Global Policy Forum

The International Monetary Fund has started a public debate with the National Commission in Defense of Water and Life (CNDAV). The Commission is promoting a Constitutional reform against the privatization of water. One of the reasons given by the commission in order to promote this direct democracy mechanism is the existence of a Letter of Intent that the Uruguayan government signed with the IMF. [The Letter of Intent (LOI) is the binding set of promises a government makes to the IMF regarding changes to its economic policies.]

In a letter responding to an article in an Uruguayan newspaper (La República, August 29th, "Keys to the Constitutional Reform in Defense of Water"), the IMF assures readers that it did not impose any demands on the Uruguayan government concerning the opening of the water market to the private sector, a fact which is denied – and documented -- by the social movement in defense of water.

In its letter, the IMF says that "financial aid provided to Uruguay is not subject to any kind of guarantee to ensure payment" – which if true, would render invalid one of the arguments of the promoters of the Constitutional Reform in defense of water. This statement contradicts the conditions established in the Letter of Intent signed in 2002 between the Uruguayan government and the IMF.

The article published in La República stated that awareness of the agreements made between the Uruguayan government and the IMF prompted the campaign of the National Commission in Defense of Water and Life, which resulted in the proposal of a Constitutional Reform to be voted on as part of the national elections next 31st October.

The IMF responded that said declarations are "untrue" since "financial aid that the IMF provided to Uruguay is not subject to any guarantee to ensure payment." However, going over the contents of the letter of intent signed in June 2002, it seems that it clearly contradicts what the IMF's resident representative in Uruguay is saying.

What does the Letter of Intent say?

In the text of the Letter of Intent, signed 18th June 2002 between the IMF and the Uruguayan government, the latter committed to "introduce new regulatory frameworks in several areas including electricity, telecommunications, water, sanitation, trains, transport, etc."

As if this did not suffice, the document also spells out the "Actions and terms," that is, the way in which those changes would take place and the timeframe during which they would take place.

In par. VII) II.4 (concerning the modifications to the regulations on water and sanitation), there are some important points as to how the modifications shall take place. Besides this, the exact dates in which the modifications will take place as well as the dates on which they shall send said proposals for Parliamentary discussion, are set.

For instance, par. "a)" provides the "introduction of a new regulatory framework for the [water and sanitation] sector" adding that the initiative shall be put to Parliamentary consideration in September 2002.

Par. "b)" further on provides that the Uruguayan government commits to the IMF to "introduce new quality and control rules in order to enable private sector investment" and also provides that a "decree" that will enable said "introduction" should be passed in December 2002.

Therefore, in the case of the IMF there is not only a change in regulating the water sector but also the provision of a legal-administrative mechanism through which this new regulating framework will become effective, a decree of the Executive Branch.

Par. "c)" comprised a "call for bids in order to improve water services in Montevideo" that should come into effect in December 2002", while par. "d)" comprised a "call for bids for the private sector to administer sanitation plants in March 2003."

All the aforementioned provisions can be found in the Letter of Intent, a public document signed between the IMF and the Uruguayan government. These conditions are quite more than a guarantee; they are actual demands. Regarding the changes promised for the water and sanitation sector analyzed above it does not matter whether they were "imposed" by the IMF or were "accepted" by the Uruguayan government.

The terms of the Letter of Intent, along with the experience of a previous water privatization in the department of Maldonado, President Batlle's public declarations, and the prevailing international situation where transnational companies have made considerable inroads in the water sector, were determining factors taken into consideration by the different organizations joined in the National Commission in Defense of Water and Life.

The main feature of the Constitutional Reform to be voted next 31st October is its conceptual opposition to the IMF, but also to the World Bank and the Inter-American Development Bank. While the multilateral institutions consider water a commodity, the proposed reform considers water a human right. And as such, access to drinkable water and sanitation should be guaranteed to the whole population as a result of a sustainable and participatory public administration.

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