United Nations
Commission on Sustainable Development

Background Paper

                      EXPERT GROUP MEETING



                        27 - 30 January 1998

                          Harare, Zimbabwe

                           Terence  R. Lee

                             Paper No. 6

                          Prepared for the 
              Department of Economic and Social Affairs
                           United Nations 

                       AMERICA AND THE CARIBBEAN 

                            Terence R. Lee
United Nations, Economic Commission for Latin America and the Caribbean

The major challenges facing water resources management at the
beginning of the twenty-first century, are and will be determined
for the countries of Latin America and the Caribbean by the needs
of economic and social development. Oddly enough, or not, these
needs are very much the same as those that were being faced as the
twentieth century dawned, as well as those that have been faced for
all this last century. Undeniably, the greatest challenge is to
achieve what it has not been possible to achieve in this century -
a high level of economic development, that is both sustainable and
equitable. The achievement of sustainable and equitable economic
development requires, in order of importance, that the societies of
Latin America and the Caribbean, increase productivity, eliminate
poverty and minimize the impact of economic activities
on the environment.
The water resource has many roles to play in
resolving this challenge, both as a whole, as well as,
for each separate component. Fortunately, in meeting
these challenges for the region, as a whole, there is
unlikely to be any crisis in the physical supply of water. The
average annual precipitation is estimated to be 1,500 mm, over 50%
above the world average, and the annual mean runoff is 31% of the
total global land surface drainage entering the oceans. The
distribution of precipitation in the region is, however, very uneven
and this creates some very arid regions. Moreover, the population
has tended to concentrate in the less humid areas of the region,
over 90% of the population lives in areas with less than 2000 mm of
precipitation a year and three of the largest concentrations of
population - the metropolitan areas of Lima-Callao, Peru, Mexico
City, Mexico and Santiago, Chile are in areas with less than 500 mm.
In these areas,  and in other urban and industrial areas, there will
be increasing competition among uses which will add an additional
change for water resources management.
Despite the optimism in the press and in many official reports, the
economies of the countries of Latin America and the Caribbean have
not grown significantly in the last 20 years. The only remarkable
exception has been the sustained economic growth of Chile over the
last 12 years. In many countries, there has been an overall decline
in productivity, and in others recent growth has simply reflected
recovery from the recession of the 1980's (Figure 1). Increasing
economic productivity remains the major challenge facing the
countries of the region. 

                   Figure 1.  Changes in Per Capita Income

                             [ not available ]

           What is true about the economy as a whole holds equally
for those goods and services closely related with the water
resource. Most water-based services, not only drinking water supply,
but also hydroelectricity generation and irrigation, in most
countries are still managed at a loss and require considerable
subsidies not only for capital expansion, but even for routine
operations. These subsidies are provided at the expense of more
socially profitable uses of these financial resources. If water-
based services are to make a maximum contribution to economic growth
in general then they must become entirely financially self-
sufficient, including future capital investment. 
        Profitability and self-financing is quite achievable for
all water-based services in all countries in the region. There are
various alternative means, that are already being applied in many
countries, to ensure that these services maximize their contribution
to economic productivity, to increasing the productive base and
through these means to economic growth.
        A fundamental step in this process is the reconsideration
of the role of the government and the public sector in the economy
and a revival of the faith in markets. The most common policy
adopted to improve productivity has been the transfer, through sale
or concession, of many water-based productive activities to the
private sector. An even more radical institutional change is the
decision, in some countries, to let the market determine
the allocation of water.
        The basic components of these policies include,
first, reductions on the direct provision of water
services by central governments through:
                 I) The transfer of  responsibility from a central
government ministry to another public institution, such as an
autonomous public corporation, to the states or provinces in the
federal countries, to a regional authority or a municipality in
countries with a unitary system of government;
                 ii) The transfer of management responsibilities to
formally constituted water-user associations. This is particularly
common for irrigation and rural drinking water supply;
                 iii) The granting of water services in concession
to private companies. This is particular common for drinking water
supply and sanitation, although, it is also being considered for
irrigation works in some countries;
                 iv) Direct privatization through the sales of
shares or by tender. A normal practice for hydroelectricity
generation, although it is also being applied to water supply and
sanitation services.
     Second, in some countries, water markets have been created or
are being considered through the assignment of property rights to
the water rights and the permitting of the holders of the rights to
freely trade them. Such markets have existed in Chile since the
early 1980's.
     Third, there is a trend towards self-financing. There is an
increasing requirement in public policies that sellable water
services (drinking water, irrigation, and hydroelectricity) finance
the total costs of provision from tariff revenues, including the
control of the external or environmental costs associated with their
     It is already clear that these policies when thoroughly
applied remarkably increase the productivity of water-based
services. Their continuation, deepening and widening  is the basis
by which the use of the water resource can become more productive
and its role as an economic good be fully played at the beginning
of the twenty-first century. At the same time these policies are
placing new demands on human resources. Raising productivity will
not only require new skills from workers in the sector, but also
create many new employment opportunities.  Most countries of the
region have extensive training systems both within the universities
and within the sector, itself, although the supply and demand are
not always coincident.

