Abstract
This chapter explores the implications of privatization as a development strategy. In particular, the historical implications of the cycle of nationalization followed by privatization will be explored in this context. The underpinnings of protectionist, nationalist and often tribalist sentiments motivating nationalization impulses, policies and programs will be critically examined. Privatization is often associated with encouraging free markets and developing the private sector as the engine of growth for the economy, but it has its downsides as well, as explored below. An overarching view of the oscillation between nationalization and privatization will be explored in this chapter.
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Notes
- 1.
Guislain (1997), p. 1.
- 2.
International Finance Corporation, Privatization: Principles and Practice, Lessons of Experience Series, No. 1 (IFC and World Bank, 1995), at 9. Privatizations in Africa and the Middle East were only a minimal percentage of the total amount.
- 3.
- 4.
Chua (1995), p. 258.
- 5.
Id.
- 6.
Id. at 230–237, 256–259.
- 7.
Id. at 246–247; see also Adam and Cavendish (1995), pp. 11, 14.
- 8.
See generally, Kapoor (2015), p. 1.
- 9.
Id., at 27.
- 10.
For a remarkably insightful, thorough and thought-provoking analysis of the historical and philosophic underpinnings of the ideas and experiences motivating “nationalist” sentiments, see Rajan (2019). In sum, Rajan states that:
The three pillars that support society–the state, markets, and the community–are in constant flux, buffeted by economic and technological shocks. . . . Moreover, in reaction to the competition generated by global markets, those who can, such as large corporations and professionals, have created protected enclaves for themselves, further enhancing the benefits of being part of the higher meritocracy. For the rest, outside the walled and moated enclaves, competition from man and machine from across the globe has been fierce. . . . As economic activity has moved away from rural and semi-urban communities, despair and social disintegration has moved in. . . .The demagogues of the left and the right propose answers that people want to hear, not what they should hear. All too often, there is someone else or something else to blame, which then imposes the burden of change elsewhere. This is comforting to the audiences but dangerously misleading. The reality is that we are all part of the problem, and we all can be part of the solution.” Id. at 393–394.
- 11.
Chibundu (1997), pp. 1, 20.
- 12.
Id. at 17–18.
- 13.
Id. at 21.
- 14.
Id. at 30.
- 15.
Id. at 34.
- 16.
- 17.
Chibundu (1997), p. 37.
- 18.
- 19.
Stephania Taladrid, “Venezuela’s Food Crisis Reaches a Breaking Point,” New Yorker (February 22, 2019).
- 20.
Id., see also BBC NEWS, “Venezuela crisis: Defectors fear for families under Maduro,” (February 25, 2019).
- 21.
Natalie Pearson, “Analysts Hit Venezuela Nationalization,” Wash. Post (January 9, 2007).
- 22.
Id. See also Simon Romero & Clifford Krauss, “Venezuela’s Nationalization Plan Alarms Market,” Int’l Herald Tri, (January 10, 2007).
- 23.
Natalie Pearson, “Analysts Hit Venezuela Nationalization,” Wash. Post, supra, (January 9, 2007).
- 24.
Christopher Woody, “The industry keeping Venezuela afloat is under pressure from both inside and outside the country,” Bus. Insider (March 1, 2018), which also states that, “[l]ast summer, Mexico began looking at ways it could replace Petrocaribe, the Venezuelan oil program that has provided cheap fuel to Caribbean and Central American countries since 2005.” President Maduro has promised to restore 70% of the decline in oil output, but this remains to be seen, of course. See Reuters, “Venezuela’s Maduro says to recover 70 percent of oil output decline,” (February 24, 2018).
- 25.
Danielle Renwick, “Venezuela in Crisis,” Council For. Aff. (March 23, 2018).
- 26.
Id.
- 27.
The term “Dutch disease” was coined by The Economist magazine in 1977, in relation to a crisis that occurred in the Netherlands following discoveries of vast natural gas deposits in the North Sea in 1959, and may also be referred to as a “resource curse.” The economic term refers to the negative consequences arising from large increases in the value of a country’s currency, primarily associated with a natural resource discovery, However, it may result from any large influx of foreign currency into a country, including foreign direct investment, foreign aid or a substantial increase in natural resource prices. “Dutch Disease,” Investopedia (2018).
