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Between State and Market Between State and Market Between State and Market Mass Privatization in Transition Economies Studies of Economies in Transformation 23 Edited by Ira W. Lieberman Stilpon S. Nestor Raj M. Desai With the assistance of Carol Gabyzonbreak Copyright © 1997 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing September 1997 Papers in the Studies of Economies in Transformation series present the results of policy analysis and research on the states of the former USSR. The papers are prepared by World Bank staff and consultants and issued by the World Bank's Europe and Central Asia Department III under the supervision of Marcelo Selowsky. In light of the worldwide interest in the problems and prospects of these countries, dissemination of these findings is encouraged for discussion and comment. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for non−commercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. The complete backlist of publications from the World Bank is shown in the annual Index of Publications , which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries Between State and Market 1 Between State and Market and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iéna, 75116 Paris, France. Cover photo: Voucher registration at the post office, Prague, Czech Press Agency, reproduced with permission. Ira W. Lieberman is senior manager in the Private Sector Development Department, World Bank. Stilpon S. Nestor is head of unit in the Directorate for Financial, Fiscal, and Enterprise Affairs, Organisation for Economic Co−operation and Development. Raj M. Desai is an economist in the Private Sector Development Department, World Bank. ISSN: 1014−997X Library of Congress Cataloging−in−Publication Data Between state and market : mass privatization in transition economies / edited by Ira W. Lieberman, Stilpon S. Nestor, Raj M. Desai. p. cm — (Studies of economies in transformation ; v. 23) Includes bibliographical references. ISBN 0−8213−3947−8 1. Privatization—Europe, Eastern. 2. Privatization—Former Soviet republics. I. Lieberman, Ira W., 1942− . II. Nestor, Stilpon S. III. Desai, Raj M., 1966− . IV. Organisation for Economic Co−operation and Development. V. Series. HD4140.7.B48 1997 338.947—dc21 97−22905 CIPbreak CONTENTS Foreword link Preface link Contributors link Introduction: Mass Privatization in Comparative Perspective link Ira W. Lieberman Part 1 Institutional and Legal Aspects Institutional Aspects of Mass Privatization: A Comparative link Overview Stilpon S. Nestor The Legal Framework for Mass Privatization link Douglas A. Webb The Political Context of Mass Privatization in Poland link CONTENTS 2 Between State and Market Janusz Lewandowski Part 2 Mechanics The Demand Side of Voucher Privatization in Central and Eastern link Europe S. David Young The Supply Side of Mass Privatization: The Case of Moldova link Ceslav Ciobanu Effects and Mechanics of Voucher Distribution in Kazakhstan link Yuzef E. Duberman Part 3 Residual Share Management and Divestiture On the Management and Sale of Residual State Shareholdings link Karla Brom The Czech Approach to Residual Share Management link Andrew Schwartz Residual Divestiture following Mass Privatization: The Russian link Experience Alexander Radygin Part 4 Securities Markets and Institutional Investors Mass Privatization and Its Consequences for Capital Markets link Gregory Jedrzejczak Investment Funds in Mass Privatization and Beyond link Katharina Pistor and Andrew Spicer Regulating Post−Privatization Securities Markets in Transition link Economies Marko Simoneti Part 5 Corporate Governance and Corporate Finance Orphans in the Storm: The Challenge of Corporate Governance in link Transition Economies Joseph Saba CONTENTS 3 Between State and Market Financial Institutions and Corporate Governance: A Survey of Six link Transition Economies Raj M. Desai and Katharina Pistor Financial−Industrial Groups, Industrial Policy, and Competition link in the Russian Federation Enna E. Karlova Corporate Ownership and Corporate Governance in the Russian link Federation Joseph Blasi Part 6 Country Studies A Taxonomy of Mass Privatization link Saul Estrin and Robert Stone Albania link Igor Artemiev and Gary Fine Armenia link Melinda Roth−Alexandrowicz Bulgaria link Kalin Mitrev The Czech Republic link Raj M. Desai and Vladena Plockova* Georgia link Stuart Bell Kazakhstan link Klaus Lorch and Enna E. Karlova The Kyrgyz Republic link Gary J. Fine Lithuania link Barbara Lee Moldova link CONTENTS 4 Between State and Market Theodor Stolojan Poland link Yves Duvivier Romania link Patrick Tardy The Russian Federation link Ira W. Lieberman and Oleg Petrov The Slovak Republic link Marinela E. Dado Ukraine link Bernard Drum Uzbekistan link Loup Brefort and Itzhak Goldberg FOREWORD This anthology represents the work of two institutions that, for over half a decade, have been extensively involved in promoting private sector growth in Central and Eastern Europe and in the Commonwealth of Independent States. In 1991 the Organisation for Economic Co−operation and Development (OECD) created a program, administered by the Centre for Co−operation with Economies in Transition (CCET), to provide policy advice and financial assistance to transition economies. Since the program's early days one of its central components has been privatization and private sector development. In February 1992 the CCET created the OECD Advisory Group on Privatization, a group of senior privatization officials and OECD country experts that has since met ten times. The advisory group's objective is to provide a forum in which privatization policymakers from transition economies can share their experiences, benefit from the privatization experiences of OECD countries, and develop a network of contacts with which to exchange information. The group also disseminates privatization information through its publications. The advisory group's fifth plenary session, in March 1994, focused on mass privatization as a novel way of rapidly developing a private sector in former centrally planned economies. The main findings of that meeting were published in a volume called Mass Privatisation: An Initial Assessment . As the title implies, the intention was to revisit this important subject at a later date so that the results of mass privatization could be comprehensively evaluated and the different national approaches compared. The World Bank, in particular the Private Sector Development Department—an active participant in the OECD−CCET advisory group since its inception—had played a leading role in advising transition governments on the design and implementation of voucher−based privatization programs since 1990. In 1994 the World Bank published a collection of essays detailing the results of mass privatization efforts in the Russian Federation, Russia: Creating Private Enterprises and Efficient Markets . The following year the World Bank published a short volume on the subject, examining four countries in which such schemes had been attempted, Mass Privatization in Central and Eastern Europe and the Former Soviet Union: A Comparative Analysis . FOREWORD 5 Between State and Market By 1996 the time was ripe to draw more definitive conclusions, and the eighth meeting of the Advisory Group on Privatization was devoted to this review. The meeting was organized in cooperation with the Private Sector Development Department of the World Bank, an active participant in the advisory group since its inception and one of the leading institutions advising transition governments on matters related to mass privatization. The meeting also included members of the World Bank's Europe and Central Asia Department who have been advising client countries on mass privatization. This publication is the product of this joint effort. Most of the papers in parts 1 through 5 were presented at the tenth advisory group meeting. Their authors are among the world's most knowledgeable and respected commentators on privatization. Several are or have been involved in the