

States have also cut other services, including services to the elderly and disabled , education, and higher education. Examples include:

· Arizona “eliminated a host of behavioral health services for 4,000 children ineligible to receive such services through Medicaid, and has also cut case management, therapy, and transportation services for 14,500 individuals participating in a non-Medicaid program for the seriously mentally ill.”, according to CBPP.

· Michigan froze enrollment for long term care and supports to help the developmentally disabled avoid institutionalization, so 300 people were instead placed on a waiting list.

· Hawaii cut the school year by 17 days and laid teachers off without pay for those days.

· Virginia saved $500 million by cutting 13,000 support staff such as janitors, school nurses, and school psychologists

· The South Carolina Department of Juvenile Justice has lost almost one-fourth of its state funding, resulting in over 260 layoffs and the closing of five group homes, two dormitories, and 25 after-school programs.

Sources:

· CBPP An Update on State Budget Cuts Feb 2011 http://www.cbpp.org/cms/index.cfm?fa=view&id=1214

· CBPP State Fiscal Analysis Initiative

· Truthout 27 June 2011 Dirty Deals on Social Security Likely to Succeed

4. Privatisation

Privatisation has not been a major part of the cuts programmes, but there is a constant threat of contracting-out of services like garbage collection. One city in California dismissed all its 100 employees and contracted-out all services in 2010. In Ohio, the state budget includes privatisation of 5 prisons and a major toll road.

Unions succeeded in preventing the threat of privatisation of the service in Memphis, Tennessee, where Martin Luther King was assassinated in 1968 while supporting garbage workers on strike for safer working conditions.

Sources:

· CBS News 22 June 2011 Memphis saves jobs of union championed by King

· Forbes 29 June 2011 Ohio Senate approves sweeping $56B budget

Authors:

[1] http://www.bopeu.co.bw/

Botswana - Historic public workers strike - Jul 2011Sandra Van Niekerk

Up to 100 000 public sector workers in Botswana recently went on strike over a wage dispute. The strike, the first legal one by public sector employees[1], started on 18 April 2011 and came to an end nearly 9 weeks later on 12 June 2011. Public sector workers were demanding a wage increase of 16%, with the government initially offering 0%[2]. Not surprisingly, public sector workers rejected this in the context of an inflation rate which has been sitting at 7% and higher for many years, with a high point of 12,6% in 2009[3]. On top of this, public sector workers have not received a wage increase for the past three years[4]. In a statement issued after wage talks deadlocked the public sector unions argued that “our members’ patience has been stretched to the limit”[5]. The government’s final offer was a mere 3%.

While Botswana has for many decades been regarded as a strong economy, with a large public sector, government has relied to a large extent on the export of diamonds for its revenue. The recent global financial crisis resulted in a decline in the demand for diamonds which led to a decline in government revenue. In this year’s wage talks, the government argued that a 16% increase could not be accommodated given Botswana’s ‘fragile economic recovery’[6]. The unions, however, argued that the budget can accommodate their wage demands, if spending in the budget is reprioritized.

The government’s position needs to be seen in the context of the advice it is getting from the IMF and World Bank, both of whom are urging the government to reduce the size of government in the economy. This will require both reducing the wage bill and reducing the number of public sector workers. In a statement released on 31 May 2011 after they had undertaken a mission to Botswana, the IMF argued that “the government would need to reduce the size of the wage bill as a share of GDP as this remains rather high relative to comparator countries and is not sustainable”[7]. They go on to argue that “reducing the wage bill would also require efforts to make the public service leaner and more efficient”. This position is entirely in keeping with the IMF’s neo-liberal policies, and shows a marked dislocation from the political climate in the country where public sector workers, denied a wage increase for three years, actively took steps to demonstrate their need for a decent wage increase.

During the strike, government dismissed workers that they said were essential workers[8]. Post the strike they have refused to re-instate these workers, and have instead embarked on a process of re-employment. There are fears that the government will use the opportunity created by dismissing workers during the strike to outsource various government services[9]. This would be in line with the advice given to the government by the IMF.

[2] http://www.bopeu.co.bw/

[3] http://www.indexmundi.com/botswana/inflation_rate_%28consumer_prices%29.html

[4] “Nation's Civil Servants' Strike” http://allafrica.com/stories/201105101282.html

[5] http://www.bopeu.co.bw/

[6] “Tension mounts over escalating Botswana protests” Mail & Guardian May 20 – 26 2011

[7] Statement at the conclusion of an IMF mission to Botswana May 31 2011 http://www.imf.org/external/np/sec/pr/2011/pr11206.htm

[8] “Public sector strike hurts poor” 25 May 2011 http://allafrica.com/stories/201105250867.html

[9] PSI “Botswana public sector strike suspended” http://www.world-psi.org/TemplateEn.cfm?Section=Whats_New&CONTENTID=27618&TEMPLATE=/ContentManagement/ContentDisplay.cfm

Authors:

Overview: Military spending - Jun 2011David Hall

Cuts Watch brief

Last updated: 15 August 2011

Author: David Hall

Overview: military spending

World military spending rose by 1.3% in real terms in 2010 to a total of $1.6 trillion, about 2.6% of the world economy. This is 50% higher than in 2000: military expenditure has risen in real terms in every year since then.

The USA is responsible for nearly 43% of this spending, accounting for 4.8% of its economy. Russia, India, the UK, France and China all spend over 2% of GDP on military spending, and Saudi Arabia spends over 10% of its GDP on military spending.

In the last 10 years spending by the USA has risen fastest, by 81%, over twice as fast as the rest of the world, and its share of GDP rose from 3.1% to 4.8%. Military spending by the UK rose by 22% in real terms, and France by 3%, but military spending by other European countries including Russia, Germany and Italy fell.

In 2010 spending by the USA grew by nearly 3% over the level in 2009, and China by nearly 4%: spending by India fell by nearly 3%. Nearly all countries in Europe reduced military spending, but military spending rose by 6% in Latin America and by 5% in Africa.

The IMF does not call for a general reduction in military spending.

Stockholm International Peace Research Institute (SIPRI) Military Expenditure Database http://www.sipri.org/media/pressreleases/milex

Authors:

Overview: The social impact of cuts - Jun 2011David Hall

Cuts Watch brief

Last updated: 15 August 2011

Author: David Hall

Overview: social impact of cuts

All austerity packages involve cuts in public services and public spending. This impacts hardest on the poor and vulnerable, according to the evidence collected by NGOs and others concerned with poverty and social impacts. These include in Europe the European Anti-Poverty Network (EAPN), and Eurochild, an European NGO concerned with child welfare; in the USA, the Centre for Budget and Policy Priorities (CBPP); and globally, the United Nations Department of Economic and Social Affairs (UNDESA).

This evidence is especially important because most governments are not making any assessment of the social impact of their policies. The UN report warns that “growing pressure for austerity measures, ostensibly for reasons of fiscal consolidation, is putting at risk social protection, public health and education programmes, as well as the economic recovery measures.” It warned that "economic policies considered in isolation from their social outcomes can have dire consequences for poverty, employment, nutrition, health and education, which, in turn, adversely affect long-term sustainable development" and stated that “it is essential that governments take into account the likely social implications of their economic policies”. (UN 2011)

In Europe, a survey across 17 countries by the EAPN found that the biggest impact of the crisis and the austerity measures is on young people, the poor, and vulnerable groups including those with little education, migrants, and ethnic minorities. Government cuts in benefits hit those who are already most affected by the economic crisis, by changing the rules to reduce the number of people eligible and/or the level of benefits - for example, tightening conditions to qualify for unemployment or social assistance, stricter ‘targeting’ of housing and child benefits.

Deliberate cuts in government jobs and raising retirement age, worsen the prospects for young people seeking work. The youth unemployment rate across the EU in September 2010 was over 20%, double the overall rate of unemployment. In some countries it was much higher, over 37 % in Estonia and 42 % in Spain. Sectors that employ a large proportion of less educated people, such as construction and services, have contracted sharply because of the crisis and the cuts.

There is growing unemployment, indebtedness, poverty and inequality, as well as a negative psychological impact, pressure on working conditions, housing and discrimination. In Spain: 19.5 % of the population is under the poverty line. There are more than 1.5 million households with no working adult, where children face restrictions in food, clothing and leisure.” In Hungary: “There are approximately 100.000 people considered as ‘unsafe’ clients which means that they can not pay back their loans to the banks.” “In Romania the new austerity package includes a 25 percent cut to child care benefits, the elimination of benefits for young families, and a freezing of benefits for single parents.”. Children are adversely affected because universal child benefits are being restricted or cut, and some services supporting families are being cut: “in Northern Ireland-UK a unique and much praised integrated system of health and social care is likely to be dismantled. Current proposals promise to retain the health element, but cut the personal social services component that funds many critical services for vulnerable children and families.” NGOs cannot fill the gap left by cuts in public services, and the cuts worsen the prospects of economic recovery. (EAPN 2011, Eurochild 2011)

There are similar effects as a result of budget cuts by states in the USA. A survey by CBPP found that a majority of states have reduced healthcare, services to the elderly and disabled, and education. “Washington state will reduce assistance for 28,000 people who are physically or mentally incapacitated and unable to work in early 2011”.The cuts would have been much greater without support from the federal government. (CBPP 2011)

Table 1. Groups most affected by crisis and austerity cuts in Europe, 2010

Young people	13
People already experiencing poverty	12
People lacking education	11
Migrants	8
Ethnic minorities	6
Older people	6
Children	6
Women	4

Source: EAPN survey

Sources:

UNDESA The Global Social Crisis 2011 http://social.un.org/index/LinkClick.aspx?fileticket=v0LQqd2FT3k%3d&tabid=1561
European Anti-Poverty Network (EAPN) The Social Impact of the Crisis and of the Recovery Policies 2011 http://www.eapn.eu/images/stories/docs/EAPN-position-papers-and-reports/crisis-report-2011-en.pdf

Eurochild Report27.01.11: How the economic and financial crisis is affecting children & young people in Europe http://www.eurochild.org/fileadmin/ThematicPriorities/Crisis/Eurochild updates/Eurochild crisis paper - How the economic and financial crisis is affection children and young people.pdf
CBPP: An Update on State Budget Cuts 2011 http://www.cbpp.org/files/3-13-08sfp.pdf

Authors:

Overview: What is driving the cuts - Jun 2011David Hall

Cuts Watch Brief

June 2011

David Hall

Overview: What is driving the cuts

The economic crisis and the recession affected all countries. It increased unemployment, reduced consumer spending and this also had the effect of reducing the tax revenues of governments.

This crisis and recession arose from irresponsible practices by banks and unsustainable borrowing by private companies and households. It was not caused in any way by government spending, deficits or debts.

But the crisis itself was the cause of increased public spending and deficits. This was partly an automatic result of the recession, because falls in employment and incomes meant a fall in tax revenues and a rise in spending on benefits. In addition, nearly all governments around the world responded with ‘stimulus packages’, deliberately increasing borrowing and spending to try and maintain economic demand, limit the rise in unemployment – and rescue the failed banks by injecting public money.

These packages were very effective in preventing an even worse slump. Companies - including banks – are making healthy profits again. As economies recover, there will be some automatic reduction in the deficits, as tax revenues rise again and the need for benefits falls. Public spending will continue rising, to drive social and economic development.

In some countries, especially in the global north, recovery is slow. Unemployment remains much higher than before the crisis, and young people are especially hard hit. So governments should continue to borrow, to protect people from unemployment, and to invest in social and economic growth.

