State-owned enterprise reform through performance contracts: The Bolivian experiment

Abstract A novel system of performance contracts between the Bolivian Government and large, “strategic” state-owned enterprises was introduced in 1990 to help restructure them into more business-like, competitive and efficient firms. The system was combined with a privatization program that gave priority to the divestiture of small and medium-sized enterprises but did not preclude eventual divestiture of large ones. Experience with performance contracts has been mixed. They appear to have contributed to improved performance of contracting enterprises, but they have also been criticized for being open to abuse. Politicization of the debate over results has obscured the lessons that might be learned from the Bolivian experience, such as the need for integrating performance indicators and budgets and for making contracts easy to evaluate.