Privatization in Central and Eastern Europe: Perspectives and Approaches

By Demetrius S. Iatridis; June Gary Hopps | Go to book overview

as its key policy tool, had to adopt a diversified approach to privatization and hence to include many different tools.

The drawback of using various tools and techniques to help tailor privatization schemes to particular groups of potential buyers is that it can unduly complicate procedures, introduce elements of arbitrariness, and reduce transparency. Sometimes, the multiplication of tools has not been well controlled by governments, so that insiders, such as governmental officials and company managers, have been allowed to exploit the privatization process for their personal gain. Regrettably, and notwithstanding the many positive effects of privatization, there are plenty of accounts of ad hoc privatizations, in Eastern Europe as elsewhere, that come across as little more than grand larceny.

Finally, one major common trend bodes well for the ultimate success of privatization, namely, that, overall, countries have invariably persevered in their endeavors to privatize. Despite the financial and social costs of privatizing, shifting policy objectives, and occasional setbacks, no countries have attempted to reverse the privatization process, even when popular disenchantment with the costs of transition has resulted in the restoration of socialist governments to power.


CONCLUSION

In many countries, the results of privatization and the reform of public enterprises have, so far, fallen short of expectations, particularly with respect to generating the proceeds of privatization and improving economic efficiency. However, expectations seem to have been vastly exaggerated to begin with. The evidence suggests that the gains in efficiency that are needed to improve a country's fiscal stance will materialize only if privatization and the reform of public enterprises are accompanied by extensive restructuring efforts. This is particularly true for large-scale privatization programs in economies that are burdened with vastly overextended public sectors and large-scale heavy industries. Since restructuring is costly, particularly when it is carried out by governments themselves, greater efficiency may be achieved only at the expense of net proceeds from privatization. In addition, policymakers may want to pursue a broad range of policy objectives and, hence, may need different tools to tailor privatization to investors' needs and to ease some of the inherent trade-offs. The range of possibilities is usually constrained by the availability of domestic financing, the state of domestic capital markets, and the existence of social safety nets. In the absence of international financial support, policymakers may have to give particular consideration to budgetary objectives, which may reduce the extent of gains in efficiency because they slow down privatization and reforms of public enterprises and diminish the extent to which various tools can be applied, most notably mass privatization.

Although policy approaches have differed significantly from country to country, some common trends and patterns are emerging. In general, in countries

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