But there are now political demands from ‘free market’ politicians that the ideological priority is to break down this role of governments. They insist that the priority is to cut deficits now, to ‘exit’ the stimulus packages, even when unemployment remains high. Although deficits could also be reduced by raising taxes, the demand is always for cuts in public spending.

These political demands have been reinforced and encouraged by the policies of international institutions, in particular the IMF and the EU . Both of these institutions have economic policies that prioritise reducing government deficits, even at the expense of higher unemployment. Both institutions set target ‘ceilings’ for government deficit and debt. The IMF enforces these limits by making them the central conditions for its loans, and the EU makes these ceilings a condition of EU membership. These conditions have the greatest impact on the weakest countries, through insisting on cuts as a condition of financial support.

This international agenda also affects where the cuts fall. The IMF has for many years asked countries to cut public sector jobs and/or pay to achieve these targets, and the EU is now also focussing on public employees. Even before the crisis, both were arguing that public spending on healthcare and pensions, in particular, should be cut, because the ageing population in many countries will require future increases in spending on these services. Privatisation is encouraged as a way of boosting government revenues and reducing public ownership, especially by the IMF; PPPs are encouraged as a way of concealing public debt, especially by the EU. Local services provided by municipalities and states are not directly attacked, but government support is withdrawn so that local services are forced to shrink by the loss of tax revenues due to the recession.

The attacks on public spending fall into a common pattern, and the briefs on this site present the effects in each country under a common set of headings. They show the impact of these cuts – on jobs, pay, healthcare, pensions and other services. They also show where cuts have been resisted – especially in healthcare, for example - and those countries, especially in the global south, who are increasing spending and investment in public services. Cuts are not inevitable.

The data and information in these briefs is taken from news reports, official reports – including the IMF and the EU – and other reports produced by trade unions and NGOs. Some of the main reports and sources with international coverage are listed below.

IMF reports, comments and policy advice on government finances and cuts across the world

IMF Fiscal Monitor April 2011 http://www.imf.org/external/pubs/ft/fm/2011/01/pdf/fm1101.pdf

IMF: A Status Update on Fiscal Exit Strategies 2010 http://www.imf.org/external/pubs/ft/wp/2010/wp10272.pdf

IMF World Economic Overview April 2011 http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/text.pdf

Trade union and NGOs have published analyses of the impact of the heavy cuts in Europe:

ETUI Withdrawal symptoms: an assessment of the austerity packages in Europe 2011 http://www.etui.org/index.php/research/activities/Employment-and-social-policies/Reports-and-working-papers/WP-2011.02

European Anti-Poverty Network (EAPN) The Social Impact of the Crisis and of the Recovery Policies 2011 http://www.eapn.eu/images/stories/docs/EAPN-position-papers-and-reports/crisis-report-2011-en.pdf
Eurochild 2011 How the economic and financial crisis is affecting children & young people in Europe

The scale and impact of cuts in local services the USA is monitored by the Center on Budget and Policy Priorities

CBPP: States Continue to Feel Recession’s Impact 2011 http://www.cbpp.org/files/9-8-08sfp.pdf

CBPP: An Update on State Budget Cuts 2011 http://www.cbpp.org/files/3-13-08sfp.pdf

For general background on the economic and social importance of public spending and public services:

PSIRU Why we need public spending 2010 http://www.psiru.org/reports/2010-10-QPS-pubspend.pdf

Authors:

Suez, E.on and others prosecuted and fined by EU for cartels and cover-ups - Mar 2011David Hall

(updated 04/03/2011)

Water and energy multinationals have been fined and/or investigated by the European Commission for a number of competition offences, including attempts to cover up evidence of wrong-doing.

In April 2010 the EC raided the premises of a number of French water and waste companies because of suspicion of cartels in these sectors in France. France itself has fined the companies in the past for anti-competitive practices in these sectors.

In July 2010 the EC opened a prosecution against Suez Environnement for 'breaking seals' fixed during the raids, which could have been done to try and cover up evidence: "The European Commission (Commission) has opened formal proceedings against French group Suez Environnement over an alleged breach of a seal affixed to an office during an on-site inspection. The Commission carried out the inspection in April at the premises of the French group's subsidiary, Lyonnaise des Eaux. This is the second time this month that the Commission has commenced proceedings for conduct which is considered to interfere or hamper a dawn raid, sending out a strong signal that the Commission is not prepared to tolerate any form of obstruction. During April 2010 the Commission carried out surprise inspections in France at the premises of various companies operating in the water and waste water sectors, including Lyonnaise des Eaux, based on suspicions of anti-competitive practices in the sector." In September 2010 Suez appealed against the legitimacy of the raid (rather than against the proceedings for breaching the seal) (Mondaq Business Briefing September 8, 2010
European Union: Suez Environnement Seeks to Annul Commission Dawn Raid Decision)

E.on was fined €38 million for the same offence in January 2008 by the EC . Breaches of seals are viewed as serious infringements of EU competition law and the Commission can impose a fine of up to 1% of the company's total turnover. The fine on E.ON amounts to around 0.14 % of its turnover. This fine was confirmed by the EU General Court in December 2010. This is the EC's first fine for such an action.(Mondaq Business Briefing January 10, 2011 European Union: Broken Seal in EC Dawn Raid - a Costly Housekeeping Lesson)

In 2009 Both GdF-Suez and E.on were fined €553million each by the EC for an agreement not to compete in gas supplies in each others countries.

In 2008 the EC ordered Hungary to terminate power purchase agreements with seven companies, including GdF-Suez, RWE, EdF and AES, and for the companies to repay to the Hungarian state utility, MVM, the amount of illegal state aid they had received as a result of these long-term exclusive 'take-or-pay' guarantees.

France: Commission Opens Formal Proceedings Against Suez For Alleged Breach Of A Seal. Article by SJ Berwin's EU & Competition Team 17 June 2010 http://www.mondaq.com/article.asp?articleid=102812

The Guardian (London) July 9, 2009 Thursday Brussels fines energy companies £1bn for cartel http://www.guardian.co.uk/business/2009/jul/08/gas-company-fines-european-commission

Authors:

Kazakhstan: locust control renationalised - Mar 2011David Hall

Kazakhstan became an independent country in 1991 after the collapse of the Soviet Union. During the Transition Period , many state services were run down, including the Plant Protection Service. This consisted of scientists working with an “extended network in which monitoring agencies, local practitioners, and scientists collaborated to generate operational knowledge that led to an effective control strategy”. Along with many other state agencies, it was dismantled as part of a general ideological approach which favoured the replacement of central planning with approaches based on private and market actions.

However, the new practices were shown to be inadequate when a massive and extremely harmful locust plague hit Kazakhstan between 1998 and 2001. When the locusts even invaded the new capital city, Astana, the government reacted by spending over $20million in a massive pesticide operation to deal with the plague. They also realised the need to re-establish some public sector agency:

“Once the locusts invaded the capital top-level decision makers started to realize that the dismantling and privatization of the plant protection service had unforeseen consequences. They became aware that locust control requires state intervention and some remnants of the Soviet knowledge structure were reinstated…Their work on locust control regained legitimacy, as did public expenditure to support it.”

In 2007 this process was still not complete. There was still a need to recreate a special locust unit with sufficient skilled technicians and adequate financial and technical resources.

The researchers concluded that the experience confirmed that:

“the control of migratory and highly destructive pests [is] a public service, comparable with emergency services such as the fire brigade and the police… we cannot expect an effective and ecologically sustainable form of locust control either through market mechanisms or local level ecosystem management through participatory methods…. Dissatisfaction with centralized, bureaucratic state command-and-control or market-driven organizational forms for delivering such public goods should not lower the level of action to individual actors or very local institutions.”

This is one aspect of a wider need for the public sector to provide knowledge-sharing institutions and services for sectors such as agriculture.

Sources:

Toleubayev, K., K. Jansen, and A. Van Huis 2007. Locust control in transition: the loss and reinvention of collective action in post-Soviet Kazakhstan. Ecology and Society 12(2): 38. [online] URL: http://www.ecologyandsociety.org/vol12/iss2/art38/

Toleubayev, Kazbek , Jansen, Kees and van Huis, Arnold(2010) 'Knowledge and agrarian decollectivisation in Kazakhstan', Journal of Peasant Studies, 37: 2, 353 — 377 http://dx.doi.org/10.1080/03066151003595069

Authors:

Dangers of approving PPPs - warning from World Bank - Nov 2010David Hall

The World Bank's privatisation promotion wing has warned developing countries of the dangers of approving PPPs in the current climate where private companies cannot access credit. A briefing from the PPIAF Another lost decade? Effects of the financial crisis on project finance for infrastructure detailed how private companies are now unable to get loans to finance PPPs, due to a range of factors including the lack of excess finance, the fact that banks are reducing their lending in the sector, and the impact of tighter banking regulation. Another brief PPI in poor countries: How to increase private participation in infrastructure management and investment has noted that the growth in infrastructure investment, which has arisen in developing countries as part of the stimulus packages to combat the recession is taking place through governments using public finance - either from taxation or "directed loans from national development banks".

The dangers arise when governments are so ideologivsally committed to PPPs that they attempt to 'fast-track' them by approving PPP projects - and so guaranteeing payments - before the PPPs reveal the cost of their debt finance. The PPIAF warns: "Governments risk huge contingent liabilities on projects that may not have been vetted as thoroughly as necessary." Governments must "ensure that aggressive rescue measures do not end up transforming contingent liabilities associated with poorly prepared projects into huge financial burdens for governments that cannot afford them."

The irony of course is that the PPIAF has done more than any other institution to encourage governments to pursue PPPs at all costs. PSIRU and other reports have warned repeatedly of the dangers of PPPs e.g. http://www.psiru.org/reports/2010-03-PPPs.doc ) .

Authors:

IFC: using development funds for profit - Oct 2010David Hall

The International Finance Corporation (IFC) is a part of the World Bank Group which invests money in projects involving private companies. It openly promotes privatisation in many sectors, invests in European and north American companies. Recent activity invcludes:

- in Haiti, the IFC has invested money in two projects. The first, which it called ' HELP - Haiti Emergency Loan Program', consisted of $35m. in loans to private companies operating in textile manufacturing, beer and soft drinks, the financial sector, agriculture, and a private power station owned by a Korean company, KEPCO. The second is a $7.5million loan to help finance 'a 132 room business hotel and conference center with 1,200 m2 of shopping space, three restaurants and a lounge bar on 3 acres of prime land in Pétion-Ville, an upscale, business-oriented suburb of Port-au-Prince'
http://www.ifc.org/ifcext/spiwebsite1.nsf/frmshowview?openform&view=ByCo...

- the IFC invests some money directly in the USA, for example in WaterHealth International (WHI), a company which aims to sell water treatment equipment to rural and peri-urban areas in India. The IFC is investing $20-25million to help with the marketing, to: 'Establish viability of the distributed water service business model and help expand the business to new geographies'. WHI is 40% owned by Dow Venture Capital, a part of the Dow Chemical group, the second-largest chemical company in the world, which also owns Union Carbide, the company responsible for the Bhopal disaster.
http://www.ifc.org/ifcext/spiwebsite1.nsf/frmshowview?openform&view=ByCo...

