World Bank Document · 2016. 7. 15. · The U.S. Agency for International Development and the World Bank Group are for-tunate to work with many leaders around the world, some of whom

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Celebrating

Reform

WWW.REFORMERSCLUB.ORG

THE WORLD BANK

Doing Business

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CelebratingReform

THE WORLD BANK

Preface v

Introduction Celebrating reform 1 SimeonDjankovandCaraleeMcLiesh

StartingabusinessEL SALVADOR Starting a business (quickly) in El Salvador 9 JamesNewton,SylviaSolf,andAdrianaVicentini

SERBIA How to double business entry in two years 15 TomJersildandZoranSkopljak

EmployingworkersMACEDONIA Employing Macedonia’s youth 20 AdamLarson,KirilMinoski,andJanetMorris

ProtectinginvestorsMEXICO Protecting investors from self-dealing 26 MelissaJohnsandJeanMichelLobet

PayingtaxesEGYPT Adding a million taxpayers 34 RitaRamalho

TradingacrossbordersPAKISTAN Speeding up trade 39 AllenDennis

EnforcingcontractsNIGERIA Repairing a car with the engine running 44 SabineHertveldt

BankruptcySERBIA Faster, more orderly exit 50 JustinYap

Acknowledgements 56

Table of Contents

Reforming business regulation takes leadership—more than many other reforms.Committedleadersprovidevision,energyanddirectiontoimprovingbusinesscli-mates,ofteninthefaceofdauntingchallenges.

TheU.S.AgencyforInternationalDevelopmentandtheWorldBankGrouparefor-tunatetoworkwithmanyleadersaroundtheworld,someofwhomarerecognizedintheaccompanyingcasestudiesofreform.Ithasbeenaprivilegetosupporttheireffortsand tosee their results.Wehavealsobeenpleased topartner together inmanyareasofthiswork,frompioneering“InvestorRoadmaps”or“AdministrativeBarriersAnalysis”togetherinGhanainthemid-1990s,tocollaboratinginintro-ducingtheDoing Businessprojecttosub-nationalgovernmentsandontheattachedcasestudies.

We hope that the case studies will inspire others to reform business regulations.Theyfeaturesuccessfulreformsinthe10areascoveredintheDoing Businessreport.Thecasestudiesspantheglobe—fromSerbiatoElSalvador,fromEgypttoNige-ria—andprovidelessonsonwhatittakestosucceed.Itisthroughsucheffortsthatgovernmentscanencouragebusinessestoinvest,growandcreatethejobsthatliftpeopleoutofpoverty.

Preface

MichaelKleinVicePresidentFinancial and Private SectorDevelopmentWorldBankGroup

StephenJ.HadleyDirectorOfficeofEconomicGrowthU.S.AgencyforInternationalDevelopment

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Nameyourfavoritedentist.Don’thaveone?That’sbecausenoonelikesgoingtothedentist.Sometimeshegivesyouunpleasantnews.Sometimesithurts.Onceyouarehealthyyoustayasfarawayforaslongaspossible.

Reformersare likedentists.Necessary,butgenerallydisliked.Their job is to curetheeconomyandcreatejobs.Veryoftenthisinvolvesunpleasantnewsandithurts,initially.Infact,reformersareevenworseoffthandentists:theyaredislikedevenby their own kind. When a reformist minister says commercial disputes need toberesolvedfaster inthecourts, the justiceministeraccuseshimof ignorance.Orarrogance.Orboth.Whenareformistministersayslaborregulationsaretoorigidandleavemanypeoplestrandedintheinformaleconomy,thelaborministeraccuseshimofignorance.Orarrogance.Orboth.

Inprosperoustimes,reformersaretoldnottorocktheboat.Incrisistimes,theygettheblamefornotreformingsoonerandaverting thecrisis.Somepursuereformswhilereceivingpersonalthreatsandthreatstotheirfamilies.Itishardtobeare-former.

Hereare3ways tochange that.First,documentsuccessful reformsand thechal-lenges that had to be overcome along the way. This helps future reformers andhighlightsthecontributionsofpastones.Second,createaprizetorecognizereform-ers.MovieshavetheOscars,sciencehastheNobels,andsportshavetheOlympics.Reformerscanhaveawardstoo.Finally,encouragereformerstowriteuptheiroftendramaticstories.Imagineifthesewereturnedintomovies.ItwouldonlytakeafewfilmsstarringJudeLaw,AngelinaJolieandGeorgeClooneytomakereformersmorepopular.

Doing Businessdevelopsthefirstidea,bypresenting8casestudiesofrecentreforms.Thesespantheglobe—fromSerbiatoElSalvador,fromEgypttoNigeria—andshowwhat it takes to succeed. The case studies show several patterns: Reforms usuallyhappen when new governments take office. They often follow crises. Reformersdon’t have time for concepts like “getting the right sequencing” and “finding thebinding constraint.” Reformers are helped by active media and information cam-paigns.Andreformsmaybenefitfromtappingdevelopmentexperts,outsideexper-tise(beitfromISO9000inspectorsorMicrosoft’ssoftwareengineers),andlessonsfromothercountries.

Wealsotakeonthesecondidea,byorganizingthefirstannualawardsforoutstand-ingreformers(detailsavailableatwww.reformersclub.org).Thethirdideaiswaitingforitschampion.

Celebrating reformSimeonDjankovandCaraleeMcLiesh

CELEBRATING REFORM

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Reforms are on the rise

Reformstomakeiteasierforbusinessestooperateareontherise.In2005-06,213reformstookplacein112countries.Thiscomparesto185reformsin99countriesin2004-05.And89reformsin58countriesin2003-04.

Four reasons explain the upswing. First, the collapse of socialism and the entryof Eastern Europe and the former Soviet Union in the world economy. Over thelastdecade,thisregionhasledinreforms(figure1).Thisisnotsurprising:theen-vironmentfordoingbusiness intheprivatesectorwasdifficultsoa lothadtobechanged.

Second,theincreaseinglobalandregionalcompetition.RegionalagreementssuchastheUSfreetradeagreementswithCentralAmericancountriesandaccessionofEastern European countries into the European Union (EU) have generated hugereformmomentum.Also,Chinahasbecomeeveryone’scompetitor.In2005-2006,4ofthetop-10reformershavereformedtoenterregionalagreements:Croatia,Gua-temala,PeruandRomania.Chinawasatopreformertoo(table1).Countriesarecompetingforinvestment,enterprises,andthejobsthatcomewiththem—andasaresultitisgettingeasiertodobusinessaroundtheworld.

Third, a new focus on reducing corruption. Many reforms to business regulationaremadenottoincreaseefficiencybuttocutthecorruptpracticesofgovernmentofficials.ThisisillustratedmostvividlybyGeorgia,thetopreformerinDoing Busi-ness 2007 and also the country achieving the biggest drop in corruption in all ofEurope—in200237%ofbusinessessaidthattheyfrequentlypaidbribescomparedwithonly8%in2005.

