COMMENTARY — Reforms through privatization

Many countries are seeking private investors as a source of investment capital, managerial know-how and technical expertise in providing infrastructure services. Asia and Latin America, in particular, are aggressively renewing or starting major infrastructure projects.

In recent years, privatization has been a major aspect of structural reforms in developing countries and among the former command economies. Governments have begun to employ privatization not only in selling state-owned industrial firms and agricultural co-operatives, but for promoting private investment in infrastructure — a trend that will be important for the continued growth of emerging economies.

Well-functioning basic services such as electricity, water and telecommunications are prerequisites for any country straining to move up the economic ladder. Today, many governments do not have the resources at their disposal to finance the investments necessary to meet the infrastructure needs of their countries. In addition, as they seek out foreign investment, they have discovered that infrastructure plays a key role in their overall competitiveness.

The original reformers in this area — countries such as Chile, Argentina and, to a lesser extent, Mexico and Malaysia — are continuing to privatize their existing infrastructure assets (using concessions in sectors such as toll roads, water supply and railways) and are concentrating on developing their domestic capital markets to mobilize more local finance. These and other countries are using innovative methods to tap new sources of capital. Even in countries where private infrastructure participation has not yet occurred, governments are undertaking actions to facilitate private entry: public enterprises are being “unbundled” and commercialized; foreign investment codes are being liberalized; access to foreign exchange is being improved; regulatory regimes are being overhauled; infrastructure services are being de-monopolized; and laws permitting concessions are being framed. In response to this key trend, IFC (International Finance Corp. — part of the World Bank) is actively supporting the expansion of privatization into infrastructure services, such as public utilities, telecommunications and transport . . . IFC projections indicate that infrastructure investment in developing countries will average more than US$200 billion a year during the 1990s.

— From a speech in New York City by IFC Executive Vice-President Jannik Lindbaek.