Privatization in Asia and Latin America

This article analyzes the political and economic predictors of privatization in 17 developing countries in Asia and Latin America, using an OLS regression model with panel-corrected standard errors and data from 1988 to 1999. The regression results show that two factors, which have hitherto been either neglected or underemphasized in the privatization literature, play a crucial role in the pace and scope of privatization. The first is a government's revenue needs (defined in terms of interest payments on public debt as a percentage of a government's total budget expenditures). An unsustainable interest burden leads to a significant reduction in the social and public spending of a government. This, in turn, impels incumbents to raise revenues through the sale of state assets. The second factor that explains privatization patterns is the extant degree of political opportunity (defined in terms of the governing politicians' legislative strength and their security to remain in office). In addition, the results show that privatization is associated with declining inflation and economic growth rates.