MercoPress. South Atlantic News Agency

“Privatizations are successful”.

The privatization process of government companies in Latinamerica during the eighties and nineties has been overwhelmingly successful, in spite of popular perception to the contrary according to a report published by the Interamerican Development Bank, IDB.

The report titled "The truth about privatizations in Latinamerica" calls on Latinamerican governments to continue with the process even when the benefits of these operations are being openly questioned in several countries.

"Failure instances have existed, but the overwhelming evidence is that it should not turn into an argument to prevent further privatizations", reads the October 2003 report written by two Latinamerican economists.

The report refers to privatizations in the eighties and nineties in Argentina, Bolivia, Brazil, Chile, Colombia, Mexico and Peru.

The sale of government assets is still controversial in Latinamerica where everything from railways to telephone companies has been acquired by the private sector. However popular reaction is contrary to these operations.

In Mexico president Vicente Fox has seen his energy sector reform bogged because Congress won't approve the introduction of private investors.

In Argentina the issue has become particularly controversial since the government has frozen public utility rates most of which were privatized under former president Carlos Menem.

Investors in these companies, mostly foreign, are demanding higher rates to compensate for losses experienced with the devaluation of the Argentine currency in January 2002, but the Kirchner administration argues that these companies made huge profits with the privatization process.

The IDB sponsored report argues that the privatized companies' profits originated in considerable labour cost reduction and a hike in prices and rates, precisely the arguments of those who reject privatizations.

"The gross improvement in productivity comes from a deep restructuring of the companies and productivity expansion", indicate economist Alberto Chong from IDB and Florencio López-de-Silanes from the National Bureau of Economic Research.

According to the two economists, consumers tend to exaggerate effects of the privatization such as rate increases and massive redundancies, while ignoring tangible improvements as better service and greater productivity.

"Privatization in itself has nothing wrong", underlines Mr. Chong, adding that privatizations mean improved service, fiscal benefits for government, higher salaries for the staff of these companies and greater efficiency.

As to failures the report blames "poorly drafted contracts, too much government involvement, lack of regulations and insufficient corporate supervision framework".

"These experiences should be turned into lessons to improve and not to prevent the privatization process from advancing", concludes Mr. Chong.