- 28.
Tina Rosenberg, “The Perils of Petrocracy,” New York Times MAG. (November 4, 2007).
- 29.
Id.
- 30.
Neuman and Krauss (2018).
- 31.
- 32.
Chua (1999), pp. 17, 20.
- 33.
Plotkin (1993).
- 34.
Chua (1999), pp. 20, 21.
- 35.
Id.
- 36.
Chua (1995), p. 272. The sociological implications and potential causes explaining why certain ethnic groups become economically dominant regardless of the cultures they are harbored in is explored in Joel Plotkin’s book, supra. The reasons why certain ethnic minorities are “accepted” and other retain their “foreignness” is outside the scope of this discussion, but is another layer of complexity that the law is ill-adapted to handle. See generally, Giridharadas (2018).
- 37.
Yascha Mounk, “European Disunion: What the rise of populist movements means for democracy,” New Rep. (July 19, 2017).
- 38.
Id.
- 39.
Id.
- 40.
Spencer Morrison, “What is globalism and globalisation? What is the difference between them, and their impact on world?” Quora (December 24, 2016).
- 41.
Steven Erlanger, “In Eastern Europe, Populism Lives, Widening a Split in the E.U.,” New York Times (November 28, 2017); see also Kanchan Chandra, “Authoritarian India: The State of the World’s Largest Democracy,” For. Aff. (June 16, 2016).
- 42.
William Galston, “The rise of European populism and the collapse of the center-left,” Brookings (March 8, 2018). See e.g., Marc Santora, “Poland Purges Supreme Court, and Protesters Take to the Streets,” New York Times (July 3, 2018). At this writing, Poland’s ruling party, the Law and Justice Party, passed a law requiring all judges retire at the age of 65, unless they appeal to the Polish President. This law passed by parliament has been called into question, and would require that 27 of 72 Supreme Court justices retire, including the Chief Justice. This prompted tens of thousands in over 60 cities in Poland to demonstrate in the streets, fearing that the judiciary is being made subservient to the executive branch. In response to this measure, the European Union announced on July 2, 2018, that it was initiating an “infringement procedure” against Poland, “which could result in the matter being referred to the European Court of Justice. The court could declare the judicial overhaul unconstitutional, but it cannot stop it.” Id.
- 43.
Chua (1995), pp. 276–277.
- 44.
Id. at 269–270, 271–272. This may be equally true of the attempts to curtail the economic success of Indians living in Malaysia, Sri Lanka, and Kenya, for example.
- 45.
Lai (1987), pp. 273, 277.
- 46.
Chua (1995), pp. 264–265.
- 47.
One should also bear in mind that national boundaries in many former colonies were arbitrarily drawn by European powers with no regard for the ethnic groupings in the lands they conquered, but with a view to maximizing their profit and political influence. This in some cases has led to decades, if not centuries, of internal strife in many developing countries such as Iraq, Syria, Lebanon, and many others. See e.g., “130 Years Ago: Carving Up Africa in Berlin. In 1885 European leaders met at the infamous Berlin Conference to divide Africa and arbitrarily draw up borders that exist to this day,” DW.com (2018).
- 48.
“Zimbabwe Says It Will Nationalize Every Farm,” World Bank Staff Connections (December 18, 2007).
- 49.
Id.
- 50.
Id.
- 51.
Tawanda Karomba, “Zimbabwe’s white farmers will get compensation−but they’re not getting their land back,” Quartz Africa (December 9, 2017).
- 52.
Max Weber , The Protestant Ethic and the Spirit of Capitalism (Talcott Parsons, trans.) (Scribner, 1958).
- 53.
See Chua (1995), pp. 284, 303. Generally, the peoples that succeed at capitalism are not the ones urging that nationalist measures be taken by the host government. The issue of preserving culture is framed differently for those who succeed within a capitalist framework: they can create or participate in a new global culture or pursue their own subculture.
- 54.
