Argentina 1990s' Utilities Privatization: A Cure or a Disease?

Abstract

Until the reforms in the early 1990s, Argentina's public services were sick. Rationing in level and quality were the norm. Privatization, among the many reforms introduced by the Menem administration, felt then as a cure. Argentina was the 'poster boy' of privatization in the world. For the last 2-3 of years, however, Argentineans like many other South Americans, have begun to grow unhappy with the privatization strategy. The population is now focusing on its shrinking ability to pay resulting from an extended period of unemployment - over 4 years of recession - and long for the days of highly subsidized public service tariffs. Most have already forgotten the pre-restructuring frequent days without power or water and the 8 years waiting periods to get a phone line. To many, privatization increasingly looks like a virus rather than a cure. It is one of the changes brought with the liberal reforms of the 1990s and it must hence be bad. The deteriorating image is symptomatic of a very emotional and dogmatic debate on the good and the bad of reforms. Much of the criticisms covered by the media is based on anecdotes and widely publicized incidents, with very little reference to more rigorous analytical studies. The main purpose of this paper is to provide some more analytical support on the actual effects of privatization on utilities. To do so, I survey the analytical evidence on the health of the sector, identifying gains and losses and winners and losers of the privatization strategy. To conduct the assessment, I look at the performance of the utilities sector with the tools of a regulator and try to find obvious reasons in that performance that could explain the increasingly vocal criticisms of privatization.

Keywords: Argentina, utilities privatization, regulation, distributional effects of privatizatio

JEL Classification: K, L23, L33, L43, L5, L97