👋 Hello, and welcome to today’s edition of The Policy Dispatch!

This week, we draw unexpected parallels between Trump’s policy agenda and Argentina’s failed water privatisation experiment. Meanwhile, Mozambique and Zambia are making waves with a bold cross-border energy collaboration.

As we reflect on the passing of José "Pepe" Mujica—a global icon of humility and resilience—we’re reminded of the importance of bold leadership and thoughtful policy. 🌍

Plus, did you catch the rare celestial parade of Saturn, Venus, and the Moon earlier this week? ✨

Stay with us for sharp insights into the policies shaping our world today. 📈

• ↪️The Parallels between Trump’s Policy Agenda and a Failed Water Privatisation Policy in Argentina

• 😇 When Mozambique and Zambia join forces

• 📰 News Recap

Policy Reversal

↪️ The Parallels between Trump’s Policy Agenda and a Failed Water Privatisation Policy in Argentina

TLDR Version: In the 1990s, Argentina privatized its water services, promising efficiency and lower costs through a deal with Suez’s consortium, Aguas Argentinas. Instead, water rates increased, service deteriorated, and public discontent grew. Following Argentina’s economic collapse in 2001 and mounting political pressure, the government renationalized water services in 2006, marking a significant policy reversal. This case reflects a broader global trend where governments backtrack on policies due to political backlash, poor design or implementation, incomplete information, or institutional resistance. Theoretical insights highlight “reversal costs,” emphasizing the tangible and intangible costs of changing course, often shaped by ideology and politics. The essay concludes that Trump’s reversal of long-standing U.S. free trade policies exemplifies the growing dominance of neo-nationalism and the costs associated with policy shifts, which are difficult to quantify but have real-world impacts. 

💧 Argentina’s Water Policy Reversal

Argentina in the early 1990s was a country suffering harsh economic conditions. Public debt had been mounting and economic growth had been endemic. Those years were also marked by the arrival of Margaret Thatcher and Ronald Reagan who brought with them a wave of neoliberal policies. The fall of the Soviet Union and the Berlin Wall cemented the image of those years. Behind those headlines, many developing countries were struggling economically. The policy prescription, dominant in that era, was the inefficiency of government in running national corporations. The idea was simple: private entities could deliver services at a lower cost and more efficiently. Those ideas rapidly took hold and began spreading around the world mainly through institutions like the IMF and the World Bank. 🌐 Argentina was not spared of that wave. It too began to privatize its national companies. More specifically, it privatized its water services to a consortium led by Suez – a French company. The consortium, known as Aguas Argentinas, promised international expertise, efficient water services and lower costs. 💧

Soon though, that began to unravel. Water rates, meant to fall by 27%, shot up by 20% instead. 📈 The former Buenos Aires Mayor Fernando de la Rúa lamented that “these price increases, and the cost of service extension, have been borne disproportionately by the urban poor.”

What was a promise for a better living standard became a daily struggle. It was more than a policy failure, it was a reversal of the quality of life. Many houses remained unconnected to the service for years. The water quality deteriorated so much that people resorted to buying bottled water instead. Meanwhile, prices applied by the consortium only increased.

Anger amongst the population increased and the politicians started taking notice. This all came to a boiling point when in 2001, the Argentine economy collapsed due to its very high debt. 💥 The national currency, the peso, lost its value rapidly, leading to more economic pain.

The consortium, seeing its investments losing value, demanded compensation from the Argentine government. In return, the government accused the consortium of not investing enough as promised and not following the terms of the contract. The relationship eventually broke down while unrest only increased. The legitimacy of a foreign company controlling such a strategic asset as water became a hot topic of discussion. The murkiness of the water symbolised the broken promises and the unwanted hardship this policy brought to the people.

After mounting political pressure, the Argentine government eventually terminated the contract in 2006 – a little too late. Beyond the technicality of the contract and broken promises, this termination symbolised retaking their destiny in their own hands for Argentines. 🇦🇷

The government renationalised the water services under a new entity called Agua y Saneamientos Argentinos (AySA) meaning Argentine Water and Sanitation. The story of Argentina’s water policy reversal is more than a tale of failed privatization. It’s a narrative about resilience, about people reclaiming their right to clean water. It underscores the dangers of treating essential services purely as commercial ventures and the power of public voice in defending basic human rights.

