# **11.2 The Early Phase of Privatizations**

**The beginnings of** pri',atization programs, defined **z** a systematic strategy by the public sector to withdraw from direct economnic activity, is usually associated with the United Kingdom and Chile as the _two_ most outstanding cases. In both countries, the initial motivation was primarily ideological and politic&! in the sense that **the** government intended to return to private ownership assets **tlrit** tve!' nreviously nationalized.

In the United Kingdom, an ext _en3ive_ privatization program was initiated by the Conservative Party shortly aRer its ele 'zon **in** )979. The general goal. **.ere** to reduce government involverr?nt **in** commercial activities, widen private share o-wnership, and raise government revenue to help finance a notorious budget deficit. A large number of well-known companies were transferred to private ownership, among them British Petroleum, British Gas, British Telecom, British ;.'-Cays, Jaglar, Rolls Royce, and Cable & Wireless Over the last 13 year2 it is estintn-t1 that thii country has raised approximately $65 billion through privatizations.7 Chile developed probably the most eteisW..e pniv,tra.tion program in the world. According to one estimate, Chiie has transtf&-ed .wice tV.e value of state-owned assets relative to GNP coinpared to the _U.K^. 8_ The progilim was started in 1974 under the rilitary regime of General Pinociiet as a eaaction to the socialist government under Salvador Allende who during 1970-7/. nationq.al...,1 about 350 enterprises, giving the government control over approximraely 600 enterprises accounting for almost 50 percent of GDP.<sup>9</sup> In the first two years, around _240_ -,nterprises were returned to their previous owners, and by 1983 another 1 10 er.rprises h,A been divested. Duiring this time, only around US$1 billion was raised in revei,ue, because, in most cases, the assets were simply returned without anv official sjes transaction. Following the financial shock of the debt crisis, whlich led to ar increased iiivolvement of the state by bailing out many large financial and industrial cor-donwerates, a final phase of privatization began in 1985. Since then, Chile has divested most of the remaining 40 large industrial enterprises under state control, predominantly via the sale of shares, gerierating a total revenue of approximately $1.4 bil,ion.

For the overwhelming majority of developing countries, however, the recent trend in privatizations was not based on particular ideological reasoning, but rather initiated out of economic necessity. Given the stringent financial constraints most countries faced during the 1980s, ways had to be found to relieve the already strained budget from any additional pressures. Clearly, one of the first items on the list were transfers and subsidies to SOEs, a move strongly supported bv tl e multilateral organizations. In most structural adjustment programs by the IMF as well as the adjustment loans made by the World Bank, a reduction of SCE sUppoit paymenrts, combined with pricing at operating costs and a general deregulation were envisaged.10 These adjustment programs were oflen heavily

> 7 Euromoney, 1992, p.<sup>3</sup> .

> 8 The Financial Times, April 1 1, 1990.

> **_9_** Nankani (1988), p.18. **10** see International Monetar) Fund (1985), and Mosley (1988).

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