FIGURE 1

The pace of reform is strong in most regions outside of Asia

Source: Doing Business database.

Percentage of countries that made at least one positive reform

0 20 40 60 80 100 0 20 40 60 80 100

South Asia

East Asia& Paci�c

Latin America& Caribbean

Middle East& North Africa

Sub-SaharanAfrica

OECDhigh income

Eastern Europe& Central Asia

In 2004 In 2005/06

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CELEBRATING REFORM

Finally,whatgetsmeasuredgetsdone.New indicatorsonbusiness regulations inDoing Business—and from other sources—allow countries to identify bottlenecksand compare their performance with competitors. This inspires competition—noonelikeslookingworsethantheirneighbors.In2000,EUcountriesagreedtotrackthetimeandcosttostartabusiness.Sincethen,everyEUcountryhasmadestartupeasier.Theeffectisevenstrongerwhenmeasurementislinkedtofinancialincentives.WhentheUnitedStates’MillenniumChallengeAccount(MCA)madeeligibilityforfundingdependentontheeaseofbusinessstartup,countriesfromBurkinaFasotoElSalvadortoGeorgiatoMalawistartedreforms.IndonesianFinanceMinisterSriMulyaniIndrawatiarguesthattherealimpactoftheMCAisits“goodhousekeep-ingsealofapproval,”whichsendsapowerfulsignaltoinvestors.“It’snotaboutthemoney.It’sabouttherecognitionthatwe’redoingtherightthing.”

How reforms are done

Theexistingmanualsonreformsofferasimplerecipe:takeastrongreformcham-pion,mix inhighly-qualifiedtechnicalstaff, throwinvaluableadvice fromdevel-opmentexperts,stiritjusttherightamountoftime,andservewhilestillhot.Theproblemisthatreformersoftenmisssomeingredientsandtheresultscanbeabitlumpy.Herearesomeideasonsubstitutes.

A lot of reforms are sparked by crisis. But there’s no need to wait for one to getchange—crises always make things more painful. Reformers can create a senseofurgency tomotivatechange—inNigeria,peoplewere shockedwhenreformerspublicizedfindingsthat99%oflawyersagreedthejudiciarywascorrupt.InMexico,reformersusedtheEnronandWorldComscandalsinUnitedStatestopushthroughhigherMexicancorporategovernancestandards.In2004,atthestartoftaxreforms,Egyptian Finance Minister Youssef Boutros-Ghali pointed to weakening govern-mentfinancesandsaid,“Doingnothingisdefinitelynotthesolution.Thegreatestenemytoreformsisinertia.”

Table 1

The top 10 reformers in 2005/06

Starting Dealingwith Employing Registering Getting Protecting Paying Tradingacross Enforcing ClosingaEconomy abusiness licenses workers property credit investors taxes borders contracts business

Georgia 3 3 3 3 3 3

Romania 3 3 3 3 3 3

Mexico 3 3 3

China 3 3 3 3

Peru 3 3 3 3 7

France 3 3 3 3 3

Croatia 3 3 3

Guatemala 3 3 3

Ghana 3 3 3

Tanzania 3 3 3 3

Note: Economies are ranked on the number and impact of reforms. First, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in the ease of doing business from the previous year. The larger the improvement, the higher the ranking as a reformer. “X” indicates a negative reform.Source: Doing Business database.

CELEBRATING REFORM

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Weknownearly85%ofreformsintopreformingeconomiestookplaceinthefirst15monthsofanewgovernment.Butevenwithoutanewpoliticalmandate,reform-erscanachievea lotbysimplifyingadministrativeprocedures.Whenthegovern-ment succeeds in early reforms, citizens start seeing benefits—more jobs, moreresourcesforhealthandeducation.Theappetiteforfurtherreformsgrows.Unabletomakelegislativechangeseasily,ElSalvadorcutthetimetostartabusinessfrom155daysto26within2years—allthroughadministrativereformsatthecompanyregistry.Nowtheyareworkingonthelaw.ReformersinPakistanimplementedad-ministrativereformsimmediatelywhilepreparingthegroundforthemoredifficultandcostlylongertermreforms.OneofKenya’sreformersnotes,“Ifwehadwaitedforlawstodoanumberofthingswe’redoing,wewouldnotbedoingthem.”

Askdevelopmentagenciesaboutreformstrategiesandthey’lllikelytalkaboutad-dressingthebindingconstrainttogrowthorsequencingthereformsefforts.Askasuccessfulreformerandthey’lltalkaboutseizingtheopportunity,anyopportunity.“Reformislikerepairingacarwiththeenginerunning,”saysMahmoudMohieldin,theEgyptianministerof investment. InNigeria itdidnot takeyearsof strategiz-ingbeforereformingthecourts.Tenmonthsafteranewattorney-generalofLagosState tookoffice,26newjudgeswereappointed,specializedcommercialdivisionsset up, and judges’ salaries increased. In another example, property registrationwasreformedinGeorgiain4monthsfollowingtheRoseRevolution.Thepreviousgovernmenthadspent6yearsgoingthroughthemotionsofcommissioningstudies,consultingwithexperts,andsponsoringseminars.

Thestrongestoppositionusuallycomesfromwithin.InPakistan,customsworkerswereunhappywiththeintroductionofmoreefficientproceduresandtriedtosub-vertreform.InMexico,aprominentmediatycoonlobbiedforweakeneddisclosurelaws.InSerbiaandBulgaria,theministersofjusticedidnotwanttoyieldpowertomoreefficientcompanyregistries.InPeru,amodernizedcollateralregistrypromisedtohelpborrowersbutthreatenedthebusinessofnotaries,whoprotestedloudlyandmanagedtoderailthereforms.InseveralEuropeanUnioncountries,notaryassocia-tions lobbyagainst theadoptionofelectronicsignatures—whichhasvastpotentialtosimplifybureaucracy.(Thismaychange:recentlytheEuropeanCommissionfiledanti-competitivenesschargesagainst9notaryassociations.)

Onceyoudesignthereformswell, thenextwaytoovercomeopposition iswithasmartoutreachcampaign:tellingpeoplethesearethereformswearedoingandthisishowtheyaregoingtohelpyou.Butmostreformersdon’tspendenoughtimeonoutreach.Oppositionbuildsandfewentrepreneursgrasphowmucheasierlifecanbeafterthereforms.ElSalvadorianreformersworkedwiththemediatoexplainandbuildsupportforthechanges.Otherreformersbargaineddirectlywithstakehold-ers.InMacedonia,laborunionswereatfirstdeeplyopposedtothereform.Butoncetheywerebroughtintothereformprocess,theyworkedwiththegovernmentandemployerstoimproveregulation.Keytomakingthereformworkwasincludingtheunionsinthedraftingofthenewlaw.

