Concern over a loan deal

The Congress(I)-led Kerala government's refusal to disclose the details of the agreement with the Asian Development Bank for financial assistance raises concerns about its implications for the people.

ON November 20, Kerala Chief Minister A.K. Antony announced that the Central government and the State had signed a preliminary agreement with the Asian Development Bank regarding the first phase of the ADB's proposed financial assistance to the State to undertake fiscal and power sector reforms and to "modernise" the government. Details of the agreement "would only be known later", he said. The agreement was signed after the ADB carried out unprecedented studies about the working of the Kerala Government and some of its institutions and held discussions spread over several months.

The announcement was greeted with concern in the State, especially in the context of the refusal of the government to explain clearly the implications of the ADB assistance for the people of the State and of the experience of Madhya Pradesh and Gujarat, which received similar support from the ADB. In both the States, the Manila-based multinational development finance institution is criticised for introducing reform packages and private sector development that are "anti-poor and serve the interests of the local elite and transnational players at the cost of local labour, capacity, resources and industry". The ADB has also been accused of demanding a greater say in State government policies on economic reforms "through its self-proclaimed expertise in the area of poverty reduction".

Significantly, the concern in Kerala is more acute because "the State had a deeper and wider plan for reforms compared to that of Madhya Pradesh and Gujarat", as the ADB's India representatives said in Thiruvananthapuram in April, while reiterating the Bank's commitment to provide a loan of $500 million in two instalments in the next two years. They also told mediapersons that the loan would be made available only if the State "achieved specific milestones and there were actual construction of assets".

Opposition parties in the State had been alleging that the discussions with the ADB, initiated by the previous Left Democratic Front government to reform the State's finances, had during the two years of the Congress(I)-led United Democratic Front's tenure in power ended up as a programme for reforming the government itself, with serious consequences for the people.

Details of the assistance being proposed for the State are available mostly from ADB documents. The ADB's Country Strategy and Programme Update (2003-2005) for India, a document released in August 2002, says that the goals of the programme for modernising government and fiscal reforms in Kerala are to support the State government in "implementing a high-quality fiscal correction to achieve sustainable State finances over the medium term, to support public enterprises reform and improve financial control of public enterprises, to contribute to the reduction in overall public sector borrowing requirements, to encourage renewed growth and reduced poverty, and to improve the effectiveness and pro-poor focus of government service delivery through effective decentralisation and modernisation of core government functions".

The document says that the focus of the assistance is on fiscal reforms, good governance, private sector development, social protection and economic growth. It envisages intensification of the expansion of public enterprise reform activities, "including the closure or sale of state-owned enterprises that result in losses"; "greater clarifying" of the role of local and State governments in providing public services in key service delivery areas such as health and rural water supply; and improvement in performance monitoring by local governments. The programme also envisages "financial and operational restructuring" of the Kerala State Housing Board (KSHB) and Kerala State Road Transport Corporation (KSRTC) to achieve better debt management and improvement in decision-making and implementation capacity "to reallocate public resource allocation across departments".

The concept paper on the Kerala Power Sector Development Programme, discussions on which are progressing simultaneously, says that the ADB strategy focusses on reforms in the power sector to make it "financially viable, operationally efficient, and conducive to private sector investments". The focus is on "good governance, private sector development, economic growth and environmental protection". It lists restructuring of the power sector and the setting up of regulatory bodies as the main elements of its strategy. It intends to promote reforms in the sector by lending to the State government to meet the adjustment costs associated with reforms and provide the policy component to meet the cost of structural adjustments and specific investment projects to improve efficiency, reduce losses and increase access to electricity. The ADB, it says, intends to create "financially viable power sector agencies, unbundled according to functional responsibilities" and improved financial and technical operations of the entities in the sector. Significantly, it also calls for complete State government commitment to the reforms.

The third programme, the assistance for which is proposed to be delivered in 2005, is meant for a "comprehensive reform in all aspects of municipal management for good urban governance". Meant to cover the five municipal corporations and other municipalities based on their willingness to adopt reform measures, the project is meant to ascertain the condition of basic infrastructure and amenities, review development initiatives in water supply, sanitation, drainage, solid waste management, market development and urban transport, and "identify and select and prioritise investment components" to improve the provision and delivery of basic urban services. The project is also meant to review the ongoing decentralisation process in Kerala and "determine the areas for institutional strengthening and further support to consolidate the government's decentralisation efforts carried out during the past four years".

The concept paper on Kerala Urban Sector Development Programme says that "without a fundamental change in conducting the business of the municipalities, ADB's financial assistance will only add to the heavy debt burdens of the State and municipal governments". Therefore, it says, the ADB's assistance will be provided "solely on the basis of the performance, financial as well as operational, and clear commitment of participating municipalities". For example, it says, "a wide range of cost-cutting measures must be agreed upon prior to the implementation of the project" and "efforts to raise revenues must be multiplied at the same time."

The LDF has demanded that an immediate session of the State Assembly be convened to discuss the implications of the agreement. Leader of the Opposition V.S. Achuthanandan said that the information available so far suggested that the agreement would result in the creation of a bureaucratic administrative mechanism running parallel to the elected government.

The Communist Party of India (Marxist) State secretariat issued a statement demanding an urgent session of the Assembly and said that by signing the agreement the Antony government had surrendered the State's development policies to the ADB. It said that reforms in such crucial sectors such as education, healthcare, drinking water supply, public finance, poverty alleviation, local administration, the public sector, electricity and labour relations would be placed under the scrutiny of the ADB. The statement pointed out that the conditions put forth by the ADB had not been discussed in the Assembly and said that the move to secure about Rs.1,600 crores for administartive reforms alone was alarming. The government had not clarified how it would use the amount and that most of the proposals approved by the government did not figure in the Budget documents.

The Antony government has refused to provide the fine print of the ADB-assisted reform process. Although it makes repeated pledges about bringing transparency in its functioning, the goverment has remained especially cagey about the terms of the agreement. The government also failed to address the concern that the conditions put forth by the Bank would force the government to go back on the pro-poor, social welfare policies that the State had been following in the past 46 years. It also failed to counter allegations that its policies regarding public sector undertakings and key sectors such as health and education, where the State had recorded impressive achievements would be turned upside down to satisfy the Bank's conditions. Instead, the government's effort so far had been to portray the imminent drastic reforms as purely a Kerala phenomenon born out of necessity and being financed by the ADB and not an ADB programme being implemented by the State government