Well, thank you to the organisers for the invitation to talk. I think the issues in this conference are of great importance to all nations. It is also extremely important that we try and understand the Australian experience because so much of the export industry emphasis in Australia is to export its BOOT schemes to South East Asia in particular and to Asia as a whole. So I find it very useful to have sat through some of the presentations yesterday and today.

I'll start by trying to outline some of the key features of globalisation because I don't believe we can understand both the rationales for the privatisation of infrastructure and also the potential outcomes without trying to understand some of the key features of globalisation and, in fact, some of the outcomes of those key features.


What are the key features? The ordinary person on the street, I guess, both in Sydney and Bangkok (where I live) identifies globalisation with McDonalds, with Coca Cola, with ATMs around every corner and, in fact, this characterisation is accurate if not complete. The term globalisation is now commonly used to explain a wide variety of trends and events in daily life. It sometimes almost appears as if globalisation is viewed as an explanation in itself, seen by many as an inevitable process. I think, if you take that point of view, then a lot follows from that and it's viewed almost like an act of nature. It requires or allows no further debate or explanation and so, for many people and for many analysts, the starting point is this: that this is the new paradigm and therefore we have to work within this paradigm. The term seems to have appeared from nowhere but its presence is now everywhere and my basic starting point is that the term itself is only about ten years old, so it's clearly not an act of nature. It's not something which is inevitable and it's something that people have created and therefore people can re-create something else they want to.


I think that it's important to understand that the key features and attributes of globalisation are that it is led by the forces of private capital flows and economics and finance and I think this is a very important understanding to have, to understand the implications for the privatisation of infrastructure. Private flows to developing countries, as was shown by the previous speaker, were estimated at $244 billion in 1996, up from only $48 billion dollars in 1990 - so an increase of about six-fold. Approximately $1,300 billion is transferred around the world every day. These are all key attributes of current processes of globalisation. And this has been facilitated largely by processes of liberalisation and deregulation the world over and by the computing technology revolution.


At the same time global overseas development assistance - aid through official channels - has actually declined to $55 billion so that there's a reverse ratio of about five to one between private capital flow and ODA. This in my view has created a totally changed dynamic between ODA and private capital, with significant implications for infrastructure projects in developing countries and for vulnerable population groups within them.


I think that many people argue that a lot of this is not new - that globalisation has been around for a long time. I submit that there are significant differences between the character of 19th century mercantilism and late, 20th century globalisation. Imll just point out four or five because I think it's important to understand these differences as well as the outcomes that they're producing.


The first is the character and recent emphasis; I think the current regional crisis in South East Asia highlights the fact that there's been a growing emphasis on financial flows and financial deregulation and liberalisation. Second, the role of computing and information technology as a facilitator of such flows; Third, the reduced role capacity and ability of the state and global multilateral institutions in directing or regulating such flows - all of these are important differences from a century ago. Fourth, the absence of appropriate and adequate national and global governance, of international financial transactions and of the international economy. Fifth, the total mobility of capital relative to labour, especially unskilled labour.


Now all of these have produced a number of outcomes and I'll mention five because I think that because the processes of globalisation are led by private capital, the kinds of outcomes they've created in general can be reasonably seen to be the kinds of outcomes they would also create in any particular sector, whether it be infrastructure provision or whether it be privatisation in some other area. I'll mention five and, while the statistics are startling, they're not terribly controversial.


Fifty of the world's hundred largest economies today are not countries, they're transnational corporations with almost no developing country economy now being larger than the fifty large transnational corporations. One per cent of transnational corporations now account for 50% of world foreign direct investment; 70% of global trade is controlled by a mere 500 transnational corporations. The world's richest 350 billionaires have now accumulated wealth which equals that of 45% of the poorest people in the world and, as the UNDP Human Development Report for 1997 says: "The ratio of the income of the top 20% of the world's population to that of the poorest 20% rose from thirty to one in 1960 to sixty to one in 1991, to a startling new high of 78 to one in 1994".