     Much of the criticism that has been made of the poor
management of water services has been justified by the ample
evidence of the results of ineffective management such as the
construction of unjustified or ill conceived projects and in the
development of an unwieldy and overly centralized bureaucracies. The
greatest failure has been in the provision of drinking water supply
and sanitation services, especially in urban areas. The result has
been the maintenance of human misery and recurrent crises, such as
that of the recent cholera epidemic. There are far too many examples
in the region of badly run water services which fail to meet the
demands placed upon them to be able to claim that the administration
of these services does not demand radical reform. 
     Over the last three decades, tremendous efforts have been made
in most countries to improve public utilities. Nevertheless, the
efforts have consistently failed to achieve the objectives set. One
of the principle limitations has been the weak financial situation
of the state-owned public utility companies due to the failure to
use full-cost pricing. The lack of financial resources has been
compounded, in many cases, by poor management. This two factors have
had the consequence of  insufficient increases  and even decreases
in the provision of services and have constituted an important
limitation  for those systems which have shown a better performance.
Privatization does not necessarily have to be in the form of the
sale of whole systems to the private sector, although in many cases
this may be the preferred alternative.  Granting a total or partial
concession can have an equally effective innovative impact as can
the conversion of state companies into autonomous public companies
registered on the stock exchange.
     Improving the financial situation of public utilities,
privatized or not, demands that all customers pay for their
services, a custom which has not exactly been common in the region
and has implications for equity given the nature of the distribution
of income in Latin American societies. Perhaps, however, not such
serious implications as the existing failure to provide services,
close to 100,000,000 people have no access to services and many more
have very poor services (Figure 2). Moreover, there are examples of
successful solutions through direct subsidies to the consumer.

     No one wishes to pay more for any good or service. But, only
moving towards self-financing will allow the whole population, both
urban and rural, to have access to the basic services necessary for
a minimum quality of life. Moving towards the self-financing of
public utilities is an end of century imperative for the countries
of Latin America and the Caribbean.  The financial restrictions,
which have plagued public utilities, can be eliminated through the
establishment of tariff systems which allow the whole cost of the
provision of basic water services to be met. There should be no
doubts either that this is the only way of having well managed
services which maximize the contribution of the water resource to
the elimination of poverty.
     This is the basis for one of the strongest arguments in favour
of increasing private participation in water management. Introducing
private investment into public utilities requires full-cost pricing.
The objective is not, however, privatization for its own sake, but
the transformation of public utilities into companies where the
investments and provision of services do not continue to be in
deficit and where the quality of the services is low, especially for
the poorest members of the population. It is here that gender
differences become very significant. It is women, and children, who
bear the highest proportion of the costs of lack of water and
sanitation. It is women who must carry water. Not surprisingly, as
everywhere, women are the most enthusiastic participants in 
programmes to remedy deficiencies. The only real solution to the
deficiency lies in the extension of public systems, other solutions
are only stop gap remedies.

