Privatization South American Style

By Luigi Manzetti | Go to book overview

6
The Theory and Practice of State Divestiture

Privatization is a very complex policy that, by its very nature, affects and is affected by a variety of interrelated political and economic factors. Through the model set out in the first chapter, I have focused on the dynamic interrelationship binding these factors together both at the decision-making and implementation stage. Although our sample was limited to only three countries, the model seems to explain very well why privatization did not materialize in the 1980s, and conversely, why in the 1990s state divestiture occurred relatively quickly in Argentina and Peru whereas in Brazil it did not gain strong momentum until the second half of the 1990s.

As hypothesized by the model, privatization did take place when both willingness and opportunity coincided and the presidents in charge displayed a strong leadership role in pushing the policy forward both at the decisionmaking and implementation stage. When willingness and opportunity were absent, chances were doomed from the start, as the experience of the 1980s testifies. In fact, we have seen that, although there were very good reasons to privatize in that decade, very little happened. Instead, governments responded to signs of economic crisis indecisively, partly because they were unable to perceive the magnitude of the problem. Alfonsin, Sarney, Belaunde, and Garcia were politicians whose culture was rooted in the ISI tradition and believed that a strong state was still essential to overcome the mounting economic problems that affected their countries. The little privatization that some of these presidents timidly attempted was primarily meant to raise revenues in order to bridge the fiscal deficit. Thus, privatization was meant as a short-term remedy, not as part of a comprehensive adjustment plan. The opportunity dimension also failed to materialize in the 1980s. In the middle of that decade all three countries met with brief success in attempting heterodox stabilization plans. The heterodox approach tried to control inflation through wage and price freezes and monetary reform without resorting to budget cuts that, it was assumed, could have had a negative affect on employment and investments. Its initial success, however, created the illusion that quick-fix solutions were still readily available. Politicians continued to believe that the 'entrepreneurial state' development model could still be pursued through relatively minor changes. By the same token, all the presidents mentioned above did not see an opportunity to privatize since the macroeconomic environment discouraged private investment and most political parties and interest groups

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