Type of paper: Essay

Topic: Politics, Privatization, Public, Investment, Economics, Finance, Stock Market, Company

Pages: 3

Words: 825

Published: 2020/12/01

‘Instructor’s Name’

‘Subject’
Implementing Reforms
What was President Sanchez de Lozada concerned about in moving ahead with privatization? What does he want to achieve?
President Sanchez de Lozada’s primary aim in initiating privatization of the major state owned firms was to infuse the much needed capital for increasing the country’s economic efficiency, and to limit the government’s role to governance. When he took over the office in 1993, many Bolivian companies were cash-strapped and in desperate need for foreign capital and technology. The country’s economy was suffering from a huge fiscal deficit, and he believed that capital inflow into key economic sectors would help the country to counter the deficit and achieve substantial growth.
Also, Lozada hoped that private participation would bring in solutions to address the structural problems the public sector enterprises are plagued with, such as low productivity and corruption. He also aimed to address the economic issues of Bolivia such as the weak capital market, scarce investment and the high levels of inequity that exists between the rich and the poor of the nation. Lozada believed that economic and social reforms went hand in hand. An economic revamp of the company’s major industrial sectors, according to him, will benefit the social programs too.
Particularly, Lozada wanted to counter the inequity between the rich and the poor. Bolivia’s rich, who form 20%of the population, controlled almost 50% of the wealth and the poor only six percent. As much of the re-distributional benefits of state-owned enterprises aided social reforms and the poor Bolivians were major beneficiaries of such programs, Lozada believed that privatization would play a huge role in reducing the inequity in wealth distribution.

What is the political environment he faces?

The main political constraint faced by Lozada in privatizing the state owned firms is to address the public concerns over the entire process. The Bolivian people were hugely proud of their natural resources, and ceding control over them to foreign investors created a lot of speculation and opposition among the general public. So, Lozada’s major challenge was to show short term tangible benefits to the people, which contradicted with his plans of long term economical gain.
The doubts among the general public towards privatization was reflected in the attitudes of opposition parties and labor unions, which were very strong in the country. The MNR, the political party of Lozada, had ascended to power mainly due to the revolution of 1952, which helped the Bolivians reclaim control over their natural resources’ and allied industries from foreign control. So, any full-fledged privatization effort would be seen to be contradictory to the very sentiments which helped the party to come to power. Apart from the political considerations, Lozada was also faced with implementation and regulatory bottlenecks.
The privatization experiments of other Latin American countries had effectively turned State-run monopolies into private monopolies, without any improvement in efficiencies. So, consumer and investor protection had to be ensured for the Bolivian privatization exercise. Also, the government was faced with the challenge of making Bolivia appear a lucrative investment opportunity to the foreign investors. Attracting foreign investors and making them bid competitively for industries, which have strong labor unions, in a country where natural resources are seen as a national pride was also a huge challenge for Lozada.

How did political concerns influence the content of the privatization model chosen

Lozada was aware that his political adversaries and the general public were averse to both the term and concept of ‘privatization.’ While, some people saw it to be foreign infringement in their autonomy, some other feared the government corruption. Thus, he adopted a unique approach to privatization, and instead of selling the entire shares to the foreign investors, he divided the ownership between the investors and the government.
The Plan de Todos of Lozada was a radical plan for political decentralization and it won 36 percent of the popular vote in 1993. He appointed a National Secretary of Capitalization to create a legal framework for the privatization process. Also, he conducted public surveys to assess the general opinion among the public towards the capitalization process. Since none of the political participants in the capitalization process had a clear idea about what the process meant, Lozada’s administration developed a public relation program to explain their plan to potential investors, officials and the general public.
The President wanted to redistribute the state’s share among public, but past experience suggests that any move to distribute share among public would lead to dire results. So, he set up a pension fund and directed the money from capitalization towards pension schemes. The strong labor union and their resistance to the process of privatization was the toughest challenge to Lozada, particularly in the case of YPFB, the company holding oil and gas of Bolivia. The administration was unfazed by the massive strikes and unrest, and pushed through with the reforms. Lozada knew the company needed the money from foreign investment if it is to survive and complete projects such as the construction of a US$2 billion gas pipeline between Bolivia and Brazil, and pushed ahead even at the cost of his own popularity.

What future challenges do you think the Bolivians face?

The future challenges of the Bolivians would be to attract investors, who would be put off by the massive resistance to the privatization process. The country will benefit by the privatization process in terms of economic growth and substantial social benefits due to schemes such as the BONOSOL. Particularly, the rural elderly, the most marginalized sector of the country will be hugely benefited by it. Since Lozada has already put the privatization process into motion, the future governments should find a way to have the political will to do what is good for the economy and also to communicate the results to the public.

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