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CELEBRATING REFORM

Sometimes,areformerevenmanagestoconvincetheopposition.InSerbia,studytoursforbankruptcyjudgesbenefitedthereformeffortasmuchastheybenefitedthejudges:“Foreverydimewespentonthetours,wesavedtenfoldfromnothavingtospendmoneyonovercomingresistancefromthejudges.Theywerewelcomingthenewlawinsteadoffightingit.”OneUSAIDexpertsaidthatthestudytoursbol-steredthecredibilityofreformersintheMinistryofEconomy,asjudgescould“feelandtasteandsmell”forthemselvesandweremoreconvincedthatwhattheywerebeingtoldcouldbeputintopractice.

Reformerscanalsoblamechangesonoutsiders.ItisnoaccidentthatEasternEu-ropeisthefastestreformingregion.Reformerstherecouldpushthroughcontrover-sialchangesbysayingthattheEUrequiresthem.AndElSalvadorusedaccesstotheMCAasareformrationale.

Sometimes a reformer needs luck. A fluke of timing helped Mexico overhaul itssecuritieslaws,areformthatDoing Business 2007named“ReformoftheYear.”“WefinisheddraftingthebillinMarch2004,toolatetosubmittoCongressthatterm.ButinsteadofwaitinguntilOctober,wedecidedtoshowittopeopleintheprivatesector,”relatesJoséAntonioGonzalez,directorgeneralforSecuritiesandInsuranceintheMinistryofFinanceandakeydrafterofthenewlaw.“Theirinputmadeallthedifference.”

Allreformersgainfromusingindicatorsthatallowthemtomonitorprogressandchangecoursewhenneeded.InNigeria,theNationalJudicialCouncilannouncedratingsofjudicialperformanceinMay2006.Judgesnowknowtheyarebeingmoni-toredbyaninstitutionwithdisciplinarypower.Thepoorestperformershavealreadyleftthebench.InElSalvadorconstantcustomerfeedbackonideasaboutimprovedefficiencywascrucialinmeasuringsuccessofthereformsandidentifyingwhatwasstillmissing.Withclientsastheevaluatorsofperformance,reformsquicklybecamemoreappreciated—andcustomer-orientationbecamemorethanabuzzword.

Who benefits from reform

InBolivia400,000workershaveformaljobsintheprivatesector—outofapopula-tionof8.8million.InIndia8millionworkershavesuchjobs—inacountryof1.1billionpeople.InMalawi,50,000outofapopulationof12million.InMozambique,350,000inacountryof20million.

Reformcanchange this,bymaking iteasier for formalbusinesses tocreatemorejobs.Womenandyoungworkersbenefitthemost.Bothgroupsaccountforalargeshareoftheunemployed(figure2).Reformalsoexpandsthereachofregulationbybringing businesses and workers into the formal sector. There, workers can havehealth insurance and pension benefits. Businesses pay some taxes. Products aresubjecttoqualitystandards.Andbusinessescanmoreeasilyobtainbankcreditorusecourtstoresolvedisputes.

CELEBRATING REFORM

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Between2002and2006Slovakia’sre-forms have helped cut the numberof unemployed people by 67,000. InColombiareformsofemploymentandbusinessstartupregulationshavecre-ated300,000jobsintheformalecon-omy. Another success story comesfrom Peru, where in the past decadethe government has issued propertytitlesto1.3millionurbanhouseholds.Secure property rights have enabledparentstofindjobsratherthanstayinghome to protect their property. Simi-larly,childrencannowattendschool.Asaresult,theincidenceofchildlaborhasfallenbynearly30%.

AhypotheticalimprovementonallaspectsoftheDoing Businessindicatorstoreachthelevelofthetopquartileofcountriesisassociatedwithanestimated1.4to2.2percentage points in annual economic growth. This is after controlling for otherfactors,suchasincome,governmentexpenditure,investment,education,inflation,conflict,andgeographicregions.Incontrast,improvingtothelevelofthetopquar-tileofcountriesonmacroeconomicandeducationindicatorsisassociatedwith0.4to1.0additionalpercentagepointsingrowth.

Thegainscomefrom2sources.First,businessesspendlesstimeandmoneyondealingwithregulationsandchas-ing after scarce sources of finance.Instead, they spend their energies onproducingandmarketingtheirgoods.The association between reforms andmoreprofitablebusinessesisbestseenin the increase in equity market re-turns (figure 3). Second, the govern-ment spends fewer resources regulat-ing and more providing basic socialservices.

Source: MSCI, available at www.mscibarra.com, Doing Business database.

FIGURE 3

More reforms, higher equity returns

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Equity market returns (percent, 2003–2006)

0 224 4 6 8 10

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Negativereforms

Positivereforms

FIGURE 2

High unemployment among youth, especially females

OECDhigh income

South Asia

East Asia& Paci�c

Latin America& Caribbean

Eastern Europe& Central Asia

Middle East& North Africa

Source: ILO (2005).

Unemployment rate (%)

0 5 10 15 20 25

Sub-SaharanAfrica

ALL YOUTHFEMALE YOUTH

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What can development agencies do

If we were at the Oscars, development institutions would take a best-supportingactoraward forseveralof thereformsdescribedhere.The large improvements inthebusinessenvironmentinSerbia,Macedonia,ElSalvador,GuatemalawerehelpedbytheadviceandattentionofeithertheWorldBank, theUSAID,theMCA,orabilateralagencylikeSweden’sSIDA.

Forexample,in2004donorsincludedareformofbusinessregistrationinthelistof10prioritiesforthenewSerbiangovernment.TheSwedishInternationalDevelop-mentAgencywasthebiggestsupporterofthereform.TheWorldBankandUSAIDcommissioned several consulting studies, and Microsoft Corporation providedsoftwareinstallationexpertise.Thetotalcostofreformwasabout€2million($2.3million).Theregistryisnowfullyself-financing.

Asanotherexample, inNovember2005 theMinistryofFinanceofMexicomadeanall-outefforttoshepherdanewsecuritieslawthroughCongress.Butopponentsoffered amendments that would affect 4 key provisions of the bill—amendmentsthatwouldevisceratethelaw’ssmallinvestorprotections.Tohelpmakethecaseforreform,FinanceMinisterDiazaskedtheWorldBank’sDoing Businessteamtouseits“protectinginvestors”indicatorsandbenchmarkthedraftproposedbythegovern-mentagainsttheexistinglawandagainstthewatered-downalternativeproposedbyaprominenttycoon.

Theresultswerestriking.Undertheexistinglaw,Mexicoranked125of145countriesmeasuredbytheDoing Businessinvestorprotectionindex,withsomeoftheweakestprotectionsintheworldforminorityshareholders.AmongLatinAmericancoun-triesmeasured,onlyHondurasandVenezuelahadweakerinvestorprotection.

IfMexicopassed the lawaspresentedby theMinistryofFinance,Mexicowouldshoot up the ranking index 92 places—to 33. Under the alternative law, Mexico’srankwouldhavefallento132.“ThesimulationsstirredenormousinterestinCon-gress and in the media by showing the dramatic differences in Mexico’s businessenvironmentifthelawwerenotadopted,”saysoneMinistryofFinanceofficial.“Ifapprovedasproposedbythegovernment,thenewlawwouldenhanceinvestorpro-tectionandfosterinvestmentinpubliclytradedandevenprivatelyheldcompanies.Butifthechangesproposedbytheoutsidegroupwereaccepted,theoppositewouldhappen.”

