Mexico began to divest itself of public-sector enterprises in 1983. The Mexican authorities saw privatizing small public-sector entities as a way both to correct—permanently—public-sector finances and to improve productivity. This effort has continued with added intensity during President Salinas de Gortari's administration with the completion of larger and substantially more complex privatization operations.

During the last nine years, the government has divested itself from practically all areas of economic activity: sugar mills, hotels, airlines, telecoms, banking, and steel. Of the 1,155 firms under state control in 1982, Mexico has privatized 905 with sales totalling US$14.5 billion, or around 5 percent of GDP. Another 87 are now under way. By the end of 1991, Mexico had transferred 250,000 employees to the private sector.

Before I discuss the specific approaches we took to privatization in Mexico, let me say a brief word about the micro- and macroeconomic factors that shaped what we did.

Microeconomic considerations

Privatization does not focus just on the sale of a public entity. It also means looking at how the enterprise will be sold, how it will operate under private ownership, and which economic principles will govern both...