ABSTRACT
This chapter explores the role of state-owned enterprises (SOEs) in Latin America, focusing mainly on those specializing in natural resource-based commodities. The discussion is divided into two parts: first, we review arguments presented in the literature, and second, we present four case studies. Our argument is consistent with that of observers who stress the need for different analytic frameworks for examining SOEs in developing countries and in developed countries.
Commodities account for a high proportion of the exports of emerging countries. That is why commodity exports by SOEs in developing countries exert macroeconomic influence through the aggregate effect of taxation, exchange rates and interest rates.
Inward-oriented SOEs increase domestic competition (preventing the formation of monopolies and oligopolies) and develop the small- and medium-sized enterprise (SME) market (promoting non-monopolistic behaviour), which can contribute to stabilizing the business cycle (smoothing behaviour). SOEs also develop and leverage industrial clusters, enabling more effective economic policy (at the developmental stage) and, to some extent, strengthening the private sector. At the same time, SOEs potentially attract foreign direct investment, which spills over into the economy to promote local production, research and development (R&D), and the creation of new and stronger economic activities (a function of state-guided industrial policy).
For this to occur, SOEs need healthy long-term financing in order to reduce the risks of privatization due to lack of resources, which could cause underinvestment and loss of competitiveness. Sufficient financial resources must be dedicated to investment by SOEs to ensure their sustainability over time. Considering these issues, the literature generally advocates proper mechanisms of corporate governance combined with performance-based contracts to improve internal efficiency (i.e., a post-New Public Management approach based on principal–agent theory). However, SOEs operate in very different institutional arrangements (from full state ownership to mixed systems where equity is shared between the state and private investors) and face different national and regional contexts, and this makes the ‘one size fits all’ approach defended by some scholars and international organizations unfeasible.
Our conclusion is that SOEs have an integral role to play in public policy. Thus, they must adapt their governance, financial structures and mechanisms to meet the different objectives demanded by these varying contexts in order to complement private investment and support industrial sectors.