Moneysometimeshelps: tofinancenewcomputersandrefurbishcourtsormoregenerallyprovidethegovernmentwithspaceto“buyout”opponentsofreforms.Butmostreformstobusinessregulationaren’texpensive.TheSerbianbusinessstart-upreformscost€2million.TransformingMacedonia’slaborlawscostonlythetimeoflegaldrafters.ElSalvadorianreformersspentonly$90,000.Instead,donorshelpbybringing inrelevantexperience fromothercountriesandbykeeping thepoliticaldeterminationofthegovernmentunwavering.

CELEBRATING REFORM

CELEBRATING REFORM

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Perhapsthebiggestcontributiondevelopmentagenciescanmakeistobenchmarkreformprogress.Publishingcomparativedataontheeaseofdoingbusinessinspiresgovernments toreform.Since itsstart inOctober2003, theDoing Businessprojecthasinspiredorinformed86reformsaroundtheworld.Mozambiqueisreformingseveralaspectsofitsbusinessenvironment,withthegoalofreachingthetoprankontheeaseofdoingbusinessinsouthernAfrica.BurkinaFaso,MaliandNigerarecompetingforthetoprankinWestAfrica.Georgiahastargetedthetop25listandusesDoing Business indicatorsasbenchmarksof itsprogress.MauritiusandSaudiArabiahavetargetedthetop10.

Comparisonsamongstatesorcitieswithinacountryareevenstrongerdriversofreform. Recent studies across 13 cities in Brazil and 12 in Mexico have createdfierce competition to build the best business environment. The reason is simple:with identical federal regulations, mayors have difficulty explaining why it takeslongerorcostsmoretostartabusinessorregisterpropertyintheircity.Therearenoexcuses.

Tobeusefulforreformers,indicatorsneedtobesimple,easytoreplicateandlinkedto specific policy changes. Only then will they motivate reform and be useful inevaluating its success. Few such measures exist. But this is changing. In severalcountries, such as Mali and Mozambique, private businesses now participate inidentifyingthemostneededreforms.Usedtobottomlines, theybringarenewedfocusonmeasurement.Thecultureofbureaucratstellingbureaucratswhat’sgoodforbusinessisdisappearing.Goingwithitistheaversiontomeasuringtheresultsofregulatoryreforms.

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On24January2006PresidentAntonioSacaannouncedthelaunchofthenewone-stopshopattheCommercialRegistry,combining8startupproceduresinto1.Start-ingabusiness,whichtook115daysbeforereform,nowtookonly26.Thenextdaythevicepresidentcuttheribbonatthebusinessregistrysite.Thingsweregoingwell,thankstoa4-yeareffort.“Everythingcanbedonein1placenow,”saysFelixSafie,directoroftheNationalCentralRegistry.

Startingabusiness,oftenthefirstcontactbetweentheentrepreneurandthegovern-ment,was intimidatingbefore thereforms. It tooka lotof timeandmoney—115daysandmorethan$2,700infees,plus$2,850thathadtobepaidupfrontasmini-mumcapital.This,foracountrywithaverageincomepercapitaof$2,145.Itwasnotuncommonforaseniormanagertospend10hoursadaydealingwithadministra-tiveformalities.Notsurprisingly,38%ofentrepreneurssimplystartedtheirbusinessinformally,neverregisteringorpayingtaxes.

Thismeantlessrevenueforthegovernment,lessprotectionforconsumers,andnosocialsecuritybenefitsforemployees.Italsomeantthatcompaniesusuallystayedsmall.Investinginnewmachineryorabiggerofficebuildingwasdifficultwithoutaccesstobankloans.Andthentherewastheconstantworryofbeingdiscoveredbytheauthorities.

Pressure started rising after several studies highlighted the issue. In addition, thecomplexstartupprocedurespreventedElSalvadorfromqualifyingforfundingfromtheU.S.MillenniumChallengeAccount.Fundswentonly tocountries thatdem-onstrated above-average performance on several policy and economic indicators,includingthetimeandcosttostartabusiness.Somethinghadtobedone.

Safiedecidedtoact.SincehehadbeencalledbythepresidenttoheadtheCentralRegistryin1999,hehadalreadyreformedthepropertyregistry.Nowhefocusedonthecompanyregistry.Aformerbusinessowner,heknewthatthewaytochangewastoshiftthefocusfromwhatbureaucratswantedtowhatcustomersneeded.In2001ahumanresourceconsultancy,HGConsultores,studiedtheregistry’sorganizationandrecommendedthatitbecomeISO-certified.Thismeantcomplyingwithaseriesofstandardsforqualityassuranceinclientservice.Safielikedtheidea.Itwouldgivethereformaspecifictarget.

Laying the groundwork for change

TheISOprocessofferedasimpletargetforthereform,basedonthemotto“whatgetsmeasuredgetsdone.”First,“saywhatyoudo,”thatis,documentproceduresforworkaffectingproductorservicequality.Second,“dowhatyousay,”meaningretainrecordsof theactivities tomeasureandrecordcompliance.Third,“improvewhatyoudo”bycomparing setgoals andactual results, andcorrect theproblems thatcausethedifferences.InFebruary2003workinggroupswereformedtoanalyze3linesofwork:companydocumentation(suchascommercialregistration),thebusi-nesslicense,andtheregistrationoftheinitialbalance.“Thisreviewprocessiswhat

Starting a business (quickly) in El Salvador JamesNewton,SylviaSolf,andAdrianaVicentini

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tookthemosttime,almostawholeyear,”remembersManueldelValle,whomSafienominatedasthenewdirectoroftheCommercialRegistryinJune2003,“butthebulkoftheworkwasdone.”

And since most of it was done in-house, costs were low. Outside experts on ISOstandardsprovidedsomeinitialtrainingandguidance,butsoontheregistry’sem-ployeestookover.TheyalsowrotethenewISOmanual(DocumentacióndeSistemadeGestióndelaCalidadorQualityManagementSystemDocumentation).Itout-linedforallemployeesanarrativeandschematicmaptoguidethemthroughtheirand(everyoneelse’s)processeswithintheregistry.Theguidelinesalsospecifiedhowtocorrectmistakesandmakesurethattheyarenotrepeated.Eachemployeehasacopyofthemanualandisabletorefertoit.Monthlymeetingsperiodicallyreassesstherules.Anychangesarepublishedontheregistry’swebsite.

Oncethebaselineproceduresweredocumented,thereformsstartedinNovember2003.“Everyonehadbeeninvolvedfromthebeginningandwasreadytogo,”saysdelValle.First,thestaffwasorganizedintosmallteams.Eachemployeewaspartofateamaccordingtohisorherworkstreamandtask(gruponatural)andareformgroup(grupodeproyectosdemejora).Theteamsmeteveryweektodiscusstheirpreviousworkweek,whatwentwrong,andhowtoimproveit.Duringtheweekstaffmeasuredresponsetimesandthoughtofwaystocutorrearrangeinefficientprocesses.Allmeetingsweredocumentedwithactionitemsforfollow-upthenextweek.

