Transition   Privatization   


by Thomas Denslow:

The privatization process in Romania began with a bang in 1991, at least on paper. The ambitious proposals of the economic transformation committee were, however, quickly bogged down by the new democratic process and political infighting among the quickly fragmented former communist party. The original proposal of the transformation committee, besides containing expansive general economic reform measures, called for a thorough and speedy privatization of most state-run enterprises, large and small.

The plan outlined the procedures for the commercialization of the large firms and establishment of “Private Ownership Funds” to act as intermediaries and distribute shares to the public. The Private Ownership Funds were to be allotted thirty percent of the new firms’ stock which they could either transfer to the public at a later date or manage themselves, giving shares of the funds to the public instead. The remaining seventy percent of the newly commercialized companies were to be held by the State Privatization Fund, which would sell its shares in the market after economic stabilization occurred. Ownership of smaller businesses would either be sold to investors or restored to the former owners. The direct transfer of land rights and agricultural equipment was to be made to farmers.(1) The results of privatization efforts have ranged from good to non-existent.

The reforms in the agriculture were a success. The expeditious privatization has yielded a “bumper” crop. meeting demand, establishing a market-price equilibrium, and producing exports of agricultural products, (2) which are supplying the economy with much needed hard currency. The privatization of small-scale firms has been less dramatic but continues. As with other Eastern European countries, the transformation of the large-scale, state industries has been slow and difficult. The new owners of these firms, the State Privatization Fund and the Private Ownership Funds, have been loathed to restructure the inefficient “dinosaurs,” preferring instead to take state subsidies. What little profit their charges have made has been squandered by the Fund managers. Instead of reinvestment and restructuring, these Fund managers have preferred plush office space and luxury “business” goods. The root of this corruption. according to John Earle and Dana Sapatoru, is the lack of appropriate incentive programs for fund mangers. (3)

In recent months the besieged government of former communist party boss, President Ion Iliescu, has made calls for “fast, mass privatization.”(4) It has, however, been the Iliescu government, in addition to an incompetent civil service, that has hampered the transformation process proposed in 1991. Of the large-scale state industries, only six percent have been privatized, mostly by means of dubious and corrupt “spontaneous” privatization.(5) As his popularity and support wane in direct proportion to economic decline. President Iliescu has revitalized the privatization process by distributing vouchers to all Romanians over eighteen that entitle them to shares of more than three-thousand state firms slated to be privatized by the end of 1995.(6) Bold calls to economic arms have been made in the past, but, like its unsuccessful predecessor, the governments privatization efforts must still be approved by parliament. Commenting on the slow and disappointing pace of economic reform and privatization, Silviu Brucan says that what has been learned from the transformation process is not pleasant, especially to the West, “The shocks besetting post-communist societies (and Romania in particular) cannot be treated by parliamentary governments”.(7)

(1) Demekas,D and Khan.S 1991 ‘The Romanian Economic Reform Program. IMF Occassional Paper.

(2) BBC Summary of World Broadcasts. 1 994.British Broadcasting Corporation.September 24,1994

(3) Earlc.J and Sapatoru. D. 1994.”Incentive Contracts, Corporate Governance, and Privatization Funds in Romania”.ATLANTlC

ECONOMIC JOTJRNAL.VoI 22. No2, pp6l-73.June,I994

(4) Rodina.V.1994.’Hiescu Pleads for Speed~ Privatization”.IJNITED PRESS INTERNAT. Sept. 13,1994

(5) CHICAGO TRIBUNE. October 10, 1994

(6) Brucan.S.1994.’S hock Therapy Mauls Those Who Unleashed it in Eastern Europe”. World Paper .June..




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