Public Enterprise Reform And The World Bank

How can the Bank refine its help to countries embarking on reform of public enterprises?

This book tries to systematize the lessons learned in the past two decades of public enterprise reform to correct the perceived deficiencies of state-enterprise sectors in Africa, Asia, and Latin America. It addresses the macroeconomic adjustments typically required in the effort to fashion a more open and competitive economy - liberalizing trade and ending preferential treatment for state enterprises; shifts toward market-oriented financing in the banking system; moves toward market pricing and reforming the institutional structure for setting tariffs; and establishing more competitive and evenhanded compensation and staffing policies in state enterprises. It argues that with macroeconomic reforms under way, government needs to ground its reform of state enterprises in an assessment of the purposes to be served by its state-owned sector. It describes how reforming the relationship between government and its enterprises entails striking a delicate balance between autonomy and accountability. The report examines the mechanisms used by governments in a variety of developing countries to set goals for state-owned firms and to evaluate their performance. It addresses the promise and the risks of privatization, whether through outright sales, management contracting, leasing, franchising, contracting-out, or encouraging new entrants into the private sector. It also offers an overview of the task facing governments with a failing public enterprise sector.

Public enterprise reform is more successful in countries whose financial systems are relatively well developed. Countries seeking to implement broad public enterprise reforms achieve greater success if they also implement substantial and well- designed financial reforms.

Refer review of this policy book in 'Journal of International Development, vol. 10, 7, 1998. pp.841-855.

Specific divestiture dates and institutional public enterprise reform should probably not be a matter of hard conditionality for sectoral adjustment lending. One alternative is to establish institutional development projects that parallel adjustment operations. Another is to establish "primary conditions, " nonfulfillment of which would bring an operation to a halt, and "secondary conditions, " (including most institutional and public enterprise reforms), nonfulfillment of which would evoke sanctions but not end operations.

Annotation This book provides practical guidelines and options for infrastructure reform that result in access and affordability for the poor. It includes a new model for reform that consists of three main components - policies, regulation, and provision which when properly balanced minimize the risks associated with reform.

This book explores the complex question, "Is privatisation a good public policy?"

The state-owned sector in developing countries tends to be large, diverse, and often - when the Bank gets involved - in a state of illiquidity or on the verge of collapse. While approaches have to fit individual circumstance, experience has shown that the more successful reforms have begun eliminating major price distortions (including interest and exchange rates), halting most new investment, and cutting off most subsidies. Successful implementation depends on proper phasing. While this varies from case to case, one workable sequence is: (i) clarify the state-owned enterprises' (SOE) true situation by eliminating gross price distortions, cutting most subsidies, curbing new investment, and ending preferential access to credit; (ii) begin to rehabilitate, sell or liquidate the 10 to 15 key SOEs that are the biggest budget drain or bottlenecks; (iii) increase competition and eliminate discrimination between public and private firms, and introduce efficiency targets for monopolies; (iv) put the financial system on a market-oriented basis and require SOEs to compete for finance without guarantees in most cases; and (v) liquidate, sell or rehabilitate as needed the remaining enterprises.