It may be well to end on Professor Chua’s own optimistic note: “Over and over, throughout American history, waves of new immigrants have come to our shores, always met with suspicion and fear that the nation’s character will be endangered, its streets made unsafe, its values lost. Every time, we’ve overcome this fear, prospered, and grown stronger.” See Amy Chua, “One nation, divided: Making America Great again means putting an end to political tribalism,” NBC News (June 12, 2018), excerpted from Chua (2018).
- 55.
David Brooks, “Personalism: The Philosophy We Need,” New York Times (June 14, 2018).
- 56.
Baer and Birch (1992), pp. 3, 5, 7. Import substitution is an industrialization policy that emphasizes the domestic production and consumption of goods. These goods generally have been previously imported, usually under preferential trade relations with former colonial powers, and import-substitution has been directed at producing economic self-sufficiency.
- 57.
Id. at 5.
- 58.
Ngenda (1995), pp. 179–180.
- 59.
See Baer and Birch (1992), pp. at 13–14.
- 60.
Id. at 11–12. See also Ngenda (1995), pp. 179–180.
- 61.
See IFC, Privatization, at 1–2.
- 62.
Baer and Birch (1992), pp. 17–18. (Note, however, that tax revenues could be less than the revenues generated if the state still owned the enterprise.)
- 63.
Id. at. 17. See also Ngenda (1995), p. 182.
- 64.
IFC , Privatization, at 1.
- 65.
Ngenda (1995), pp. 179–180.
- 66.
Kikeri (1992), see Excerpt, World Bank Research Bulletin, Vol. 3, No. 4 (Aug-Oct 1992).
- 67.
Marangos (2002), pp. 573, 577.
- 68.
Id. at 579.
- 69.
Id. at 582.
- 70.
Id. at 580.
- 71.
Parker and Kirkpatrick (2005), pp. 513–541.
- 72.
Id.
- 73.
See generally, Bogdan (1996), p. 43. Eastern and Central European countries began transitioning towards becoming democratic, market-driven societies beginning in late 1989. By 1991, the Soviet Union had disintegrated into fifteen sovereign states (Id. at 43).
- 74.
- 75.
- 76.
Rutland (1995), pp. 2–3.
- 77.
Id. at 4; Philbrick (1994), pp. 539, 541.
- 78.
- 79.
Rutland (1995), pp. 4–5.
- 80.
Philbrick (1994), pp. 540–541.
- 81.
See generally, Brietzke (1994), p. 35.
- 82.
Id. at 38–40, 48, 58–60.
- 83.
- 84.
Rutland (1995), p. 4.
- 85.
See Guislain (1997), pp. 15–32.
- 86.
Id. For a complete study of small-scale privatization in Russia that illustrates unique problems, see IFC (1992).
- 87.
Bogdan (1996), pp. 59, 60.
- 88.
Ceska (1993), pp. 84, 88, 89–90.
- 89.
Rutland (1995), p. 11.
- 90.
Bogdan (1996), pp. 50. The Czech Large Privatization Law was later supplemented with the Decree on the Issuance and Use of Investment Coupons, adopted September 5, 1991, and the Law on Investment Companies and Investment Funds, enacted on April 28, 1992. Id., at 52. These laws were designed to regulate the activities of investment funds, which were prohibited from owning more than 20 percent of the shares of any company.
- 91.
- 92.
Bogdan (1996), p. 50.
- 93.
- 94.
Philbrick (1994), p. 554.
- 95.
- 96.
S. Bell, Sharing the Wealth: Privatization Through Broad-Based Ownership Strategies, World Bank Discussion Paper No. 285 (1995), p. 14.
- 97.
Triska (1993), pp. 104, 112.
- 98.
Rutland (1995), p. 12.
- 99.
Id. at 12; Bogdan (1996), p. 51.
- 100.
Rutland (1995), p. 12.
- 101.
Id. at 12; Philbrick (1994), p. 558. See also G. Pohl et al., Creating Capital Markets in Central and Eastern Europe, World Bank Tech. Paper No. 295 (1995) at 7.
- 102.
Rutland (1995), p. 12.
- 103.
Philbrick (1994), p. 562.
- 104.
Bogdan (1996), pp. 52–53, 54.
- 105.
See Coffee (1994).
- 106.
