Privatization in Asia by Dr. Klaus-Peter Kriegsmann Bali, 11 May 2000 - PowerPoint PPT Presentation

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Privatization in Asia by Dr. Klaus-Peter Kriegsmann Bali, 11 May 2000

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Privatization in Asia by Dr. Klaus-Peter Kriegsmann Bali, 11 May 2000 I. HISTORY II. CORPORATE ENVIRONMENT III. ADB INVOLVEMENT I. HISTORY II. CORPORATE ENVIRONMENT ... – PowerPoint PPT presentation

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Title: Privatization in Asia by Dr. Klaus-Peter Kriegsmann Bali, 11 May 2000


1
Privatization in Asia by Dr. Klaus-Peter
Kriegsmann Bali, 11 May 2000
2
I. HISTORY II. CORPORATE ENVIRONMENT III. ADB
INVOLVEMENT
3
I. HISTORY
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II. CORPORATE ENVIRONMENT
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Institutional Economics Prerequisites for
Prosperity
  • Effective standards of corporate governance
  • corporate transparency and adequate external
    auditing
  • efficient stock exchanges
  • competitive capital and output markets
  • competitive, independent, and transparent banking
    systems
  • efficient and transparent legal frameworks
  • credible and impartial judicial enforcement
  • clear distinction between regulators and
    regulated
  • well-resourced, inquisitive and independent
    media

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The Three Major Sins in Asias Sharemarkets
  • Misuse of rights issues
  • dumping of assets by controlling shareholders
  • trading with related parties

16
Share Price Manipulation in Asias Sharemarkets
  • Share ramping
  • share pooling
  • share churning
  • share cornering

17
Ownership Concentration
18
Failure of Financial System
19
III. Rationale for ADB Involvement in
Privatization
20
Cost of SOEs for Tax Payers
21
Overall, the costs of holding on to the portfolio
of SOEs are Rp34 trillion per annum
  • The opportunity cost of capital as measured by
    EVA amounts to Rp20 trillion per annum in the
    foreseeable future.
  • The past practice of two-step loans will burden
    the state budget with at least Rp11 trillion per
    year during the next decade.
  • The direct costs of non-performing loans from MOF
    to individual SOEs is estimated to amount to Rp3
    trillion annually.
  • The cost of future debt to equity swaps, loan
    foregiveness in the context of IBRA debt
    restructurings, and liquidations is not yet known.

22
This total cost of Rp34 trillion is equal to
  • four times the expenditure for housing and human
    settlement,
  • five times the expenditure for education,
  • eight times the health expenditure, and
  • the income of the poorest 9 of the population

23
IV. ADB Approach to Privatization
24
Privatization and SOE Restructuring
  • The ADBs approach in one of radical
    transformation of the SOE accompanied by
    deregulation and opening of the operational
    environment, allowing a clean privatization which
    achieves a fair price for the asset. The key
    points of ADBs philosophy are

25
Privatization and SOE Restructuring
  • Transforming government enterprise through
    corporatization involves making the ownership
    form and the competitive environment of SOEs
    similar to privately owned enterprise.

26
Privatization and SOE Restructuring
  • Privatization programs are guided by a blend of
    ideas from modern theories of the economics of
    organization and institutional design including
    property rights theory, transaction costs
    economics, and agency theory.

27
Privatization and SOE Restructuring
  • Deregulation to allow competitors to enter
    markets is a big driver of strategic,
    organizational and cultural change and improved
    performance in the SOEs. Changes in the
    competitive environment have to be introduced
    before or parallel to corporatization, to reduce
    uncertainty in planning for privatization.

28
Privatization and SOE Restructuring
  • Clear separation of commercial activities from
    policy, regulatory, and social functions is
    critical in establishing accountability and
    improving performance.

29
Privatization and SOE Restructuring
  • SOEs need to be given clear commercial objectives
    and performance targets with the ability of the
    bureaucracy (including politicians) to get
    involved in day-to-day management tightly
    restricted.

30
Privatization and SOE Restructuring
  • Comprehensive industry, institutional and
    organizational reviews prior and during
    corporatization are useful for developing a
    coherent privatization plan and avoiding
    transaction problems.

31
Privatization and SOE Restructuring
  • Influences to be dealt with during transformation
    or corporatization include pre-transition
    conditions, preparatory mechanisms, the
    competitive environment, and agency and
    governance mechanism.

32
Privatization and SOE Restructuring
  • Thorough reorganization of the SOE is critical.
    This includes defining core businesses and
    strategies, aligning the organization design with
    the new strategic directions and improving
    employment systems.

33
Privatization and SOE Restructuring
  • Transformational change is best carried out
    rapidly rather than in an evolutionary manner.
    However, rapid and effective organizational and
    cultural change requires leadership skills and
    clarity of vision, management synergy,
    appropriate organizational structures, the reform
    of work practices and incentive and reward
    systems, explicit cultural change programs, and a
    structured and sustained investment in management
    and staff training and development.

34
Privatization and SOE Restructuring
  • Within this framework, privatization can then be
    viewed as a means of further economizing and
    locking in future gains by strengthening
    incentives, opening up access to capital, and
    subjecting stock exchange listed companies to
    equity market disciplines, including the market
    for corporate control.
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