Global Policy Forum

By Juan Forero

So in January, when legions of angry residents rose up against the company, she eagerly joined in. The fragile government of President Carlos Mesa, hoping to avert the same kind of uprising that toppled his predecessor in 2003, then took a step that proved popular but shook foreign investors to their core. It canceled the contract of Aguas del Illimani, a subsidiary of the $53 billion French giant Suez, effectively tossing it out of the country and leaving the state responsible. "For us, this is good," Ms. Cuyuña said, voicing the sentiment in much of El Alto. "Maybe now, they will charge us less."

That is far from certain. Even less certain is how she and 130 million other Latin Americans will get clean water anytime soon in a region where providing basic services remains among the most pressing public health and political issues. Governments like Bolivia's tried the task themselves before, abandoned it as too costly, and turned to private companies in the 1990's. Today as privatization is rejected, foreign investment is plummeting across the region and the challenge is being returned to states perhaps less equipped than a decade ago.

The trend is not unique to Bolivia, where a lack of clean water contributes to the death of every tenth child before the age of 5, and it has presented Latin American leaders with a nettlesome question: what now? "The decisions that have to be made are stark and difficult," said Riordan Roett, director of Latin American studies at Johns Hopkins University. "They're going to have to make some sort of compromise, and that compromise often means buying back and taking over those services - and then, of course, making them efficient in the hands of the state. Their track record doing this in the past was miserable."

Indeed, the heated backlash against free-market changes - fueled by the sense that they promised more than they delivered while offering overpriced, often flawed services - has at once left governments vulnerable to volatile protests and forced foreign companies to retreat. No companies have been more buffeted than those running public utilities offering water, electrical and telephone services, or those that extract minerals and hydrocarbons, which, like water, are seen as part of a nation's patrimony.

In Peru, despite major economic growth, foreign investment fell to $1.3 billion last year from $2.1 billion in 2002. Ecuador has also seen investments sag, as oil companies that once saw the country as a rosy destination have faced the increasingly determined opposition of Indian tribes and environmental groups. Argentina, which has taken a decidedly leftist path in the economic recovery following its 2001 collapse, has recouped only a fraction of the investments it attracted just a few years ago.

Across the region, companies are more than ever weighing political risks when considering expansion plans. Political leaders, meanwhile, are having to weigh the need for foreign investment against the demands of citizens who are increasingly quick to hit the streets. "In the last decade, non-economic factors have become even more important in affecting investments," said César Gaviria, former secretary general of the Organization of American States. "Political risks have grown to a great degree," added Mr. Gaviria, now chairman of Hemispheric Partners, a firm based in the United States that provides political and economic risk analysis to investors. "There's no doubt about it."

The fall in foreign investment is perhaps most pronounced in Bolivia, where in 1999 it totaled $1 billion as gas companies flocked here to mine newly discovered fields. Last year, it fell to $134 million, as companies proved skittish after President Gonzalo Sánchez de Lozada was ousted in uprisings set off by his plans to permit multinational companies to export Bolivia's natural gas.

Those who resist the trends of globalization have been emboldened by what they see as the success of local people in asserting their control over resources. "It has been phenomenal to see a movement largely made up of the indigenous and peasant farmers fight and win," said Deborah James, who directs campaigns against American-led globalization efforts at Global Exchange, a San Francisco group. "What you see is a massive popular rejection of transnational companies owning essential services."

Others, less enthusiastic, see a troubling degree of political instability and a perfect storm of uncertainty on the horizon. "You see, in country after country, that the battle lines are being drawn over utility questions," said Michael Shifter, a senior fellow who closely tracks the Andes for the Washington policy group Inter-American Dialogue. "It builds a great resentment and rage that things so essential to people, like water, like electricity, are not being delivered in a fair and equitable way. That's a formula for rage that leads to mobilization, and that's why we're seeing a convulsed region."

