ARGENTINA-ECONOMY: Privatisation Loses its Gloss

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Sep 6 1996 (IPS) - When the Argentine government began selling off state-owned enterprises to the private sector seven years ago, the policy was presented as therapy for chronic economic disorder. President Carlos Menem called it “the key to progress”.

Everything was up for grabs: the telecommunications network, oil and petrochemical sectors, airline and railways, electricity and gas companies, property, road pavement services; hotels.

Now, what was a veritable garage sale of state property is almost over, yet the foreign debt remains high and social services — to which the money earned from the sale should have been devoted — are said to be rundown. Few assets remain in the public domain.

“What happened to the thousands of millions of dollars that was earned from the privitisations?”, asks Rodolfo Terragno, president of the opposition Radical Civic Union.

His question reflects the heat generated in an ongoing debate here about the merits of privitisation — whether the country has really benefited from the exercise.

The government says it has received 12 billion dollars in cash for sale of publicly-owned companies and that bonds used to pay for some of the assets have an accumulated market value of 6.5 billion, according to the Privatisations Secretariat.

Government still owns and runs hydroelectric centres, airports, nuclear plants and remnants of shares for companies that have been privatised. Additional income of some 3.4 billion dollars is projected.

But critics in the political opposition, and elsewhere say privatisation has failed to meet the objectives set when the policy was first enunciated — that funds obtained would be earmarked for improving social services.

The government’s favourite catch phrase in 1990 was that sale of loss-making, inefficient public enterprises would enable more expenditure in areas like health, education, justice, the police and welfare. Now all these are said to be on the verge of collapse.

Political columnist in the independent diary Pagina 12, Horacio Verbitsky, notes that while the public sector is frequently accused of everything that is bad, the cost of basic functions and of services which cannot be delegated by the state, was less than five percent of Gross Domestic Product (GDP).

That’s the amount devoted to health, education, defence, justice and security. The government has indicated it will transfer part of the costs of running public services to provincial governments, which are themselves broke.

Critics say though some of the money earned from privatisation has been used to meet foreign debt obligations, the public debt has grown from 55 to 90 billion dollars since 1990.

Meantime, since late July this year — coinciding with the ousting of former economy minister Domingo Cavallo — the government has developed a new economic focus. “Fiscal balance” has replaced “privatisation” as the best way to increase investor and creditor confidence.

New economy minister Roque Fernandez is pressing ahead with the police despite resistance from unions and business leaders as well as government and opposition members of parliament.

Neighbouring countries in the Mercosur free trade pact regard the Argentine experience with some apprehension. This is particularly so in Paraguay. During a strike in August, workers blended their call for pay rises with criticism of the planned privatisation of the Argentine-Paraguayan Yacyreta dam project.

“The Argentines already sold off nearly all their public companies, and look at the state they’re in – a tremendous crisis,” said one Paraguayan protester.

In Argentina, the proposed sale of the Yacyreta dam has been criticised as like selling a national treasure.

However, throughout the region, the privatisation process is marching inexorably onwards, though it has a noticeable limp.

Though in Paraguay the whole process has ground to a halt, in Brazil it is moving faster in telecommunications than in the energy sector. In Bolivia the State is slowly pulling out of telecommunications, electricity, air transport and rail.

Argentina’s deficit as a percentage of Gross Domestic Product is three percent this year, in Brazil it will be more like 3.5 percent, in Paraguay 3.7 and in Uruguay a little under one percent.

In order to fund deficits, the subregional economies will all depend on foreign financing to some extent according to levels of internal savings. These credits demand the orthodox management of public accounts.

“How long will we have to keep asking the International Monetary Fund (IMF) for money and selling public companies?” asked an Argentine lawyer rhetorically, partly reflecting the national mood. He told IPS he no longer reads the newspapers, or thinks about the future.

The government is being forced to go further into debt and take on greater adjustments with an economy which is only just starting to lift its head again after the Tequila effect — the impact of the Mexican economic crisis — in late 1994.

The Argentine economy shrank 4.4 percent in 1995, after four years in which it saw average growth of more than seven percent per year. The government is predicting a growth level of three percent for this year. Some observers warn further adjustments may prevent this from happening.