IFI governance

News

Argentinian groups challenge IMF pressure on utility prices

1 April 2003

Comment by Jimena Garrote, CELS*, and Ezequiel Nino, legal adviser to the consumer representative in the renegotiation commission

Argentina has gone through very rough times in the last few years. Many of the severe problems faced by the country were caused by the inefficiency of its own public officials. But others stem from economic policies designed in Washington DC.

On 22 January 2003, Argentine consumer associations and a human rights organisation** filed a complaint with the IMF‘s Independent Evaluation Office (IEO), denouncing the pressure exerted by IMF representatives in negotiations with the Argentine government. The IMF does not have a body designed to deal with citizens’ complaints about its actions. The organisations therefore decided to submit their complaint to the IEO, which was created to evaluate the performance and policies of the IMF.

During the 2002 negotiations with the government, the Fund imposed several conditions as part of the agreement which materialised in early 2003. One of these was a swift rise in the rates charged by privatised public utilities (water, gas, electricity, telephone). After the January 2002 currency devaluation the Congress passed an emergency law authorizing the government to renegotiate contracts with the public utility companies which had been privatised in the 1990s by President Menem. This law specifies that an increase in public service prices could only take place as part of a re-negotiation process, whereby the whole contracts are analysed and all interested parties (including consumers) are involved. Negotiations must be based on the following criteria: 1) the impact of rates on the economy and the distribution of income; 2) quality of services and investment plans, when they were included contractually; 3) the interests of consumers and the accessibility of services; 4) the security of the systems and 5) profitability of companies.

All national consumer associations, the National Ombudsman and the City of Buenos Aires Ombudsman agree that in the last ten years public utility companies have received more preferential treatment than any other sector. For example, many of the companies raised rates in line with US inflation, although this was prohibited by law. During the 1990s, inflation in Argentina was close to zero while in the US it averaged three per cent. Economists estimate that this three per cent margin yielded profits of $9 billion. This and other factors which brought the companies huge profits, more than in any part of the world, must be part of the discussion, as was made clear by consumers’ organisations to an IMF delegation to Buenos Aires.

IMF representatives have pushed the government to increase rates without discussing other criteria. They have emphasized losses incurred by companies because of the devaluation, and insisted that swift compensation should have happened. This was to protect the interests of the mainly European companies, regardless of whether or not this would violate Argentine law. The Argentine Executive tried to introduce the increase on four occasions in order to bow to IMF pressure. But each time courts halted the rise, and three federal judges stated that the renegotiation has to cover all aspects specified by the Congress.

The IMF‘s attitude on this matter during the whole negotiation process is in open contradiction with its own statutory purpose, and therefore illegitimate. It also seems that the pressure was initiated by representatives of countries where the companies are from, such as France and Spain, which violates the impartiality duty embedded in the ethical rules that supposedly govern IMF employees’ behaviour.

The non-negotiable obligation to increase public services prices violated domestic law, and reduced the government’s capacity to re-negotiate the contracts with the privatised companies. Using conditionality to force price rises would turn the re-negotiation process into a parody.

There has been no response from the IMF‘s Independent Evaluation Office up to this point. Although the IEO has announced that the Fund’s operations in Argentina would be part of its 2003-2004 work programme, plans are only to examine events for the period ending December 2001.

*The Center for Legal and Social Studies (CELS) is a non-governmental organisation founded in 1979 to foster and protect human rights and to strengthen the democratic system and the state of law in Argentina.

** Consumidores Libres Cooperativa Limitada de Provisión de Acción Comunitaria, Unión de Usuarios y Consumidores de la Republica Argentina, Centro de Estudios Legales y Sociales (CELS) and Ariel Caplan, the consumers representative in the commission formed to renegotiate public utilities contracts.

Argentina court halts IMF-demanded utility hikes

IMF‘s Independent Evaluation Office work programme

Submissions for forthcoming Comment pieces should be sent to Bretton Woods Project. Preference will be given to Southern organisations.

Previous ‘Comments’:

The Fund or the people? Mulima Kufekisa Akapelwa, Catholic Centre for Justice, Development and Peace, Zambia, Bretton Woods Update 32

Fund threatens Brazilian democracy, Aurélio Vianna Jr, Rede Brasil, Bretton Woods Update 31