Peru: Hanging up on the Public Sector
Fraser, Barbara J.
When the Vdsquez family's phone line was installed in mid-1990, they threw a party. After all, they'd paid $1,000 and waited seven years, and the installation put them in a privileged group in...
...They bought state-run companies and reorganized them, but there's no evidence that they put money into The Peruvian privatizations did nothing for local employment-or worse yet, had a negative effect...
...Peru's Constitutional Tribunal had not yet ruled on the case in January when Tractebel said it had decided not to continue with the deal...
...What people object to is billion went for the purchase of military equipment, the abuse and the arrogance of some of these compa- much of which was overpriced or defective...
...Ugarteche adds that the Controller's Office should be reorganized to work more efficiently...
...many cases it didn't make sense for the government to In the privatization process, "there was corruption on be running them," says economist Ismael Mufioz, a both sides-by those who were selling and those who former adviser to the minister of transportation and were buying," Mufioz says...
...Many state-run companies were so inefficient that the government had to invest in them to make them attractive to bidders...
...for dialogue...
...The government must address the legacy of corruption left by the privatizations of the 1990s...
...I don't see that happening...
...The theory was that the market would take care of them, but in fact only 36 percent of them found jobs with other companies...
...The social cost was also consay--at about one-sixth that amount...
...While many employees were pressured to resign, as the state pared down to prepare for the sales, they did receive severance packages...
...One problem, Mufioz says, is that the central government has never defined which enterprises should be considered national property and which could be considered regional or local properties-a key point in the Arequipa debate...
...Of the 3,456 employees of the state-run fishing company Pesca Pert, only 172 are still working in fisheries...
...The case according to economist Oscar Ugarteche, who worked underscores both the good and the bad of the privati- on the congressional investigation...
...This year, the government expects to receive about $400 million from privatizations-a far cry from the $1 billion to $3 billion a year reported between 1994 and 1996...
...Some of the graft is related communications under the current administration of to the use of the proceeds from the sales...
...A handful nies...
...One of the things that had made state-run enterprises in Peru inefficient was an evidently bloated payroll...
...After all, they'd paid $1,000 and waited seven years, and the installation put them in a privileged group in their low-income Lima neighborhood...
...More than $1 President Alejandro Toledo...
...According to the congressional commission's report, the non-compliance "has caused serious social problems" in Marcona, on Peru's southern coast...
...Only a handful of state-run companies remain to be sold, let in concession or reorganized under joint operating agreements...
...The breath of democratic air that followed the fall of the authoritarian Fujimori regime brought former state employees into the streets to clamor for reinstatement...
...ruption scandal, investigators have found more than "I don't think there's any doubt that it was necessary $340 million in foreign bank accounts-an amount to privatize most of the state-run businesses, not only they say is only the tip of an iceberg whose true dimenbecause they were operating at a loss, but because in sions may never be known...
...ernment had backpedaled on the $167.4 million sale to The injection of cash into the economy- even if much Belgium's Tractebel, and both Interior Minister of it was kickback money being legitimized for later Fernando Rospigliosi and Ricardo Vega Llona, head of transfer to accounts in Switzerland or the Cayman 40 NACIA REPORT ON THE AMERICASPRIVATIZATION IN THE AMERICAS Islands-represented between 2 percent and 3 percent of GDP per year in the mid-90s...
...More dramatically, Marcona's population has dropped from 22,000 to 12,900 over the past decade...
...Those responsible, Ugarteche says, "must be punished in such a way that everyone realizes that it doesn't matter how powerful you are, if you commit a crime like that, you'll end up in prison...
...The $150 million that Shougang pledged to invest after the purchase never materialized, and the company finally decided it would be cheaper to pay the $12 million fine for noncompliance...
...The financial cost of privatization was high...
...Most Peruvians didn't see the benefits of the economic growth...
...As the protests turned into riots, the govern- nies favored in the bidding process has been linked to ment considered sending in troops, but finally opted former cabinet chief Victor Joy Way...
...theft" of the company The Fujimori administration privatized more than 220 popped up like mushrooms...
...Peru's economy grew by 5.7 percent in 1993, 13.6 percent in 1994 and 8.6 percent in 1995...
...A group of Chinese compaEGESUR...
...He adds, "There's still a lot of work to be done to restore our values...
...The governments were elected in November and took office on January 1. Those whose jurisdictions include state-run companies are sure to demand a voice in-and local investment from--any deals that are negotiated...
