Reforms, Opportunities, and Challenges for State-Owned Enterprises

State-owned enterprises (SOEs) are major commercial entities, invariably larger than commonly realized, and typically more important in developing Asia and Pacific economies than in the advanced economies. They are particularly important in sectors that have weak competitive pressures, and in sectors such as mining and natural resources that are commonly bedeviled by governance problems. Their size and their generally indifferent performance highlight the importance of reform. There is no template or single path to reform, as approaches will differ depending on institutions, history, and political preferences. However, there are common elements of a reform agenda, including the importance of hard budget constraint, financial accounting transparency, competitive market structures, and a regulatory framework that protects the public interest. It may be the case that privatization is the preferred approach, but this will be effective only if the necessary prerequisites are in place.