State-Owned Enterprise Reform in Latin America: Issues and Possible Solutions
Posted: 25 Aug 2015
Date Written: July 7, 2015
In this paper, we examine the challenges governments in Latin America face to control their state-owned enterprises (SOEs). We argue that, absent privatization, governments can rely on a variety of reforms to address some of the main problems affecting SOEs. We divide these problems into corporate governance problems — which include agency and multiple-principals problems — and the fiscal governance problem, which has to do with the discretionary nature of the fiscal relationship between the government and its enterprises. We then discuss a variety of solutions for each of these problems. Rather than providing a single recipe, we argue that governments can design governance mechanisms that rely on the market (e.g., by partially privatizing a firm and listing it on a stock exchange), on ex-ante administrative controls, or on hybrid solutions that combine both. Thus, we argue that the mechanisms to deal with the problems of SOEs have to be designed on a case-by-case basis, taking into account the specific problems of the public enterprise in question and the economic (and political) environment affecting it.
Keywords: State-owned enterprises, privatization, state reform, Latin America, corporate governance, fiscal decentralization
JEL Classification: H11, H50, H77, G30
Suggested Citation: Suggested Citation