International Policy

Spain Clears The Decks For Privatization

Tired of watching the deficits of money-losing state-owned industries mount, Spain's leaders are moving ahead with a plan aimed at privatizing these companies' pension plans and other liabilities. The operation "will free the state of obligations that were weighing it down like a ballast ... and represented a risk for the budget in future years," Spain's Finance and Economy Minister Rodrigo Rato announced.

  • Described by the government as one of the largest-ever financial deals in Spain, the plan would relieve state-owned industries of liabilities equivalent to $8.16 billion.

  • Once weaned from state aid, the companies would be ready for privatization.

  • Most of the obligations stem from previous restructuring of the steel, mining and shipbuilding sectors when tens of thousands of workers left their jobs under government-sponsored early-retirement schemes.

  • The mining industry alone faces pension, medical and other financial obligations equivalent to about $4 billion, while the steel and capital goods sectors face obligations amounting to roughly $3.5 billion.

The transition will work like this: the government will create a $6.12 billion fund from the proceeds of earlier, highly successful privatizations. It has invited 14 Spanish-based insurers to bid for the fund in an auction. A maximum of six successful insurers will then be responsible for managing the fund and meeting the state's obligations to almost 70,000 former state employees over coming decades.

Source: Carlta Vitzthum, "Spain Starts Big Financial Cleanup of State Firms in Privatization Effort," Wall Street Journal, September 10, 1998.

 

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