BUENOS AIRES: A danger haunts the market mechanism and threatens the benefits expected from privatization of inefficient state firms everywhere in the world. During the privatization process, promises are made to investors to induce them to bid for companies and to provide incentives for enhancement of efficiency. Soon after privatization, however, governments come under political pressure to renege on their promises once the benefits of privatization begin to be harvested. The danger is that these benefits may vanish. Experience in telephone privatization in Argentina and the United Kingdom offers useful lessons for privatization programs elsewhere, particularly in the transition countries.
BUENOS AIRES: A danger haunts the market mechanism and threatens the benefits expected from privatization of inefficient state firms everywhere in the world. During the privatization process, promises are made to investors to induce them to bid for companies and to provide incentives for enhancement of efficiency. Soon after privatization, however, governments come under political pressure to renege on their promises once the benefits of privatization begin to be harvested. The danger is that these benefits may vanish. Experience in telephone privatization in Argentina and the United Kingdom offers useful lessons for privatization programs elsewhere, particularly in the transition countries.