Book contents
- Frontmatter
- Contents
- Preface
- PART 1 OVERVIEW
- PART 2 A BENCHMARK MACROECONOMIC MODEL FOR AN EMERGING ECONOMY
- PART 3 PUBLIC FINANCE AND MACROECONOMIC PERFORMANCE
- 6 The Intertemporal Budget Constraint of the Public Sector
- 7 Consequences of Insolvency I: High Inflation
- 8 Consequences of Insolvency II: Public Sector Debt and Economic Growth
- 9 Measures for Achieving Fiscal Credibility I: Central Bank Independence
- 10 Measures for Achieving Fiscal Credibility II: Privatization
- PART 4 THE FINANCIAL SECTOR AND MACROECONOMIC PERFORMANCE
- PART 5 EXCHANGE RATE MANAGEMENT
- References
- Index
10 - Measures for Achieving Fiscal Credibility II: Privatization
Published online by Cambridge University Press: 04 December 2009
- Frontmatter
- Contents
- Preface
- PART 1 OVERVIEW
- PART 2 A BENCHMARK MACROECONOMIC MODEL FOR AN EMERGING ECONOMY
- PART 3 PUBLIC FINANCE AND MACROECONOMIC PERFORMANCE
- 6 The Intertemporal Budget Constraint of the Public Sector
- 7 Consequences of Insolvency I: High Inflation
- 8 Consequences of Insolvency II: Public Sector Debt and Economic Growth
- 9 Measures for Achieving Fiscal Credibility I: Central Bank Independence
- 10 Measures for Achieving Fiscal Credibility II: Privatization
- PART 4 THE FINANCIAL SECTOR AND MACROECONOMIC PERFORMANCE
- PART 5 EXCHANGE RATE MANAGEMENT
- References
- Index
Summary
As we saw in the previous chapter, governments can seek to achieve fiscal credibility by cutting themselves off from access to certain financing sources, something that they would be unlikely to do if they anticipated requiring recourse to those sources of finance in the future. While this may help to signal the seriousness of the government's fiscal intentions, and may even help to discipline future governments not as inclined to fiscal rectitude as the one that institutes the measure (see Chapter 17), the impact of such measures on the public sector's perceived solvency is problematic, since actual and potential creditors will correctly perceive that the government has deprived itself of a source of funds with which to service debt.
An alternative mechanism for enhancing the credibility of fiscal adjustment is to “lock in” the adjustment in present value terms by undertaking measures in the present that are irreversible – or at least, that are very costly to reverse – and that can be expected to exert favorable effects on the government's budget over the indefinite future. Privatization or reform of loss-making public enterprises is one such measure that has been widely adopted in developing countries. This chapter explores how such measures can be used by the government as mechanisms to enhance the credibility of fiscal adjustment. It also describes the economic arguments for privatization, and analyzes the implications of privatization for the government's intertemporal budget constraint, emphasizing that the effects are not limited to the revenue received from the sale of such enterprises.
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- Macroeconomics in Emerging Markets , pp. 175 - 184Publisher: Cambridge University PressPrint publication year: 2003