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Privatization: Successes and Failures resources

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6 INTRODUCTION Indeed, it was only under extreme fi scal strain that large infrastructure privatization programs were launched. Because of fears of po liti cal back- lash, assets were generally leased instead of sold, and concession contracts were widely used. Nonetheless, this has not prevented some forms of po- liti cal backlash when, on several occasions, electricity or water shortages emerged. What has privatization achieved in Latin America? It seems to have been an effective tool to generate revenues. Moreover, overall we have seen a strong fl rms. Privatized ow of investment in the privatized fi fi tability and productivity. Gains rms have in general improved their profi are mostly present in regulated sectors rather than in fi rms in competitive sectors. Estache and Trujillo also remind us that privatization often had quite a positive impact on the quality of goods and ser vices in the priva- tized fi rms. In these cases, improvements were initially welcomed by the population and generated support for privatization. So, why has po liti cal support for privatization disappeared in recent years? One reason is that privatization has rarely put an end to subsidies or to government invest- ment in the sectors concerned. While privatization has generated a stock of revenues, it has often not reduced the fl ow of government expenditures in the privatized sectors. Another reason why support for privatization has subsided relates to the redistribution of gains. Privatization has generated large rents for new own ers, but these have not been shared with the gen- eral public. There are cases such as the Cochabamba water concession in Bolivia where the poorer segments of the population faced price increases for water. This is due to regulatory failure resulting, most often, from reg- ulatory capture. Despite the or ga ni za tion of competitive bids, in practice there has been very little competition between bidders. The reason for this is not clear but might be due in part to collusion between private fi rms. It might also be a result of extreme international concentration in some markets. Related to the weakness of competition is the fact that many privatization deals were renegotiated only a few years after the ini- tial privatization took place. This often led to higher prices and more rents for the private own ers. Restructuring in privatized fi rms has led to job losses that have been quite salient. For example, in the international sanitation business (water, sanitation, and solid waste), the same fi ve large companies have been involved in all privatization deals the world over. Despite its strong economic dynamism, the Asian continent has not been at the forefront of the world’s privatization efforts. This is especially the case for South Asia (Bangladesh, India, Pakistan, and Sri Lanka). In chapter 6, Nandini Gupta analyzes the experience of privatization in

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