1. Introduction
Most Latin American countries have undergone a profound process of structural reforms through
the 1980‘s and 1990‘s. These reforms aim to modernize an inefficient and often corrupt public
sector; reduce the plight produced by ever-growing public deficits; generate economic growth
that may translate into more and better jobs; a diversification of economic activities; and a natural
redistribution of the limited wealth of these nations.
Privatization was a key component of structural reforms undertaken and was also part of the so -
called “Washington consensus”, a set of policy recommendations that served as a guideline for
policy reform in many Latin American countries during the 1990´s. This process resulted in
substantial amounts of foreign direct investment (FDI) placed in the hemisphere. Stock of FDI in
the electricity, gas, and water sectors was virtually nil in 1988 but reached 27 billion USD in
1999 (UNCTAD 2001), representing 14% of total FDI in the region.
Privatization in the utilities sector implied a new type of regulation, as most of these sectors were
considered, at least during some stages of production and distribution, natural monopolies. The
processes of privatization and regulation were often carried out as parallel processes, generating
insecurity - and surprises - to potential and real investors. The design of privatization processes
was many times dominated by the simple objective of generating public funds; it was thought that
the legacy of high debt could be alleviated by windfall profits of privatization schemes -
Argentina may well fall in this category. In other countries modernization of the sector was the
primary goal, as enterprises were sold or the concessions granted to those investors who were
willing to invest most in the companies themselves. This was the case in Bolivia’s policy of
capitalization, where investors capitalized the enterprises and did not simply transfer a specified
amount of funds to the treasury.
During the design of privatization programs little attention was paid to the distributional
consequences of the process. Some (Estache, et.al., 2001, among others) would characterize this
omission as a lack of welfare considerations in the transfer of public assets to private operators.
Direct objectives of privatization were better service and lower costs, but not explicitly poverty
reduction. It was assumed that better service and lower costs would also lead to lower tariffs and
a general improvement of the incomes of the poor through higher growth, in part triggered by
better performance of the newly privatized utilities.
The experience accumulated in Latin America with structural reforms during the 1990´s, when
the expression “Washington consensus” was coined, led to a rethinking of what it is that