- The International Finance Corporation (IFC) has made substantial equity investments, in two different subsidiaries of Veolia, the water musltinational. In June 2010 it announced it would acquire 9.5% of the shares of Veolia Voda through “an equity investment of up to €100 million via a new share issue in Veolia Voda, Veolia Water’s Eastern European arm. The capital will be used to support the expansion of Veolia Voda’s operations into new markets in Central and Eastern Europe, including Russia, Turkey, Ukraine, and the some of the Balkans.” http://www.ifc.org/ifcext/media.nsf/content/SelectedPressRelease?OpenDocument&UNID=80FBA1D1C466866085257737005B9ABF

IFC had previously invested $25million as equity in Veolia AMI, the company’s division active in Africa, Middle East and India, and provided a guarantee for a $35m. bank loan taken out by SEEG, Veolia's water company in Gabon

- in Uganda, the IFC is a key investor in privatised electricity companies. It has invested $100m. in the Bujagali hydro-electric scheme, which the IFC has consistently promoted despite great controversy and opposition. Bujagali is majority owned by the multinational Sithe. The IFC also became a part-owner of the privatised electricity distribution company, Umeme, which is majority-owned by a UK private equity fund, Actis, and has been heavily critiicised in Uganda.
http://www.ifc.org/ifcext/spiwebsite1.nsf/frmshowview?openform&view=ByCo...

- The IFC has openly criticised Kenyan government policy on electricity simply because it involves partial renationalisation of failed privatisations.
http://www.brettonwoodsproject.org/art-564820
http://www.businessweek.com/news/2010-07-09/kenya-power-s-share-plan-mea...

Authors:

Electricity and development: lessons of history - Oct 2010

A new BBC TV series looks at the development of electricity system in a country where only 6% of homes were connected to electricity, where "electricity was generated and supplied by a hotch-potch of private companies and municipal councils... and, for many, electricity was prohibitively expensive...keeping just five bulbs going for a day would cost a week's wages for the average person...electricity was too expensive not just for consumers but for industrialists". A new government looked at the way other countries had used public sector to extend their electricity systems and provide affordable power, and decided to create a new state-owned and run national corporation, called the Central Electricity Board. It took over all the most efficient power stations and constructed over 6,000 kilometers of networks, and established a comprehensive electricity system for both households and businesses.

That country was the UK in the 1920s. It was following the policies of France and Germany, based on the public sector and using public finance. The same model has been used in other high income countries, including the USA,

where President Roosevelt, in the 1930s, initiated large new hydroelectric schemes under public ownership, asserting that water power “should belong to all the people”, and made it illegal for private companies to operate across state boundaries, and encouraged public ownership of electricity systems as an alternative to ‘extortionate’ private electricity companies.

Unlike the privatisation policies which the international banks have tried to force on develioping countries, this model of public finance and public ownership actually worked. The first wave of electrification in Asia took place under these policies between 1950 and 1990, when electricity generation in Asia grew at an annual rate of 9%, nearly five times faster than population growth. Although it is virtually universal, it has been claimed as a distinctive 'national' model by many: in rural Thailand electricity was known as fay luang, "the king's electricity”; Nehru described dams as "the temples of modern India”; the USA saw the model of centrally funded power systems as a distinctively American cold war “weapon ...to outbid the Communists for the support of the peoples of Asia”; while Lenin declared that “Communism is Soviet power plus electrification”.

Sources

BBC The Secret Life of the National Grid http://www.bbc.co.uk/news/uk-politics-11619751

Williams, J.H. & Dubash, N.K., 2004. Asian Electricity Reform in Historical Perspective. Pacific Affairs, 77(3), 411-436. http://www.jstor.org/stable/40022909

Holland, S. & Neufeld, J., 2009. The Evolution of Government Policy and the Structure of the U.S. Electric Power Industry, University of North Carolina at Greensboro. http://www.uncg.edu/bae/people/holland/research/Holland_Neufeld.pdf

Authors:

Argentina – Waste – Privatisation, multinationals and rag-pickers - Jul 2010David Hall

Until the 1990s, most refuse collection and waste management in latin American cities was carried out by direct labour employed by the municipalities. In parallel, informal workers acting as freelance rag-pickers – known as ‘cartoneros’ in Buenos Aires - made a living by selling what they collected. Overall, nearly 1 million workers and their families depended on waste collection and street cleaning, about 1% of the total population.

In the 1990s, as neoliberal policies were increasingly introduced, municipalities started privatising refuse collection and street sweeping by contracting-out to private companies in the larger towns and cities, which could be profitable. The experience of compulsory tendering in the UK was used to argue that costs could be reduced by 25% or more. As in the UK, contracting-out led to loss of jobs and a drastic decline in pay and conditions of the workers; in many cases, the process was resisted by strike action and demonstrations.

Like other privatisations, this new market attracted multinational companies, especially the French groups Suez and Veolia, the largest waste multinationals. This was part of a massive expansion by these two companies to take advantage of the privatisation policies in the region. They also obtained water concessions, bought privatised telecoms and energy companies, and expanded their healthcare, media and construction businesses. They especially concentrated on Argentina, a country which was seen as a ‘model pupil’ of the IMF, and privatising on a larger scale than any other. Suez bought a 50% stake in Cliba, a company with waste collection contracts in the cities of Cordoba and Buenos Aires. Veolia set up Proactive, a joint venture with a Spanish multinational FCC, which also gained contracts in Buenos Aires and elsewhere.

The economic crisis which hit Argentina in 2001 led to a sharp increase in the number of people trying to make a living from recycling rubbish, but also made the country unprofitable for the multinationals. Suez had to write off €500million, and has sold or abandoned its businesses in the country, including its waste management business (although Veolia still owns half of Proactiva).

While the multinationals left, the city council of Buenos Aires introduced a new law on recycling which formally recognised the cartoneros as key parts of the recycling system. It gave gloves to all registered cartoneros, and encouraged the formation of cooperatives, one of which was chosen to operate a new recycling plant. The cartoneros are now a formal part of the city’s refuse collection system, recycling dry waste. However, the rest of the refuse collection service is still contracted to private companies. The Argentinian unions have been supportive of the cartoneros, although in some countries, there have been conflicts between municipal workers’ unions and informal ragpickers, who have been used by employers to break strikes.

Sources and further reading

Acurio G. et al 1998 Diagnosis of Municipal Solid Waste Management in Latin America and the Carribbean. IADB-PAHO Sept 1998 http://www.cepis.ops-oms.org/cdrom-repi86/fulltexts/bvsacd/scan/033333.pdf
Cartoneros: Recycling the City 22/12/2006 http://www.theargentimes.com/socialissues/urbanlife/cartoneros-recycling-the-city-/
Melanie Samson ed 2009 Refusing to be Cast Aside: Waste Pickers Organising Around the World. WIEGO. http://www.wiego.org/publications/waste-pickers-samson.php

Authors:

Argentina – Water – Private failures, renationalisation and union cooperative - Jul 2010David Hall

In the 1990s, Argentina, regarded as the ‘model pupil’ of the IMF, privatised water supply and sanitation services to a greater extent and from an earlier date than any other developing country. Despite widespread opposition, by the end of 1999, private operators were providing services to 71% of the country’s urban population.

Two of the largest privatisations were in Buenos Aires. In May 1993 a company called Aguas Argentinas – jointly owned by four major multinationals, in order to reduce competition - was awarded a concession covering 10 million people in the city of Buenos Aires itself. Six years later, another concession was awarded to a subsidiary of Enron, covering 2 million people in the province of Buenos Aires. Both contracts guaranteed that the companies would be able to maintain their profits in US dollars.

The actual performance of the private companies fell far short of the expectations. Aguas Argentinas only delivered about 60% of its promised investment programme, increased prices faster than inflation, failed to meet water quality standards or maintain the pipe network adequately, and only connected the poorest households in the slums when the local councils and citizens agreed to cover the costs.

At the end of 2001 Argentina, despite following IMF policies to the letter, was hit by a massive economic crisis. The currency was devalued, and the parliament revoked the private companies’ rights to ‘dollarised’ profits – otherwise water prices would have increased hugely at a time when people were already suffering loss of jobs and income. The multinationals brought lawsuits and attempted to renegotiate their contracts to maintain profitability, but the public authorities refused, and in the end the companies abandoned the services.

In the city of Buenos Aires, the service was finally renationalised in 2006 under a new state-owned company, known as AYSA. A new pay agreement was reached, which provided for a continuous training programme, a new health and safety policy, an end to most outsourcing, and a ‘fair wages’ clause requiring contractors to observe agreed pay and conditions.

In the province, the contract ended much earlier, in March 2002, when Enron abruptly abandoned the service. The service was taken back into the public sector, but the provincial government did not have the technical capacity to take charge of the service. The trade union, OSBA, stepped in and established a workers cooperative which took over responsibility for running the service through. The cooperative, named “5 de setiembre”, operates under continuous consultation with the authorities, users and consumer unions. Within 3 years it increased the number of people connected to water and sewerage systems.

The “5 de setiembre” cooperative has been active in helping other unions and communities in Argentina and other countries restore and strengthen public water systems. It has signed a ‘public-public partnership’ agreement with the Peruvian water workers union, to help strengthen the public system in the Peruvian town of Huancayo, which was threatened with privatisation.

Sources and further reading

Guillermo Amorebieta 2005 Argentina: Workers' Co-operative Takes over Post-Enron http://tni.org/archives/books/waterargentina2.pdf
Philipp Terhorst 2009 Huancayo: From resistance to public-public partnership http://tni.org/archives/act/18127

Authors:

Bangladesh - Health - The slow damage of privatisation - Jul 2010David Hall

There are far too few health workers in Bangladesh. There are 19,000 registered nurses in the country of whom 13,000 nurses are in the public sector, about 2,000 nurses have gone abroad and the rest are engaged in private clinics and or awaiting government posts.

It was not always like this. Up to the 1980s, Bangladesh followed similar policies to other developing countries, building up a public health system. There was a steady growth of public healthcare institutions and manpower, then investment in the public sector declined, resulting in a shortage of facilities, personnel and supplies, while the role of the private sector grew.

This process has been driven by the international institutions. The World Bank encouraged charging patients for services, private insurance and increased reliance on private sector delivery. It has invested in a private hospital multinational, Apollo Healthcare, which now operates in Bangladesh. The ADB – which does not treat healthcare as a priority sector- encouraged decentralisation and private sector involvement. It offered $20m. to a private equity venture, the Asia Healthcare Fund, which failed to make any investments at all.

Government spending on health care now constitutes only 34 percent of total expenditure on health, private expenditure accounts for 64 percent. Nearly two-thirds of public healthcare units had inadequate facilities, inadequate personnel, and a shortage of vaccines or drugs.

Percentage Share of Private and Public Beds in Bangladesh Hospitals
Year	Private hospital beds as % of total	Public hospital beds as % of total
1973	15.0	85.0
1996	22.0	78.0

Health workers unions have campaigned for better policies. The Bangladesh Diploma Nurses Association have promoted an 11 point platform including increases in public health funding, new nursing posts, new nursing colleges and improvements in pay and conditions. The response has often been intimidation: in one episode, the government tried to dismiss the union’s general secretary, and active members of the union were transferred out of Dhaka to a remote rural health centre.