The future growth of the economies of the countries of Latin America
and the Caribbean will require that dams are built, swamps drained,
rivers diverted and use water be used  for the production of
electricity, for irrigation, for flood protection, for drinking
water supply and incidentally change the environment. Fresh water
is a major component of the environment and one of the major
challenges facing water management is and will be the need to
minimize the environmental disruption society causes through its use
of water. 
     On one hand, the building of dams and reservoirs, especially
large dams and reservoirs, has come under mounting criticism in
recent years. Part of this criticism stems from the poor
performance, in many countries, of the development programmes with
which the construction of the dams was related, especially, but not
only, in irrigation.  Much of the criticism is based, however, on
a failure to consider the environmental and social impact of the
reservoir on the region in which it has been inserted and the
general absence of participation by the population affected in the
process of design, construction and operation of the project.
   On the other hand, changes in the spatial distribution and
structure of human activities, related to increasing urbanization,
will continue to have serious effects on the environment through
changes in the patterns of streamflow and water quality. The
concentration of population in large metropolitan centres has led
to considerable interference in the natural order through the growth
in sewerage and the subsequent discharge of untreated wastes;
interference in the hydrological cycle caused by urban building; the
more intensive use of agricultural land close to metropolitan
regions; and the increase in the artificial regulation of stream
     Equally significant, from the viewpoint of the role of the
water resource in the environment, have been the changes that have
occurred in the economic structure. Industrial growth and changes
in industrial structure have been of particular importance, and the
recent adjustments in many economies will only result in greater
industrial growth in the decades ahead. Over the last 20 years, for
example, the manufacture of intermediate and capital goods has
become as important as the production of food and other non-durable
goods. The intermediate and capital goods industries and mining, all
demand large volumes of water in the production process and produce
larger and more complex waste discharges.
     Concern for the impact of economic development on the natural
environment together with the increasing awareness of the close
interrelationship between poverty, especially rural poverty, and
environmental degradation has placed environmental management in the
forefront of political discussion. 
     At the same time, the recent tendency towards rationalization,
decentralization and privatization of former public sector
responsibilities in many countries has brought about an
unprecedented change in the institutional environment for water
management as many new actors enter into the management and
decision-making process. Management processes which were closed, are
now open, and wide public discussion of water management decisions
is increasingly common in many countries and has replaced the
traditional centralized, closed approach to decision-making. 

   At the same time, the recent tendency towards rationalization,
decentralization and privatization of former public sector
responsibilities in many countries has brought about an
unprecedented change in the institutional environment for water
management as many new actors enter into the management and
decision-making process. Management processes which were closed, are
now open, and wide public discussion of water management decisions
is increasingly common in many countries and has replaced the
traditional centralized, secretive approach to decision-making. 

     One important aspect of the criticisms made of the traditional
approach to decision making turns on the lack of consideration of
the environmental consequences of water management decisions and the
consequent damaging environmental effects of many decisions to
construct works and assign water use. It is arguable that the over-
centralization of any activity is likely to lead to sub-optimum
decisions and, especially, to a failure to consider their wider
implications. The more open and participatory the process of
decision-making is, the more probable it is that all aspects of the
decision will receive consideration.

The transfer of responsibilities from central government agencies
to lower levels of government and to the private sector is producing
a need for new institutional structures for water management in the
countries of the region. The centralization of water management
destroyed the traditions of local and user participation in
management nearly everywhere. Even among the federal states of the
region, only in Brazil was  extreme centralization avoided and the
participation of the States maintained. Now the process of
decentralization demands that the idea of user participation, of
partnership among the different organizations and the private
sector, be recreated through the adoption of institutional
structures appropriate to the traditions and idiosyncrasies of the
countries of Latin America. 