...And while there is more talk of concessions and joint ventures, rather than outright sales, no major political party is suggesting an about-face on free-market economics...
...By the time the dust had settled, the gov- The result, Ugarteche says, was a mixed blessing...
...Some people languished on the waiting list for 15 or 20 years...
...In 1992, the Chinese mining consortium Shougang paid $120 million for the state-run Hierro Pert, which had been valued-undervalued, critics them...
...f privatization has become a dirty word in Peru, it is less because of In Lima, workers from the privatized Telef6nica del PerO protest mass layoffs and Spanish ideology than practicality...
...Today 54 percent of the population lives in poverty, including 24 percent in extreme poverty...
...of military officers are in prison on charges related to The sense that ordinary citizens have seen no bene- bribery and kickbacks...
...fits from privatization erupted between last June, when The congressional commission found irregularities demonstrators took to the streets in the southern high- ranging from collusion and favoritism to undervaluing land city of Arequipa to protest the privatization of two of properties, modification of contracts, excessive tax electric utility companies located there, EGASA and breaks and insider dealing...
...There's no evidence that these companies invested," Ugarteche says...
...The company's work force has fallen from 4,800 in 1992 to 1,300 now, and Shougang has been plagued by ongoing labor disputes...
...Ugarteche believes Peruvians are more vigilant now, although he concedes that some feel that the only crime committed by the defendants in corruption cases was that of being caught...
...At the local level, much of the privatization did nothing for employment-or, worse yet, had a negative effect...
...Soon a phone line could be installed in two or three days for about $100...
...siderable...
...While the courts have upheld the case of a small group of former phone company employees-Telef6nica has reinstated only a fraction of them-and the government has set up a commission to review other claims, labor officials say that most of the state layoffs were technically legal...
...Despite the improvements, Telef6nica has become After expenses of the sale were subtracted, there was the company Peruvians love to hate...
...The new regional governments, like the one in Arequipa, will be players in this next round of privatizations, however...
...Finally, he says, "Peru needs an alert society that will point out when things are going wrong...
...In a September only $7 billion, and only $4.4 billion made it into the survey by the University of Lima, 65 percent of government's coffers...
...Since the Fujimori zation frenzy that struck Peru in the 1990s under then- government collapsed in November 2000 amid a corPresident Alberto Fujimori (1990-2000...
...Barbara J. Fraser,<bfraser@amauta.rcp.net.pe>, is a former asso- ciate editor of Latinamerica Press now working as a freelance writer based in Peru...
...On the other hand, Ugarteche says, "They stole the country's reserves...
...By the end of the 1990s, the balance from privatization was negative-only interest earned on the money put the net figure in the black, according to the congressional commission...
...Because the government lacked a long-term development strategy, income from the sale of state-run enterprises was used to patch holes in the budget...
...Several decades of unregulated dumping of mine waste had left the Andes littered with tailings piles that were polluting rivers and streams-a liability that purchasers of state-run mining installations were unwilling to assume...
...commission that investigated irregularities in the sales...
...By 1999, according to official figures, 120 thousand employees of state-run companies had been laid off...
...The Arequipa demonstrations were largely the result of a tactical blunder by Toledo, who had promised during his campaign that he would consult with local constituents before privatizing the two utilities...
...respondents said they thought the sale of the telephone As much as $5 billion may have fled the country, companies had not been favorable for Peru...
...The congressional commission also recommended doing away with a mechanism that allowed government purchases to be made by secret decree-a 41 Vol XXXVI, No 4 JANUARY/FEBRUARY 2003PRIVATIZATION IN THE AMERICAS straightforward step that the Toledo government has failed to take...
...Privatization will soon run its course in Peru...
...In 1993, there had been state-run companies for a total of $9.2 billion, accordbarely one pay phone for every 2,000 people-and ing to a report issued in June by the congressional only 67 percent of them worked...
...The rest remained unemployed or ended up earning a subsistence living in the informal economy...
...The number of main lines increased from 26 per 1,000 inhabitants in 1990 to 67 in 2000, and phone booths Prolnversi6n, the government agency responsible for privatizations, had resigned...
...Four years later, the notoriously inefficient Empresa Nacional de Telecomunicaciones (ENTEL) and Compania Peruana de Tel6fonos (CPT) were swallowed up by Spain's Telef6nica...
...Authorities will also have to work to convince people that privatization can bring local benefits...
Vol. 36 • January 2003 • No. 4
