External Sector Reform and Public Enterprise Restructuring

by Rina Bhattacharya

An important requirement for a move from a multiple exchange rate regime to a unified exchange rate system to be successful is effective control over the fiscal deficit. This in turn usually requires a major restructuring of public enterprises, and in particular limiting their access to government subsidies and to subsidized commercial bank credit. And, given the predominance of the public sector in many nonindustrialized countries, success of trade reforms in promoting economic growth is linked in a crucial way to success in improving the efficiency and competitiveness of public enterprises. The central theme of this paper is that external sector reforms need to be accompanied by a sound financial reform strategy which takes careful account of the role that commercial banks-or, more generally, the financial sector-can or should play in the public enterprise restructuring process. The country studies discussed below suggest that this is an area which has-at least in some cases-not received sufficient attention from a policy perspective. This in turn may be a reflection of the vagueness of the policy recommendations in the existing literature relating to the pace and method of public enterprise restructuring, and its linkages with financial sector and trade reforms.

48 pages, Kindle Edition

First published June 1, 2000