State enterprises, privatization and fiscal policy interact in several ways. On the one hand, losses by state enterprises are part of the fiscal problem and the fiscal crisis helps move privatization toward the top of the policy agenda. In the 19’7Os, state enterprises generated average deficits of 4 percent of GDP in developing countries (Floyd 1984, pp. 144-145) as cited in Waterbury (1992, p. 190). Moreover, fiscal crisis itself usually further impedes attempts to control state enterprises and their losses by weakening the state’s administrative and monitoring capacities, strengthening centrifugal tendencies within the state, and exacerbating bureaucratic conflict (see, for example, Werneck 1993). Lastly, investment by state enterprises is a prime target for budget cuts and without investment the quality of products, infrastructure, and services quickly deteriorates. These factors tarnish the image of the companies and increase public support for reform and privatization. A fiscal crisis is a major determinant of, if not a necessary condition for, the decision to privatize.’ On the other hand, privatization is perceived to be part of the fiscal solution. Privatization provides a lump sum revenue that can be used to temporarily offset the deficit and it frees governments from the burden of subsidizing loss-making state enterprises and investing in the companies sold. Divestiture of state enterprises through debt-equity swaps reduces the public debt and debt service, which in most developing countries became an increasingly onerous item of public expenditure in the 1980s. In addition, privatization frees up administrative resources previously devoted to monitoring and controlling state enterprises. Interestingly, though, most social science analyses downplay the revenue benefits of privatization, which should not, in their opinion, be a primary objective. An overview report published by the World Bank concluded that: