Privatization in Latin America in the Early 1990'S, Which Has Reference to the Conference on That Subject Held in Buenos Aires, Argentina in March 1995
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ST/ESA/PAD/SER.E/17 DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ECONOMICS AND PUBLIC ADMINISTRATION PRIVATIZATION IN LATIN AMERICA IN THE EARLY 1990S UNITED NATIONS New York, 1999 NOTES The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the delimitation of its frontiers or boundaries. The designations “developed” and “developing” economies are intended for statistical convenience and do not necessarily express a judgement about the stage reached by a particular country or area in the development process. The term “country” as used in the text of this publication also refers, as appropriate, to territories or areas. The term “dollar” normally refers to the United States dollar ($). The views expressed are those of the individual authors and do not imply any expression of opinion on the part of the United Nations. Enquiries regarding this report may be directed to: Mr. Guido Bertucci Director Division for Public Economics and Public Administration United Nations, New York, NY 10017 United States of America Fax: (212) 963-9681 FOREWORD A Regional Conference was held on Post-Privatization in Latin America in Buenos Aires, Argentina from 20 to 22 March 1995. Specialists provided papers on regulation in Argentina, the promotion of competition (with special reference to the New Zealand experience), social safety nets, the future of privatization in Latin America, eight Latin American country reviews and an overview paper. These and the proceedings of the Conference are hereby published in English under the title Privatization in Latin America. We acknowledge with thanks the valuable contributions of Mr. V.V. Ramanadham, Mr. Alejandro E. Rausch, Mr. Richard W. Prebble, Mr. Jorge Beinstein and Mr. Alan Stoga. ABBREVIATIONS ADELCO: Liga de Acción del Consumidor (Argentinian consumer protection body) BG: British Gas (United Kingdom) BOMT: build, operate, maintain and transfer BOO: build, operate, own BOT: build, operate, transfer CEEP: Public Enterprise Evaluation Commission (Bolivia) CNT: Comisión Nacional de Telecomunicaciones (Argentinian telecom regulator) CORNAP: General National Public Sector Corporations Board (Nicaragua) ECLAC: Economic Commission for Latin America and the Caribbean ENCOTEL: Postal services utility (Argentina) ENERGAS: Gas regulatory body (Argentina) ENRE: National Electricity Regulatory Entity (Argentina) ENTEL: Telecommunications utility (Argentina, Bolivia) ETOSS: Ente Tripartito de Obras Sanitarias (Argentinian water/sewage regulator) GDP: gross domestic product GTO: Techical Operative Group, Directorate for Public Enterprises, Argentina IDB: Inter-American Development Bank IFI: Industrial Development Institute, Colombia IHRE: Institute of Water Resources and Power Supply, Panama ILO: International Labour Office INTEL: National Institute of Telecommunications, Panama Kwh: kilowatt-hour MEOySP: Ministry of Economy and Public Works and Services, Argentina MOSP: Ministry of Public Works and Services, Argentina MW: megawatt NGO: non-governmental organization NORAD: Norwegian Government aid agency NPE: new economic policy (Bolivia) OAS: Organization of American States OECD: Organization for Economic Cooperation and Development OFGAS: Office of Gas Supply (United Kingdom) TABLE OF CONTENTS Page Notes Foreword Abbreviations Table of Contents Executive Summary I. Introduction: An Overview 1 1. The general setting 1 2. The continuing issues 5 II. Regulation in Argentina — Design and Implementation 16 1. Background 16 2. Regulatory environment 18 3. Regulatory techniques 22 4. Judicial and legislative environment 27 5. Recourse and penalties 30 6. Conclusions and recommendations 33 III. Promotion of Competition — The New Zealand Experience 35 1. Deregulation and competition 35 2. Regulation 37 IV. Social Safety Nets in Latin America 41 1. Privatization and social safety nets 41 2. The crisis with the State 42 3. Privatization, unemployment, poverty 43 4. Informal economy 44 5. Management of microsystems of social development 46 V. Looking Ahead: Privatization and the Future of Latin America 47 1. Introduction 47 2. Privatization 47 3. What’s next? 50 4. Promoting privatization 52 VI. Country Papers 55 1. Argentina 55 2. Bolivia 69 3. Colombia 99 4. Guatemala 117 5. Nicaragua 123 6. Panama 160 7. Paraguay 156 8. Uruguay 162 List of Participants 168 EXECUTIVE SUMMARY This is an overview of privatization in Latin America in the early 1990's, which has reference to the Conference on that subject held in Buenos Aires, Argentina in March 1995. It presents, in an analytical and comparative manner, the objectives of