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7;. / 941, Public Disclosure Authorized 318 1z1 World Bank Discussion Papers Private Sector Public Disclosure Authorized Development During Transition The Visegrad Countries Public Disclosure Authorized Michael S. Borish Michel Noel Public Disclosure Authorized Recent World Bank Discussion Papers No. 251 Supply and Detnandfor Finance of Small Enterprises in Gliana. Ernest Aryeetey, Amoah Baah-Nuakoh,Tamara Duggleby, Hemnamala Hettige, and William E Steel No. 252 Pro.jectizingilte GovernanceApproaclh to Civil Service Reforn:An Environment Assessmenttfor Preparing a Sectoral Adjustmnent Loan in the Gatnbia. Rogerio F Pinto with assistance from Angelous J. Mrope No. 253 SmnallFirms Informally Financed: Studies from Bangladeslh.Edited by Reazul Islam,J. D.Von Pischke, and J. M. de Waard No. 254 Indicators for Monitoring Poverty Reduction. Soniya Carvalho and Howard White No. 255 ViolenceAgainst Women: Tlhe Hidden Healthi Burden. Lori L. Heise with Jacqueline Pitanguy and Adrienne Germain No. 256 Wotnen's Healthi and Nutrition: Mfaking a Differetnce.Anne Tinker, Patricia Daly, Cynthia Green, Helen Saxenian, Rama Lakshinilarayanan, and Kirrin Gill No. 257 Inproving thle Quality of Primtary Education in Latin Amtericaand thte Caribbean: Toward thie 2 1st Century. Lawrence Wolff, Ernesto Schiefelbein, and Jorge Valenzuela No. 258 How Fast is Fertility Declining in Botswana and Zimnbabwe?DuncanThomas and Ityai Muvandi No. 259 PoliciesAffecting Fertility and Contraceptive Use:An Assessment of Twelve Sub-Salharan Countries. Susan Scribner No. 260 Financial Systemnsin Sub-Saliaran Africa: A Comparative Study. Paul A. Popiel No. 261 Poverty Alleviation and Social InvestmnentFunds: The Latin Atnerican Experience. Philip J. Glaessner, Kye Woo Lee, Anna Maria Sant'Anna, and Jean-Jacques de St. Antoine No. 262 Public Policy for thle Pro,notion of FamnilyFarmns itn Italy: Tlhe Experience of thje Fundfor thte Formation of Peasant Property. Eric B. Shearer and Giuseppe Barbero No. 263 SeylEinploynentfJor thie Unemplo0yed:Experience itn OECD and Transitional Economties.Sandra Wilson and Arvil V. Adams No. 264 Sclhoolingand Cognitive Achievemenintsof Chtildren in Morocco:Can thle Government ItmproveOutcomes? Shahidur R. Khandker,Victor Lavy, and Deon Filier No. 265 [4'orldBank-Financed Projects uwitlhCommnunity Participation:Procurement and Disbursetnent Issues. Gita Gopal and Alexandre Marc No. 266 Seed Systetms in Sub-Saharan Africa: Issues and Options. VVenkatesan No. 267 Trade Policy Reform in Developing Countries Since 1985: Review of tihe Evidence. Judith M. Dean, Seema Desai, and janmes Riedel No. 268 Farm Restructuring and Land Tenure in Re/rining Socialist Econo,nies: ComtparativeAnalysis of Eastern and Central Europe. Euroconsult and Centre for World Food Studies No. 269 The Evolution of t/ie World Bank's Railway Lending. Alice Galenson and Louis S.Thonmpson No. 270 Lasnd Refornn and Farm Restructuring itn Ukraine. Zvi Lerman, Karen Brooks, and Csaba Csaki No. 271 SmnallEnterprises Adjusting to Liberalization in Five African Countries. Ron Parker, Randall Riopelle, and William F Steel No. 272 Adolescent Healtlh:Reassessing the Passage to Adulth0ood.Judith Senderowitz No. 273 Measurement of 4'elfareClianges Caused by Large Price Shiifts:An Issue int tle Power Sector. Robert Bacon No. 274 Social Action Programs and Social Funds: Review of Desiggnand Implementation in Sub-Saharan Africa. Alexandre Marc, Carol Grahami, Mark Schacter, and Mary' Schmidt No. 275 Investing in Young Clhildren. Mary EimingYoung No. 276 Managing Prim1aryHealthi Care: lnmplicationsof tie Healtil Transition. Richard Heaver No. 277 Energy Deniand in FivieMajorAsian Developing Countries: Structure and Prospects.Masayasu Ishiguro and Takamas Akiyama No. 278 PreshipmnentInspection Services. Patrick Low No. 279 Restructuring Banks and Enterprises: Recent Lessons fromnTransition Countries. Michael S. Borish, Millard E Long, and Michel Noel No. 280 Agriculture, Poverty, and Policy Reforn in Sub-Saliaran Africa. Kevin M. Cleaver and W Graenie Donovan No. 281 Tie Diffusion of Information Technology: Experience of Industrial Countries and Lessons.for Developing Countries. Nagy Hanna, Ken Guy, and Erik Ariiold (Continued on the inside back cover) 3 18 Hs1World Bank Discussion Papers Private Sector Development During Transition The Visegrad Countries Michael S. Borish Michel Nodl The World Bank Washington, D.C. Copyright C 1996 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 February 1996 Discussion Papers present results of country analysisor research that are circulated to encourage discussion and com- ment within the development community.To present these results with the least possible delay,the typescript of this paper has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. 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ISSN: 0253-21OX Michael S. Borish is a financial analyst in, and Michel Noel is chief of, the Country Operations Division, Country Department II, of the World Bank's Europe and Central Asia Regional Office. library of Congress Cataloging-in-Publication Data Borish, Michael S., 1956- Private sector development during transition: theVisegrad countries / Michael S. Borish, Michel Noel. p. cm.-(World Bank discussion papers; 318) Includes bibliographical references (p. ). ISBN 0-8213-3569-3 1. Privatization-Europe, Central. 2. Europe, Central-Economic policy. I. Noel, Michel, 1954- . I. International Bank for Reconstruction and Development. III. Tide. IV Series. HD4140.7.B67 1996 338.943-dc2O 96-10 CIP CONTENTS FOREWORD ................. vii ABSTRACT ................. viii ACKNOWLEDGEMENTS ................. ix ACRONYMS ................. x I. OVERVIEW .1 II. COMPARATIVE ASSESSMENTOF THE ENABLING ENVIRONMENT... 2 A. Introduction.. 2 B. Legal Framework for Enterprises in the Visegrad Countries . 3 1. Introduction. 3 2. Civil Codes and Property Rights. 3 3. Business RegistrationPractices, and Corporate Structure and Governance. 6 4. CommercialCodes and Contract Enforcement.14 5. Bankruptcy and Liquidation .18 C. Regulationand Competitionin the Visegrad Countries . .23 1. Introduction .23 2. Customs Regulationsand Trade .23 3. Labor Markets.28 4. Investmentand the Financial Sector .31 5. "Natural" Monopolies.41 D. Taxation .. 55 E. Foreign Investment .. 59 III. COMPARATIVE ASSESSMENT OF PRIVATIZATION ............... ... 64 A. Introduction ........................................... 64 B. Methods of EnterprisePrivatization Used by the Visegrad Countries . .64 1. Summaryof PrivatizationMethods and Objectives.64 2. Country Reviews of PrivatizationLaws and Methodologies.65 C. General Results of Enterprise Privatizationin the Visegrad Countries . .71 1. Summary .71 2. Country Reviews of Enterprise Privatization.73 3. The RemainingState Sector .81 IV. COMPARATIVEASSESSMENT OF PRIVATE SECTORDEVELOPMENT 87 A. Introduction .. 87 B. Enterprises: Private Sector Trends By Sector and Country . .88 1. Summary.88 2. Czech Republic .88 3. Hungary .93 4. Poland .100 5. Slovak Republic.110 . i V. CONCLUSION ........... .... 119 A. Strengtheningthe EnablingEnvironment for Private Sector Development .. 19 1. StrengtheningProperty Rights .119 2. Easing BusinessRegistration .119 3. Improving Contract Enforcement.120 4. ImprovingBankruptcy and Liquidation Procedures.120 5. Improvingthe Workings of Labor Markets .121 6. EnhancingFinancial Sector Capacity.121 7. Easing the Tax and Social Insurance Burden .122 B. AcceleratingPrivatization .. 123 C. Increasing Investmentin the Private Sector .. 123 1. Domestic Financial