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The East: IMF Officials Call For Improved Privatization Process

Washington, 5 February 1999 (RFE/RL) -- Senior officials of the International Monetary Fund (IMF) say the privatization of previously state-owned enterprises is one of the most important but still most controversial aspects of the process of transition.

IMF Managing Director Michel Camdessus says that while it is time to "rethink" many of the privatization programs, what's needed is not "less privatization but better privatization."

One of his deputy managing directors, Shigemitsu Sugisaki, says that for the general public in the nations in transition, privatization is the most important symbol of the process which generates the greatest debate. But he says, the debate is always over the details of the privatization process -- how best to do it -- rather than over whether it should continue.

The comments were made at a secret conference of some two dozen top officials from around the globe summoned by the IMF earlier this week to review the first decade of the process of transition.

IMF spokespeople declined to reveal who attended the three-day conference, how many were there or the countries from which they came. One spokesman would only acknowledge to RFE/RL that most were high-level officials involved in policy making in the affected countries. In addition to IMF, World Bank, and EBRD (European Bank for Reconstruction and Development) officials and experts attended.

The fund agreed afterward to publicly release the text of Camdessus' opening remarks on Monday and Sugisaki's closing speech on Wednesday.

Camdessus recalled that when the process of transition began in Central and East Europe and Central Asia in late 1989, no one knew what to expect or how to proceed. "Little was clear except that there was no turning back," said Camdessus. "There was no master plan and scarce relevant experience to guide action."

He said a "host of proposals quickly filled the vacuum, jostling with the force of events and circumstance to determine what happened." He noted that such political events as the reunification of Germany and the break-up of the Soviet Union, the outbreak of hostilities in several countries, and the difficulty for all the nations in the region in grappling with the collapse of the old trading system, made it remarkable that there were any successes.

The "essential components" of the transition reform agenda rapidly crystallized, however, said Camdessus, and through courageous decisions by many leaders, progress has been "dramatic" and the foundations for future prosperity have been laid.

With the economic reversals in Albania, Bulgaria and Romania in 1996 and 1997 and the collapse in Russia in 1998, it is clear that no one should harbor any illusions that progress from here on will be straightforward, said Camdessus.

"We are clearly far from the end of the road," he said. But even where structural reforms are still incomplete, the first foundations of private ownership, market pricing and market discipline are in evidence. The challenge now, said Camdessus, is to find the policies and actions necessary to complete the bulk of the structural reform agenda while encouraging broad economic growth.

The biggest challenges will be in enforcing the rule of law and fostering a culture that respects a framework of law, regulation and codes of good practices in building market economies and institutions.

Sugisaki said that five basic principles emerged from the discussions: First, that fiscal and monetary prudence is an essential priority and continuous requirement for economic recovery and growth; second, that macroeconomic stabilization must be supported by a broad spectrum of institutional reforms; and third, that a strong institutional framework is most critical for the success of privatization programs, no matter how they are structured.

The fourth basic principle, said Sugisaki is that banking reform is an essential component of transition programs; and fifth, that the sharp inequalities developing in incomes must be tackled, not only by redressing them but by addressing public perceptions of unfairness.

In the meantime, Sugisaki said, it is critical that government's in transition "do more to provide a well-targeted social safety net for the most vulnerable segments of society."

Sugisaki reiterated that the transition is not to eliminate governments but to redesign them to support the economy. "The transition from an omniscient provider overseeing all aspects of the command economy to an agent supportive of an environment conducive to private sector growth is indeed a historic one," he said.