The reason I state these statistics is because they're not controversial. They're startling. But they are outcomes of a certain process which has been led by private capital and which has been led by privatisation, deregulation and liberalisation. I think, when we turn to Asia and to East and South East Asia in particular, as the previous speaker said, there's been a huge concentration of private capital flows in this region both in terms of portfolio speculative capital, of which 53% of the total to the developing world has actually come to this region. At the same time, two-thirds of global foreign direct investment to developing countries has been concentrated on literally 12 to 15 countries, of which eight are in East and South East Asia and one, India, is in South Asia.


But we see that these flows, as the previous speaker said, have not been matched by the kinds of private investments in infrastructure that were hoped so, even if there was a hope that infrastructure investment from the private sector would increase, the proportion of these flows that has gone to infrastructure is minuscule despite the advocacy of the World Bank and other such institutions, despite the cajoling and the kinds of investment incentive structures that have been provided to private capital.


At the same time, we find that a lot of this capital is, of course, quite fickle and I think that the current regional crisis once again highlights this. We find that, while total in-flows of capital to the five or six major countries which are at the heart of the crisis in the region right now was about $93 billion in 1996, there was a net outflow of $12 billion in 1997, meaning that the net outflow was actually $93 plus $12 billion dollars - $105 billion in one year.


Now again, some of this money that's come in has been directed to infrastructure projects - at least in the big cities like Bangkok where now you have huge monuments which are lying stranded in all the major cities in South East Asia and in East Asia. You either have projects which were supposed to be dependent on private infrastructure which are lying stranded or being postponed or going through various iterations, because one of the major areas of budget cuts as a result of the IMF package has been this whole area of public infrastructure and, of course, a lot of the private capital (or some of it) comes to private infrastructure as a response to public investment in infrastructure. So the combination of public and private cuts has resulted in, I think, a major problem in infrastructure development. When we look at infrastructure development needs and provision in East and South East Asia, we find that in those areas alone the projections of the World Bank between 1995 and 2004 are $130-150 billion a year worth of infrastructure. Half of this is to the People's Republic of China; in fact, the projection for the People's Republic of China is the same as for all of Latin America in the next decade.


Now I won't go into the rationale for private sector provision of infrastructure because that's been gone into to some extent but I will say that the implications for the changing role of the World Bank are quite significant, quite different from the traditional kind of project funding that the World Bank has been involved in. We see an emphasis on a combination of economic policy advice through structural adjustment and other programs and the facilitation of private capital, as was pointed out in the previous presentation. So there's a reconfiguration of roles, moving away from the importance of individual project lending, to this kind of combination.


Now what are the key issues in the public interest? There isn't a lot of time, so I'll try and focus on some because I think the subsequent talk by Charlie Pahlman will focus on some others; so I won't go into the question of BOOT issues which have been gone into in considerable detail. But I will say that, if we want to look at the key issues in the public interest, the major key issue we have to look at is privatisation per se because many of the arguments for privatisation in infrastructure are the same arguments for privatisation per se and, by looking critically at some of the issues in privatisation per se we will be able, I think, to get some indications of the implications for privatisation in infrastructure.

The first thing is that it's important to note that, while there's no doubt that the public sector has failed in considerable numbers of countries (and I don't think that's a point in dispute), what is also true is that there are a number of stunning success stories. East Asia alone, according to the World Bank's own analysis, is a case where utilities in East Asia in many fields have been quite satisfactory. I'll quote from the World Bank report: "The technical performance of East Asian utilities and fields most suitable for early privatisation q like telecommunications - has been satisfactory". Now if the World Bank calls it satisfactory, and certainly as someone living there, I would say that the public sector can work, has worked; utilities in a lot of these countries have not just been satisfactory in terms of their performance, they've made money, they've been profitable; but a lot of them are currently being privatised for other reasons.


It is also important to note that a lot of the industrialised countries, notably France and Germany, had no private investment in telecommunications infrastructure as late as 1995 while France had no private sector involvement in its power sector in that year and Germany had no private involvement in transport. Japan has very little private sector involvement in transport and none in water and sewerage. Despite this, provision of these services is quite adequate and certainly is not under criticism as it should be if this was not working. Overall, the weighted average of privatisation in infrastructure investment for France was only 13% in 1995, even less than 9% for Germany and only 14% for Japan. I think there are lessons to be learnt from this. Yet the target deemed desirable by the World Bank is as high as 70% and it's the UK that's been used as the model. As we heard yesterday, there are considerable problems with the UK model of privatisation - yet, in a lot of the bank literature, it is the UK which is used as an example.


