Privatization in Sri Lanka : the experience during the early years of implementation

In industry, 21 enterprises had been fully privatized by 9/92, with another 40 scheduled for divestiture by the end of 1993; in agriculture, management of the large plantations has been privatized; and in the service sector, bus transport has been privatized. Rumors that the banking sector might be privatized have proven unfounded; so far, the government has indicated only that the state banks will be managed along more commercial lines. This paper examines Sri Lanka"s experience with privatization, and the problems encountered along the way. The first two sections discuss the program"s goals and background. Section three, the heart of the report, details the problems encountered in the privatization process -- conflicts in privatization planning, lack of institutional leadership, political corruption, capital market constraints, inefficient management, trade union resistance, and lack of a regulatory framework and competitive environment. Section four provides a tentative estimate of the program"s success in meeting its four main objectives. In regard to two of these -- improving management and production efficiency, and promoting modernization and foreign technology transfer -- results are positive. The objective of relieving the state of the financial burden of subsidizing inefficient enterprises has so far been overshadowed by the short-term costs of privatization (e.g., settlement of liabilities, worker compensation, and debt restructuring). In regard to the fourth objective, promoting widespread share ownership in privatized enterprises, achievements have not been satisfactory. Policy options are discussed in conclusion.