🌍 From Global Trend to Local Reality

The history of economic policies is filled with examples of policy reversals. More recently, the UK Labour government reversed course on cutting winter fuel allowance for the elderly. This policy aimed to save £1.5 billion but political backlash and a disproportionate negative effect on low-income pensioners made the government change course. 🇬🇧 In a similar vein, the Japanese government had to reverse course in 2025 when it proposed increasing consumption tax from 8% to 10%.

Policy reversals are not only limited to accounting cost-benefit analysis. In 2011, Germany announced that nuclear power plants would be phased out by 2022 because of the Fukushima disaster, reversing course to extend the life of decades-old nuclear plants. There has since been lobbying by the industry to restart some plants, arguing that safety has been increased and prices of energy from other sources remain high. In 2022, Thailand announced it would decriminalise cannabis to boost its tourism economy. Recently, the government has been hinting at reversing course and applying some limits on the commercialisation of cannabis. 🌿

While these examples have local impacts, they nevertheless stem from global trends. The UK government is wary of financial markets and has been keen to manage its finances well in line with post-COVID debt management trends. Germany followed lessons from an event with global ramifications. Thailand surfed the wave of policy promises that legalising cannabis would help bring in extra revenue.

🔎 Reasons

Economists point to political backlash, when economic logic clashes with political reality. Political backlash – when the economic calculations are not aligned with the political ones – the example of the Japanese tax reversal is an example. The recent British case is one of realising (too late) the (unintended or intended) economic consequences of a policy – let’s call it policy badly designed. There are other cases though, where one would argue strongly that the policy has been correctly designed but badly implemented. The Indian government decision to overnight invalidate 500- and 1000-rupees notes resulted in severe cash outages, disruptions to the informal economy and economic slowdown. 🇮🇳 The government had to reverse course a bit by reintroducing new 500- and 1000-rupee notes and rolling back strict limits on cash withdrawals. In similar cases, sometimes policies are announced without proper funding or infrastructural resources available to make the policy work.

Very prominent in the US are court decisions to reverse government policies. The US forms part of a small group of countries where courts have such an influence on government policies. ⚖️ The European high court has also rendered recent judgements that cause European countries to have to change course. For example, Poland has had to reverse its judicial reforms after the European Court of Justice deemed it a violation of EU law.

Incomplete information, complemented by new information over time, can lead to policy reversal. Most policy reversals occur after a new government has taken power. This paper by Moen and Riis (2010) offers a theoretical explanation why this happens.

Institutional resistance is a reason that is often overlooked. The agricultural reform announced in India in 2020 aimed at liberalising huge chunks of the market. While there remains a debate about the true benefit the reforms would have had, it had to be repealed after what the Modi government termed its inability to convince stakeholders. State government, agricultural marketing boards and farmers resisted the changes and slowed down its implementation significantly. 🚜 In 2005, the Japanese government wanted to privatise the postal service. The unions, workforce and rural political interests slowed down the implementation considerably, leading to the reform being backtracked little by little by successive governments.

📚Towards a Theory of Policy Reversal

ny theory of policy reversal must measure the cost of reversing policies. As a starting point, the idea of a Reversal Cost by Mielniczuk and Pi (2016) is an interesting one – it aims to capture the cost of undoing a decision. These costs apply to personal, legal, and economic decisions, influencing expected utility and behaviour. The paper presents a simple model where reversal costs lower the perceived risks of decisions, making them more attractive when reversibility is low-cost. It illustrates this with scenarios like refund policies, relationship choices, and policy incentives (e.g., tax fraud amnesty programs). The concept explains why reducing the cost of reversing decisions may lead to both positive and negative behavioural incentives.