I think it is also important that, if we take the argument of public goods (which I would like to propose), if we accept that there are public goods which are goods whose benefits go to more than just an individual, they accrue to society as a whole - then your definition of public goods is very important and the provision by the public sector of those public goods is quite crucial because otherwise they're not going to be equitably available to all people with equal opportunity, rich and poor alike. Because the private sector has not shown, has not empirically demonstrated, that it is able to provide such goods equally to all members of society.


One of the big difficulties right now is in very different definitions of what is a public good. The World Bank says, for example, that there's no dispute over the fact that telecommunications is no longer regarded as a public good. However, I would argue that in the context of globalisation, where communication is increasingly important and access to communication is increasingly important, access to a local telephone system is probably more important today than it's ever been before. So the question of what is a public good and who's in the best position to provide a public good is, I think, at the heart of this debate on privatisation.


Also I think that it's important that a lot of studies, including some done by the World Bank, have indicated that ownership is in fact not the key criteria for determining efficiency and for determining effectiveness. I think it's important to note that the most important is some degree of transparent competition, accountability to consumers (especially the small and poor ones), good, enforceable and independent regulation, and sound management practices. It's not ownership, it's all of these attributes, and I would submit that the private sector has no monopoly on these attributes. Indeed in the current global market concentration context that I just presented, significant and influential segments of the private sector work in contrary ways to these attributes and therefore this is not a good argument, not a very convincing argument for privatisation.


Also, I think that, while regulation and enforcement is crucial, the fact that this is very weak in developing countries often means that privatisation of utilities, rather than encouraging competition, has led to the creation of private monopolies and results in market failure especially for those without effective purchasing power in the market, who are normally the poor and women.


The argument of privatisation proponents is also that the poor are willing to pay for utilities because they are not being provided to them anyway and they'd rather pay. This is again not empirically validated in the social services area, for example in health provision, when user-pay systems are introduced. Because while people might be willing to pay, they don't actually have the ability to pay and willingness to pay is not the same as ability to pay and I think this has been demonstrated in country after country.


So as a result of this, I would submit there are a number of key issues that need further consideration. These include the following:

- Privatisation may not be the most appropriate answer in many situations and could compound problems of lack of accountability and transparency to the public rather than resolve them.

- It may make certain public goods inaccessible to the poor.

- It could further skew in equality of opportunity.

- It is likely to have a gender bias against women.


- It could lead to mass unemployment for labour, many of whom cannot be retrained for alternative jobs in the private sector.

- The weakening of the State's role partly as a result of the economic policy advice of the World Bank and IMF as part of the structural adjustment package could reduce rather than enhance a government's ability to enact and enforce effective regulation of the market in the interests of the poor and disadvantaged.

Very often the benefits of privatisation, which are revenue generation to finance budget deficits, actually mean that the best companies, the best-performing companies and the companies which have the widest coverage for people are the ones privatised first and sold off first, without any guarantee that the revenue earned will be used to enhance both the reach and quality of public services. Moreover, if privatisation is judged to be the best option in certain situations, and it might well be in certain situations - but in my view not in the context of public goods - then a genuinely participatory process of divestiture is actually what is required and despite the rhetoric of participation that we hear from the Bank, I (having engaged with the World Bank on this issue for over a decade now) I am convinced that the rhetoric and the reality gap remains considerable and huge in all areas of participation, including in the area of privatisation.


The second area (and I won't go into this in detail because of lack of time) is the public subsidy of the private sector as a result of privatisation. This will perhaps again be gone into later in other papers and it was gone into considerably yesterday, in terms of the BOOT schemes. So I won't go into this. I will just say that, to go back to the example used of the Nam Theun II Dam in Laos, that case of the public subsidy of the private sector by the Government of Laos includes, its provision of tax and other incentives to the private consortium, full repatriation of profits, tax holidays, its responsibilities for the social, environment and resettlement issues and costs, and the utilisation of its precious and limited concessional, IDA credits for this purpose, its free supply of the country's non-renewable resources and its responsibility for all the so-called sovereign project risks.


