Neoliberal Water Management in Mexico

Water infrastructure by definition is capital intense. Massive underground networks of pipes and valves, pumping stations and treatment facilities, expensive energy inputs and a roster of professional staff all imply high levels of finance and capital in the form of both upfront investments and continual maintenance and operating costs. In his critique of privatization Weida (2007) explains that capital is actually cheaper for governments than it is for private companies because risk is generally lower. This observation holds true where state apparatus are strong but less true in contexts such as that of Mexico. Mexico, like other countries can generate its own capital by issuing bonds and paying the interest rate as a price for access.

Yet, as Graeber (2011, p. 3) explains, interest rates are a measure of risk. It turns out that bonds issued by many multinational giants are issued at lower rates than those of “riskier”

nations. For instance, Suez (one of the biggest water privatization companies) offer lower interest (coupon) payments on their corporate bonds (5.37% on Oct. 1, 2019); in January of 2020 Nestle paid a negative rate on a similar 10-year bond as that issued by the Mexican government at 6.88% in September of 2019. Of course, in the US context at the same moment, a US treasury bond offered 1.67%, showing that Weida’s argument is quite clear.

Before the neoliberal era (pre-1980s) Mexico’s water commission had a higher debt rating than the rest of the nation. When Mexico was operating on an import/substitution development model, referred to as Mexico’s “golden era,” (Gallardo, 2006) and “the zenith of the hydraulic mission” (Godinez-Madrigal et al., 2019, p. 3) the national water commission, formerly called the Secretaría de Recursos Hidráulicos (SRH), until 1976 when it was brought under the department of agriculture as the Secretaria de Agricultura y Recursos Hidraulicos SARH) was one of the nation’s central development institutions.

The creation of a new water commission in 1989 symbolized the adoption of the neoliberal era by water managers (Wester et al., (2009). Previously, from 1946-1976, the national government adopted a centralized Keynesian approach (1946-1976) using the United States Tennessee Valley Authority development model. This model was based on socio-economic development through river basin development and involved large scale investments in massive infrastructure investments, massive dams for hydro-capture and energy generation, and irrigation works (Interview, Ferreira, Aug. 30, 2018). Because of its long history of successfully bringing Mexico into the modern era, the SRH was seen as less risky than the rest of the national government. The PRI, Mexico’s ruling party from 1928 until 2000 was long seen as a form of institutionalized kleptocracy. Weiner (2013) writes: “since the nation’s founding, few private fortunes were made without colmillo, (‘fang’ or cunning), the owner’s ability to cultivate ties to the right officials and master the art of “mutually convenient” relationships.” Wester, et al. (2009, p. 401) write that during the economic turbulence of the 1970s came, the nation’s Secretaria Recursos Hidraulica provided “urgently needed foreign reserves.” Under import substitution SRH was a key institution charged with generating foreign capital through the development of the nation’s agricultural sector and surpluses (Wester et al., 2009, p. 400).

Aboites Aguilar (2012) shows clearly that the water services in Mexico were on the rise as the nation prospered from the 1930s through the 1970s. In the 1980s however, progress reversed and standards of living collapsed, public spending was reduced drastically, and water services were left unmaintained. By the end of the 1980s “drinking water coverage in medium-sized cities (those between one hundred thousand and one million inhabitants) fell,” Aboites Aguilar (2012, p. 238) writes. “The illusion of national power was predicated on the notion that the federal government had adequate fiscal and legal powers to bring piped water and sewerage services to the entire nation,” (2012, p. 238). He illustrates this with a story from Puebla where the “proportion of urbanities who had water service decreased from 82 percent in 1970 to 65 percent in 1980 and further still to 45 percent in 1987.” The agricultural modernization program that Mexico engaged with from the 1940s onward created three times the demand for water resources, right at the time when the debt crisis hit, which directly led to a dramatic reduction of federal spending on water and an overall diminishing federal role in public services (2012, p. 238-39). Rightfully, attending to the argument above that neoliberalism was a continuation of old ideas as opposed to a break with the past, Aboites Aguilar tells us that these “The arguments that local governments had deployed when contracting the services of private firms between 1880 and 1930 – that is, bankrupt municipal treasuries, the inefficiency of public administration, and technological backwardness—were dusted off to justify the privatization of public services in the 1990s” (2012, p. 239).

