[Reader-list] ADB loan question looms over Kerala

[Anivar Aravind]

EDIT-OPINION

The Loan That Looms Over Kerala

http://www.tehelka.com/story_main26.asp?filename=op012707The_Lone.asp

Is the Asian Development Bank pushing the state's Communists into the
market's lap? And what's the CPM doing about it?

Nilanjana Biswas

The story of the Asian Development Bank's (adb) loan to Kerala for
urban development is getting curiouser and curiouser. The recently
signed $316.1 million (Rs 1,422 crore) loan agreement between Kerala's
Left Democratic Front (ldf) government and the adb has been attacked
by none other than the man leading the ldf: Chief Minister VS
Achuthanandan who claims that the deal was struck without his
knowledge.

Even as the debate in Kerala rages on how much (or little) the chief
minister knows, the loan documents of the proposed Kerala Sustainable
Urban Development Project (ksudp) are being widely scrutinised. And
two facts have emerged: one, that the adb deal is fraught with
substantive problems; the other, that it has the ldf in Kerala deeply
divided, with one newspaper even describing it as the "government's
death knell".

The ksudp loan targets the five municipal corporations of Kochi,
Kollam, Kozhikode, Thiruvananthapuram and Thrissur for urban
infrastructure development, services improvement and capacity
building. The money for the project will come from three sources:
principally, an adb loan of $221.2 million (Rs 995 crore), a
Government of Kerala contribution of $59.8 million (Rs 269 crore) and
a further $ 35.1 million (Rs 158 crore) from the five civic bodies.

Kerala's external debt is already over Rs 40,000 crore which, by the
Catch-22 logic of international finance, makes the state even more
credit-worthy. Adding to the overhanging debt, the ksudp loan will
follow the tried and tested privatisation strategy — a standard
prescription of international banks like the adb and the World Bank
that works to keep Third World countries in the stranglehold of
spiralling debt.

To ensure privatisation, the ksudp loan agreement outlines a
"multi-faceted" approach. This includes the creation of an "enabling
framework" and developing technical and managerial skills within
municipal corporations to formulate and manage private operations.

Other privatisation measures include:

    *
      Conversion of existing street taps to metered connections with
no budget for new installations, as per policy that the Kerala
government "will" formulate by no later than March 2007;
    *
      Increased tariffs and new user charges with no exemption for
those living below the poverty line;
    *
      The hiring of international private consultants, as per adb
guidelines, for project formulation, management and supervision at a
cost of $10.2 million (Rs 46 crore);
    *
      Full cost recovery from the public for operations and maintenance work;
    * The mandatory introduction of service tax and/or other revenue
mobilisation to meet revenue shortfalls.

Going by the terms of the project, families living below the poverty
line will now have to spend up to two-and-a-half days' wages for
drinking water, drainage, sewerage and other urban services. For the
urban poor who already face acute water shortage and sanitation
problems, two tariff hikes on the anvil over the next five years are
likely to turn their battle for survival into a relentless war.

The adb is the second largest development bank in the Asia-Pacific
region, next only to the World Bank Group. Although adb's involvement
in India did not start until the late 1980s, today India is the
largest borrower in South Asia, and the second largest, after China,
in Asia-Pacific.

As in the case of Kerala's recent loan, adb loans are tied to policy
conditions. These include:

    * Adopting legislations and regulations that favour private sector
involvement in key sectors;
    * Market-friendly restructuring;
    * Corporatisation and privatisation of public enterprises and utilities;
    * Creating a flexible labour force;
    * Commercialisation of agriculture and
    * Trade and investment liberalisation.

On December 28, 2006, more than 100 organisations came together under
the banner of the People's Forum against adb (pfaadb) to petition
Kerala's chief minister to annul the ksudp loan. The petition points
out adb's dismal record in urban development, citing two previous adb
projects in Karnataka, the 1995 Karnataka Urban Infrastructure
Development Project (kuidp) and the 1999 Karnataka Urban Development
and Coastal Environmental Management Project (kudcemp), which are
replete with design flaws, poor quality of construction, prolonged
delays in completion and non-disclosure of project information to
local councillors.

According to the pfaadb, adb-funded projects in India and elsewhere
have led to weakened environmental regulation, increased unemployment,
cuts in spending on primary care and essential services, a widening
gap between the rich and the poor, often leading to an absolute
increase in poverty.

The petitioners who include people's movements, environment groups,
women's organisations, trade unions, human rights groups and dalit
organisations, all agree that urban services needed overhauling but
not through financial institutions that could potentially undermine
the country's democratic framework.

The petitioners say, "The possibilities of internal resource
mobilisation are many in Kerala; they include commodity taxes on
consumer expenditure, addressing tax evasion in the gold market,
collection of tax arrears and mobilising the domestic savings of the
state (including foreign exchange remittances) which runs into
thousands of crores of rupees."

As a result of the pfaadb campaign, the central committee of the cpm
referred the adb loan issue to the Kerala State Committee and starting
January 8, 2007, a three-member team is expected to study the loan.
The Kerala State Committee is, however, deeply divided on the issue.
Discussions on the ksudp loan were started back in 2002 by the
Congress-led United Democratic Front (udf) government. Notably, the
Left, which was in opposition then, fiercely criticised the proposed
loan on the grounds that it contained harmful conditionalities.

Rifts within the ldf, since it came to power, have emerged sharply
with a neo-liberal faction represented by cpm state secretary and
Politburo member Pinarayi Vijayan, Local Self-Government Minister
Paloli Mohammed Kutty and state Finance Minister Thomas Isaac pushing
for the loan while Chief Minister Achuthanandan says it lacks cabinet
approval. The cpm Central Committee, in the meanwhile, has reprimanded
the State Committee for taking to the streets what it considers should
have been a matter for internal debate.

But is it just a matter of inner party debate? Many would disagree.
For CR Neelakantan, a veteran social activist from Kerala, the loan
conditionalities represent a major departure from the ldf's stated
policies; a departure that must be explained and discussed.

Some time ago, the cpm's political organisational report took the
stand that while external loans were unavoidable, certain compromises
must never be made. According to the report: "Whenever our governments
hard-pressed for funds but duty-bound to provide relief to the people
are offered loans by imperialist agencies and Western governments, the
party should consent to such loans only if it does not weaken its
fight against the imperialist-dictated policies. In all cases, where
the party agrees to such loans from international agencies like World
Bank, adb, dfid, jbic etc, it must take the people into confidence and
explain to them the justification for taking such loan…In no case
should we go in for loans which involve structural adjustment
programmes. Such programmes entail conditionalities like privatisation
of certain sectors, downsizing staff, cutting subsidies and fiscal
conditionalities." The policy is clear: no diktat; no structural
adjustment; complete transparency. The ksudp loan clearly fails on all
three counts.

cpm general secretary Prakash Karat recently stated that external
loans are acceptable if there are no strings attached. The debate in
Kerala, however, is about what exactly is attached to the ksudp loan:
a string or a hangman's noose?

Biswas is a Bangalore-based freelance journalis

Jan 27 , 2007

Anivar Aravind