Enhance readiness for reform of state-owned enterprises

• Reduce fiscal deficits
  Fiscal and monetary reforms that bring revenues and expenditures into line increase pressure for state-owned enterprise (SOE) reform by making the burden of SOE deficits explicit
• Ease trade restrictions
  Liberalizing trade restrictions gives exporters a stronger position in the economy, and exporters can become an important constituency for SOE reform, demanding more efficient privision of goods and services that SOE's supply.
• Remove barriers to entry
  Removing barriers to entry increases the number of voices calling for SOE reform.  New entrants who must rely on state-owned enterprise services or compete with subsidized SOE products help enlarge the constituency for reform.
• Initiate financial sector reform
  Governments not ready to reform SOE's may still be prepared to develop their financial system by improving supervisory and regulatory capacity, reducing directed credit and direct government control over financial intermediaries, and easing some interest rate controls.

Reduce opposition by workers and others

• Eliminate obstacles to private job creation
  One reason state-owned enterprise workers typically oppose reform is that while overstaffing makes layoffs likely, appealing alternative employment is often lacking.  Policymakers can thus ease the way for SOE reform by improving private employment opportunities.  Steps include eliminating interest rate subsidies (these encourage employers to substitute capital for labor) and complex employment regulations (which have been shown to inhibit private job growth).
• Uncouple SOE jobs and social services
  State workers who receive many goods and social services through their jobs are especially fearful of being fired.  In most transition economies, for example, state firms traditionally provided housing, health care, transport, educational assistance, and other benefits.  Creating alternatives to enterprise benefits, such as a commercial housing market or public health care, enables SOE's to stop providing these services and offer offsetting higher pay instead.  This gives workers  greater mobility and reduces their resistance to reforms that may threaten their jobs.

• Improve the government's reputation
  By announcing reform programs, such as the macroeconomic reforms mentioned above, in advance and adhering to the program scrupulously, governments can enhance their reputation with potential reform supporters.
• Establish domestic and international constraints
  Enacting and adhering to constitutional provisions guaranteeing the right to property can help reassure investors that the government will honor its commitments.  Trade treaties and multilateral agreements raise the cost of reversing future SOE reforms and help enhance credibility.