Financing privatization under limited capital conditions

Selected near-term solutions are examined in this paper, which: (1) sketches typical target SOE"s and aspects of the capital shortage problem; (2) looks at possibilities for and constraints on foreign investment, discussing in particular various types of joint ventures between foreign and domestic investors; (3) examines specific methods to effect privatization under limited capital conditions, including debt-equity swaps, leveraged buyouts, employee stock ownership plans, management contracts with profit sharing clauses, leasing wih option to buy, and, in serious cases, the choice of simply giving the SOE away; and (4) considers the role foreign donors and lending institutions can play in promoting policy dialogue and financing privatization support mechanisms (e.g., discount facilities, training programs, and the creation of special funds for legal fees or labor compensation). The paper also advocates experimentation in nontraditional financing techniques. It does not, however, consider the issue of creating/supporting capital market institutions, viewing this as a longer-term response. (Author abstract, modified)