The reforms that occurred at the national water commission related to the attempts by visionaries and politicians to develop Mexico beyond its agricultural history, through the direction of water resources to other priorities. This would create a generational battle as the entrenched hydrocracy had established deep roots throughout the political and social structure of the nation. While this thesis is not a historical account of the nation’s water policies, it is important to point out several historical works which analyze the development of the institutions and structures of the nation’s water institutions and how these related to the larger socio-economic changes taking place in Mexico and beyond (Aboites Aguilar, 2010; Wester et al., 2009; Barkin, 2008; Wilder, 2010).

In Mexico, in the name of reducing bloat and making governance more efficient (less costly), Wester et al., (2009) note how the employment of 34,000, mostly hydraulic engineers, at the nation’s Water Commission was reduced to 14,000 from 1989 through 2007 (2009, p. 410).

In order to implement this metric, this market logic, and a new set of actors was required.

The shift included a turn away from engineers and agricultural specialists to economists and policy managers (who employ economics as their language).

Some of the key issues that prohibited or enhanced privatization related to institutional and even cultural issues that were beyond the control of the companies carrying out the contracts. While privatization of water services began in the early stages of the neoliberal era it was clear early on that this would involve more than just changing over management to a firm. Like elsewhere, in Mexico the early pioneers in water privatization began to encounter deep opposition that was deeply rooted in a completely different orientation. “Protests commonly occur in Mexico—especially Mexico City—when governments introduce

measures to privatize or increase the degree of privatization of water. Treating water as a private commodity instead of a public good sparks fears of not being able to afford a human necessity” (Barajas, 2018, p. 2). Water is frequently referred to as a human right (although it is not one of the rights included in the 1948 Universal Declaration of Human Rights) and it is, as described throughout this thesis, often associated under the ethos of citizenship and the very primal roles of the state (Bakker, 2010; Clarke & Barlow 2004; Solomon, 2010). In his study of Mexico, centered on water needs, Barajas (2018) shows that instability caused by water shortages is significant enough to put the entire state apparatus at risk.

The solution in Mexico was to reform the people and the political system. Mexico’s constitution and the reforms that were brought about by the divisive revolution at the beginning of the 20th Century were brought about by a recognition of the need for a social system that protected the interests of communities and the poor peasantry from large economic interests and global markets. The revolution was a direct affront to exploitive relations of power represented by the large landowning hacendados and capitalism (Meyer, 2005). The revolution attacked the very ideas of private property and in this way the constitution protected community land ownership in the form of the ejido, one of the primary targets of the neoliberal reforms. The constitution also protected the nation from foreign ownership of natural resources – another target of neoliberal reform. And in the subject of water, the constitution enshrined the idea of a right to sufficient, safe water for the population. Instead of trying to adopt market logic to the constraints of a political social reality, the market logic sought to reform the political social system.

Setting the stage for these major reforms, in 1989 the national water commission CONAGUA, was established. Beset by the financial crisis and the destruction left by the 1985 earthquake, CONAGUA published recommendations in 1989 to create a modern, functioning water management system. The report focused on the “substandard conditions of the water supply,” the low technical skill level of the nation’s professional water management staff, and “low levels of revenue collection,” (Pineda, 2002, p. 165). CONAGUA recommended

“increasing decentralization, autonomy, self-sufficiency, and private participation in the provision of water supply service” (Pineda, 2002, p. 165). This was to lay the foundation of the 1992 national water law (LAN). The reform attempted to empower business-oriented municipal level agencies to manage the water supply. CONAGUA also recommended that local water utilities begin to suspend service for uncollected tariffs, (Pineda, 2002).

According to Whiteford and Melville (2002, p. 18) the result was clear, by 1995, 80 percent of the nation’s water resources, irrigation canals, and water districts were administered with what was essentially a business approach to the allocation of water.

“Mexico became an early adopter of a full slate of transformations in water policy that were promoted and partially financed by the World Bank and which centered around the principles of marketization, decentralization, and sustainability. The ultimate goal was

20 She later would become the national director of CONAGUA under the Lopez Obrador administration (2018-2024).

expressly a new culture of water” (Wilder, 2010, p. np). According to Jimenez (2008, p.

