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LESSONS:

Second Phase of the Corporate Governance and Enterprise Reform Program

sector: Public Sector Management | country: Kyrgyz Republic

Corporate sector reforms, including enterprise restructuring, require a strong long-term commitment, especially in a transition economy. A multitude of policy, legal, regulatory, institutional, and cultural issues have to be addressed. Thisneeds time and, in all probability, several rounds of reform. Every new round should address the unfinished agenda while making necessary adjustments to changing economic and political framework conditions. Corporate Governance and Enterprise Reform Program (CGERP-II) successfully built on CGERP, which continued even earlier reforms. Further, the timing of enterprise sector reforms should be well coordinated with financial sector and judicial reforms, because these are interlinked and can support or disrupt each other. The smooth coordination of CGERP, FIRM (Financial Intermediation and Resource Mobilization Program), and CGERP-II was essential for achieving satisfactory results under CGERP-II.

In the area of enterprise restructuring, it is especially important to ensure sufficiency of conditions to achieve intended results. Frequently, (understandable) opposition on the part of managers, staff, and government representatives has to be overcome. Analytical, conceptual, and organizational work has to be combined with legal and financial support. Compensatory measures have to be carefully designed to be effective. Much attention has to be given to the political economy dimension of reforms. It is highly unlikely to achieve all this within a broad program that includes many other components in related but, nevertheless, different areas.

Legislation needs to be enforced to become effective. Substantial legal work in the areas of corporate governance and disclosure, and bankruptcy has taken place (since 1992). Legal work has been complemented by capacity building in regulatory bodies and, more recently, by judicial reforms to facilitate enforcement. While regulatory capacity has to be further strengthened, and judicial reforms continued, the importance of market pressure for enforcement should not be underestimated. Even the most efficient and creative regulator cannot substitute for the lack of capital markets in providing incentives for sound corporate governance and disclosure of public enterprises. Likewise, functioning capital markets can significantly facilitate enterprise resolution.

Delays could have been avoided if the detailed design had been undertaken properly. For future road projects, it is essential that a proper feasibility study be carried out. Proper review of detailed designs and feasibility study reports are essential to avoid last-minute and unplanned land acquisition. In this project, road designs and construction plans were approved well in advance, such that resettlement could have been foreseen. Bidding documents should clearly identify any difficult conditions that may have a negative impact on project implementation.

Site safety issues are of prime importance during project implementation and the subsequent operation of the project road. In future projects, loan review missions need to double-check site safety compliance by the executing agency and contractors to avoid accidents.

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