- 13-

32. Thus far, svstematic empirical evidence regarding the impact of PE reforms on outcomes has been relatively scarce, in part because of the short time horizon during which PE reforms have been attempted on a sector-wide basis (only in the 1980s). More recently, however, some preliminary Bank reports are beginning to address this question. The findings of these reports, which are summarized below, have to be interpreted with caution for two reasons. First, it is difficult to isolate the effect of attempted PE reforms from the effect of other factors (e.g. p^licy changes at the macro level, external shocks and the state of economic activity). Second, it is also difficult to establish the counter-factual story; what would have been the case without attempted reforms?

33. Bearing these caveats in mind, some tentative conclusions can be drawn.23/ In short, PE reforms appear, where they have been implemented, to have on the whole brought about positive improvements. Further details and examples follow.

34. The Size of the PE Sector: Attempts to reduce the size of the PE sector have been made in the Philippines, Jamaica, Mexico, Togo, Guinea, Mali, Madagascar, Benin, and elsewhere. Most of these attempts have been made in Africa. Available empirical evidence regarding the impact of these reforms on the size of the PE sector in relation to GDP is inadequate to assert that PEs now play a less significant role in the economic activity than in the past. 24/ The evidence seems, however, to point in this direction. For example, the Philippines has sold almost 25% of the state's 1985 portfolio. Mexico, as of March 1989, had sold 180 PEs, liquidated 260, merged 70, and transferred 25 PEs to local governments. Tunisia has sold some 25 holdings. Jamaica divested J$500 million worth of assets. Togo and Guinea have sold, put under management contracts or leased a significant portion of their industrial PEs. Guinea closed some 70 PE units. Togo, Mali, Madagascar and Benin have each liquidated 12-15 firms (Kikeri, 1989).

35. Against these accomplishments, the divestiture process has been relatively slow in other countries. For instance, in Senegal, despite the government's announced policy of 'withdrawal of the state" in 1985, hardly any PEs have in fact been sold as of early 1989. In Turkey, where a large and costly preparation for divestiture has been undertaken, very modest actual divestiture has taken place. Moreover, the process is likely to be slower and more complex in the future. In the first wave of divestiture, Governments focused on the sale of profitable, small or medium-scale enterprises. In the 23/ Clearly, more systematic empirical evidence is necessary before passing a sound judgment about the effect of PE reforms. The LAC region's on-going study regarding the impact of PE reforms in Chile, Argentina and Mexico is a beginning in this direction. Other regions of the Bank should initiate a similar exercise.

24/ To assert that the size of the PE sector in relation to GDP has declined, one would have to rely not on the number of divested firms, but on the sector's value-added in relation to GDP, its share in total capital stock, investment, and/or employment.