September 30, 2004

Extinguishing the Post Cold War Dream

World Bank-Mandated Energy Privatization Taxes Armenia's Poor

by Rob Maguire

The Dominion - http://www.dominionpaper.ca

Late last month, an independent Armenia became a teenager. Food, fireworks and a festive atmosphere commemorated the 13th anniversary of its independence, declared on September 21, 1991. As the first Soviet republic to proclaim sovereignty during the collapse of the USSR, Armenians have reason to rejoice—after decades of cultural and political oppression they may finally flout their language, heritage and national identity without fear of reprisal.

Many in this tiny republic, however, have little else to celebrate. While civil liberties were subject to Soviet-style constraints, the Armenia of the 1980s enjoyed a strong economy, a healthy and highly educated public, and one of the most egalitarian distributions of wealth in the USSR. Once the newly independent government began to adopt market reforms and neoliberal values, gross domestic product plummeted, prices for basic needs such as food and water increased dramatically, while public goods like health care and education began to crumble.

Over a decade later, GDP has finally returned to pre-reform levels. Who has benefited from renewed economic growth, however, is not so clear. Spending on education and health remains low. Real wages are less than one-eighth of what they were in 1990, and economic inequality in Armenia has become extreme. In Yerevan, Armenia's capital, the number of BMWs seen rolling along city streets has mushroomed; and so have the ranks of panhandlers roaming those very same urban boulevards.

Poverty has indeed become widespread in Armenia. Affecting roughly fifty percent of the population, it has quickly become an epidemic that shows little sign of subsiding.

Living on less than two dollars a day, the poor are particularly vulnerable to increases in the price of basic commodities. Privatization within the energy sector, however, has preyed upon this very weakness. Imposed by the World Bank through loan conditions, reforms designed to make electric utilities more attractive to foreign takeover left people paying more than twice as much for electricity then they were in the mid-1990s.

Furthermore, inability to pay these inflated rates now results in disconnection. This strict marketplace logic is expressed by Andrei Rappaport, a senior official for Unified Energy System of Russia, and the new owner of several Armenian generating facilities: "If you want energy pay for it, and if there is not any money to pay, then goodbye."

Not unsurprisingly, these new conditions led to a serious decline in household energy consumption. The poor in particular were forced to cut electricity use considerably, by twenty percent on average. According to a World Bank report, the typical household barely has enough electricity to power a refrigerator and a handful of light bulbs.

Despite the decline in consumption, increased energy costs now account for approximately thirty percent of all household expenditures, with electricity making up the bulk of these payments. A related concern is the move towards greater wood consumption. While this reduces the reliance on costly electric power, it has also contributed to higher levels of indoor air pollution and accelerated deforestation.

Energy—widely recognized as a fundamental need for human development—has become increasingly inaccessible in Armenia. At the insistence of the World Bank, control over this precious commodity has been handed over to foreign interests, where social priorities are sacrificed in the name of corporate profit and capitalist ethos.

The picture is similar in much of the former Soviet Union: increases in cultural and, to a lesser degree, political freedoms have been overshadowed by a sharp decline in the freedom to meet basic human needs. This failure is directly related to the "shock therapy" imposition of market capitalism on countries with centralized economies—a prescription borne more of ideological zeal than sound economic principles.

Joseph Stiglitz, former Chief Economist of the World Bank, explains: "From this cold-war perspective, those who showed any sympathy to transitional forms that had evolved out of the communist past and still bore traces of that evolution must themselves be guilty of 'communist sympathies.' Only a blitzkrieg approach during the 'window of opportunity' provided by the 'fog of transition' would get the changes made before the population had a chance to organize to protect its previous vested interests."

Poverty and inequality remain Armenia's greatest challenges, and some question whether the political will exists to tackle these vital problems. This is true for the Armenian government, but perhaps more importantly, for the World Bank and related organizations such as the International Monetary Fund and the United States Agency for International Development. The coercive pressure these institutions place upon governments to engage in fire sale privatisation tactics could be redirected to produce publicly owned utilities that are transparent, efficient, and designed to serve the public good.

Unfortunately, these institutions appear more concerned with ideological imperialism and creating profit opportunities for Western corporations than they are with promoting sustainable economics, accountable governance, and poverty reduction—all of which are necessary for human beings to truly prosper.

Rob Maguire is a Canadian activist and graduate student living in Yerevan, Armenia. He can be found online at www.projectcommunis.org.