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Uwe Böwer
State-owned enterprises (SOEs) play an important role in Emerging Europe’s economies, notably in the energy and transport sectors. Based on a new firm-level dataset, this paper reviews the SOE landscape, assesses SOE performance across countries and vis-à-vis private firms, and evaluates recent SOE governance reform experience in 11 Emerging European countries, as well as Sweden as a benchmark. Profitability and efficiency of resource allocation of SOEs lag those of private firms in most sectors, with substantial cross-country variation. Poor SOE performance raises three main risks: large and risky contingent liabilities could stretch public finances; sizeable state ownership of banks coupled with poor governance could threaten financial stability; and negative productivity spillovers could affect the economy at large. SOE governance frameworks are partly weak and should be strengthened along three lines: fleshing out a consistent ownership policy; giving teeth to financial oversight; and making SOE boards more professional.
International Monetary Fund. European Dept.
This paper on Romania was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on September 13, 2012. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Romania or the Executive Board of the IMF.
Mr. Jeffrey M. Davis, Mr. Thomas J Richardson, Mr. Rolando Ossowski, and Mr. Steven A Barnett

Abstract

Privatization has been a key element of structural reform in many developing and transition economies during the last decade. This paper examines the fiscal and macroeconomic issues involved in the privatization of nonfinancial public enterprises in these economies. It considers issues such as the factors determining the proceeds from privatization and the amount accruing to the budget, the uses of proceeds, the impact of privatization on the budget and macroeconomic aggregates, and the privatization component of IMF-supported programs. The empirical evidence draws on case study countries that reflect geographical diversity and are representative of a range of privatization experience in developing and transition economies.

Mr. Oleh Havrylyshyn and Mr. Donal McGettigan
This paper reviews a selection of studies on privatization experiences in transition countries. Empirical studies almost invariably show privatized enterprises outperform state enterprises. Moreover, the literature identifies de novo firms as being clearly the best performers, followed by outsider-dominated firms, while insider-dominated firms are the least efficient among those newly privatized. The importance of de novo firms in enlarging the private sector in transition economies is reviewed, along with the question of whether privatization efforts support or hinder de novo private sector development. Finally, the paper discusses the importance of providing a suitable market environment for successful private-sector development.
Mr. Jeffrey M. Davis, Mr. Thomas J Richardson, Mr. Rolando Ossowski, and Mr. Steven A Barnett

Abstract

Privatization has been a key element of structural reform in many developing and transition economies during the last decade. Governments undertaking privatization have pursued a variety of objectives: achieving gains in economic efficiency, given the extensive prevalence of poor economic performance of public enterprises in many countries and limited success with their reform; and improving the fiscal position, particularly in cases where governments have been unwilling or unable to continue to finance deficits in the public enterprise sector. In addition, liquidity-constrained governments facing fiscal pressures have sometimes privatized with a view to financing fiscal deficits with the proceeds. Other objectives have included the development of domestic capital markets.

Mr. Jeffrey M. Davis, Mr. Thomas J Richardson, Mr. Rolando Ossowski, and Mr. Steven A Barnett

Abstract

This section presents data on the scale of gross privatization proceeds and the amounts accruing to the budget for the case study countries. It then considers the factors affecting budgetary proceeds and their treatment in the fiscal accounts.

Mr. Jeffrey M. Davis, Mr. Thomas J Richardson, Mr. Rolando Ossowski, and Mr. Steven A Barnett

Abstract

The appropriate size of the fiscal deficit is largely determined by the overall macroeconomic objectives and fiscal sustainability. Viewed as a source of financing, akin to a bond sale, the amount of privatization proceeds generally should not itself determine the size of the deficit, and, moreover, the macroeconomic consequences are also similar to conventional bond financing. Nonetheless, privatization proceeds are distinct in certain ways. First, privatization may impact government net worth, which in turn has consequences for fiscal sustainability. Second, the privatization program might pose specific risks to macroeconomic stability—partly due to the size, lumpiness, and uncertain timing of privatization receipts—that enhance the need for monetary and fiscal policy coordination. And third, the discrete nature of privatization proceeds leads to questions regarding their appropriate use.

Mr. Jeffrey M. Davis, Mr. Thomas J Richardson, Mr. Rolando Ossowski, and Mr. Steven A Barnett

Abstract

The fiscal impact of privatization will reflect the amount and use of the proceeds and the subsequent changes in financial flows—taxes, transfers, and dividends—to and from the budget.18 In a broader context, consideration should also be given to the impact of privatization on quasi-fiscal costs, including subsidized credit to public enterprises. There may also be impacts on the budget from the assumption of quasi-fiscal costs that were previously imposed on public enterprises by the government arising from the pursuit of public policies, such as uncompensated provision of subsidized goods and services. Privatization often takes place as part of a policy package that involves a substantial change in the macroeconomic environment, which makes it difficult to distinguish its impact from the other effects of a regime change. Moreover, data on public enterprise operations is often scanty, and the information available on the financial flows between enterprises and the government, including quasi-fiscal flows, is less than complete.19

Mr. Jeffrey M. Davis, Mr. Thomas J Richardson, Mr. Rolando Ossowski, and Mr. Steven A Barnett

Abstract

This section examines evidence of the impact of privatization on growth, aggregate investment, and labor markets and unemployment. The micro-economic evidence in each area is first summarized, then followed by econometric results from the case study countries. The measured impact of privatization on macroeconomic performance should be interpreted with caution, given the association of privatization with a broader regime change.

Mr. Jeffrey M. Davis, Mr. Thomas J Richardson, Mr. Rolando Ossowski, and Mr. Steven A Barnett

Abstract

Privatization is a reform area where the World Bank has the lead role. The privatization component of IMF-supported programs has often drawn from and supported the strategy and measures contained in World Bank-supported reform packages. IMF conditionally has reinforced public enterprise reforms, including privatization, planned under the aegis of the World Bank, where these reforms are important to the objectives of the program (Bredenkamp and Schadler, 1999). IMF staff have relied on World Bank expertise for evaluating the appropriateness and feasibility of the measures and timetables, as well as for monitoring the implementation of specific measures.