162)²⁰ the “legal reforms dating from 1992 designed, created and consolidated mechanisms for transferring the construction, administration, distribution and conservation of hydraulic resources to social and private institutions.”

The law addressed a number of structural obstacles that restricted the ability of foreign firms to do business in the water sector in Mexico, the most important of which was allowing foreign participation in the ownership of Mexican water resources. There were a number of structural impediments in Mexico, among which was the fact that the 1917 Constitution explicitly limits the ownership of Mexican waters (Article 27, I: “Only Mexicans by birth of naturalization and Mexican companies have the right to acquire ownership of lands, waters, and their appurtenances” … but then later says this right can be given to foreigners on explicit terms) while simultaneously providing for a constitutional right to both a healthy environment (Article 4) and access to water (Article 4: Any person has the right of access, provision and drainage of water for personal and domestic consumption in a sufficient, healthy, acceptable and affordable manner.”). Rights centered interpretations of this article prevented local water providers to cut water services for non-payment and the decades there grew to be a deeply entrenched culture in Mexico where the expectation was for the government to provide water and the citizen to enjoy access to whatever degree possible, without paying. This created a cultural expectation of water services to be paid for by the state. As Stong writes (2018, personal communication), local water service had become completely dependent on federal funding, which was contingent on political motivation for distribution.

To deal with some of these risks the water law opened up the sector to private investment (Barkin, 2004; 2008). “Both the new law, and the CNA’s privatization agenda stemmed from World Bank and Inter-American Development Bank pressure,” Barkin (2004, p.

27). “Another strong motivation for enlisting private administrators was the irrational rate structure and the municipality’s inability to collect payments.”

By reforming the nation’s constitution and creating “Public Private Associations”

and allowing for private ownership of water and the trading between owners of these concessions, the national water law effectively established “water markets” in Mexico (de Alba et al., 2016). “The modifications of the law have the consequence that now it is possible to buy and sell the rights of property relative to aquifers without having to transfer the rights of ownership of the land where those reserves are encountered” (de Alba et al. 2016). This was followed by the Law of Foreign Investment which made it possible to authorized concessions to foreign companies “for the use and exploitation of natural resources,” (de Alba et al., 2016)

Finally, this law introduced a number of obligatory payments that would be incurred by water users and consumers. “The law introduced the principle of payment for service of water by the consumers, with which it changed the notion of the “user,” traditional for the service, for one of client of the same.” (de Alba et al., 2016).

Despite the legal reform, the inability of public or private systems to recover their costs continued through the 2000s, and in 2009 the National Water Commission released an anthropological study stating clearly that the population is not aware of the problem and are unaware of the processes through which water arrives to their houses and the procedures that are used to treat it and in general they do not realize the economic value of the water service and they neither save or pay for it (Perevochtchikova, 2012). Barkin (2008) in an article tellingly titled “Water as an Instrument for the Redesign of Mexican Society,” writes that there just does not exist a culture of paying for water service in Mexico, and that by putting a pricing framework on top of this cultural predicament, water is put into the service of foreign industrial owners and Mexican elites. In Mexico City, 15 years after the reforms, Barkin (2008) noted that more than 25% of customers are not paying and less than 50% of receipts are collected.

In addition to the legal reforms, the state coordinated a campaign addressed at creating an economic appreciation of water. Throughout the late 1990s federal and state programs throughout Mexico, under the auspice of Culture of Water [Cultura del Agua] attempted to fix the society in which the markets were failing. Writing about one version of the Water Culture program rolled out in the northern state of Nuevo Leon, Castañeda (2017, p. 101) writes “The water culture programs are primarily intended to influence the behavior of citizens with regard to water use” explaining that the “issue of the construction of competent citizens through their advertising campaigns” is “still pending.” She writes that the issue of competency came about through the necessity to change habits and attitudes. She writes that the focus of the Culture of Water is based in a change of the national vision regarding rivers and aquifers, the valorization of water as a simple economic resource and to assume an ethical vision of the principle of intergenerational equality.”

In 2002 the Nation-State launched a culture of water campaign based on a 1) legal framework, 2) water quality, 3) over-exploitation, and 4) economic valuation (Castañeda, 2017, p. 108).