privatization as pursued in the Latin American region, the actual experience and the impacts, the continuing issues concerning regulation, competition and social safety nets. The views of the Conference participants are mentioned, particularly where there appeared to be either consensus or obvious disagreement. The Conference consisted of experts from many countries in the Latin American region placed in varying situations of development and characterized by dissimilar privatization programmes: one could not anticipate complete uniformity of views or conclusions. A number of individual country papers are also included. I. INTRODUCTION: AN OVERVIEW 1. The general setting A. The objectives of privatization Where stated, the objectives of privatization, on the whole, are multiple in nature, and it is not easy to establish the priorities among them. A close study suggests that fiscal benefits have been a driving force, for instance, in Argentina when privatization was first launched. Jamaica and Guatemala further illustrate the point. The fiscal benefit to the Government was conceived in several ways: the drain on the public exchequer caused by lossmaking public enterprises would be eliminated; the Government would gain from high tax revenues from enterprises that were rendered profitable through privatization; the Government would not have to find funds for investment in public enterprises; the Government could retire public debt, resulting in a reduction in the interest payments year after year; and the Government would begin to command resources for the sake of social expenditures. The purpose of "social investment" has been emphasized in the papers from Guatemala and Panama. In the latter case the law distinctly enjoins that the divestiture proceeds must be used for social and infrastructure projects. Similar is the law in Bolivia, with the additional qualification that the investments should be in the regions in which the enterprises are situated. Efficiency enhancement has been in the minds of privatizing governments, though not distinctly emphasized as the overriding consideration. The Argentine paper suggests that allocative efficiency attracted recognition only in the second phase of privatization. One can infer that improving the efficiency of the enterprises has constantly been in the minds of the governments, faced with the alarming financial and production conditions of many public enterprises. The situation was feared to be so incorrigible that privatization was the solution. For example, Nicaragua realized that the state of financial insolvency and obsolescence of the productive equipment was one of "semi-paralysis," Argentina was not able to invest even in maintenance and Bolivian public enterprises "as a rule" operated far below their installed capacities, generating "unreal" employment. Some governments have openly viewed privatization as a step in establishing a new regime of public-private interaction. Guatemala illustrates this best, placing as the first objective of privatization its intention of restructuring the role of the State into a "complementary" one, carrying out functions that cannot be carried out well by the private sector. The Uruguayan paper likewise places this at the head of its privatization objectives which, incidentally, do not openly underline enterprise efficiency. A more distinctive focus on efficiency as the primary objective of privatization would offer several advantages: (a) any enterprise whose efficiency could be enhanced only through privatization can be privatized independently of overall economic policies; (b) the choice of modality of privatization—whether by divestiture or non-divestiture—can be attuned to the motivation of improving efficiency, rather than to the mere selling of the enterprise to the private sector; (c) with efficiency as the declared aim, the need for monitoring privatization and for regulation of privatized operations becomes self-evident in the process of ensuring that the aim is realized. Implicit in the objective of efficiency is the dichotomy between internal or micro-efficiency and social or macro-efficiency. The former is easier to verify, whereas the latter calls for several assumptions at 1 the level of public policy objectives. However difficult, this is important, for the aim of the whole exercise is to enhance overall efficiency at the national level. In this connection, it is interesting to note that the Nicaragua paper conceives of privatization as a process, not an objective, which is one way of saying that privatization is a means and not an end. So formulated, it calls for clarity on the "end," which certainly goes beyond the profit made by the investors in privatized enterprises and raises the whole issue of what kind of public policies would be necessary to