Debate grows over privatization

  • 2010-08-04
  • Staff and wire reports

RIGA - Analysts and businesspeople are divided in their opinions concerning the privatization of Latvia’s state-owned companies in order to balance a budget that is deep in the red, according to a survey carried out in this month’s edition of the magazine Kapitals. The arguments from both sides are many, and range from those who claim the state needs to control the country’s ‘strategic’ assets, to those who claim the government should be in the business of governing the country, and not running businesses, which is better done in private hands with state supervision where needed.

Investment banker and partner in IBS Prudentia, Girts Rungainis believes that the sale of state-owned companies to pay the state’s debts would be a mistake. He says the correct path would be to sell part of state-owned companies, such as Latvenergo, through a stock market offering, thus forcing improvement in company management, help develop the public financial market, and attract the attention of foreign investors. The resulting cash flows could be used to stimulate industry, develop new businesses and technology parks, and other such projects.

Swedbank chief economist in Latvia Martins Kazaks stresses that the sale of state-owned companies would not really solve the problem of the budget deficit, but would simply finance it for a limited time. In Kazaks’ opinion, the deficit should be reduced through changes in the structure of the state budget, and not through one-off increases in revenue, such as from asset sales.

The Swedbank economist believes that the state could sell its shares in companies where it is a minority shareholder, or is unlikely to receive a dividend; however, it should retain a presence in strategic sector companies, for example, in energy, in order to have a more effective influence on long-term developments, which is not possible simply through regulation of the sector.

Economist and businessman Janis Oslejs, who is a member of the finance and economy group for the Society for Different Politics party, a member of the Unity political alliance, claims that “Using the sale of shares in state-owned companies to balance state revenue and expenditure is the same as selling grandmother’s silver in order to have money to spend today - a pointless action, which wastes and squanders society’s basic capital” for the future.

Oslejs explains that the state could sell shares in companies only if the money was to be invested elsewhere, such as in Rungainis’ plan for the creation of an investment bank to fund the development of industry.
Salvis Lapins, Olainfarm board member and Saeima candidate for the alliance For a Good Latvia, believes that the government should opt for the privatization of state-owned companies. “This is a way to avoid very painful decisions at the present moment in the context of budget consolidation. That is, it presents an alternative to tax increases and spending cuts, possibly at the expense of the social budget. Apart from this, the events around [energy utility] Latvenergo once again show what a ‘careful’ owner the state is,” stressed Lapins.