El Salvador Joins Central American Privatization Push

PRESIDENT Alfredo Cristiani's four-month-old government has embarked El Salvador on one of Latin America's widest-reaching programs of privatization - to the enthusiastic cheers of United States officials and international financial organizations. El Salvador thus joins four other Central America nations in transferring public assets to private hands. Their governments see this as a way to reduce deficits.

El Salvador will sell seven sugar refineries, three dry alcohol distilleries, and a number of coffee mills. It will also privatize sales of sugar and coffee - government monopolies under Cristiani's predecessor, Jos'e Napole'on Duarte.

Perhaps the greatest impact will come from privatizing the five banks and nine other financial institutions that were nationalized in 1980. Bids for them are expected to be taken by 1992.

Likely bidders would be employees, who now own about 20 percent of each institution, and the private investors who hold about 29 percent. The nationalized banks manage about 80 percent of the nation's credit, half of which has been borrowed by the government. This includes mortgages on agrarian reform land. Because 42 percent of the portfolios are nonperforming, these banks will require extensive cleanup.

Of the other state-held businesses to be privatized, one of the largest is a fish-processing plant worth $12 million. Located on the Gulf of Fonseca, the plant has boats that could catch an estimated $30 million worth of tuna each year. The plant, the largest in Central America, is now operated by a Spanish renter.

By March, bids will be invited for the $12 million Jiboa sugar mill. The most likely purchasers are the cane growers who supply the plant, says Mario Ridelli, executive director of the Salvadoran Investment Corporation. Five smaller sugar mills will also be sold by 1994.

The $12 million Hotel Presidente in San Salvador will go up for bids by next August. Offers for the 100-room, first-class hotel were taken by the last government, but were too low. Officials plan to remodel the facility before they try again.

The two-mill Izalco textile plant produced cotton threads and jeans until 1969 when the Honduran market closed during war with El Salvador. It will be offered either as a business or just for the machinery, which has been carefully maintained, Mr. Ridelli says.

The government is awaiting an evaluation by the International Executive Service Corps, financed by the US Agency for International Development, before proceeding to privatize the plant. Selling off the assets might be the more desirable alternative, because cotton production in El Salvador has fallen off drastically since 1969.

Though the transfer of assets is important, Salvadoran privatization will go much further by allowing banks to set their own interest rates and exchange rates; moving most mortgages to the private markets; eliminating subsidies and price controls; and eventually allowing the private import of oil, which is now brought in exclusively by the National Electrical Commission.

In sharp contrast to El Salvador's eagerness to privatize, Honduras has started haltingly.

So far, 10 businesses worth $27 million have been privatized. Nine more transactions, involving a dairy, two cement factories, several sawmills, and an airline, are under way.

About one-third of the companies have been awarded to US firms or subsidiaries - Scott Paper of Costa Rica bought an abandoned paper plant; the Nelson Group of Seattle, Wash., took over a foundry, and Wellington Hall bought a furniture factory. The transactions were financed through debt-equity swaps.

The Honduran program is based on Costa Rica's experience, of which the first major phase ends this year.

Coming up for bids this year in Costa Rica will be a shrimp farm worth $250,000, and 40 percent of the shares in a $4 million cement plant.

Telecommunications could be privatized by the next government, which will take office in May 1990.

Costa Rica has privatized more than 30 companies worth $130 million since 1986. Five have gone to the public sector because Costa Rica prohibits privatization of strategic businesses.

In Guatemala, the country's first privatization involves the national airline, Aviateca. It will be finalized this month. The Salvadoran air company, TACA, will acquire 30 percent; 45 percent will be offered to the private sector, and the government will keep 25 percent.

Even Nicaragua has caught on to the trend. The Nicaraguan Tourism Corporation is offering travel agencies, restaurants, and hotels throughout the country to private investors. An unidentified Japanese group reportedly has expressed interest in buying a 20 percent share of the Intercontinental Hotel in Managua.