Sources and further reading

Rama V. Baru 2008 Health Sector Reform in South Asia: a comparative analysis http://www.psiru.org/reports/2008-10-H-southasia.doc
PSI 2004 New acts of intimidation against Bangladesh Nurses' Assocation http://www.world-psi.org/Content/NavigationMenu/English/Policy_and_Issues/Worker_Rights/Worker_rights.htm
Apollo Annual Report (2006); Parkway Holdings Ltd Full year Financial Holding Statement
http://www.parkwayholdings.com/Business/docs/71826260207financialstatement.pdf

Authors:

http://www.niua.org/case_studies_des.asp?title=PRIVATE%20SECTOR%20PARTICIPATION%20IN%20WATER%20SUPPLY,%20DHAKA%20(BANGLADESH)

Bangladesh - Water - Union initiative in Dhaka water service - Jul 2010David Hall

Bangladesh has been under considerable pressure to introduce water privatization, but this has so far been resisted. In the capital city, Dhaka, a trade union co-operative successfully took over part of the city to show what could be done as an alternative to World Bank sponsored privatization.

The Dhaka Water and Sanitation Authority (DWASA) was created in 1963 as the public sector water utility of Dhaka. By the 1990s it had become financially and operationally inefficient, with high system loss. The World Bank offered a loan, conditional on a privatization study and experimental privatization of revenue collection and other activities. The unions countered with proposals to test the supposed virtues of privatisation, and finally the World Bank, DWASA, government representatives and trade unions agreed to test one zone of the city under the private sector and another under an employees’ cooperative, for a trial period of one year.

The co-operative clearly out performed both DWASA and the private contractors.

In the co-operative zone, revenue increased substantially, and ‘unaccounted for water’ was reduced.
The co-operative’s success was based partly on doubling the salaries paid by DWASA, which had the crucial effect of providing a living wage and thus eliminating workers’ incentives to seek bribes as a condition for performing work.
The co-operative also harnessed the experience and knowledge of the workforce through participative decision making. Consumer satisfaction also went up.
The privatised EPC failed because of lack of past experience, a top heavy management, and a failure to draw on grass roots knowledge. DWASA’s zones continued to fail because of bureaucracy, poor pay, attendant corruption and inefficiency.

The poor and slum dwellers also benefited from the co-operative, because the workers made household connections which DWASA rules normally prohibited. Under these rules, water could be supplied to very poor households only if they officially owned land in DWASA’s area – and since the majority did not, they had to resort to buying water from private vendors at more than 10 times the normal price. The co-operative connected many of these households, and collected charges at the normal household rate, bringing higher revenue to DWASA and cheaper and more reliable water to the poor.

Despite this success, the ADB and other financial institutions relentlessly promote privatisation policies and dominate policy-making and have tried to replace the workers coop with privatisation: “Every single policy related to water is formulated under IFI projects and/or technical assistance”.

Sources and further reading

M.Z.Hoque 2003 Experimental alternate option to privatization of water industry in Dhaka - Bangladesh http://www.waterjustice.org/uploads/attachments/attachment48.pdf

NIUA Private sector participation in water supply, Dhaka (Bangladesh)

Aftab Ahmad 2008 Paani: Bangladesh Water Status Report

http://www.rightsresearch.org/site/page10/page23/files/BangladeshWaterStatusReport.ppt

Authors:

Brazil – Electricity – From liberalisation to planned power for all - Jul 2010David Hall

Up to the 1990s, the Brazilian electricity system was mainly run by a national public sector company Eletrobras. It owned and operated the transmission system and a large majority of the country’s generating capacity. Distribution was carried out through 50 regional distribution companies. In the 1990s , following the advice of the World Bank, Brazil privatised some distribution companies, set up a regulator to help introduce liberalised markets, restricted investments by Eletrobras and encouraged private sector investment instead.

This policy produced a number of problems, including major blackouts in Sao Paulo and Rio de Janeiro, and in 2001 there was a critical power shortage because the liberalised system had failed to invest in sufficient new generating capacity.

In the same year, Luiz Inacio Lula da Silva (‘Lula’), the candidate of the Workers’ Party, was elected President of Brazil. Lula suspended the privatisation and liberalisation programme. The multinational companies decided that their businesses were not sufficiently profitable, and began withdrawing from Brazil and other countries. Over the next few years, some of the distribution companies were effectively brought back into public ownership.

The public sector is once again central to the system, and the role of the market has been weakened:

a new Energy Planning Company has been created, under the Ministry of Mines and Energy, which now employs about 250 people. It forecasts demand 20 years ahead, plans required infrastructure and generation, and commissions specified projects.
The market in generation has been replaced by a system in which the distributors buy power from all the egenerators and then sell it on to domestic consumers. A parallel market for large industrial users, who can choose their electricity supplier, exists.

However, the role of the public sector continues to be constrained by policy restrictions on public sector borrowing. This factor prevents the Brazilian electricity company Electrobras from making major investment in its own right, so that much new development has to take the form of PPPs.

Even the privatisation processes had depended heavily on support from the state:

The national development bank, BNDES, was used by the previous government to help finance the original privatisations. When the USA energy company AES bought shares in the distribution company Eletropaulo in 1998, it was given a loan from BNDES. This was later the subject of a court case alleging that is was illegal, irresponsible and put at risk "the financial health of BNDES." AES subsequently defaulted on repayments and the loan was restructured in 2004 – again with the assistance of BNDES.

The power purchase agreements remain central to the profitability of all the private power plants. For example, it took 4 years to negotiate a price agreement for a proposed 350MW gas-fired power station by the Spanish company Endesa – and the company was also heavily assisted by a loan of $68m. from the World Bank’s private sector support body, the IFC.

Sources and further reading:

Energy Planning in Brazil’ by Stephen Thomas at http://www.psiru.org/reports/2009-11-E-Brazilplanning.doc)
Electricity companies in Latin America 2007 David Hall at http://www.psiru.org/reports/2007-10-E-Latam.doc
Business News Americas - English February 9, 2007: Former BNDES chiefs accused in AES-Eletropaulo privatization case

Authors:

Colombia – Health - Impact of health liberalisation and under-funding - Jul 2010David Hall

The Colombian healthcare system, which had been based on a national health service since 1974, was completely transformed in 1993 by introducing a decentralised system based on employee insurance through private health insurers, with a fallback system of government subsidised healthcare for others. The reform was based on the neo-liberal model of reducing the role of the state, especially central government, and increasing the role of the private sector through creating markets in health insurance and service provision.

The process of privatisation and decentralisation led to a system without sufficient qualified staff to administer the system, with appointments influenced by political patronage, and with weak or no community representation. Rich areas ended up with a concentration of private hospitals, poor areas had to rely on under-resourced public sector services. Preventive programmes suffered, and contracting-out of services led to fragmentation, requiring patients to visit different places for different elements in their treatment. One-third of the population has no insurance at all, the government has failed to provide sufficient funding for the fallback system, and hospitals have refused treatment to patients due to lack of payments.

Regulation and monitoring is very weak or absent, and private companies have been able to manipulate the system: “The private intermediaries ...have appropriated the health resources. They influence and manage the market and in practice define policies. The state has disappeared." The system has resulted in complex bureaucratic structures, in which companies routinely try and deny liability to pay for treatments, resulting in frequent court cases brought by patients to establish their rights, creating “complex bureaucracies that delay and limit care through cost-containment mechanisms, which has resulted in harmful consequences for people's lives.” The insurance companies, by contrast, have made ‘massive’ profits out of the same system, and have been the fastest-growing companies in Colombia. A recent study concluded: “managed care in Colombia is a failing system that needs to be changed”.

This wave of litigation has included two cases where the constitutional court made significant rulings supporting fundamental human rights to public services, even in a marketised healthcare system. The court has made two rulings to the effect that all children in Colombia should be provided with the same treatment and services, whether paid for through private insurance contributions or by the state for poorer families. The government had attempted to provide lower levels of care under the state scheme, including refusing to pay for integrated cancer services, as a way of cutting expenditure. But the court called for the transformation of the entire system, because “the organs of government responsible for…the regulation of the health system have not adopted decisions that guarantee the right to health”.

By January 2010 there was a nationwide crisis: “The sector is considered on the brink of collapse.” Nearly half a million people insured with one of the regional companies, Calisalud, effectively lost their rights as hospitals refused to treat them because of the insurer’s inability to pay. The government’s plans still rely on cutting spending and increasing patient fees, so that the role of public spending would fall from 86% of all expenditure on healthcare in 2008, to only 69% by 2014.

Sources and further reading

IHS Global Insight 2007 Healthcare Reform in Colombia at a Standstill as Funding Scarce http://www.ihsglobalinsight.com/SDA/SDADetail5917.htm
Gloria Molina M. 2009 An Integrity Perspective on the Decentralization of the Health Sector in Colombia Forum. Qualitative Social Research Volume 10, No. 2 May 2009 http://www.qualitative-research.net/index.php/fqs/article/viewArticle/1309/2784
Colombia Reports Wednesday, 13 January 2010 Valle hospitals suspend public health care

Authors:

Ghana - Public finance – Raising taxes - Jul 2010David Hall

Ghana’s tax collection history has been described as phenomenal for sub-Saharan Africa. After a collapse in tax revenue to a low of only 4.0% of GDP in 1982, Ghana increased its tax revenue to 21.6% GDP by 2007. The 2010 budget sets a target of collecting 23.4% GDP of tax revenue.

Tax reforms in the 1980s were largely driven by the structural adjustment programme and heavily influenced by the IMF, World Bank and other international donors. There was a particular emphasis on increasing fiscal revenues to meet international debt obligations and to shift the tax burden away from agricultural producers (particularly the levy on cocoa exports) towards consumers (through VAT). VAT as an indirect tax is regressive, ordinary workers who spend all their incomes on consumables pay more tax then their bosses who save some of their income or invest into tax free zones.

The 2010 budget has made an attempt to increase the direct tax revenue while maintaining the current indirect taxes. This is a major policy shift from the earlier tax policies influenced by the World Bank and IMF. The budget targets to increase direct taxes by 9.8% by increasing royalties on extractive industries to 6%, increasing road tolls, car licensing fees, rent tax and re-imposition of 40% import duties on rice, poultry and vegetable cooking oil.

Ghana has created some specific links between taxes and services

2.5% of VAT is reserved for education
another 2.5% is reserved for social health insurance
20% of the communication service tax is ring-fenced for a national youth employment.

Ghana has been able to introduction nation wide social health insurance by ring-fencing 2.5% of VAT. The result is that nearly half the population of the country is covered. The exemption policy of the insurance has extended free medical care to persons over 70years of age, paupers, pregnant women and children under 18.

The 2010 budget aims to spend 25% of total expenditure on pro-poor programmes and 11% on capital expenditure, including the following:

Water

Rural water coverage is to be increased to 60% by providing 34 small town pipe systems, 134 small community pipe systems, 1,474 new boreholes, 1,093 hand dug wells and rehabilitate 225 bore holes and train 2,702 Water and Sanitation Committees.
In the urban areas, a total of 55.5 million gallons a day water treatment plants across the country would be constructed.

Road and Transport

600km highway and seven bridges would be constructed.

Education

Construction of 200 classroom Blocks; upgrading of 25 senior high schools infrastructure; annual subsidy $50 to teachers in rural areas pursuing distance education.
Feeding of 250,000 pupils in rural schools
Provision of free school uniforms and text books to all primary school pupils.
Free education to children with disability.