Now I think it's also important to stress, in the context of the example given, that a lot of the economic assumptions are extremely dubious as far as I am concerned, living in Thailand, the only market, with no purchase price agreement agreed with the Electricity Generating Authority of Thailand, with the economic sensitivity analysis being extremely sensitive to inflation rates in Thailand which currently are in huge flux - all of these will have a huge impact on the economic sustainability of that dam. So, even leaving aside the environmental, social and resettlement issues, from my perspective it's actually the economic assumptions of that project which are most contestable.

I won't go into detail on the issues to do with the financial guarantee because there's a talk later today on it but I would say that there are at least six issues. One is the issue of sovereign versus commercial risks. There is an increasing blur between these two in the context of globalisation and I think the current regional crisis has very clearly shown that what is regarded by the World Bank as a sovereign risk is actually very often a risk beyond a countryms control. There are many variables over which governments have no control, which are classified as sovereign risks and if they default on these sovereign risks then, of course, the guarantee is called into operation. There are political sovereignty issues which are closely tied up with the concession period of the BOOT arrangement; there are the potential conflict of interest issues; there's discrimination in providing risk guarantees to the private parties against the government but not providing guarantees to the government against the private sector and, of course, a lot of examples have shown that governments face multiple risks whilst dealing with private investors, especially foreign ones who (among other measures) can walk away from a project if it goes wrong for them, leaving huge amounts of physical, financial, human, institutional and political capital stranded or sunk as a result of their actions. I think this is a major issue. Given that the main client of the World Bank is the government, not the private sponsors, it seems ironic that it's the private sponsors who've been guaranteed against the client rather than the other way around.


I think the counter-guarantee has major costs; the World Bank's charter makes it imperative that it asks for a counter-guarantee from the government of Laos, which means that there's a huge opportunity cost, there are debt implications and of course, because of the enclave nature of the guarantee in this particular case, it means that revenues earned from Thailand will be put in an off-shore account, in foreign exchange, and the first call on this will not be to the government of Laos or the Lao people; it will be to the private creditors and the banks who will first get repaid before any call on this money can be made by the government of Laos or its people.


I think I have already talked about the governance and regulatory issues. I think another big issue that the Bank has to deal with, in terms of using guarantees, is that it's leverage over the private sector is very limited. It's much less limited than in its traditional role of giving loans, because what we have is a situation where, once the guarantee is approved, there is actually no leverage. Unlike a loan, where you give different installments and you have conditions, and then you say "OK, I won't give you the next installment unless these conditions are met. With a guarantee, once it's given, it's given" - there's very very little leverage. It's unclear whether the current and new World Bank policies of information disclosure, environment resettlement and other policy guidelines and operational directives, and whether the inspection panel mechanism will be applicable in the guarantee context and the privatisation context because what has been invoked in the past is the commercial confidentiality clause, which was talked about yesterday as well.


To conclude, I just wish to say that I think the current regional financial and economic crisis in East and South East Asia should be used as an opportunity to stimulate a public discussion both about the feasibility and the desirability of private capital flows being given the dominant role that they have been given so far (at least in theory) in the provision of basic physical and social infrastructure. The role of the multilateral development banks, like the World Bank and the Asian Development Bank, in uncritically facilitating and advocating for such flows, should also be subject to critical debate. It may be useful for the multilateral development banks to more carefully heed the warning of Mr. Wapenhas and the MDB Task Force which comprised groups from 18 countries which, in its recommendations on the future roles of these institutions in 1996 said (and I'll quote):


"An MDB presence should ensure that a private sector investment is economically sound, that the distribution of its benefits is socially acceptable, that it is environmentally benign and that the choice of technology or location is advantageous to society. Multilateral development banks enjoy privileged access to finance, regulatory authorities and government decision makers and they need to exercise care not to extend these privileges to particular private parties."


Thank you very much.