While there was a lot said about respecting the rivers and natural water bodies, the Cultural of Water was initiated at this time not as a serious attempt to protect the nation’s waterways so much as to change bring the consumer into the understanding of paying for water services.

Mexico had a hard time attracting investors. The unstable currency of the 1990s was one of the prime headaches for national politicians simultaneously attempting to attract foreign investors and resolve the nation’s pressing needs. Next, even with the federal law changes that came about in 1992 giving water providers the authority to terminate service for non-payment, as well as progressive tariffs introduced in 1994 (Barkin, 2004) Mexican water providers continued to face challenges. The federal funding (subsidies) was replaced with user fees, but the fees continued to be very low (Barkin, 2004, p. 25).

In a 2004 article “Mexico: Time to get serious” the Global Water Intelligence reported

“Mexico has long been a disappointment for private water companies. … the biggest problem facing the sector is the issue of tariffs … On average, users pay just $1.7 pesos ($0.14 USD) for every meter of water when each cubic meter costs five pesos ($0.44 USD) to produce.”

Mexico provides a prime example of how the privatization of the public water systems was not attractive to either national or foreign investors. Foreign countries writing contracts in national currencies faced the risk of heavy losses, and if they wrote the contracts in the foreign currency, guaranteeing their investments, the consumers would face unpredictable, uncontrollable tariff increases (such as happened in Argentina, Bolivia, (Denny, 2003) and Mexico City (Barkin, 2004). The World Bank subsidized the privatization in Mexico with a $250 Million loan, that could be used to incentivize private participating in the operation of municipal water systems. In a way privatization aligned the political interests of Mexican leaders who were under pressure to reduce the size and cost of government, with those of the Bank. From the World Bank’s position, the goal of privatization reflected the supreme belief in economic efficiency while from the government’s perspective, it was the “potential for mobilizing ‘off-balance sheet’ finance” (Bakker, 2010).

In an analysis of the privatization of Mexico’s water systems Barkin and Klooster (2006, p. 1) write that “although privatization might have some role to play in improving the performance of certain functions of water management agencies, it has clearly not proved superior to the public agencies we review. More importantly, however, the privatization solution has proved incapable of tackling the very serious problems of environmental destruction and the over-exploitation of finite water sources that plague the country.”

Despite the reforms Mexico continued to have a difficult time attracting foreign investors.

In part this was because of Mexico’s financial and political instability. It is also, notes Barajas (2018), because “most Mexicans associate water privatization with poor water services, poor water quality, and high water prices.” It was also directly related to currency concerns, which while true throughout the developing world (Bakker, 2010, p. 65 & 92; Traore, 1992) were even more true for Mexico which had witnessed runaway inflation throughout the 1980s and a currency devaluation in the mid-1990s (Cypher, 1996; Rowley, 1998).

This symptom of privatization, that it proved incapable of solving the societal objectives for which it was enunciated, appears to have been as true in other regions as it was in Mexico.

For the poor, the blame game between the proponents of privatization and the proponents of public services, did little to resolve the problem of poorly maintained water networks and increasing contamination. This is in part because access to water has always been a reflection of social inequalities. Even before privatization, under the restricted government spending as dictated by the structural reforms of the International Finance Institutes, Bakker (2010) tells us, water supply lending historically tended to avoid the poorest communities. Inequalities were built into public access, she tells us, imploring us to move the debate beyond the polarized/

polarizing profits versus people dichotomy. Her work along with Kooy in Jakarta (2010) and elsewhere [Latin America, (2015) and even Canada, (2016)] show water infrastructure as a testament to the inequalities embedded in society. Writers looking at inequalities in access and conflicts throughout the world have noted similar realities, in Ghana (Morinville, 2017), Bolivia (Swyngedouw, 2006), the Philippines and Argentina and many more (Budds & McGranahan, 2003). The hypothesis that privatization will do a better job at bridging gaps in levels of access between the rich and the poor, remains unsubstantiated. “Indeed, there is little evidence either

that the private sector is interested in serving low-income groups, or that they are any better off under private provision” (Budds & McGranahan, 2003, p. 109).

Despite the overwhelming proof of privatization’s failures throughout the world, those who witnessed these glaring market failures did not call into question the philosophical roots and

Despite the overwhelming proof of privatization’s failures throughout the world, those who witnessed these glaring market failures did not call into question the philosophical roots and