- 107.
- 108.
Bogdan (1996), p. 54. Bogdan suggests that the Czech government may wish to follow the type of corporate governance established under the German system where banks do control investment companies. This is another example where U.S. models may not be appropriate in the privatization process in Eastern European countries.
- 109.
Takla (1994), p. 154.
- 110.
Philbrick (1994), pp. 564, 569–570.
- 111.
For a discussion of the potential negative downstream impact of the Czech voucher schemes, see Tomas Richter, “The Voucher Privatization and its Impacts on the Governance and Financing of Czech Stock Corporations,” SSRN (2002). Richter argues, in part, that the voucher scheme undermined the initial investor confidence in the domestic capital market and that inadequate corporate and securities laws were not enforced, both of which added to the disruption caused by the program.
- 112.
OECD (1995).
- 113.
G. Korsun & P. Murrell, “Ownership and Governance on the Morning After: The Initial Results of Privatization in Mongolia,” Working Paper No. 95, Center for Institutional Reform and the Informal Sector, University of Maryland at College Park (January 1994), p. 1.
- 114.
Paskin (1994), pp. 2199, 2207.
- 115.
Id. at 2207.
- 116.
P. Passell, “How Chile Farms Out Nest Eggs: Can Its Private Pension Plan Offer Lessons to the U.S.?” New York Times (March 21, 1997), at D1.
- 117.
Paskin (1994), p. 2207.
- 118.
Id. at 2207; P. Passell, “How Chile Farms Out Nest Eggs,” at D4. (In 1983, the required contribution was 10%). See Paskin (1994), p. 2207.
- 119.
P. Passell, “How Chile Farms Out Nest Eggs,” supra, at D4.
- 120.
Paskin (1994), p. 2207.
- 121.
P. Passell, “How Chile Farms Out Nest Eggs,” supra, at D4. Paskin (1994), p. 2208.
- 122.
P. Passell, “How Chile Farms Out Nest Eggs,” supra, at D4.
- 123.
Guislain (1997), p. 79.
- 124.
Paskin (1994), p. 2209.
- 125.
- 126.
P. Passell, “How Chile Farms Out Nest Eggs,” supra, at D4.
- 127.
Paskin (1994), p. 2209.
- 128.
Guislain (1997), p. 79.
- 129.
Id.
- 130.
The same types of issues faced by Chilean government officials in reforming its pension system are being faced by other developing countries. Zambia, for example, has statutory pension schemes for private sector employees (Zambia National Provident Fund, the largest pension fund); for civil servants, military personnel, and teachers (Civil Service Pension Fund); and for local government employees (Local Authorities Superannuation Fund). However, there is no single government regulatory agency overseeing these funds. There are also two non-statutory pension schemes: the Zambia State Insurance Corporation, which manages about seventy-five private pension funds, and the Mukaba Pension Fund, which is owned and managed by the Zambia Consolidated Copper Mining Company, a Zambian SOE . Bailey et al. (1997).
- 131.
J. Briggs, “A Political Miracle,” Forbes, at 108 (May 11, 1992). Although it is convenient to argue that strong macro-economic conditions create a foundation for and may even precipitate a democratic revolution, this argument is beyond the scope of this limited discussion.
- 132.
See e.g., IFC (1996), p. 46.
- 133.
Benedict Mander, “Chile pension reform comes under word spotlight,” Fin. Times (September 12, 2016).
- 134.
Id.
- 135.
Zank et al. (1991), p. 3.
- 136.
Id. at 2.
- 137.
Id.
- 138.
Deregulating banking activities within an overall framework of liberalizing the economy can be a very effective tool in financial sector reform, but only if banks are adequately supervised by an independent agency. Ideally, banks should strive to be self-regulatory (as in the German system), but this requires that bank staffs be well-trained and fairly sophisticated (Zank et al. 1991, p. 52).
- 139.
Id. at 26, 58–61. See also SRI International, Worldwide Experience in Alternative Privatization Financing Methods, prepared for USAID (February 1996), at 11–13. Of course, this description is an oversimplification. There are several, important steps that must be taken before privatization may take place. First, the past financial performance of the entity being privatized has to be audited to determine the financial health of the enterprise. If the SOE is in bad financial shape, it may be wiser to negotiate its sale to a private party, or enter into a management contract or lease to try to make its operations profitable in the short-term. Secondly, converting the SOE into a corporate legal form is the next step.
