Privatization of energy companies, on the other hand, has been fraught with political battles. The Latvian government, for example, has had major difficulties in its attempts to push through the privatization of Latvenergo, the national power company. Originally, Latvenergo was to be restructured and a majority stake sold off. In the ensuing political battle, the opposition succeeded in collecting enough signatures to call for a referendum on the sale. This, in turn, forced the parliament to cancel the privatization altogether in August. It is uncertain at present how the necessary investments for Latvia’s energy infrastructure will be financed in the future. In Estonia successive governments have negotiated with U.S.-based NRG Energy for close to five years about the partial sell-off of the national power utility, Eesti Energia. The main complaint was that the privatization process itself has been very opaque.

These examples show how difficult it can be to privatize large infrastructure companies, which serve most of the population either directly or indirectly. The common view is that privatization usually is followed by price increases, but it should also be noted that the public sector often lacks the resources for needed capital investment and modernization.

Estonia and Latvia were quick to privatize their larger banking institutions, while the Lithuanian state still retains a majority in the country’s second- and third-largest commercial banks. Privatization of these two banks has proven very difficult. A tender for the sale of Taupomasis Bankas (Savings Bank) will be announced in early September, but the bank will remain in state hands well into 2001 even if the tender goes well. Moreover, it is by no means certain that the government will be able to sell the bank at reasonable terms. In a tacit acknowledgement of this, the Lithuanian government recently increased the yield on the government securities held by the Savings Bank. Investors still fear that the credit portfolios of the state-owned banks will contain unpleasant surprises. Estonian and Latvian authorities, meanwhile, have been involved in a second round of bank privatization.

In the aftermath of the Russian crisis in 1998, the central banks in Estonia and Latvia were forced to take over illiquid banks that threatened the stability of their financial systems. A little more than a year ago those banks were again sold to private investors. It now seems that further privatization will be a long and drawn-out process. Projects will encounter opposition for both economic and political reasons, and this is bound to influence the behavior of international investors.