Bank privatization in Argentina: A model of political constraints and differential outcomes |
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| Institution: | 1. Department of Economics, Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Malaysia;2. Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia;1. Department of Economics Université de Montréal C.P. 6128, succursale Centre-ville Montréal QC H3C 3J7 Canada;2. Development Research Group, The World Bank, 1818 H St N.W., Washington D.C. 20433, USA;1. Department of Economics, Bilkent University, 06800 Ankara, Turkey;2. Department of Economics, TED University, 06420 Ankara, Turkey;3. The World Bank, 1818H Street, NW, Washington, DC 20433, United States |
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| Abstract: | Although case studies suggest that political constraints affect bank privatization transactions, these constraints have been neither theoretically modeled nor econometrically tested. This paper presents a simple model of the tradeoffs governments and buyers face during these transactions. In addition to price, the buyer is concerned about solvency and profitability following privatization. Similarly, politicians are concerned about layoffs and service coverage. We apply the framework to provincial bank privatizations in Argentina, finding that provinces with fiscal problems were willing to accept more layoffs and guarantee more of the privatized bank's portfolio in return for a higher price. |
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