Privatization of State Assets in the Presence of Crisis

The privatization of state assets constitutes a powerful tool of economic reform but not a panacea. It can be seen as a weighted introduction of private interests, capital and expertise into the portfolio of state assets, which, combined with public interest, could bring operational efficiency and value enhancement. This continuous trade-off between private and public interest is the main determinant of different privatization modes, ranging from full freehold sale in cases with no residual state interests, partial Initial Public Offerings (IPOs) and Secondary Public Offerings (SPOs), to various forms of concession agreements. A carefully structured privatization plan bears significant fruit: (1) the sale of state-owned enterprises running deficits or with accumulated debts would be a relief for the government deficit and debt, respectively; (2) privatization introduces the opportunity of attracting private capital and expertise from abroad, improving the integration of companies in international value chains; (3) privatization also adds to the documentation of a credible sovereign profile for the budget restructuring programmes and the direct reduction of public debt, thus signalling smaller sovereign risk, which pushes borrowing costs lower; (4) a side-effect of improved sovereign funding signals better funding conditions for the private sector, stimulating innovation in banking and business; (5) GDP growth is stimulated, with positive secondary effects to all aspects of economic activity, sovereign debt ratio, sovereign risk, borrowing costs and so on.