Health

2 District Hospitals
100-bed General Hospital with Malaria Research Centre
5 Polyclinics/Health
upgrading of 1 regional hospital

Agriculture

Special Housing Scheme for Cocoa Farmers
Social Security Fund for farmers

Welfare and Youth

Employ 100,000 youth
Stipend to 40,000 poor households in 100 Districts across the country

Sources and further reading

Owusu-Afriyie, E. (2009) An Assessment of the Impact of Tax reforms on the Tax System of Ghana, WP/BOG-2009/01, Bank of Ghana
MOFEP (2010) The Budget Statement and Economic Policy 2010 Financial Year. http://www.mofep.gov.gh/
Prichard, W. (2009) The Politics of Taxation and Implications for Accountability in Ghana 1981–2008, IDS Working Paper 330
NDPC (2008) Citizens’ Assessment Of the National Health Insurance Scheme: Towards a Sustainable Health Care Financing Arrangement that Protects the Poor

Authors:

India - Public finance - Budget for investment, services, jobs - Jul 2010David Hall

The government of India’s budget for 2009-10 set out a positive plan for the public sector. It increased the government deficit, to boost the economy; planned to raise more money from direct taxes; increased infrastructure investment and other public spending, including direct employment programmes; and committed to continued public ownership of banks and financial institutions. The government expected the budget to help achieve a growth rate of 9% in 2010.

The Financial Times described this as a budget which “boosted infrastructure spending and protected farmers, but was deeply unpopular with investors”, but The Hindu newspaper commented that “The reaction of the stock market to the budget shows how out of touch with sound economic logic the country’s biggest investors are.”

The government is budgeting for an increased deficit of 6.8%. In 2008-09 the deficit had already risen from 2.7% to 6.2% of GDP, after the government introduced a package of spending increases and tax cuts to stimulate the economy (which included the implementation of Pay Commission recommendations for public servants). The government has promised to reduce this in the medium term but while “uncertainties relating to the revival of the global economy remain..... we have to continue our efforts to provide further stimulus to the economy.” The government is confident it can borrow enough to finance this deficit: half of India’s savings in the banking system “is channeled to the government through mandatory lending or through treasury bill sales”.

Central government revenue is now 11% of GDP, with over 50% coming from direct taxes, which is more progressive. The government plans to continue increasing the proportion of direct taxes, and refused to reduce corporation tax. It is also continuing to improve tax administration, the importance of which was recognised by the finance minister: “our tax collectors are like honey bees collecting nectar from the flowers without disturbing them, but spreading their pollen so that all flowers can thrive and bear fruit.”

The finance for urban infrastructure is increased by 87% over the previous budget, and a new fund is being created which is intended to make the country slum free in 5 years. This not a short-term policy: the aim is to continually increase investment in infrastructure to reach more than 9 per cent of GDP per year by 2014. India is also using public finance to bailout existing PPPs which are now unable to find private finance. A new public sector institution, the India Infrastructure Finance Company Limited (IIFCL) , will refinance 60 per cent of commercial bank loans to infrastructure PPPs over the next year and a half.

India introduced a National Rural Employment Guarantee Scheme (NREGS) in 2006, which has provided employment opportunities for over 40 million households in 2008-09 and provided a significant boost to the rural economy. The minimum wage guaranteed under this scheme is being increased to 100 Rupees per day, and the overall budget is 8% higher than actual spending in 2008-09.

The budget also included a strong long-term commitment to continued full public ownership of the banking sector: “Never before has Indira Gandhi’s bold decision to nationalise our banking system exactly 40 years ago - on 14th of July, 1969 - appeared as wise and visionary as it has over the past few months ....public sector enterprises such as banks and insurance companies will remain in the public sector and will be given all support, including capital infusion, to grow and remain competitive.” The government left open the possibility of future partial privatisations of other state owned companies, however.

Sources and further reading

India Budget speech. Transcript as published in Financial Times July 6 2009 http://www.ft.com/cms/s/0/373895ba-6a32-11de-ad04-00144feabdc0,dwp_uuid=a6dfcf08-9c79-11da-8762-0000779e2340.html
FT 09 July 2009 India in drive to end slum dwelling http://www.ft.com/cms/s/0/1ee3ea0c-6c97-11de-a6e6-00144feabdc0,dwp_uuid=a6dfcf08-9c79-11da-8762-0000779e2340.html
The Hindu Jul 07, 2009 Political logic of budget is that welfarism pays http://www.hindu.com/2009/07/07/stories/2009070754801000.htm
The Hindu 07 July 2009 “Disinvestment in phased manner” http://www.hindu.com/2009/07/07/stories/2009070759821000.htm

Authors:

India - Public finance - Predatory PPPs - Jul 2010David Hall

The scale of India’s investment in infrastructure has been seized on by companies and donors as an opportunity to promote the use of PPPs. For the companies, these provide long-term profit streams from public spending, while for donors and IFIs it is a way of making economic and social development conditional on private sector involvement. The PPPs would seriously weaken public services, however.

Since 2006, the Indian government has introduced new bodies to encourage and subsidise PPPs.

It has established a PPPs cell within the ministry of finance, and encouraged state to create their own units.
It created the India Infrastructure Finance Company (IIFC) to provide cheap public finance for PPPs, and a Viability Gap Fund (VGF) to subsidise PPPs which would otherwise be unprofitable.

International financial institutions and donors, using public money, have played a key role. The World Bank’s unit for promoting private infrastructure, the Public Private Infrastructure Advisory Facility (PPIAF), organised ‘educational’ meetings to convince civil servants and others of the virtues of PPPs.

The development banks and donors have also largely paid for the setting up of government units to promote PPPs, and provide the bulk of the financing for the IIFC, which had a total of $4.5 billion at the end of 2009.

The Asian Development Bank (ADB) financed the creation of PPP units in 14 states, and is providing $2.2 billion for the IIFC through two major loan facilities.
The World Bank is lending $1.2 billion, through a project with the unambiguous title of “Financing Public-Private Partnerships (PPPs) in Infrastructure”.
For the water sector, the World Bank strategy for India proposes “ the establishment of new institutions (including .... public-private partnerships)”.
Other World Bank projects, e.g for road building in Andhra Pradesh, or the Karnataka Urban Water Sector Improvement, also include elements specifically for promoting PPPs.
The World Bank’s private sector arm, the International Finance Corporation (IFC), has provided $100million for the IIFC, has invested $150million into a private equity infrastructure fund for India set up by the Australian bank Macquarie, and helped finance a number of PPPs in sectors including waste management and water supply.
Donors are also contributing substantial amounts: $132 million from the German development bank KfW, and $170 million from the Japan Bank for International Cooperation (JBIC).

The PPPs have led to disputes and public opposition over the impact on workers and services.

Plans to promote 2500 PPPs in schools are strongly opposed by educationalists, teachers unions, and educational voluntary organisations.
In Hyderabad, there have been strikes after the municipal council awarded a PPP for waste management to a large Indian group, Ramky, known to be anti-union, without any formal consultation. Ramky already operate a waste management PPP in the city of Guwahati, where there has been no improvement after 2 years, and the union insists that there is an urgent need to employ more staff to deal with blocked drains.
The PPP project for water supply in Mysore was awarded in 2008 to Jamshedpur Utilities and Services Company (JUSCO), a subsidiary of the giant Tata multinational group, without any public consultation. Ever since, there have been constant protests and opposition from the unions, community organisations and others.

Sources and further reading

Gaurav Dwivedi 2010 Public-Private Partnerships in Water Sector: Partnerships or Privatisation? Manthan www.manthan-india.org

Authors:

Indonesia - Energy - Impact of electricity privatisation and liberalisation - Jul 2010David Hall

Indonesia’s electricity sector was nationalised after independence as an integrated public system known as PLN (Perusahaan Listrik Negara-Djakarta). In 1992 the former dictator, president Suharto, with the encouragement of the World Bank, introduced private sector participation through building independent power plants (IPPs).

The IPPs were set up by multinational energy companies from the USA, UK and elsewhere. In most cases, they formed joint ventures with companies owned by cronies of the Suharto government. They were all given long-term power purchase agreements, under which PLN undertook to purchase 80 per cent of plant capacity for a minimum of 30 years. This corrupt process produced e agreements which provided for 50% more capacity than Indonesia actually needed, at priceswell in excess of PLN’s selling price to consumers. Because these prices were set in US dollars, the currency collapse of 1998 made these contracts utterly unaffordable, so PLN faced bankruptcy.

After the fall of Suharto in 1998, PLN wanted to cancel the agreements as corrupt and illegitimate, but this was resisted by the multinationals, strongly supported by their governments, and by the development banks, which insisted on renegotiation as a condition for future loans.

A corruption trial of USA multinational Edison over an agreement with Suharto cronies was dropped, at the request of the USA ambassador
Where PLN tried to reject the contracts, the multinationals pursued arbitration cases and won hundreds of millions of dollars in compensationclaims against PLN
The companies also collected compensation from ‘political risk’ insurance: the World Bank’s insurance agency, the Multilateral Investment Guarantee Agency (MIGA), paid $15m to Enron on account of a power project that was cancelled before it was even built. MIGA then insisted that the Indonesian government had to reimburse them the $15m, and refused to insure business in Indonesia until the money was paid.
The Wall Street Journal quotes the chief political adviser at the US embassy in the 1996-99 period as saying: “"protecting the interests of major investors and creditors was at the center of the table in everything we did….. Concerns about human rights, democracy, corruption never made it onto the table at all."

Even after doubling the price charged to consumers, the renegotiated deals still left PLN with a deficit of $2.5 billion per year for 30 years. The cost of the corrupt PPAs is thus still carried entirely by Indonesians, who not only compensated the multinationals for the profits that they have lost, but also pay much higher prices for their electricity.

The ADB and the World Bank then intervened even more directly, by drafting a new law to privatise and liberalise the electricity industry. It was passed in 2002 by the Indonesian parliament , after the ADB made the legislation a condition of a $200million loan. The law was however strongly resisted, and the electricity workers union successfully challenged the law in the country’s new Constitutional Court. In December 2004, the court annulled the law, declaring that it breached key elements of Indonesia’s constitution. Despite this, the parliament passed another bill in 2009, providing for privatisation and liberalisation; it has again been strongly opposed, and again the union has taken a case to the Constitutional Court to challenge the law.

Sources and further reading

Wall Street Journal 12 Feb 2004 Washington's Tilt to Business Stirs a Backlash in Indonesia www.psiru.org/Others/wsjindon.doc
Unions reject Indonesia's new electricity law http://isslerhall.org/drupal/content/unions-reject-indonesias-new-electricity-law-sep-09
PSIRU Global experience with electricity liberalisation December 2009 http://www.psiru.org/reports/2009-12-E-Indon.doc

Authors:

Indonesia – Water - Water privatisation in Jakarta - Jul 2010David Hall

The water supply service of Jakarta, capital city of Indonesia, was privatised in 1998, under the military dictatorship of Suharto. The service was divided, with half the city being assigned to each of two multinational companies –Thames Water, from the UK, and Suez, from France. There was no competitive tendering, but there was corruption: both Thames and Suez gave shares in their subsidiaries to companies owned by relatives and cronies of Suharto. When the dictatorship was over thrown by a popular uprising later in 1998, the new city council expected the corrupt contracts to be terminated. Instead, Thames and Suez paid off their local partners, who had become a political liability, and clung onto the contracts.

Over the next three years the privatised system experienced a typical series of problems – the companies failed to meet their investment targets, there was strong public resistance to the price rises they demanded, and there was a series of strikes by employees whose pay and conditions had worsened. Instead of being terminated, the companies used political and personal networks to get the contracts revised to make life easier for the companies - the targets for coverage and leakage reduction, for example, were reduced to levels lower than what had been achieved by the previous public company. The companies were helped by the British and French embassies, who put pressure on the Indonesian government to permit large price rises: over the next 3 years, the price of water in Jakarta more than doubled.

