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Privatization: Companies
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New IDB President Luis Alberto Moreno writes about the current Latin American landscape for water privatization in the WSJ (subscription required). He points out that while the industry’s past has been turbid, this should not cloud the lessons from recent successful private ventures. Among other things, he argues that public-utilities have benefited from private-sector innovation, that low-income areas need not be marginalized by private investors and that a new class of domestic Latin American companies are stepping into the void left by retracting multinationals. He ... stresses the importance of small-scale providers:
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The privatization program is being implemented in two phases. During the first phase, several entities within the telecommunications, tourism, energy, industrial, transportation, mining, and water sectors are at some stage of privatization. The second phase looks at all the restructuring options available for privatizing the National Petroleum Corporation, Arab Potash Company, Jordan Phosphate Mines Company, Royal Jordanian Airlines, Jordan Investment Corporation's share-holdings, and the Postal Savings Fund.
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To combat the poor participation of Hungarians in the privatization process (80% of transactions to date are from foreign companies), the government has begun to formulate certain schemes to assist the Hungarian population in obtaining finance. These are: leasing certain companies, utilizing existing credit, purchase of assets through an installment plan, small investor share-purchase program. The government will ... compensate individuals for the nationalization of property under the communist governments.
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A new law on privatization and the Government's new privatization program were adopted in December 1997, placing greater emphasis on cash sales. With the end of voucher privatization at the end of 1998, the current privatization policy is mainly targeted towards sales through auctions of shares in "open subscription" and sales through tenders designed to attract strategic investors. Sales of assets of liquidated companies are ... playing an increasing role.
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In early 1992, the government convened to discuss the pace and direction of privatization. State control over certain companies was discussed and a portfolio of 164 such companies was prepared. It was decided that the state maintain a degree of control of such companies and an organization be created to oversee their sale. State Asset Handling Company was therefore created. The SAHC as it was called, was quite successful, and recently concluded its biggest sale to date; a 30% sale of the Hungarian Telecommunications Company's shares to Deutsche Telekom and Ameritech for $875 million.
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Opponents of privatization argue that it is an illegitimate delegation of government authority to allow private companies to take control of an integral part of the justice system. Proponents of privatization disagree. They make a distinction between the function of the courts and that of the prisons. It is the proper duty of the public sector, they allow, to determine just sentences for violations of the law. But the duty of the prisons, they argue, is merely to carry out the sentence of the courts, and they see no reason why this task ought not be delegated to a private entity. Opponents of privatization claim to the contrary that it is difficult or impossible to distinguish these two functions, given the level of control that prison officials have over the nature (and, potentially, the duration) of an inmate's stay.
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