             Figure 3: Latin America - Urban population
                       Percentage of total population 

                       [ not available ]

     Centralization seem also to be the cause of the neglect of
shared resources. There are 59 rivers and lakes in Latin America and
the Caribbean - only one in the Caribbean, the Artibonite - whose
drainage basins are shared by two or more countries. The drainage
basins of these rivers account for over half the area of the
countries of the region and to more than three-quarters of the total
runoff.  Many shared water bodies have been subject to some form of
international legal arrangement, either specifically or within some
broader instrument dealing with border issues. In general, however,
the institutions contemplated under these agreements have not been
created or, where they have been, only operate in a very limited
manner, with the exception of the agreements between the United
States of America and Mexico. Despite the moves within the region
towards greater economic integration, it is not certain that the
relative importance of shared water resources will change in any
significant way. Shared basins remain marginal to the main focus of
development for most of the countries of the region. One possible
way in which this situation could change radically is with the
growing concern for the environment.
   Privatization leads, by its very nature, to an increase in the
participation of non-government agents in water management. In
itself, however, the transfer of responsibilities to the private
sector is not a panacea and cannot create a new institutional system
for water management. Such a system must be specifically created.
The need for innovation in management systems is now widely
recognized in the region. There has been little real progress,
however, in the construction of systems of water management based
on local institutions with wide social participation and where the
environmental aspects of water management can be given their due
   It is undeniable that the creation of new institutions is
complex. Simply coordinating the activities of the public sector can
be a difficult task. For example, in the River Bio Bio basin, in
Chile, 16 public sector institutions from 9 different central
government ministries were identified as having responsibilities for
aspects of water management. In  addition, there are regional
governments and municipalities. In many cases, these institutions
have jurisdiction over the same area of water policy. In the Bio Bio
example, 9 institutions were shown to share administrative
responsibility for water pollution and 8 to share responsibility
related to the physical modification of the riverūs course. There
is no reason to think that such an administrative situation is any
exception, either in Chile or in Latin America, as a whole. 
           Even given this complexity, the idea of establishing some
form of river basin administrative authority for water management
is very attractive and has been proposed for many years. The use of
such authorities has not, however,  been common in Latin America and
the Caribbean.  More recently, however, as part of the ongoing
revolution in water management policy local management institutions
have become the focus of considerable interest by governments.  This
is leading to the increasing discussion in the region of a need to
create river basin based management institutions in order to solve
conflicts between users, to better manage supply and to permit the
better taking account of the impact of water use on the environment.
           The regional development corporations for the Cauca
Valley (CVC) and the Rio Bogota (CAR) in Colombia are examples of
innovative and efficient regional institutions involved in water
resource management. Both provide good examples of local environment
management. The CVC began a water quality control programme in the
1960's and it now has perhaps the most successful programmes for
controlling industrial pollution in Latin America. It is the type
of institution which can be expected to be become more widespread
in the region.
           New examples of local management institutions include the
creation of river basin consortia among municipalities in the state
of Sūo Paulo, and other states in Brazil, a renewed interest in
river basin authorities under the application of the new Mexican
water law promulgated in December, 1992  and moves in Argentina and
Chile among other countries, to introduce local water management
institutions. It is perhaps in the transferring of administrative
authority and responsibility to such local organizations that will
provide the most effective means of incorporating consideration of
the environmental repercussions in the water management process. 
      At the same time, the incorporation into public policies of
the consideration of sustainable and integrated water resource
management is not restricted to the creation of local management
agencies. Many countries have been innovating in water quality
management. For example, in Mexico, to meet the demands associated
with the environmental agreements entered into under the North
American Free Trade Agreement, a system of discharge charges under
the 1992 National Waters Law has been introduced. In both Argentina
and Chile, the institutions responsible for water quality control
have recently been strengthened. In general, however, pollution
control and water quality management are areas where there is least
management experience in the region.  It is obvious to most
governments, however, that there is a need for policies and
strategies for controlling pollution; for establishing information
bases on pollutants and water quality; to develop useful technology
for pollution control and treatment of wastes; to advance in
institutional development; and to establish appropriate financing

