Using privatization to cover short-term budget problem creates larger long-term problem

By Vladimir V. Sytin
The Ukrainian Times

The list of enterprises subject to privatization in 2016 and 2017 includes 19 enterprises that are based in the Odessa region. Among them are the Black Sea Shipping Company, Odessa Airlines and 99.56% of shares of the Odessa port chemical plant estimated at from $800 million to $1.5 billion.

In addition, the plan for privatization of state-owned enterprises envisages the sale of blue-chip companies, such as CentrEnergo (UX: CEEN) valued at $1 billion, the Kharkov-based turbine company Turboatom, which is 75% owned by the state, and the Zaporozhye titanomagnesium plant (51% owned by the state), the only producer of sponge titanium in Europe.

Observers agree that using privatization to cover a short-term budget problem creates a larger long-term problem. The profits of Ukrainian enterprises would flow out of this country, reducing the grivna’s exchange rate. In effect, allowing foreigners to acquire Ukraine’s national assets helps them to speculate against the grivna. Critics say a puppet government’s policy to get foreign loans at any price and to sell off the remnants of Ukrainian industry is the road to nowhere.

According to politologist Paul Craig Roberts, privatization is the vehicle to undercut economic sovereignty and increase profits by raising prices. Today
privatization is a way that government can reward cronies by giving them valuable public resources for a low price. In the United States deregulation has resulted in high prices and poor services.