The customer as evaluator

Tocheckon implementationandmeasure results, anewqualitycontrolunitwascreated.Itsolicitedcommentsfromtheregistry’scustomersonthequalityofservicethrough written and phone surveys and a prominently displayed suggestion box.So-calledmysteryshoppers,differentpeoplecontractedbythequalitycontrolunit,tested the friendliness of client service and processing times. The results of thesesurveyswereusedtoseewherefurtherimprovementswereneeded.

Theeffortspaidoff.Afterayearofhardworkthemajorbottleneck,processingbusi-nesslicenses,wasfixed.Thetimetostartabusinessfellfrom115daysto40byJanu-ary2005.Theoriginalgoalof85%customersatisfactionwasexceeded. InMarch2005theregistrybecameISOcertified,thefirstinLatinAmerica.

Thingsalsostartedmovingatthetopofthegovernment.Inthepresidentialcam-paign of 2003-04, soon-to-become-president Antonio Saca promised to launch aprogramcalledProgramaPresidencial—ElSalvadorEficiente.Theprogramwouldimprovethelocalbusinessenvironmentbycuttingredtape.

Inthe1990sthegovernment’seconomicpolicieshadfocusedonensuringmacro-economicstability.Successfully:thecountryrecoveredstronglyaftertheendofthecivilwar.Buteconomicgrowthslowedtoanannualaverageof3.9%in1995–99,and1.9%in2000–04.Concernedaboutthistrend,PresidentSacarealizedthatmacro-economicstabilitywasnotenough.Redtapewastyingdownbusinessesandholding

Starting a Business CASE STUDY: EL SALVADOR

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backinvestors,bothdomesticandforeign.

Withanincreasinglyopenmarket,competitionwasonlybecomingstronger.ElSal-vadorhadbeennegotiatingtheDominicanRepublic–CentralAmericaFreeTradeAgreement. InDecember2004 itwas thefirst country to ratify theagreement. Ifnothingwasdonetomakedoingbusinesseasierinthecountry,chanceswerethatlocalcompaniesmightbeoverrunbyfiercecompetition.

AttheinsistenceofPresidentSaca,EduardoZablah-Touche,headoftheTechnicalSecretariatofthePresidency,developedaplantoeliminate,simplify,andredesignbureaucraticprocessesthatadverselyaffecttheefficiencyandfunctioningofbusi-nesses.BothmenknewwhatitwasliketobeabusinesspersoninElSalvador.BeforebeingelectedinMarch2004Sacalobbiedonbehalfofprivatebusinessesaspresi-dentoftheNationalAssociationofthePrivateEnterprise.Zablah-Touchehadbeendirectorofvariouscompaniesandstartedafewofhisown.“Thehappiestmomentsarewhenanewcompanyisborn.”

How far can you get without changing the law? A long way

When itwas time to start implementing theplan, the technical secretary formedseveralreformcommitteestofocusonredtapefortrade,visarequirements,con-struction and environmental permits, and closing a company. Every committeeincludedrelevantpublicofficialsandbusinesses.InOctober2005theCommissionfor the Study of Reforms to the Commercial Code was established to review thecommercialcodeandsimplifybusinessstartup.

BackedbysupportfromthePresident,MayradeMorán,thedirectorofthecommis-sion,wastednotime.Shewantedresultsquickly.Shealsoknewthatlegalreformstook time inElSalvador. “Anything thatCongresshas toapprove takesat least8months.” Her solution: let’s see how far we can get without legal changes, just byreducingbureaucracy.

Anyproceduresnotexplicitlyrequiredby lawwerefirst togo.Chanceswere thattheymadelittlesenseanyway.Forexample,certainministriesrequiredthatphoto-copieshadtohavecertainsizemargins,withadditionalnotarizationstoensurethatthecopywasaccurate.OnlyveryfewphotocopybusinessesinSanSalvadorcouldprovidethisservice.

Next, a single window would be established to allow entrepreneurs to completeformalitieswithdifferentagenciesin1visit.Visitshadbeenrequiredto5differentpublicagencies.ThiswasnotthefirsttimetheideaofasinglewindowhadcomeupinElSalvador.Alreadyin2000a1-stopshop(OficinaNacionaldeInversiones)hadbeencreatedinSanSalvador,withbranchesopenedinSonsonateandSanMiguelin2005.Entrepreneurscouldsubmitall theirdocuments,butthestaffstillhadtoorganize the registration at different agencies. This took time. And many peoplethoughtthattheservicewasonlyforforeigninvestors,thoughitwasalsoopentolocalinvestors.


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Theplanwastoputofficialsfromthedifferentagenciesin1building.Mostimpor-tant,theywouldhavetheauthoritytocompleteanyformalitybybeingelectronicallyconnectedtotheirrespectiveagencies.Entrepreneurswouldbeabletocomplete8different formalities in 1 place—the company registration, the registration of theinitial balance sheet, obtaining the business license, tax ID for both income andvalue-addedtax,officialinvoicepapers,socialsecurityregistration,andthenotifica-tionoftheMinistryofLabor.

It was quickly decided that the customer-oriented commercial registry, with itsmodern technology, would host the other agencies. To make implementationquickerandsmoother, thecommissionpostponeditsgoalof introducingasingleregistrationform,sincethatmightrequirechangesinagencycomputersystems.

A busy November 2005

TheTechnicalSecretariat coordinated thedevelopmentof serviceguidelineswithinteragency working groups and informed the public about the planned singlewindow.Afteraschedulewasdevelopedforreallocatingthedelegatestotheregis-try,workbeganinNovembertobringalltherelevantagenciesonboardandstartimplementingthereform.In1weekacoregroupoftechnicians,legalconsultantsfromtheaffectedministries, andmembersof the reformcommissiondrafted theguidelines.AdaylaterthetechnicalsecretarymetwithtopofficialsoftheMinistryofLaborandtheSocialSecurityInstitute(InstitutoSalvadoreñodelSeguroSocial)topersuadethe2toreform.

Itworked.“Thiswasourgreatadvantage,”recallsMorán.“Thetechnicalsecretarywasnotdirectlyaffectedbythereform,butwaslinkedtothepresidency.Wecouldplaytheroleofmediatororpushfordecisionswhentheprocessgotstuck.”Thefollow-ingweek,thereformplanswerediscussedwithallinstitutionsinvolved.Eachinstitu-tionchoseitsdelegatedofficials,andtechniciansplannedthecomputerconnections.

InthethirdweekofNovemberequipmentandpeoplecouldbemovedtothereg-istry.Tosavetimeandmoney,delegatesatfirstbroughttheirowncomputerequip-ment.Formalitiesweredoneonsite,withtheinformationsentelectronicallytothesupervisingagency.“Thankfully,mostoftheotheragencieswerealreadycomputer-ized,whichmadethetransferandconnectionmucheasier,”saysMorán.OnlytheMinistryofLaborwasnot.Butsinceasimplenotificationsuffices,thedelegatecanstampthepaperatthesinglewindowandhavethepackagedeliveredtotheministryattheendoftheday.

