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Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1988
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Public Enterprises in Argentina

I read with great interest the article “Determinants of Public Enterprise Performance”(F/nance & Development, December 1987) by Messrs. Mahmood A. Ayub and Sven O. Hegstad. The authors indicate that the reasons why public industrial enterprises in general perform less well than their private counterparts include: the fact that public directors have no financial stake in the business;easy access to government finance; political opposition to payroll cuts; delays in the decision-making process; and three other important factors, namely, the competitive environment, financial and managerial autonomy, and accountability.

I generally agree with the arguments set forth, although the experience of my country, Argentina, is that political and trade union factors have had the greatest influence on the very poor performance of public enterprises. The decline has reached the point where, in addition to their management problems, the government-owned companies are providing increasingly unsatisfactory service.

Fortunately, myths such as “national sovereignty,” and the need to “control the country’s strategic enterprises” which then turned out to be all of them, and the tendency to call anyone who tries to make radical changes in these enterprises a “traitor to the country,” are gradually disappearing. For the first time in many years, Argentine public opinion is moving away from favoring government control toward embracing private ownership.

However, the trade union and political interests will put up a long, hard fight in this regard, and I therefore believe that, for a time at least, they will continue to be the principal determinants of public enterprise performance in Argentina.

Raul Angel Rodriguez Buenos Aires, Argentina

… and in Cameroon

I read with great interest the article by Mahmood A. Ayub and Sven O. Hegstad entitled “Determinants of Public Enterprise Performance” (Finance & Development, December 1987). On the whole I share the views developed by the authors. In Cameroon, for example, the rice production company, SEMRY, which is located in Yagoua, is experiencing serious difficulties because of the competitive environment. With a production cost of approximately CFAF 180 (CFAF 1 = F 0.02), it is unable to sell its output, despite the quotas placed on importers of rice from Pakistan. Tons of rice are stored in the warehouses—supposedly awaiting export to nearby Nigeria. Because economies of scale are unlikely at the present time (excess staff, exorbitant benefits for employees etc.), SEMRY and many other public enterprises in Cameroon will undoubtedly be saved the new stabilization tax just imposed by the Government.

Other Cameroonian enterprises do not have SEMRY’s excuse because they operate in areas in which local competition is not very intense. This is true in particular for the seven agricultural development companies, which in 1983 recorded net losses of CFAF 6,358 million. This is true also for CAMSUCO (sugar) and CEL-LUCAM (pulp and paper), with net losses of CFAF 27,061 million and CFAF 29,401, respectively, during the same period.

As the authors have indicated, poor performance results not only from the decisions made by management (decisions that are often dictated by political considerations), but also from the impossible and contradictory tasks assigned to these companies, namely to provide revenue for the Government, to supply cheap products, and to create jobs.

Contrary to what the authors think, it is impossible to pursue social and economic objectives at the same time. In public enterprises, priority must be given to economic objectives. The most recent World Bank memorandum on Cameroon (February 1987) sheds light on the burden that the public enterprises constitute for the national economy.

Isaac Tamba Yaoundé, Cameroon

Photo credits: Photographs on pages 19, 27, 30, 33, and 38 by D. Zara; pages 5, 8, 42, and 46 by M. lannacci; and pages 14 and 22 by P. Reid-Hughes. Fund publications advertisements designed by IMF Graphics Section.

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Effects of opening an economy to trade Impact of aid to developing countries • Characteristics and performance of small economies • Best ways of charging for roads • Importance of land rights in agriculture • Special problems of grain exporters • Features of urban labor markets • Key elements of agricultural training systems • Main consideration in sheltering the poor • Essentials of promoting trade • Relations between trade and economic growth • Practices for managing government enterprises

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