In Uruguay, a referendum in October guaranteed public control over water resources, enshrining water as a "basic human right." In Chile's central valley region, 99.2 percent of voters in a plebiscite in 2000 rejected privatization of the state-run water company. (The government privatized anyway.) In Argentina, another French water provider was tossed out in 1998, while Ecuador's government has repeatedly failed to privatize telecommunications and electricity generating companies. In Peru, protests against plans to privatize electric utilities have been persistent, while as far north as Nicaragua and Mexico, activists have fought efforts to battle privatization plans for water systems.

The battle surrounding Aguas del Illimani, which provided water for El Alto, is revealing of the anger over privatizations that many here say they were never consulted about and never asked for, but were put in place as a condition for loans from the World Bank and International Monetary Fund.

Indeed, Aguas del Illimani was not the first company to get a taste of Bolivians' fury. In 2000, in the midst of angry demonstrations, the state annulled a contract with Bechtel, a multinational based in San Francisco that had doubled fees on being granted the concession in Cochabamba. In 2003, in the face of protests and instability, a consortium of companies signaled that it had all but called off a $5 billion pipeline project to transport natural gas to the Pacific, from where it would have been shipped to the United States.

Under continuing pressure, the government of President Mesa is now moving forward with legislation that would raise taxes and increase government control of energy projects in Bolivia. So the stage was set for the outburst against Aguas, which grew out of a decision by Mr. Mesa to raise subsidized fuel prices on Dec. 30, even though the company did not seem a likely target before now.

The Bolivian government had in fact welcomed Aguas in 1997 to turn around an inefficient public system that provided water to El Alto and the adjacent capital, La Paz. After it arrived, Aguas says it met its contractual obligations and expanded services, and even government officials concede that the company did an admirable job at first. Potable water, offered by the state water company to 152,812 households in the two cities in 1997, rose by 81,180 households in seven years. Sewage service was expanded to more than 160,000 households by last year from 95,995.

But eight years into its contract, Aguas ran into problems. Profits were never as high as the company would have liked, since the former country people who flocked to El Alto, a mostly indigenous city of 750,000, were used to conserving and never consumed much water. When company officials asked state regulators for permission to increase monthly fees, their request was rejected. But the company won permission to increase the hookup fees, to $450 from just over $300.

It was a fee most people here - where the average monthly wage is about $55 - could never hope to pay. "It was contractual, so I cannot blame Aguas del Illimani," said José Barragán, the government's vice minister of basic services, in charge of water service. "But a prudent administrator would not have taken that road." Mr. Barragán says that the government "is not accusing Aguas for not complying with the contract." Instead, he said, the company avoided government efforts to renegotiate so that service could be expanded, a contention the company denies. The lack of a resolution effectively left 200,000 people without any real chance of obtaining water service, Mr. Barragán said.

"That's completely false," said Alberto Chávez, Aguas's general manager, emphasizing that the company had shown a willingness to meet with both the government and the leaders of Fejuve, an El Alto group that organized protests. Still, Mr. Chávez conceded that 70,000 people in Aguas's concession area in El Alto still had no water.

Now, with Aguas's contract canceled, the question in El Alto remains how to expand and improve service. No one believes that the state or the city of El Alto, both cash poor, will be able to do so. "Ultimately, if Bolivians are going to get real access for water it's going to have to be subsidized," said Jim Shultz, director of the Democracy Center, a policy group in Cochabamba, Bolivia's third-largest city, that studies the effects of free market reforms. "And it's going to have to be subsidized in some form of foreign assistance."

That, he noted, is not a realistic proposition, because Bolivia cannot afford to seek more loans and foreign governments are not so willing to make big cash outlays to a state they view as increasingly erratic. Many residents, like Franz Choque, 31, a construction worker, are worried. He said that he was not philosophically opposed to a private company running the water system. He only wanted the costs to be just and the service to be effective.

"It is O.K. for a foreign company to be here, but they should charge the Bolivian rate, not like in the country where they come from," said Mr. Choque, as he worked on a new school that will have running water only because residents have pooled resources to pay for the hookup. "Not everything can be free. We can pay a little. But we just want a fair price."