Finally, restructuring the SOE by transferring or writing off bad loans or debts, dissolving non-performing portions of the SOE, or fragmenting it into smaller units for sale to the public are all pre-privatization steps that have to be implemented by the host government.
Once the SOE is readied for an IPO, then certain protections for new stockholders have to be instituted so that an accurate record of their names, registration of stock certificates, and resales of shares are duly recorded. Bylaws governing shareholder voting, payment of dividends, and corporate governance issues must also be addressed. Additionally, the stocks must be issued, valued, and priced. Once the prospectus is prepared by investment bankers and lawyers and is made available, it is often a useful tool in marketing the shares to the public.
- 140.
SRI International, Worldwide Experience in Alternative Privatization Financing Methods, supra., at III-27.
- 141.
Id. at VII-68-69. The lead underwriter (usually a merchant or investment bank) generally forms a consortium of other banks to spread the risk of the bond issuance. The bonds are then offered to potential (local) investors in much in the same way as an initial public offering of stock.
- 142.
SRI International, Worldwide Experience in Alternative Privatization Financing Methods, supra, at 11–13.
- 143.
Libby George, “Vivo Energy, Vitol’s Africa Venture, Floats with 2 billion pound valuation,” Reuters (May 4, 2018); Launches “African-Focused Vivo Energy IPO Launches Successfully in London,” F&L Daily (May 8, 2018); see also David Pilling, “Vivo Energy Closes Biggest Africa-Focused IPO In a Decade,” Fin. Times (May 3, 2018), noting that, “The transaction could unlock other African-focused IPOs that had been waiting until a company successfully tested the market.”
- 144.
Libby George, “Vivo Energy, Vitol’s Africa Venture, Floats with 2 billion pound valuation,” supra.
- 145.
Zank et al. (1991), pp. 125, 132, 134.
- 146.
Ngenda (1995), p. 182.
- 147.
Mutual funds or unit trusts are usually open-ended stock portfolios, meaning that shares can be liquidated into cash upon demand. Moreover, mutual funds do not generally participate in the management of the companies whose shares are held by the fund. In contrast, closed-ended funds, such as venture capital funds or investment trusts, involve more management control and involve high-risk investments. See SRI International, Worldwide Experience in Alternative Privatization Financing Methods, at VI-52-53.
- 148.
See S. Bell, Sharing the Wealth: Privatization through Broad-Based Ownership Strategies (World Bank Discussion Paper No. 285, April 1995) at 27.
- 149.
“Privatization in Africa: Lessons and Opportunities.” (Price Waterhouse & Abt Associates, 1994).
- 150.
For a fuller discussion on the Zambia privatization, see “African Economic Outlook: Zambia,” ABD/OECD (2003).
- 151.
“Developing Romania’s Capital Market,” USAID No. PN-ACA-921 (CDIE Impact Evaluation No. 4, 1998), at. 2. The private ownership funds are similar in structure to U.S.-style closed-end mutual funds where investment companies with a fixed level of capitalization trade shares of individual investments on the stock market.
- 152.
Id. at 3.
- 153.
Id. at 8, 11, 14.
- 154.
Id. at 3.
- 155.
Id. at 5.
- 156.
Id at 8.
- 157.
Olga Rosca, “EBRD Acquires an Equity Stake in the Bucharest Stock Exchange,” EBRD website (November 19, 2014).
- 158.
“Developing Romania’s Capital Market,” USAID No. PN-ACA-921 (CDIE Impact Evaluation No. 4, 1998), supra., at 20.
- 159.
Indeed, the financial crisis in Iceland, despite financial interventions from the U.K. and Sweden and a loan from the IMF, resulted in its government being toppled. See e.g., David Ibison, “Financial Crisis Topples Iceland Government,” Fin. Times (January 26, 2009); Kerry Capell, “The Stunning Collapse of Iceland,” Econ. Times (January 28, 2009); “Could Iceland’s Crisis have been Averted?” Econ. Times (November 16, 2008). See also Carter Dougherty, “Sweden’s Fix for Banks: Nationalize Them,” New York Times (January 23, 2009).
