 Provincial bank privatization in Argentina: the why, how, and"so what"?No 2159, Policy Research Working Paper Series from The World Bank Abstract: Argentina's provinces offer a unique opportunity to study bank privatization because so many transactions took place there in so short a period in the 1990s (1994-98). As the decade started, every province owned at least one bank, performance in publicly owned provincial banks was substantially worse than in private banks, and the losses incurred imposed substantial fiscal costs on the provinces. Politicians whose provinces were in dire fiscal straits, their banks losing money at a faster rate, were most willing to seize opportunities to privatize, even though overstaffed provincial banks were harder to privatize. Deposit loss and liquidity problems associated with the Tequila crisis made privatization more likely. The right political situation is necessary but not sufficient to ensure good privatizations. First, one must find a buyer, and Argentina's provincial banks were the least attractive in the banking sector. So the provinces settled for purchasers that were not first-tier banks. Many of them were small wholesale banks that had to make the difficult transition to retail banking. Three important concessions were made to purchasers: contracts to provide post-privatization services to the provinces, portfolio guarantees, and the assumption of only"good"assets. In return, provincial politicians were granted restrictions on branch closings and layoffs of bank employees. Both types of accommodation were costly to the purchasers and the provinces. These transactions probably could not have been completed without long-term loans from the Fondo Fiduciario. Were the Fondo Fiduciario loan funds put to good use? Did privatization leave provincial banking on a sounder footing? Initial indications are that the situation has improved in most provinces. And the provinces experiencing post-privatization difficulties tend not to have participated fully in the Fondo Fiduciario privatization program. But the privatized banks rely on their service contracts with provinces to generate a big share of their income and are having trouble making the transition to commercial banking. It is uncertain whether the newly created banks are sustainable . But at least a fiscal burden has been lifted from the provinces. Keywords: Banks&Banking Reform; Payment Systems&Infrastructure; Financial Crisis Management&Restructuring; International Terrorism&Counterterrorism; Municipal Financial Management; Banks&Banking Reform; Municipal Financial Management; Financial Crisis Management&Restructuring; International Terrorism&Counterterrorism; Economic Theory&Research (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:2159 Access Statistics for this paper More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC. |
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