On21November2005thefirsttestswereconducted.Afewdayslaterarandomcli-entwasaskedtotestthesystem.Basedonthisexperience,theguidelinesandsystemwereadjusted.TestscontinuedinthefollowingweekstomakesurethateverythingwasreadyfortheofficialopeninginJanuary2006.Thistimethecommissionmadesurethatthereformwouldnotgounnoticed,planning2majorlaunchevents.


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Thereformspiritreceivedanotherboost.InDecember2005ElSalvadorbecame1of2lower-middle-incomecountriesworldwidetoqualifyforMillenniumChallengeCorporation(MCC)funding.(TheotherwasNamibia.)

On 24 January 2006 the president announced the opening of the single windowtogetherwiththeofficiallaunchofElSalvadorEficienteatthepresidentialpalace.Adaylaterthevicepresidentcuttheribbonattheregistryinthepresenceofhigh-levelofficialsfromtheministries.

Andso,3monthsafterthefirstmeetingofthereformcommission,thenewsinglewindowwasoperating.Entrepreneursfelttheresultsimmediately.Withallagenciesin1place,paperworkwascutbymorethanhalf.Justbyhavingdifferentagenciesshareinformation,24separaterequirementswereeliminated.“Before,Ihadtogiveacopyofthecompanystatutestoeachofseveralagencies.NowIjustneed1copyforthecompanyregistryandtheypassitontothetaxauthorities,”saysoneentrepre-neur.Thetotaltimetostartabusinessdroppedevenfurther,from40daysto26.

InNovember2006theMCCBoardofDirectorsapproveda5-year,nearly$461mil-liongrantforElSalvadortostimulateeconomicgrowthandreducepovertyinthecountry’snorthernregion,wheremorethanhalfthepopulationlivesbelowthepov-ertyline.Thegrantisestimatedtoimprovethelivesofabout850,000Salvadoransthroughstrategicinvestmentsineducation,publicservices,enterprisedevelopment,andtransportationinfrastructure.Incomesintheregionareexpectedtoincreaseby20percentoverthe5-yeartermoftheprogram,andby30percentwithin10years.

“Wehave improved substantially the environment todobusiness inElSalvador,”said President Saca proudly. “We reduced the cost and time for the governmentformalities.Withtherecentlaunchoftheone-stopshopattheCentralRegistryforcompanystartup,wereducedthenumberofdaystoregisterabusiness,reducingthecostby67%.TheseeffortshavebeeninternationallyrecognizedbytheWorldBank,whichplacedusasoneofthetop15reformersworldwideinthe2007reportandmovedusup4positionsontheglobalranking.”

What made it work?

Reformcanstartonalllevels,particularlywhensimplifyingthebureaucracy.Anditdoesnothavetocostmuch.TheISOcertification—includingaudits,training,and15ISOcertificates—cost$66,600.Togetherwithabout$12,000forexternalconsul-tantsandnewequipment,thisamountstobuying4ToyotaCamriesintheUnitedStates.Asanaddedbenefit,sincetheemployeesredesignedprocesses,wroteguide-lines,andestablishednewrules,everyonewasinformed,feltresponsibleforresults,andtookcreditforthesuccess.

Butonceseveralagenciesareinvolved,high-levelsupportandinstitutionalbackupbecomeimportant.“Oneofthemainreasonsforoursuccesswasthatthecommis-sion operated under the presidency,” remembers Morán. “We had support fromthehighestpolitical level.Andsincewewerenotdirectlyaffectedby the reform,


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wecouldplaytheroleofmediatorordecision-pusherwhennecessary.Everybodyknewfromthebeginningthatthepresidentwasgoingtoopenthesinglewindow.Thispushedthereformerstoworkevenharder.Andthankstotheattentionfromthepresident,therewaslotsofpublicity.”

When dealing with several independent agencies, the weekly decision-makingmeetingswithlegalandtechnicalrepresentativesfromtheagenciesmovedthepro-cessalongandensuredthateveryonewasonboard.Sinceallmeetingsanddecisionswerewelldocumentedandfollowedup,therewasnoconfusionaboutwhathadtobedone,whatwasexpected,andwhowasaccountable.Quantitativeindicators,suchasreducingtheresponsetimeforallformalitiesatthesinglewindowto5days,setmeasurablegoals,whichgaveeveryoneacleardirection.

Constantcustomerfeedbackwascrucialinmeasuringsuccessandidentifyingwhatwasstillmissing.Withclientsastheevaluatorsofperformance,theyquicklybecamemoreappreciated—andcustomer-orientationmorethanabuzzword.

Thereformersalsorealizedthatitwasnotnecessarytohavealladministrativede-tailsreadytobeeffective.Withalittlecreativity,suchascuttingdownonthenum-berofcopiesrequired,paperworkwasreducedbymorethanhalf,andthecentercouldopenwithin3months.Tosavetimeandmoneyforbuyingnewequipment,delegatessimplybroughttheirowncomputers.

Intheend,alltheeffortpaidoff.WhentheDominicanRepublic-CentralAmericaFreeTradeAgreementcameintoeffectinMarch2006,ittook26daystostartabusi-nessinElSalvador,fasterthaninChile,Belgium,orMexico,andmorethantwiceasfastastheregionalaverageof73days.

Work still remains. Cost is still high, with 75.6% of income per capita in officialfees and 119.7% of income per capita paid before registering. Outdated legal re-quirementsremain, suchaspublishinganestablishmentnotice3 times in theof-ficialjournalandanationalnewspaper,at3-dayintervals,insteadofsimplyontheregistry’swebsite.Therulesandregulationswerefeltevenduringthereform.“Oneofthebiggestchallengesduringthereformwasthelegalreviewtocheckwhetheranyregulationsexistedthatwouldbeviolated.Thankfully,wealwayshadthelegalexpertsineverymeeting,”saysMorán.

Butwiththemomentumgainedfromthesuccessoftheadministrativereform,thereformers have started tackling these more difficult legal changes. The companycodehasbeenreviewed.Amongtheproposedamendmentsarecuttingthemini-mumcapitalrequirement,makingthepublicationofnoticeselectronic,andallow-ing notaries, lawyers, and the commercial registry to legalize books to introducecompetitionandlowerthecostfortheservice.


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AtagovernmentpressconferenceinDecember2005SerbianMinisterforEconomyand Privatization Predrag Bubalo said, “The Law on the Registration of BusinessEntitieshasproducedfascinatingresults.”On18January2006theSerbianBusinessRegistry Agency celebrated its first anniversary. At the ceremony Bubalo proudlyannounced,“Duringthefirstyearofoperationtheregistrysetupalmost11,000newcompanies,anincreaseof70%fromthepreviousyear.”