- 160.
David Sanger, “Nationalization of U.S. banks gets a new, serious look,” Int’l Her. Tri, (January 26, 2009).
- 161.
Duvvuri Subbarao, “Mitigating Spillovers and Contagion: Lessons from the Global Financial Crisis,” BIS, who writes that, “the decoupling theory has almost completely lost credibility.” Id. at 2.
- 162.
This is especially the case with China. See Ulrich Volz, “Weathering the American Contagion,” Far East Eco. Rev. (December 2008).
- 163.
Id. For example, China announced in November 2008 than it was devoting US$584 billion, or 2% of its GDP, to infrastructure projects such as roads and railway tracks to improve its transportation networks, spur domestic spending, and create jobs especially in less developed Western provinces of China.
- 164.
Duvvuri Subbarao, “Mitigating Spillovers and Contagion: Lessons from the Global Financial Crisis,” BIS, supra, at 3.
- 165.
Id. at 7.
- 166.
Id. At 6. See also Shashank Ashok, “Why was India not affected much by the 2008 financial crisis?” QUORA (November 5, 2017), stating that very strong and effective market regulators, especially the Forward Market Commission which regulates commodity derivatives and futures, and limited exposure to FDI, helped India avoid the financial contagion, but the resulting slowdown in export markets did have a financial impact later. See also Joe Nocera, “How India Avoided a Crisis,” New York Times (December 19, 2008).
- 167.
Ulrich Volz, “Weathering the American Contagion,” Far East Eco. Rev. (December 2008).
- 168.
Justin Lin, “Impact of the financial crisis on developing countries,” Fin. Times (November 16, 2008). See also Liliana Rojas-Suarez, “U.S. Financial Crisis Will Mean Slower Growth, Rising Inequality in Developing World,” Center for Global Development (September 22, 2008).
- 169.
IFC, Financing Private Infrastructure : Lessons of Experience (1996), at 1. (This was the launch of an IFC series on “Lessons of Experience.” See also IFC, Project Finance in Developing Countries (Lesson No. 7) 1999; Neil Head, “Blending Public and Private Finance: What Lessons Can Be Learned from IFC’s Experience?” EM Compass, Emerging Markets, Note 3 (April 2016).
- 170.
IFC , Financing Private Infrastructure : Lessons of Experience (1996), supra, at 2.
- 171.
Id.
- 172.
Id. at 10–11. For a retrospective on private capital flows to emerging capital markets, and the role of the IFC and other IFIs, see Nancy Lee, “Billions to Trillions? Issues on the Role of Development Banks in Mobilizing Private Finance,” Center Global Dev. (November 17, 2017).
- 173.
IFC, “Crowding-In Capital Attracts Institutional Investors to Emerging Market Infrastructure Through Co-Lending Platform,” EM Compass, Emerging Markets, Note 53 (April 2018).
- 174.
Multilateral Development Banks’ Collaboration: Infrastructure Investment Project Briefs, “Jordan: Queen Alia Airport,” (April 2016).
- 175.
Id. See also ICAO, “Public-Private Partnership Amman Queen Alia International Airport,” (August 2015); “Queen Alia International Airport–The Role of IFC in Facilitating Private Investment in a Large Airport Project, IFC, EM Compass, Note 35 (April 2017).
- 176.
See “USD 615 Million Queen Alia Airport Transaction Sets Benchmark for MENA Infrastructure Deals,” Akkadia Partners (June 4, 2018).
- 177.
Alexandre Leigh, “Looking back: Was the Queen Alia International Airport PPP a success?” World Bank Group, Infrastructure and Public-Private Partnerships Blog (February 28, 2017).
- 178.
Id.
- 179.
See EBRD, “Jordan: Assessment of the Quality of the PPP Legislation and of the Effectiveness of Its Implementation,” (2011), at 7. The report also provides a very detailed discussion and overall numerically scored assessment of the legal and institutional framework of the PPP legal framework in Jordan at that time.