The ownership of the companies has changed, but the French and British interest remains. Thames Water sold its subsidiary to a private equity firm based in Singapore. Suez has sold 49% of its shares to another long-established multinational corporation. The new partner is a subsidiary of Jardine Mathieson, a company which built its profits from selling opium to China in the 19^th century.

In 2010, the performance remains dreadful.

Most remarkably, after 12 years of a service run by international private companies, the water coming out of the taps is unfit to drink and must be boiled.
Despite this, the prices of water in Jakarta is higher than any other major Asian city.
Most households thus continue to use private wells, which lowers the level of the water table and the land above it, and is causing Jakarta to sink.
The growth of the network has fallen behind the growth of Jakarta, so that the coverage is only about 43% - the lowest level of coverage in major Asian cities.
Households suffer a loss of service for 30% of the time, on average.
The leakage rate, measured by non-revenue water, remains over 50%.
Service is worst in the poor areas of north Jakarta, where there are recurrent outbreaks of cholera.

None of these problems affect the companies, however. They are paid under a formula which covers all their costs, including a ‘management know-how’ fee to the parent companies - which is effectively a guaranteed dividend. On top of this, it also provides a guaranteed profit - of 22% return on capital.

There are now widespread demands for the contracts to be terminated. Critics include civil society groups, trade unions, the regulatory body, the public audit office, and national and local government agencies. International organisations, including PSI and the ‘Reclaiming Public Water’ network, support the local campaigns. A recent audit report has challenged the validity of clauses in the contract which require a prohibitive level of compensation. The contracts are also protected by diplomats from France and the UK.

Sources and further reading

The First Ten Years of Implementation of the Jakarta water Supply 25-year concession agreement. By JWRSB.2009 http://www.jakartawater.org/images/stories/unduh/10tahunbrEng.pdf

Nila Ardhianie Water privatisation in Indonesia 2006 http://www.tni.org/archives/books/waterindonesia.pdf

‘Will Jakarta be the Next Atlantis? Excessive Groundwater Use Resulting from a Failing Piped Water Network’, Nicola Colbran, Law, Environment and Development Journal (2009) http://www.lead-journal.org/content/09018.pdf

Authors:

Malawi - Water - A battle of ideas: business or solidarity? - Jul 2010David Hall

The international institutions have played an active role in promoting water privatisation in Malawi in the 200s. The World Bank proposed a much-needed loan to invest in extensions and improvements to the system, but with the condition that the service should be privatised, despite the fact that experiences with water privatisation elsewhere were already ending in failure.

The unions and civil society have been vigorously opposing water privatisation, and won considerable public support. They have been supported by a network of African public water campaigns elsewhere in Africa and by PSI, which has included research support for drawing up alternative plans.

The World Bank has responded by providing a series of loans and grants to finance propaganda activity. Its major project for water development includes over $500,000 for ‘Sector Reforms, Consensus Building and Public Awareness’ , including “funding media (television, radio and press) programmes targeted at specific stakeholder groups such as members of parliament, trade unions, employees and state-owned enterprises and civil society... public awareness building activities for the key policy makers” and workshops for utilities managers on the benefits of privatisation.

The EU and the EIB have also provided more loans for water and sanitation services in the two main cities, Lilongwe and Blantyre – and the use of a private ‘service contractor’ was one of the conditions of the loans. The plans of this ‘service contractor’ include designing new tariffs for charging consumers, disconnections to enforce payments (which are illegal under UK law, for example), and a complete restructuring of the utilities, with new staffing levels and payment systems, without any reference to negotiation with unions. The contract is being carried out by a joint venture of two Dutch companies, Vitens and Evides.

These water operators are themselves public sector, but acting as agents of commercialisation and promoters of private provision: a key element of the project is “Sanitation as a Business”, and “rewarding the private sector for providing more services to more people over time”. It is a mirror of the similar private management contract imposed in Accra, Ghana, where Vitens is also a partner, which is bitterly criticised by local campaigners for its failure to develop extensive and reliable services.

The union, PSI and the campaign networks are now developing an alternative plan, whereby the Lilongwe water operator would get training and capacity-building support from a public-public partnership based on solidarity, rather than a commercial model. The public water service of Seville, in Spain, has already discussed the possibility of creating a training centre in Malawi. The plan in 2010 is to bid for funding from a new EU budget line specifically for non-profit water partnerships. This budget line itself was set up as a result of international campaigning by unions and public water network to get official backing for such public-public partnerships, rather than support for privatisation and commercialisation. The future of public water in Malawi is thus supported by international solidarity action at all levels.

This initiative also echoes earlier forms of support for water in Malawi. In the 1980s the water service in Lilongwe was supported by an early example of a public-public partnership. The partner was Severn Trent, one of the UK water operators, before it was privatised. The project was successful in training and building the capacity of the water service. It also encouraged the development of community-based water committees, which included a high proportion of women.

Sources and further reading

PSIRU 2009 Public-public partnerships (PUPs) in water March 2009 http://www.psiru.org/reports/2009-03-W-PUPS.doc
Water For People Selected for $1.56 Million Project in Africa 30 September 2009 http://support.waterforpeople.org/site/News2?id=5783

Authors:

Malawi – Health – The need for public sector health workers - Jul 2010David Hall

The healthcare system in Malawi is understaffed. It has between 1 and 2 doctors and 25 nurses for every 100,000 people, and a 60 percent vacancy rate for nurses in rural areas. There is an estimated shortfall of 160,000 health workers. The staff shortages are exacerbated by two factors, according to the WHO: “the public sector continues to lose skilled health workers to the private sector and the international market due mainly to low remuneration and poor working conditions.”

The number of private health services providers increased from 65 in 1995 to 138 by end of 2007, and the proportion of private spending on healthcare grew. This reflected preferences of the international institutions: for example, the private sector arm of the World Bank, the IFC, invested $770,000 in a single private hospital in the 1990s. But the contribution of the private sector to public health standards may be negative, as it competes for the same small pool of qualified workers without offering free universal care services.

A second reason for the inadequacy of staff has been the drain of qualified nurses to work overseas in high-income countries such as the UK where they can earn much higher wages. About half of all trained nurses had left by 2006 - 300 nurses left the country in 2005 alone, more than are trained in one year.

Malawi has a high level of AIDS, with a prevalence rate of about 12 percent. The quality of the health services themselves are a factor in this. Recent studies showed a clear correlation between the erosion of healthcare systems in African countries and higher levels of AIDS. In Malawi this is exacerbated by a shortage of drugs due to inadequate donor funding.

The government has attempted to improve access to healthcare through an Essential Health Package (EHP) of universal free care, including partnerships with mission Hospitals. But the development of the EHP is slow, and there are still major problems, including the distances that have to be travelled to clinics, and the shortage of qualified staff. Malawi is now using less qualified health workers, called health surveillance assistants, to carry out tasks usually handled by doctors, including 95 percent of all HIV tests in the country.

The Malawi healthcare unions have campaigned strongly to improve pay and conditions and change policies of their own and other governments. Supported by Unison and Oxfam, the National Organisation of Nurses and Midwives in Malawi has visited Britain and called for the UK government to act to stop the drain of nurses out of Malawi.

The UK’s DFID has responded with an unusual initiative. They are subsidising the wages of doctors and nurses in Malawi by adding 52% to their salaries, so that there is a greater incentive for nurses to stay in the country. DFID has said that the scheme has helped retain staff, cutting the numbers leaving by over 50%.

Sources and further reading

IRIN May 2010 Africa; Ten Countries Desperately Seeking Doctors http://www.irinnews.org/Report.aspx?ReportId=89186
Oxfam 2009 Your Money or Your Life http://www.oxfam.org/en/policy/your-money-or-your-life
Equinet 2007 Reclaiming The Resources For Health: a regional analysis of equity in health in east and southern Africa

Authors:

Nigeria - Water - Impact on Lagos water of WB privatisation plans, union response - Jul 2010David Hall

Policies in the water sector in Nigeria have been constrained by the international financial institutions and donors. A series of projects from the late 1990s, all effectively required some form of privatisation. The biggest of these concerned Lagos, the largest city in Africa, with a population forecast to rise to 23m. by the year 2015, when it will be the 3rd largest city in the world (after Tokyo and Bombay). The Lagos State Water Company (LWSC), has ageing supply lines, water works and poor electricity supply. Only about 4million of the state’s 15million population have access to piped water, others are supplied by private tankers, water carts, boreholes and wells.

In 1999, the World Bank’s private sector arm, the International Finance Corporation (IFC), developed a proposal which “required the Lagos state government to seek private sector operators for the operation of its water utility” (at the same time, the IFC was also pushing through the privatisation of the national airline, and the Lagos State government was agreeing a corrupt power project with Enron). Privatisation was expected to reduce the cost of water, enable investment, and improve public health and economic growth. The privatisation was seen as opening a larger market for contracts elsewhere in the country over the next few years. The British government sent a 14 person delegation in February 2002, and Thames Water, Severn Trent, Veolia and Suez prequalified as bidders. But later that year the multinationals decided on a global withdrawal from developing countries, and so the entire World Bank/IFC plan for Lagos became pointless. Nevertheless, in 2004 a new law was passed, with no public debate, to enable the privatisation, which gave the new Lagos Water Company the power to disconnect water supply even from public primary schools defaulting in payment of water bills.

In 2010, there is little sign of any IFI or donor policies for water and sanitation in Lagos. Public meetings, however, continue to demand the development of these services. The water workers union has opposed the attempts at privatisation, but now proposes to start drawing up its own plans for a public water and sanitation services in the city.

The same privatisation policies have been pursued by donors elsewhere in Nigeria. In April 2005, WaterAid, the UK water charity, and Partners for Water and Sanitation (PAWS) , which included the UK private water companies, set up a project in 3 small towns to create Water Consumer Associations (WCA), with user charges paying for part of the costs of construction, and covering all operation and maintenance. There was strong resistance from communities to the new charges, but the project team “educated them on cost recovery”.

In April 2002, the World Bank set up the first National Urban Water Sector Reform project, with privatisation as a conditionality. Originally it was to involve seven states, selected not because of their needs for clean water supply, but “because their governments were prepared to consider private sector investment”, but the bank was unwilling to provide enough money - Kaduna state alone estimated that $257m was required to repair and expand its water network to cover 60% of the population – and the project was scaled back to just 3 states.
In 2003 the World Bank suggested developing privatisation of water in Nigeria through a ‘franchising’ structure, similar to the principle used for fast food chains like KFC, whereby local private water vendors would be ‘branded’ by a multinational eg Suez. The concept was abandoned after the multinationals said they were not interested.

In 2005 the World Bank started another project, worth $200m, in two states: Lagos and Cross River, also based on privatisation: “to establish a successful PPP intervention through management contracts. If management contracts can develop a positive track record, then higher forms of PPP can be considered where necessary".

Sources and further reading

Didi Odigie & Bola Fajemirokun 2005 Water Justice In Nigeria: Crisis Or Challenge http://www.dinresourcecentre.org/DIN-downloads/presentations/Water_Justice_in_Nigeria.pdf
Nigerian Compass 09 March 2010 Lagos, stakeholders chart course for sustainable sewage, waste water management http://www.compassnewspaper.com/NG/index.php?option=com_content&view=article&id=42990:lagos-stakeholders-chart-course-for-sustainable-sewage-waste-water-management&catid=72:property&Itemid=710
PSIRU 2006 Water and electricity in Nigeria http://www.psiru.org/reports/2006-09-WE-Nigeria.doc

Authors:

Nigeria – Health – Privatisation instead of wages for health workers - Jul 2010David Hall

With more than one million children dying every year from preventable diseases, Nigeria is one of the least successful of African countries in achieving improvements in child survival during the past four decades. A detailed study found that increased public spending on healthcare, and improved general literacy, were the most important factors for reducing child deaths.

