Reviewing PPP Performance in Developing Economies

The current wave of PPPs in developing economies was not determined by an endogenous process; on the contrary, it was due to a coincidence of interests between international organizations that shared the view of the Washington Consensus and a set of countries that have considered divestiture the best way to alleviate the public deficit constraints. After the euphoria of the middle 1990s, some disenchantment about the capacity of PPI policy to overcome the existent big gaps between high-income countries and developing economies appeared. Although a high interconnection between foreign companies and domestic firms has resulted from PPI policy, and this interrelationship has allowed an expansion and upgrading of some domestic firms in developing economies; these economies go on being characterized by a lack of institutional capacity, weak governance systems, and unclear or unsuitable rules and regulations, all of which increase transaction costs and risks, making PPI arrangements more ineffective in practice than in theory. In the meanwhile, poor people in poorer countries caught in poverty traps need to be served and the rationale underling the PPI approach cannot give a positive answer to these people. Here, the government and the ODA must play a more extensive role than they have played since the emergence of the PPP fashion.