- 180.
See Law Number (31) of 2014 known as the “Public-Private Partnership Law 2014.” See also Regulation Number (98) of 2015, Public Private Partnership Regulation Issued pursuant to Paragraph (a) of Article (18) and Article (22) of the Public Private Partnership Law Number (31) of 2014.”
- 181.
Jordan Ministry of Finance, “Public Private Partnership Policy Program Policy Paper” (undated).
- 182.
Cautious optimism here is warranted. One of Asia’s largest PPP projects, the Exchange 106 tower, has been overshadowed with allegations of government corruption, embezzlement and money laundering, leading to the election of Mahathir Mohamad, a reform candidate and former prime minister, who replaced Mr. Najib and his ruling Barisan Nasional party.
The alleged corruption stems from a 9-year-old national development fund, 1Malaysia Development Berhad, known as 1MDB, that was initiated and overseen by Mr. Najib. 1MDB started the Tun Razak Exchange and, until 3 years ago at this writing, was its principal developer. However, several investigations, including one by the F.B.I., have calculated that US$4.5 billion was missing from the development fund, and some US$731 million had been diverted to Mr. Najib’s personal accounts. On July 3, 2018, Mr. Najib was arrested and charged with theft and money laundering. He pleaded not guilty and was released on bail. See Keith Schneider, “Malaysia Seeks to Complete a $10 Billion Project Rocked by Scandal,” New York Times (July 24, 2018). While the project continues, and with further government investment, it is an illustration of how PPP projects are large investment vehicles that may invite corrupt practices.
As a further cautionary note, President Mahathir Mohamad has halted two major Chinese-linked projects, worth more than US$22 billion, amid accusations that his predecessor’s government knowingly signed bad deals with China to bail out the 1MDB in order to continue former Prime Minister’s Najib’s grip on power. Prime Minster Mohamad stated unequivocally that, “We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries.” Hanna Beech, “‘We Cannot Afford This’: Malaysia Pushes Back Against China’s Vision,” New York Times (August 20, 2018). In fact, China’s huge infrastructure financing campaign, the “Belt and Road Initiative,” has led to growing, “[f]ears . . . that China is using its overseas spending spree to gain footholds in some of the world’s most strategic places, and perhaps even deliberately luring vulnerable nations into debt traps to increase China’s dominion as the United States’ influence fades in the developing world.” Id.
A similar problem was experienced with the unexpected flash flooding leading to the failure of the billion-dollar Xe-Pian Xe-Namnoy hydroelectric project in Laos, built by South Korean interests. Laos began promoting hydroelectric power investments in the 1990s, and while initial financing came from the World Bank and other development agencies, recently the clear trend has been toward corporate funding. Indeed, after the Lao People’s Revolutionary Party came into power in 1975, the Laotian government has engaged in selling off land, timber, minerals and other resources to giant conglomerates from China, Thailand, Vietnam and elsewhere. The dam failure led the loss of over 30 lives, and increased the long-standing criticism that such projects enrich the elites of the country but leave the rural poor further impoverished and at the mercy of deforestation, water pollution and other severe environmental and social impacts. See Mike Ives, “Laos Dam Failure Exposes Cracks in a Secretive Government’s Agenda,” New York Times (July 29, 2018).
- 183.
“Bolivia: Privatized Water Company Defeated,” North American Congress on Latin America (NACLA), September 25, 2007.
- 184.
Jim Schultz, “The Politics of Water in Bolivia,” The Nation (January 28, 2005).
- 185.
“Bolivia: Privatized Water Company Defeated,” North American Congress on Latin America (NACLA),” supra, September 25, 2007.
- 186.
Id., see also “Bolivian Protesters End Water Privatization in La Paz, El Alto,” Cult. Survival (June 10, 2005).
- 187.
Holly Davidson, “World Bank Study Proposes Solutions to Bolivia’s Water Crisis,” GlacierHub (March 23, 2017).
- 188.
“Water privatization in Bolivia,” Economics of Water (2013).
- 189.
Holly Davidson, “World Bank Study Proposes Solutions to Bolivia’s Water Crisis,” GlacierHub, supra.
- 190.