Yet public expenditure only accounts for about a quarter of health spending in Nigeria. Nearly all the rest comes from direct payments by patients, to both public and private operators. This system hits the poor hardest: half of those who do not get healthcare are deterred by cost.

Fees were introduced into public health services in Nigeria in the late 1980s, with the objective of increasing income, but they have had damaging effects. In one district, the numbers of women dying in childbirth doubled after fees were introduced for maternal health services, and the number of babies delivered in hospitals declined by half.
People on higher incomes benefitted more from anti-malarial programmes because the poor were deterred by user fees.
Some states are now providing free services, but user fees are still in place for the general population and even for some services for the under fives and pregnant women.
Public clinics do not have adequate stocks of drugs and other treatments.

The service also suffers because staff are inadequately and unreliably paid. Public authorities still try to make savings by cutting the wages bill, which undermines services. At one teaching hospital, the number of medical, midwifery and nursing staff fell between the 1980s and the year 2000because of a freeze on recruitment of permanent staff, and the maternal mortality rate increased more than four times. Healthcare workers in Kaduna state had to go on strike for a week in February 2010 in order to persuade the governor to include enough in the state budget to pay an agreed pay rise. Most primary healthcare clinics are understaffed compared with national guidelines, but a majority are women, and people rate the attitude of staff more highly than other aspects of the service they receive. However, many health workers do not receive adequate salaries, and payments are often delayed, so they resort to other work – including private healthcare or sale of medicines – to supplement their pay, resulting in overprescribing of drugs to boost private sales.

The private sector provides limited, poor and unequal healthcare. In the year up to April 2008, over 184 private hospitals, clinics, and laboratories were closed in Abuja, Nigeria’s capital city, for failing to meet basic standards of hygiene and staff training. Private clinics and shops are responsible for the great majority of sub-standard and counterfeit drugs.

The World Bank has increased its lending to healthcare, but continues to promote privatisation and commercialisation in healthcare in developing countries, including fees and insurance for financing, rather than increasing free public healthcare through tax-financed public spending. This has not been effective: even the Bank’s own evaluation division reported in 2009 that only 25% of the bank’s work in sub-Saharan Africa was satisfactory. The policy is driven by the International Finance Corporation (IFC), the arm of the World Bank dedicated to investing public money in private companies: in Nigeria, for example, the IFC has made a series of multi-million dollar investments in Hygeia, a private healthcare company set up by USA investors to provide healthcare services to large corporate clients. The IFC promotes these policies in a policy document in January 2010, titled ‘The Business of Health’, which claims that governments should embrace the private sector thorugh more PPPs, which it describes as a ‘win-win arrangement’ The country assistance strategy of the international financial institutions (IFIs) and donors for Nigeria states that “reforms will need to include expansion of the role of the private sector....utilize the potential of PPPs….. and provide Nigerians with easy access to health insurance”.

The IFC, the African Development Bank, the German development bank KfW, and the Gates Foundation have created a Health in Africa Fund, dedicated to making commercial investments in private healthcare companies. Over £50 million of public money is already invested in it, but this is a private equity fund, run by Aureos Capital, which operates out of the tax haven of Mauritius and takes 2.25% of all investments every year as ‘management fees’ – high even by the standards of private equity firms. Aureos see themselves as competing against “non-profit organizations who subsidize health care services and distort market forces”. The fund was strongly criticised in the Who bulletin in October 2009 by staff at Save the Children, who pointed out that there was no public debate about the fund before it was set up, that there is no empirical evidence to support the encouragement of the private sector, and that there is clear evidence that the poor get a worse deal from the private sector.

Sources and further reading

‘NIGERIA: Shoddy private health centres closed down’, IRIN 29 April 2008 www.irinnews.org/report.aspx?ReportID=77981
IEG evaluation of health ◊ ; Implementation of Bank’s health strategy http://tinyurl.com/HNP09reviewf , www.worldbank.org/ieg/hnp
IFC The Business of Health January 2010 vhttp://www.ifc.org/ifcext/hia.nsf/AttachmentsByTitle/PolicyNote1PrivateRolesJanuary2010/$FILE/Policy+Note+1+Private+Roles+January+2010.pdf
Uzochukwu B. and Onwujekwe O. 2005 Healthcare reform involving the introduction of user fees and drug revolving funds: influence on health workers' behavior in southeast Nigeria, Health Policy, Volume 75, Issue 1, December 2005, Pages 1-8, DOI: 10.1016/j.healthpol.2005.01.019
Ngowu R. et al. 2008 Reducing child mortality in Nigeria: A case study of immunization and systemic factors Social Science & Medicine Volume 67, Issue 1, July 2008, Pages 161-164

Authors:

South Africa - Energy - Priv/lib proposals, scrapped, successful extension of system - Jul 2010David Hall

Since the ending of apartheid in 1994, South Africa has massively increased the number of households connected to its electricity system, financed first by cross-subsidies and then from tax revenues. The percentage of the population with access to electricity rose from 40 percent in 1994 to 66 percent in 2002: 79 percent of the population in urban areas and 46 percent in rural areas had access to electricity. By the end of 2006 over 3.3 million households had been connected, and the continuing programme is financed from a national government fund. One effect of rural electrification was a significant increase in employment of women in rural areas

South Africa also provides subsidies to enable poor households to receive 50 KWh per month free, with reduced tariffs after that point. By the end of 2006, 1 million households were benefiting from this. The country remains on track to deliver the target of total electrification by 2012. This contrasts with the rest of Africa, where “the emphasis on profitability appears to have relegated expanded electrification of the poor to the bottom of the priority list”, and neither private sector participation nor regulation has made any significant contribution to the extension of access to network services.

The process of extending the system was driven by the political commitment of the ANC, and a National Electrification Forum (NELF), a broad-based stakeholder body with participants from Eskom, municipalities, the government, unions and others. The plans were developed by this body and led to an agreement between Eskom and the ANC to deliver electrification. The key elements in achieving this policy were thus the existence of a strong political commitment, a strong public sector utility, and active involvement of unions and other stakeholders.

From the late 1990s, the South African government nevertheless adopted a policy to undundle and privatise, or at least liberalise, the unified electricity sector. PriceWaterhouseCoopers acted as consultants, and recommended the breakup of distribution and the introduction of private power stations. There was strong opposition to this policy, led by the trade unions, which successfully delayed it.

Finally, in 2004, the government abandoned its earlier plans for the unbundling and privatisation of the electricity industry, and retained Eskom as an integrated state-owned electricity company. The government also decided against introducing private companies into electricity generation, so Eskom remains responsible for virtually all generation. The only privatised power station, Kelvin, was abandoned twice by multinational owners – first AES, then Globeleq.

Sources and further reading

Gaunt, C., 2008. Electricity distribution industry restructuring in South Africa: A case study. Energy Policy, 36(9), 3448-3459. Available at: http://www.sciencedirect.com/science/article/B6V2W-4SWP25M-1/2/221bb17df4953f22969e738f519b7c4b
South Africa's rapid electrification programme: Policy, institutional, planning, financing and technical innovations . B Bekker, A Eberhard, T Gaunt, A Marquard. 2008 Energy Policy
Volume 36, Issue 8, August 2008, Pages 3125-3137 doi:10.1016/j.enpol.2008.04.014
Taryn Dinkelman, 2008. The Effects of Rural Electrification on Employment: New Evidence from South Africa. University of Michigan Job Market Paper Available at: http://faculty.ucr.edu/~jorgea/econ261/electricity.pdf
Eskom Annual report 2006 . Chief executive's report. http://www.eskom.co.za/annreport06/chiefexecutivesreport.htm
Dubash N. (ed.) 2002. Power politics: Equity and environment in electricity reform. World Resources Institute. August 2002.. Chapter 8: South Africa http://pdf.wri.org/powerpolitics_chap8.pdf

Authors:

South Africa – Health – Union initiative transforms Soweto hospital - Jul 2010David Hall

Only about 15% of South Africans are covered by medical aid schemes, but they get nearly half of the healthcare spending in in the country, including subsidies and tax relief. The great majority rely on public sector healthcare, which has less money.

The system is dominated by an oligopoly of powerful private companies - the largest, Netcare, also operates internationally, owning the largest private hospital group in the UK. The private sector systematically exploits the opportunities to profit from the public healthcare system, as well as the private market, by running some hospitals for the public sector on a contractor basis. The quality of service in the contractor hospitals is worse than the public hospitals: contractors limit their expenditure on staffing and equipment and supplies, to the point of failing to meet public sector standards. But the public hospitals have also been starved of funds and resources, and there are frequent breakdowns of service.

The health workers’ unions, led by NEHAWU, played a central role in improving the standards of care at the the largest hospital in the country, the Chris Hani Baragwanath Hospital in Soweto. By the late 1990s, there was not only a lack of resources, but the management system had effectively broke down. The unions responded by approaching , the National Labour and Economic Development Institute (NALEDI), a research and policy institute established by the South African trade union federation COSATU. The objective was to transform Chris Hani Baragwanath into: “a ‘People’s Hospital’ which would improve the quality of health-care service as well as the quality of working life for union members.” NALEDI worked with unions, management and staff to develop a new integrated structure based on a team-working approach involving all categories of staff.

With the support of the trade union federation, COSATU, the South African government is now attempting in 2010 to introduce a new National Health Insurance system, which will help finance free public healthcare. As in the USA, the entrenched private interests have applied pressure to ensure they can still profit from the system, Netcare, for example, is already advocating the extensive use of PPPs to provide hospital development schemes government effectively has to negotiate the new arrangements with

Sources and further reading

After Apartheid: Decay or Reconstruction? Transition in a Public Hospital. Karl von Holdt and Bethuel Maserumule http://www.newunionism.net/library/case%20studies/Chris%20Hani%20Baragwanath%20Hospital%20-%20South%20Africa%20-%202006.pdf
South Africa: The debate on National Health Insurance. Leonard Gentle, ILRIG. Workers World News (No. 55, October 2009) http://www.twnside.org.sg/title2/resurgence/2009/231-232/health02.htm

Authors:

South Africa – Waste – Unequal services and outsourcing of waste management services - Jul 2010David Hall

South Africa produces about 556-million tonnes of waste a year, and the vast majority of this ends up in landfill sites, or is simply not collected at all. Nearly half of the population, do not have access to domestic waste collection services, so the waste ends up littering streets and empty land, and choking water sources. There is, in effect, a two-tiered rubbish collection system in place in South Africa. In wealthier suburbs, waste is collected by the municipality on a regular basis, with mechanized trucks. However, in many working class areas, which often did not have waste removal services prior to 1994, waste removal service are outsourced. The waste removal service provided by the outsourced company is of a lesser standard than that provided by the municipality, so the outsourcing of waste tends to perpetuate class divisions and inequalities. The solid waste is dumped at landfill sites - many of which are situated in, or close to, poor working class communities. In 2009 over 300 tons of medical waste was found illegally dumped, and the chief executive of one of the leading waste management companies, Wasteman, has been arrested.