Fordecades,startingabusinessinSerbiawastimeconsumingandburdenedwithunnecessary bureaucratic hurdles—the rules inherited from the communist pastwere not business-friendly. Some of the biggest problems: the $5,000 minimumcapital requirement for startinga limited liabilitycompany, thenecessary inspec-tionsbeforeacompanycouldstartoperating,andthecommercialcourtscheckingevery document. Sixteen commercial courts were in charge of registering enter-prises,and131municipalitiesdealtwithregisteringentrepreneurs.Thepracticewassoinconsistentthatevenjudgesinthesamecourtrequireddifferentdocuments.Asonelawyersays,“Ihadtofilethesameformtothesamecourtin15differentwaysdepending on what judge handled my registration.” There were even cases whenthecourtsrefusedtoacceptformsfilledoutelectronicallyandinsteadinsistedonhandwrittenmaterials.

Reports fromtheU.S.AgencyforInternationalDevelopment(USAID),DeutscheGesellschaftfürTechnischeZusammenarbeit(GTZ),theEuropeanUnion,andtheWorldBankidentifiedbusinessregistrationasaseriousproblem.Andin2001–02consensuswasgrowingthatsomethinghadtobedone.AreportfortheMinistryof Economy and Privatization prepared recommendations for reforming Serbia’senterpriseregistrationsystem.Thisreportbecamethebasisforreform.

Afterthedecisiontoreform,thedrivingforcebehindtheeffortwastheInter-min-isterialWorkingGrouponDeregulation,whichlaterbecametheCouncilforRegu-latoryReform.Itdraftedtheprimarylaws,coordinatedtheirimplementation,andestablished the registry.Appointed in late2002byAleksandarVlahovic, the thenMinisterforEconomyandPrivatization,thegroupwasinchargeofdraftingtheLawontheBusinessRegistrationAgencyandtheLawontheRegistrationofBusinessEntities.Notallproceededsmoothly.InMarch2003theSerbianprimeministerwasassassinated,andafterseveralmonthsofuncertaintyearlyelectionswerecalledinDecember.Butthankstotheworkinggroup’senthusiasmandpersistence,continu-itywasmaintained,andsignificantdelayswereavoided.

Changing the laws—and establishing the registry

Thereformhad2elements.Thefirstwasaradicalchangeofthelaws,andthesec-ond was making the new system work in practice by establishing a new registry.Threelawswereenacted—theLawontheBusinessRegistrationAgency,theLawontheRegistrationofBusinessEntities,andtheCompanyLaw.Thefirst2establishedtheregistryandradicallychangedtheprocedureforstartingcompanies.Theyalsomovedtheprocessfromcommercialcourtsandmunicipalitiestothenewadmin-

How to double business entry in two yearsTomJersildandZoranSkopljak

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istrative agency, unburdened by old habits and inertia. Using the Irish system asamodel, thesystemwascentralizedandaccessibleviatheInternet, leadingtofargreaterlegalcertainty.Asoneattorneysays,“NowIcancheckinafewminutesifacompanyexists,whatistheaddress,andwhoisauthorizedtorepresentthem.Be-fore,Ihadtogotothecourtforeachinquiry.”

Anothervery importantchangewas thedeadlineof5days to registera company.Ifnodecisionismadein5days, theapplicant is freetobeginoperations(“silenceisconsent”).Thiswasabigchange.PreviouslyunderSerbianlaw,thedecisionwasnegativeiftherelevantadministrativebodydidnotrespondintheprescribedtime.

Forthecompanylaw,too,ratherthanamendtheoldlaw,anewonemoresuitableforamarketeconomywascreated.Thenewcompany lawreducedtheminimumcapitalrequirementforlimitedliabilitycompanies(90%ofallcompaniesinSerbia)from$5,000to€500andeasedrequirementsforestablishingcompaniesbymakingtherulesmoreflexible.

Out-maneuvering opponents

TheworkinggrouporganizedworkshopswithofficialsfromIrishandItalianbusi-nessregistriestoproducereformprinciplesforthegovernment.And3publicdis-cussionswereorganizedwithstakeholdersafterthelawsweredrafted.Thecriticalmoment was when the government adopted “The Principles” in April 2003. Vla-hovicandMinisterforInternationalEconomicRelationsGoranPiticwerethemainsupporters,while theMinistryof Justicewas themainopposition.Theprinciplesdescribedthemainpolicyobjectivesof thereformsandconcretesteps for imple-mentation.AndrejaMarusic,theleaderoftheworkinggroup,pointedoutthat“byadoptingtheprinciples,thegovernmentgavepoliticalbackingtotheexpertworkwedidandsilencedlotsofopposition.”

Theoriginalplanwastohavethenecessary legislationinplacebymid-2003,andtheregistryoperatingbythebeginningof2004.ButtheassassinationoftheprimeministerinMarch2003andsubsequentelectionsdelayedtheregistry’sstartupuntilJanuary2005.

ThebiggestopponentsofthereformswerethecommercialcourtsandtheMinistryofJustice,whichtriedtostalltheprocessandpersuadepolicymakerstokeepbusi-ness registration in the courts. Business registration was a large source of powerandinfluenceforcommercialcourts,andsotheyopposedremovingitfromtheiractivities.TheSerbianChamberofCommerceandtheNationalBankofSerbiaalsowanteditundertheircontrol.ThankstothepersistenceoftheworkinggroupandlatertheCouncilforRegulatoryReform,thereformwasimplementedasenvisagedat thebeginning.Almostall facetsof the lawwere includedinthefinal language.ButtheMinistryofFinanceandTaxAdministrationretainedcontrolofissuingtaxidentificationnumbers.

Starting a Business CASE STUDY: SERBIA

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Thenewcompanylawfacedmuchlessopposition.Fromthebeginningtherewasaconsensusamongpolicymakers,thebusinesscommunity,andacademicsontheneed for change. Foreign experts, mostly funded by USAID, helped early in theprocessandatsomecrucialmoments,butlocalexpertsdidmostofthework.Eventhoughadoptingthenewcompanylawwasmuchsmootherthanestablishingtheregistry,limitedpublicdebateleftsomedeficiencies.Oneisthattheminimalcapitalrequirementforalimitedliabilitycompanywasnotreducedenough.

Costs of reform—about €2 million

Whilethecompanylawwasmostlypreparedbylocalexperts,internationaldonorswereimportantsourcesoffinancing.InApril2003theSerbiangovernmentadoptedtheprinciplesofreformintheJacobsReporttomeetconditionsforaWorldBankloan.In2004donorsincludedreformofbusinessregistrationinthelistof10priori-ties for thenewSerbiangovernment.Thebiggestcontributionswere€1.4millionfromtheSwedishInternationalDevelopmentAgencyand$150,000fromUSAIDforcomputers.TheWorldBankfundedagreatdealofconsultancywork,andMicrosoftCorporationdonatedprovisionalsoftwarefor theregistryandotheressentialandtimely support.The total costof reformwasabout€2million ($2.3million).Theregistryisnowfullyself-financing.

