Social services


Bank doubts wisdom of private infrastructure

15 September 1999

The Financial Times reported in July that World Bank East Asia Vice President Jean-Michel Severino admitted that the Bank and other organisations had been naive about the benefits of private infrastructure. This has proved “a horror story” in Asia since the financial crisis. Assuming responsibility for the projects’ large debts and other liabilities adds to the burden on states already bailing out banks. Severino recognised that: “many deals before the crisis overestimated the level of demand … the deals weren’t well designed.” Increased tariffs, imposed to deal with revenue shortfalls, have placed further burdens on poor communities. He claimed, however, that the Bank did warn of the risks of poor institutional environments, but had perhaps “not been vocal enough”. In many cases, however, the Bank was extremely vocal, if not gung-ho, about privatisation being the answer to infrastructure provision and financing.

The Bank has launched a study on privatised infrastructure and the financial crisis, to be followed by country reports. Meanwhile, two Bank authors of an article in the September edition of Public Policy for the Private Sector, have recognised that “the current approach to private participation in infrastructure can inadvertently erect barriers to improving service for low-income households in developing countries.” This is a point which has long been made by critics of the Bank approach.