Workers employed by a private contractor are not covered by the collective agreement for municipal pay and conditions. Except for those working on the collection trucks, they are not protected by any agreement at all. Street sweepers, a high proportion of whom are women, are usually employed on a casual basis, by municipalities as well as contractors. Safety issues also affect women more, because lack of changing and cleaning facilities and protective clothing like gloves has resulted in gender barriers against women getting better-paid jobs as refuse collectors. Poorest of all are the ‘reclaimers’ who pick recyclable materials out of waste and resell them to make a living.

Many municipalities have contracted-out some refuse collection and waste management, often in an attempt to provide a service despite inadequate funds. They have also been encouraged to do this by the Muncipal Infrastructure Investment Unit (MIIU), a body created by central government to offer finance to municipalities and advice on how to privatise.

The municipal council of Thabazimbi contracted out the service in 1995, brought it back inhouse because of poor performance, and then contracted out again on the advice of the MIIU, even though the inhouse team was delivering a good service.
The city of Johannesburg turned its waste management department into an arms-length company, Pikitup. It is still owned by the council, but it sub-contracts some work to freelance drivers, casual labour agencies, and small private contractors. In some cases sub-contracting refuse collection was seen as a way of supporting black economic empowerment, by providing business to local entrepreneurs.
The council of Sol Plaatje contracted a private company, which then paid other smaller sub-contractors to do the actual cleaning. The private company kept a commission, and was supposed to supervise and enforce standards – but it failed to do so. The sub-contractors paid their workers less than half as much as the council, and did not provide gloves or protective clothing.
The City of Tshwane recorded no staff in the refuse removal sector for 2006 – presumably because all waste removal functions had been outsourced.

There have been frequent strikes by contractors’ employees demanding to be paid on municipal pay and conditions, for example in Erkurhuleni in 2009. The municipal workers’ union, SAMWU, has called for an end to outsourcing and enforcement of safety laws. In 2010 the government said it was considering ways of creating jobs by extending better waste management practices.

Sources and further reading

Samson, Melanie (2003) “Dumping on women” MSP http://www.municipalservicesproject.org/sites/default/files/SAMPSON%20Dumping%20on%20Women_0.doc
SAMWU. Overview of the waste management sector - 2010

Authors:

Compensation claims to arbitration tribunals by energy and water multinationals in Latin America 2007 - Oct 2007

David Hall

Emanuele Lobina

PSI Brief October 2007

David Hall and Emanuele Lobina

Compensation claims and ICSID in Latin America 2007

1. Energy

Multinationals continue to make compensation claims at international tribunals. These claims are made principally under Bilateral Investment Treaties (BITs), either to the World Bank’s arbitration tribunal (ICSID) or to the International Chamber of Commerce (ICC) or to the United Nations Commission on International Trade Law (UNCITRAL). (For an account of the law and the mechanisms, see Ricardo Ortíz (FOCO): The Bilateral Investment Treaties and the cases at ICSID, 2006 http://www.inpade.org.ar/documentos/FOCO_ICSID_engl_2006.pdf ; for news and developments see http://www.fdimagazine.com/news/categoryfront.php/id/303/IN_DISPUTE.html ; for an investor’s perspective see White and Case International Disputes Quarterly http://www.whitecase.com/IDQ )

In energy, most cases have concerned Argentina, with multinationals winning compensation in four cases concenring gas companies.

In 2005 CMS was awarded $133m. compensation for their share of the losses of Transportadora Gas del Norte (TGN), based on their claim that when Argentina refused to allow prices to be raised in line with the dollar this was an act of ‘indirect confiscation’. ICSID also ruled that, after the compensation is paid, CMS should give the Argentinean government its shares in TGN.[i]
In 2007 Enron won $140m. compensation for its shares in the losses of Transportadora Gas del Sur (TGS). However, Petrobras, which was the majority shareholder, chose instead to pursue the renegotiation of the contract for TGS.[ii]
In July 2007, LG&E, the USA company now owned by E.on of Germany, was awarded $57.4million compensation for its share in the losses of Gas Natural BAN, a gas distribution company. Gas Natural, the Spanish company which is the majority shareholder, had however suspended its claim for compensation earlier in 2007 in favour of renegotiation.[iii]
In October 2007, Sempra Energy was awarded $172m. for its share of the losses of two gas distribution companies, Sodigas Pampeana and Sodigas Sur.[iv] However, Camuzzi, the Italian company which owns 57% of the shares, has decided to renegotiate the contract rather than claim compensation. [v]

Similar claims brought to ICSID in relation to electricity companies in Argentina have all now been suspended in favour of renegotiation. This includes the cases originally brought by the major multinationals AES, EdF, Endesa, and Enersis. [vi]

Table 1. ICSID Compensation awards: gas companies in Argentina

Company	Claimant	Country	% owned	Award	Date	Majority shareholder	Claim
TGN	CMS	USA	30	$133m	01/05/2005
Gas Natural BAN	LG&E/ E.on	USA/ Germany	20	$57.4m	26/07/2007	Gas Natural (Spain)	No
TGS	Enron	USA		$140m.	22/05/2007	Petrobras (Brazil)	No
Sodigas	Sempra	USA	43	$172m	02/10/2007	Camuzzi (Italy)	No

Sources: see text

Two features of these claims are worth noting, as they suggest that compensation is most likely to be sought by companies with no future interest in the operations:

In each of these cases the compensation was awarded to a company which was a minority shareholder, while the majority shareholder in each company decided to renegotiate the contract and abandon the compensation claim. [vii]
None of the companies claiming compensation have any continuing interest in the companies concerned. CMS will automatically gives up its shares in TGN in exchange for the compensation:
- CMS sold all its other Argentinean investments in February 2007, and would have sold the stake in TGN as well if it had not been covered by the ICSID ruling;[viii]
- Enron is already bankrupt, and its shares in Ciesa, the holding company which owns 55% of TGS, have been distributed to its creditors: Petrobras now holds all the voting shares in Ciesa;[ix]
- LG&E sold its shares in Gas Natural BAN to the majority shareholder, Gas Natural, one month before it was awarded compensation;[x]
- Sempra remains as a shareholder in Sodigas , but stated in December 2006, 10 months before the award of compensation, that it intended to sell its stake in Sodigas. [xi]

The rulings of ICSID have not been legally consistent: for example LG&E were denied compensation for the period December 2001 to April 2003 because the tribunal accepted that this was a period of national emergency; but CMS were given compensation for losses during that same period. [xii]

ICSID has no powers to enforce the awards, and the Argentinean government has stated that it will not pay any of the claims lodged by utility companies against it in the aftermath of the 2001-02 economic crisis.[xiii]

Two energy-related cases against Argentina at the UNCITRAL, initiated by UK-based companies, appear to have been abandoned. National Grid Transco, former shareholder on the transmission company Transener, claimed US$151.3m., but sold its 50% stake in Citilec, which controls Transener, to an Argentinean investment fund Pampa;[xiv] United Utilities, owner of 45% in Edea power distribution company, sought US$100m, but withdrew the case and sold their stake in Edea in 2005. [xv]

2. Water

The exit of the multinationals continues to create significant costs for Latin American countries. The companies filed many cases at the World Bank’s arbitration tribunal, ICSID, claiming compensation for the contracts which had been discontinued. These cases are proving extremely costly, both in terms of the awards, and in terms of the resources consumed in challenging them. NGOs have tried, with only partial success, to join the proceedings as amicus curiae. In May 2007 Venezuela, Bolivia, Nicaragua, and Cuba decided to leave ICSID [xvi].

It should be noted that it is Vivendi Universal, the media company and former owner of Veolia, which is pursuing the cases and benefiting from the proceeds. Vivendi no longer has any interests in the water sector and so has nothing to lose by pursuing them.

Table 2. ICSID Cases as of September 2007 - www.worldbank.org/icsid/cases/pending.htm

Country	Concession	Claimants	Claim	Award	Status
Argentina	Tucuman	Aguas del Aconquija, Vivendi Universal	US$ 375m	US $105m.	Filed: 19.02.97 Award Rendered 20.08.07: US$ 105 million payment
Argentina	Province of Buenos Aires	Azurix	US$ 400m	US $165m., pending appeal	Filed: 23.10.01 Award rendered (subject to appeal): US$ 165m payment
Argentina	Mendoza	SAUR International	US$200m-300m	pending	Filed: 27.01.04 Saur to discontinue proceedings? April 2007
Argentina	Mendoza	Azurix	¿?	pending	Filed: 08.12.03 Pending (Tribunal not yet constituted)
Argentina	Province of Santa Fe	Aguas Provinciales de Santa Fe, Suez, Aguas de Barcelona, Interaguas Servicios	US$ 300m	pending	Filed: 17.07.03 Pending
Argentina	Cordoba	Aguas Cordobesas, Suez, Aguas de Barcelona	US$ 108m	Settled	Filed: 17.07.03 “Settlement agreed by the parties and proceeding discontinued at their request”, January 2007
Argentina	Buenos Aires	Aguas Argentinas, Suez, Aguas de Barcelona, Vivendi Universal	US$ 1.7 billion	pending	Filed: 17.07.03 Pending (amicus curiae allowed)
Argentina	Province of Buenos Aires	Impregilo	US$ 100 million	pending	Filed: 25.07.06 Pending (Tribunal not yet constituted)
Bolivia	Cochabamba	Aguas del Tunari	US$ 50m	2 pesos	Filed: 25.02.02 Abandoned (formally settled), January 2006
Bolivia	La Paz/El Alto	Aguas de Illimani	-	withdrawn	Not filed as mutual agreement reached by the parties March 2006

[i] La Nacion October 4, 2007: Argentina: TGN stake up for grabs

[ii] Thomson Financial News October 1, 2007: Petrobras Energia SA - Half-yearly Report

[iii] La Nacion July 27, 2007: Argentina: ICSID finds in favour of LG&E

[iv] Sempra Energy awarded $172 million in Argentine arbitration 02/10/2007 http://public.sempra.com/newsreleases/viewPR.cfm?PR_ID=2207&Co_Short_Nm=SE

[v] El Cronista October 4, 2007: Argentina: Sempra still wants ICSID compensation

[vi] Investment Treaty News (ITN), May 16, 2006 http://www.iisd.org/pdf/2006/itn_may16_2006.pdf ;La Nacion April 23, 2007: Argentina: PAE, the latest of 14 firms to spare the government's blushes

[vii] Investment Treaty News (ITN), May 16, 2006 http://www.iisd.org/pdf/2006/itn_may16_2006.pdf

[viii] Global Power Report February 8, 2007: CMS signs deals valued at $1 billion to sell Asian, Middle Eastern, Latin American assets

[ix] El Cronista January 31, 2006: Argentina: Enron sells 15% of TGS to D. E. Shaw

[x] El Cronista June 19, 2007: Argentina: Gas Natural grows stake in Gas Natural Ban

[xi] Global Insight October 8, 2007: Sempra Awarded Arbitration Claim in Argentina; Business News Americas - English December 27, 2006: Sempra to sell Camuzzi gas assets

[xii] Foreign Direct Investment (fDI) February 1, 2007: NEWS IN DISPUTE

[xiii] Global Insight October 8, 2007: Sempra Awarded Arbitration Claim in Argentina

[xiv] Latin Finance March 2007: Political Risk Revisited

[xv] La Nacion November 29, 2004: Argentina: Government prepares legal defense against debt swap;

El Cronista February 18, 2005: Argentina: United Utilities, Pioneer, drop cases against government

[xvi] Source : “Left-wing govts exit ICSID”, Business News Americas, 3 May 2007.

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