Jury still out on nationalization vs. privatization in Latin America

Latin America is still far from settling the question of whether governments or companies run utilities better -- nearly a decade after the region rushed to privatize its state-run industries.

BY FRANK BAJAK
Associated Press
BOGOTA - President Hugo Chávez' announcement this week that he will nationalize Venezuela's biggest telecommunications and power companies sent investors fleeing. Yet the changes are likely to be much less radical than feared -- and not all that unusual for Latin America.

A decade after the region rushed to privatize its state-run industries, it is still far from settling the question of whether governments or companies run utilities better. Several key privatizations have been reversed. Other Latin American countries have hybrid systems where certain strategic industries were never sold off at all.

''Some nationalizations in Latin America are long-standing and exist for mainly national security and even symbolic reasons. They are also a measure of national pride,'' said Michael Shifter of the Inter-American Dialogue think tank.

In Chile, for example, copper-mining company Codelco is a proud and extremely profitable ward of a state so committed to free markets that even its toll roads are privately run. In general, state-owned enterprises account for more than 10 percent of the region's gross domestic product and about 5 percent of formal employment, according to the World Bank.

State-run oil is the norm in countries including Brazil, Colombia and Chile, despite the latter two being near orthodox free-marketeers. (Colombia is, however, poised to sell 20 percent of state-run Ecopetrol this year to help fund exploration).

In Bolivia, President Gonzalo Sánchez de Lozada's sale of a swath of Bolivian industry during his mid-1990s tenure turned out to be less than popular. Current President Evo Morales gained power pledging to roll back the privatizations. He's had some success with natural gas. Electricity and telephones could be next, he's suggested.

DOGGED BY COMPLAINTS

Sweeping privatizations in Peru and Argentina were also dogged by complaints. President Carlos Menem of Argentina sold off scores of state industries during his 1989-99 tenure, which helped modernize the country. Yet critics complained the fortunes reaped were later squandered or illegally pocketed and that many buyers failed to make needed investments.

Today, Argentines carp about creaky privatized rail lines. And in Buenos Aires last year, the government rescinded the 30-year contract of French water utility Suez's local subsidiary, accusing it of failing to make promised improvements and neglecting outlying poor areas.