# 1. **Introduction**

During most of the 1980s, the inajority of the developing countries were basically shut out from the international capital markets, following the borrowing binge of the 1970s and the breakdown of normal financial relations in 1982/83. This financial constraint, particularly severe for the heavily indebted countries, quickly translated into declining investment expenditures and growth rates in these countries. In recent years, however, these same countries witnessed a substantial increase in inflows of equity capital in the form of portfolio equity and foreign direct investment (FDI), reflecting a renewed trust in the economic potential of many developing countries. FDI alone rose by almost US$29 billion between 1987 and 1992, reaching a projected US$38 billion last year. Together with portfolio equity investments of US$35 billion, private investments in the developing world accounted for almost 60 percent of total net resource flows in 1992.1 This remarkable turnaround in private flows is driven by a general climate of macroeconomick btabilization and liberalization, providing a more attractive environment to private investors. In most countries affected by the deb' crisis, stabilization was achieved through an extensive program of sound macroeconomic policies comnbined with several rounds of debt work-outs with official and, in particular, private creditors. Economic liberalization is generally pursued via the reduction of trade restrictions as well as the elimination of distortions within the domestic economy in order to improve internation?l competitiveness. For many countries, a centerpiece of this liberalization effort is a stroll move towards privatization of formerly state-owned enterprises (SOEs). After a relatively slow start in the mid-1980s, privatization programs expanded remarkably over the last five years in many developing countries and fueled a rapid growth .n foreign direct investment, supporting the recovery in gross domestio investment which fell substantially during the mid-J 980s.

The existence of privatization programs is generally acknowledged as one of the central reasons for the renewed access to international capital markets as well as rising investment levels in developing countries. As of yet, however, no detailed study has been undertaken to analyze the size and extent of privatizations and its impact on capital inflows and investment levels. This paper intends to fill this gap by providing information on privatization transactions world-wide at a micro-level. A database was constructed, listing privatization transactions during the period 1988-1992 for all developing and industrialized countries for which information was available. Based on this information, the foreign exchange content of these tr nsactions in the form of foreign direct investment and portfolio equity investment was estimated, allowing some inferences regarding the financial effects of the existing privatization programs.

The study shows that privatizations grew at an unprece(4 ented rate in recent years and contributed substantially to the boom in foreign financing from private investors. While privatization programs started in many countries during the mid-1980s already, they became effective and wide-ranging not before the end of the decade. During the period i see World Debt Tables 1992-93, Vo.I, p. 160.

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