Italy to sell 45% of state firms

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THE ITALIAN government, faced with a spiralling public sector deficit and weakening confidence in financial markets, yesterday announced it would sell holdings in state-controlled industries to raise about 60,000bn lire (pounds 27.6bn), writes Terence Wilkinson.

Giuseppe Guarino, the Industry Minister, describing the plan as 'a historic turning point', said the aim was eventually to sell 45 per cent of the government's stake in Italy's publicly-owned industrial holding companies.

The firms involved are Istituto per la Riconstruzione Industriale (IRI), a group of industrial, telecommunications and transport companies, ENI, which specialises in chemicals, oil and gas, ENEL, the national electricity company, and INA, an insurance group.

The third-largest public holding, EFIM, which controls railway rolling stock manufacture, defence systems and food companies and is a partner of Westland, the helicopter manufacturer, will not be sold.

The loss-making EFIM is expected to be broken up to save the profitable companies in its control. This would leave a question mark over its pounds 4bn debts, including pounds 1.5bn owed to foreign banks.

Mr Guarino said the government intended to sell 20 per cent of its shareholdings, worth pounds 5.3bn, by the end of this year. The eventual target was to leave the private sector with 45 per cent of the state-owned companies' shares within a few years.

He said investors would initially be offered treasury bonds issued through Italy's banking system which could be bought and later converted into shares in the companies.

Last week the new Italian cabinet, led by Giuliano Amato, the Prime Minister, announced an emergency austerity budget including reforms of the country's generous state pensions system which, along with high current interest rates, lies at the root of the public sector's financial difficulties.

The budget was a response to projections that Italy's public sector deficit in 1992 would be a third higher than originally forecast, at pounds 115bn or 11 per cent of gross domestic product, by far the highest percentage among leading European Community members.

Italy is unique among advanced European countries in having almost 50 per cent of its economy under government control, a legacy of the inter-war Fascist regime which remained unchanged throughout the country's post-war reconstruction.

The state-owned companies, many of whose subsidiaries have share quotations, are strongly politicised. They provide employment for party appointees and permit loss-making operations to continue in order to retain regional political support.