The economic literature is littered with examples of policy reversals. The context of the analysis of policy reversals differs and often yields a specific conclusion which cannot necessarily be translated generally. One such paper is “The impact of policy reversal on economic performance in Sub-Saharan Africa” by Yago and Morgan (2007). The paper explores how reversing previously implemented liberalization and reform policies affects economic growth in Latin America. It finds that policy reversals are associated with significant economic costs, including reduced growth, investment, and productivity. The authors argue that these costs arise due to increased uncertainty and reduced credibility of policymakers, which undermine investor confidence and slow down reforms. 📉

Another specific example is the study of policy reversals on pension reforms in ex-Soviet countries, which hypothesises that the (perceived) cost of (bad) policies is so high that ideology does not play much of a role in determining policy reversal or not. It also emphasises the importance of short-term gains in determining a policy reversal.

🔮 The Future of Policy Reversals

More recently, the Trump administration’s attack on free trade can be viewed as a policy reversal after decades of (perceived) benefits. The pause announced a few weeks later was yet another policy reversal driven by short-term gains – the US stock market revival comes to mind. Nonetheless, these reversals of reversals have concrete “reversal costs” – of which sadly we’ll never quantify but will be perceived and are real. The effects of the USAID cuts are evident already in African countries. Future policy analysis will be enriched by taking into consideration “reversal costs”. This, though, brings its own load of issues, chief amongst which is the number of policy options – a solution would be to use the baseline prior to the policy being implemented. Another issue is availability of data. While there are estimates of the number of houses that were not connected to the Argentine water network, the real cost of the time invested to gather water, for example, will never be known and can only be estimated.

The underlying theme in many of these examples discussed in this essay is politics. And often, politics is guided by ideology. Just like the neoliberal ideology swept the world in the 1990s, this current era is being dominated by strong neo-nationalism. Current Trump policies may well end up being reversed in the future. The gains then should not only be counted as the stop of the policy's negative effects. The net gain would have to take away any cost relating to reversing those policies. A famous British physicist and mathematician once said: “What is not defined cannot be measured. What cannot be measured cannot be improved. What is not improved is always degraded.”

Megaproject

🔥 When Mozambique and Zambia join forces on a Gas Megaproject

🌟 What is the Project?

Mozambique and Zambia have signed a $1.5 billion deal to construct a 1,400-kilometer pipeline to carry petroleum products. It will stretch from Beira (Mozambique) to Ndola (Zambia). 🚀 This pipeline is designed to transport 3.5 million metric tons of fuel annually which will significantly boost regional energy security and reducing reliance on road transport. The deal was unveiled at the 11th Mozambique Mining and Energy Conference in May 2025.

⏰ When is it Happening?

Announced in May 2025, the project is expected to kick off soon, with preparatory work already underway. 🏗️ While precise completion timelines have not been published, both governments are pushing for an quick rollout to address pressing energy supply needs in the region.

🔍 How Will It Work?

The pipeline will replace fuel trucks, reducing congestion on busy highways and potentially reduce carbon emissions. 🌿 It will also feature strategically located storage facilities at both ends to stabilize fuel supply and minimize price volatility. The project promises to cut logistics costs, increase trade, and enhance fuel security for both nations.

Key benefits include:
✅ Reduced road maintenance costs due to less truck traffic
✅ Decreased pollution and carbon emissions
✅ Boosted trade and industrialization in Zambia
✅ Attraction of foreign investment into Mozambique’s energy sector

💡 Why Does It Matter?

This megaproject signifies more than just infrastructure—it represents a vision of regional cooperation and economic integration. 🌍 It aligns with the broader Southern African Development Community (SADC) goals and shows how shared resources can drive growth. By investing in such cross-border projects, Mozambique and Zambia are setting a precedent for tackling Africa’s energy access challenges while fostering sustainable development.

However, challenges such as funding mobilization, regulatory approvals, and construction hurdles remain. Both governments are committed to navigating these complexities, with support from development partners and private investors.

📚 Book Suggestion:

The New Map: Energy, Climate, and the Clash of Nations by Daniel Yergin – A comprehensive exploration of global energy politics and the evolving landscape of energy cooperation.

Number

🔢 This week’s Number

 26%

Malawi's central bank has maintained its benchmark interest rate at 26% - one of the highest in Africa, to combat persistent inflation exceeding 30%. This decision highlights the country's efforts to stabilize its economy amid foreign exchange shortages and weak agricultural output. High interest rates, while aiming to control inflation, can also hinder economic growth by increasing borrowing costs for businesses and consumers. Malawi's monetary policy highlights the delicate balance African nations must strike between curbing inflation and fostering economic development.

News

🇮🇳 India Cuts Repo Rate to Boost Economy
The Reserve Bank of India reduced the repo rate by 25 basis points, aiming to stimulate borrowing and economic activity amid global uncertainty. This decision reflects India’s proactive approach to bolstering growth and investor confidence.

🇹🇿 Tanzania Opens East-Central Africa’s Longest Bridge
Tanzania has completed the construction of the longest bridge in East and Central Africa, a milestone for regional connectivity. The bridge will enhance trade routes and boost cross-border economic integration, aligning with Tanzania’s infrastructure modernization efforts.

🇬🇭 Ghana’s Public Debt Hits GH¢769.4bn
Ghana’s public debt ballooned to GH¢769.4 billion by March 2025, raising alarms over fiscal sustainability. The government faces mounting pressure to implement reforms and secure external financial support to stabilize its economy.

🇦🇫 Afghanistan Faces 40% Rainfall Deficit
A severe drought has deepened Afghanistan’s food crisis, with a 40% shortfall in rainfall jeopardizing crop yields. The situation has triggered calls for increased international aid and proactive drought management strategies.

🇸🇳 Senegal Borrows CFA 40bn to Boost Economy
Senegal secured CFA 40 billion through the West African Economic and Monetary Union, bolstering its fiscal capacity to support economic recovery and development projects.

🌍 WHO Adopts New Pandemic Agreement
On May 20, 2025, WHO member countries unanimously adopted a new pandemic agreement to enhance global preparedness. The U.S. abstained from the agreement, citing concerns over WHO's efficiency and political influences .

🇧🇷 Brazil Eases Environmental Licensing Rules
Brazil’s Senate passed a bill easing environmental licensing for small to mid-sized projects, raising concerns about environmental impact and climate commitments.

🇦🇷 Argentina Approves $2.5 Billion Lithium Project
Argentina greenlit Rio Tinto’s lithium project, boosting its mining sector under the new RIGI regime to expand lithium exports vital for electronics and EVs.

🇪🇨 Ecuador’s New President Pledges Economic Reforms and Security
Ecuador’s President Noboa vowed to curb drug-related violence and revitalize the economy amid rising homicides and public debt challenges.

🇦🇷 Argentina Introduces Tougher Immigration Rules
Argentina's President Milei imposed stricter immigration rules, including entry bans for criminal records and fees for migrant health and education services.

🇧🇷 Brazil and China Deepen Trade Ties Amid U.S. Trade Tensions
Brazil and China signed 20 new agreements covering agriculture, mining, and energy, reinforcing economic cooperation and Brazil’s role in China’s supply chain.

🇪🇨 Indigenous Summit in Quito Highlights Human Rights Enforcement
Indigenous leaders in Ecuador’s Quito discussed enforcing human rights rulings, focusing on justice and territorial rights protection across Latin America.

🇧🇷 Brazil Raises 2025 GDP Forecast to 2.4%
Brazil’s Finance Ministry increased its GDP forecast amid strong agricultural output, though inflation concerns persist with rates at 5.0% and interest hikes.

🇻🇪 Venezuela Holds Controversial Parliamentary Elections
Venezuela conducted parliamentary elections amid a political crisis, with the process criticized for lacking fairness and transparency.

Number

🔢  Another Number

 $12 Billion

The U.S. President's Fiscal Year 2026 budget proposal includes a $12 billion cut to the Department of Education, representing a 15% reduction from the approved FY25 funding levels. This significant decrease aims to consolidate 18 competitive and discretionary grant programs into a single block grant, emphasizing school choice and returning education control to states. The proposed cuts have sparked debates about the future of federal education funding and its impact on public schools nationwide.

Goodreads

📖 This Week’s interesting articles

• The Guardian has published a piece recounting the difficulties refugees and displaced people face. Really worth reading.

• The CEPR has an ebook that came out analysing Trump’s trade wars.