“Water privatization in Bolivia,” Economics of Water, supra.
- 191.
Although Evo Morales was narrowly defeated in a referendum in February 2016, on the issue of whether he could run for a fourth term, it was widely expected that he will run for office again in 2019. See Linda Farthing, “Evo’s Bolivia: the Limits of Change,” Next System (August 7, 2017). This changed when Morales was deposed in a military coup on 10 November, 2019. He was later granted asylum in Argentina, and has been fighting against allegations of corruption. However, it appears unlikely that he will be allowed to particpate in elections scheduled for May 3, 2020, at this writing. See John Curiel & Jack Williams, “Bolivia dismissed its October elections as fraudulent,” Wash. Post (February 27, 2020).
- 192.
Id.
- 193.
Oscar Caballero, “The Energy Industry in Bolivia,” Lat. Am. Energy Rev. (October 1, 2013).
- 194.
Linda Farthing, “Evo’s Bolivia: the Limits of Change,” Next System, supra.
- 195.
“China aims to help Bolivia become South America’s electricity hub,” Agencia EFE (January 17, 2018).
- 196.
Alex Emery, “China to lend Bolivia US$4.86bn for infrastructure, mining,” BNamericas (October 7, 1016).
- 197.
Alex Emery, “Bolivia awards US$300mn airport contract to Beijing Urban,” BNamericas (April 7, 2016).
- 198.
“China and Latin America’s New Era of Globalization,” Telesur (February 14, 2018).
- 199.
Id.
- 200.
This serious concern of overt Chinese influence through its “Belt and Road Initiative” has been raised in many quarters of, for example, African governance and political life. See e.g., Brook Larmer, “Is China the New Colonial Power?” New York Times MAG. (May 2, 2017); Jonathan Hillman, “The hazards of China’s global ambitions,” Wash. Post (February 5, 2018); John Pomfret, “China’s debt traps around the world are a trademark of its imperialist ambitions,” Wash. Post (August 27, 2018); Anna Fifield, “China pledges $60 billion in aid and loans to Africa, no ‘political conditions attached,’” Wash. Post (September 3, 2108). Cf. Deborah Bräutigam, “U.S. politicians get China in Africa all wrong,” Wash. Post (April 12, 2018), for a contrarian view.
Indeed, the attraction of Chinese-sourced financing for many African and other states is based on China’s “ability to offer financing from state-owned enterprises or funds such as the China-Africa Development Fund or its Silk Road fund.” See Joe Bavier & Christian Shepard, “Despite debt woes, Africa still sees China as best bet for financing,” Reuters (August 30, 2018). Moreover, China offers lower and longer-term rates on its loans, unencumbered with policy conditions typical of official development assistance (ODA) loans offered by multilateral organizations such as the World Bank, and by bilateral development agencies such as the Overseas Private Investment Corporation (OPIC), now the “US International Development Finance Corporation”. However, if the underlying policy conditions and structural reforms, both legally, economically and in terms of curbing corruption, are not made, developing countries may find themselves in a “debt trap” unable to borrow successfully under concessional or commercial terms, by failing to meet the debt repayment requirements of both. Thus, these countries risk see-sawing endlessly between concessional and commercial finance or worse, by ending in a vicious downward vortex.
- 201.
Emily Achtenberg, “Financial Sovereignty or A New Dependency? How China is Remaking Bolivia,” NACLA (August 10, 2017).
- 202.
Id.
- 203.
Kenç et al. (2016), p. 1, 2.
- 204.
Sarkar (1996).
- 205.
IFC , Financing Private Infrastructure : Lessons of Experience, at 21.
- 206.
Id. at 56, 58.
- 207.
Id. at 50. Such security packages often consist of a mortgage over the project’s real property or fixed assets, share pledges by the sponsor, and share retention agreements.
- 208.
Id. at 51.
- 209.
See e.g., Marangos (2002), p. 573.
- 210.
Parker and Kirkpatrick (2005), p. 513.
- 211.
Id. at 538–540.
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Sarkar, R. (2020). Privatization as a Development Strategy. In: International Development Law. Springer, Cham. https://doi.org/10.1007/978-3-030-40071-2_6
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