     Throughout this century, the demands over the water resource
have gradually intensified in most countries of Latin America and
the Caribbean. The intensification of demands can be expected to
continue as population continues to increase and the economies renew
and increase their growth. Demand will not only continue to
increase, but its nature will change as the economies change. The
changing and multiple role of the water resource will place
tremendous pressure on the ability of managers to cope with the
continually changing issues which must confronted in water
     The necessary progress towards sustainable and integrated
water resource management is still hindered by many factors. One of
the most important is the tremendous deficiency, that still exists
in the provision of effective and efficient water supply and
sanitation services. This important and growing social need,
intensified by the reappearance of cholera in the region in 1991,
does not harbor well for the achievement of sustainable water
management being given a high priority by either political decision-
makers or the public. 
     If the water resource is to properly fulfill its role in
increasing productivity, eliminating poverty and to minimizing the
impact of economic activities on the environment then the
achievement of sustainable management policies must have priority.
So if the lack of adequate water supply and sanitation is an
obstacle than this must be the first challenge that must be
     Looking at the broader context, the years since the Mar del
Plata Conference can be divided, as far as the countries of Latin
America and the Caribbean are concerned, into three  markedly
different periods. The first, which ended in 1982, was characterized
by unprecedented economic growth. It was followed, however, in the
years 1982-1990, by the most serious economic recession since the
1930's. Since 1990, most countries of the region have entered a
renewed period of growth and begun to recover from the effects of
the recession of the 1980's. 
     Both the boom of the 1970's and the recession of the 1980's
deflected interest in the state of the public sector which was
reflected in a lack of innovation in water administration.
Indirectly, however, both  periods have had repercussions on the
administration of the water resource which will undeniably persist
into the next century.
     The boom at the end of the seventies marked the climax in the
expansion of public economic activities typified by the undertaking
of a number of grandiose water-related projects, mainly for the
generation of hydroelectricity, but also for navigation and
irrigation. This expansion of the public sector was reversed during
the recession and the following recuperation. In most countries of
the region, the role of the state in the economy has been
fundamentally revised. The objective of this revision was the
reduction or redirection of state expenditures, especially capital
investment, in conditions of fiscal austerity. This reduction was
accompanied by attempts to increase the efficiency of the provision
of services by transferring responsibilities to the private sector
or, at the least, to financially autonomous public companies or to
the municipalities. One of the results of this policy has been to
leave the central public administrations with responsibility for
licensing and supervising the activities of third parties, but not
for the direct operation of productive activities related to water. 
     The adoption of such policies is far from even among the
countries of the region. Some countries are still in the midst of
macroeconomic stabilization. A few have  a decade of stable policies
and economic growth behind them. The reconsideration of the role of
the state in water management is, however, general and marks a major
change in water administration policies which had been in existence
for more than fifty years. The steady expansion of the public sector
in the management of water projects has been reversed. 
     The context in which water administration is discussed has,
fortunately, changed. In the last few years,  there is a noticeable
general tendency in the region to apply some of the basic precepts
for water resource administration which were enunciated at the
United Nations Water Conference, and incorporated in the Mar del
Plata Action Plan. Agenda 21, adopted at the United Nations
Conference on Environment and Development, Rio de Janeiro, 1992,
particularly Chapter 18 Protection of the quality and supply of
freshwater resources: application of integrated approaches to the
development, management and use of water resources has also begun
to influence water management policy in many countries.
     The emphasis in water management policies is, and will be for,
at least, the beginning of the next century, on decentralization and
participation. The opportunity has possibly been created for the
general adoption of institutional arrangements based on the concept
of integrated river basin management, by the removal of operational
responsibilities away from the institutions of the central public
administration to local government, to autonomous public companies
or to the private sector. This institutional change may be the key
to ensuring that in the twenty-first century the water resource
finally fulfills the roles demanded of it by the societies of Latin
America and the Caribbean.

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Date last posted: 8 December 1999 15:15:30
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