Bank Privatization in Argentina : A Model of Political Constraints and Differential Outcomes
Based on results from country case studies, many researchers have claimed that political constraints affect bank privatization transactions, which in turn affect the post-privatization performance of the banking sector. But no study has either econ...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/07/1552019/bank-privatization-argentina-model-political-constraints-differential-outcomes http://hdl.handle.net/10986/19582 |
| Summary: | Based on results from country case
studies, many researchers have claimed that political
constraints affect bank privatization transactions, which in
turn affect the post-privatization performance of the
banking sector. But no study has either econometrically
tested how political constraints affect bank privatization
transactions or theretically modeled the privatization
transaction. The authors present a simple theoretical
framework that models the inherent tradeoffs faced by
governments and potential buyers in privatization
transactions involving banks. The potential buyer is
concerned about the probability that the bank will remain
solvent, about the profits it will earn after privatization,
and about the price paid for the assets and liabilities. The
government is concerned about the price received for the
assets, about layoffs, and about service coverage after
privatization. The evidence from bank privatization
transactions in Argentina in the 1990s supports several of
their theoretical predictions. In particular, provinces with
high fiscal deficits were willing to accept layoffs and to
guarantee a larger part of the privatized banks'
portfolio in return for a higher price. The tequila crisis
(Mexico's economic crisis in 1994-95) meant that
politicians could protect fewer jobs and had to assume a
greater share of their public banks' assets. Evidence
of better performance at banks privatized after
Mexico's crisis suggests that, by tying
politicians' hands, the crisis may have brought
unforeseen benefits. This conjecture awaits further
empirical validation, but the authors hope that by
explicitly incorporating the incentives politicians face,
analysis can begin to address the question of why some
privatizations succeed more than others. |
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