Implementingthisreformwasnoteasy.Anewinstitutionhadtobeestablishedanda new system implemented. Having a core group of professionals in the workinggroupandtheCouncilforRegulatoryReformenabledcontinuityduring2differentgovernmentsandfreedthereformfrompoliticalinfluence.Butthispoliticalneu-tralitywassometimesdamagingbecausepoliticianswerenotfullycommitted.

Afterthelawswereadopted,itwasrealizedinthesecondpartof2004thatsoftwareandhardwarepurchaseswouldnotbemadeintime.AsAndrejaMarusicfromtheCouncil forRegulatoryReformdescribes, “Itwasclear thatwewere runningoutoftime.Wehad2options—topostponethestartoftheregistryforayearandriskfurtherdelays,compromisingthereform,ortostartasplannedandtrytofixtheproblemsastheycame.”Thedecisionwastocontinuewithstartingup.Theregis-trybeganoperationsatthebeginningofJanuary2005andayearlaterbecamethecountry’sonlyaddressforbusinessregistration.

Aftertheregistrystartedthebiggestchallengewasre-registeringexistingcompanies,almost70,000ofthem.Itwasabigworkload,andthecommercialcourtsobstructedtheprocess.Inaddition,thefacilitiesweretoosmall,butthiswillbefixedin2007whentheregistrymovestonewfacilities.


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Immediate effects—from 51 days to 18

Theeffectsofthereformwerefeltalmostimmediately.Thetimenecessaryforstart-ingabusinesswasreducedfrom51daysin2004to18in2005.Thenewsystemwasaradicalchange,withafocusoncustomerserviceanduserfriendliness.Andtheformsforregistrationarebeingcontinuallyimprovedtoreducethetimetocompletethem. After the very decentralized and inconsistent practices of the commercialcourts, thenewsystemiscentralized,with internetaccess toall registrationdata.Tounifypracticesonly1person—theregistrar—hasfinalauthorityandthepowerto interpret therelevant laws.This increases legalcertaintyanduniformityacrosstheboard.

Duringitsfirstyear,theSerbianBusinessRegistryAgencyregisteredalmost11,000newcompanies,70%morethanin2004,shrinkingtheinformalsector.In2years,thenumberofregisteredbusinessesmorethandoubled.Praisehasbeenhigh.Oneattorney says, “Since the registry started operating I did not have to appeal at allagainsttheirdecisions,whilebeforeIhadtodoitveryoften.”

If it had to be done again

IfSerbiahadtodoitagain,itwouldadopttheprinciplesofreformearliertopreventdelays and limit opposition, especially from the courts and the Justice Ministry.If reformimplementation isassigned toaprofessionalnonpoliticalbody,chancesincrease significantly that the reform will survive governmental or other politicalchanges.Assigningreformcoordinationtoaninter-ministerialworkinggroup,suchastheCouncilforRegulatoryReform,accommodatedvariousministriesthatmightotherwisehavebeeninconflict.

Reforms should not be delayed because not everything is completely determinedaheadoftime.Ifthereformprocesstakestoolong,theriskistolosemomentum.Manyissuesarebetteraddressedduringtheprocess.

Creatinganentirelynewinstitutionwithnewspecially-trained,morecapable,andwellpaid staff,while somewhatextreme,helpedavoid the legacyofprior institu-tions.OtheroptionsforanewSerbianbusinessregistrationsystemwerebasedonmodifyingexisting institutionsandprocedures,but it isdoubtful that theywouldhavebroughtabouttheneededchange.

Coordinationwithotherreformsandlegislativechangescouldhavebeenbetter.Forexample,itisnotpossibletofileregistrationdocumentselectronicallybecausetheLawonElectronicSignaturesisnotinplace.Andotherlawsadoptedwereincom-patiblewiththerulesforregisteringabusiness.

Oncethesystemisworking,processimprovementsshouldcontinuetoeliminatede-lays.Andeventhoughitwasoriginallyplannedtohavetaxidentificationnumbersattheregistry,thisstillisnotpossible.TheTaxAdministration,moresophisticatedand sensitive to various forms of tax fraud, is now scrutinizing tax identification

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numberapplicationsmoreclosely.Butitslegitimateconcernsfortaxfraudshouldnotdelaybusinessregistration,socontinuingeffortsarenecessarytoimprovecoop-erationbetweenthecompanyregistryandotherrelevantagencies.

ThebusinessregistrationsysteminSerbiacouldbeimplementedinothercountries.TheSerbiansystemisnotuniqueandwasdesignedwithEuropeanbestpracticesinmind,theIrishmodelinparticular.TheSerbianexamplecouldbeespeciallyvalu-able forneighboringcountries,which share similarproblemsandchallenges.Forexample,inJanuary2007theSerbianBusinessRegistryAgencyorganizedawork-shopforBulgariancounterpartswhoareworkingontheirnewregistrationsystem.

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ThenumberofjobcontractsconcludedinMacedoniaincreased5.9%forJanuary–October2006oversameperiodayearbefore,witha30.6%increaseforfixed-termcontracts—impressivegainsforacountrywhereunemploymenthoveredabove30%throughoutthe1990s,partlyduetorigidemploymentlaws.“[Macedonia]wantedflexibilityandwegotit,”saysonelocaleconomist.

MacedoniapassedtheLaborRelationsActon22July2005,thefirstsignificantlaborlaw reform since 1993. Major reforms in labor and employment law are uncom-mon—largelybecauseoftheextraordinarypoliticalwillrequired.Changinglaborlawscaninspirestrongreactionsfromemployersandemployeesalike,ofteninverydifferent ways. Emotions can run high, with labor laws affecting something thatbothcareabout:theirlivelihoods.

WithMacedoniasuffering fromchronicallyhighunemployment, thegovernmentdecidedin2003thatitwastimeforamajorreform.Partofthecurewasanewlaborlawthatcouldbetter respondto theeconomy’sneeds.Passing thenew lawwasasuccess for2key reasons.First, representativesofbothemployeesandemployerstookpart in thereformprocess.Eachsidehadavoice,andneither feltexcluded.Second,thenewlawenjoyedstrongpoliticalsupportfromboththegoverningandoppositionpartiesinparliament.

Whileemployersandemployeesdisagreedonsomeissues,theyagreedthatastrongeconomywithlowunemploymentwasagoodthing.Withthatasastartingpoint,thegovernmentwenttowork.

Chronically high unemployment

Macedoniahadgrappledwithrisingunemploymentfordecades.Theproblemwasoneofitsmostpressingsocialissues.RegisteredunemploymentinMacedoniahadbeenrisingsincetheearly1960s,topping20%inthe1970s.By1991,whenMace-doniagainedindependencefromYugoslavia,theeconomyhadbeencontractingformorethan6years,andunemploymentwasabout24%.

High unemployment hit Macedonia’s youth and women especially hard. A 2003studyfoundthatnearly30%oftheunemployedwerebetweentheagesof15and24.In2001only32%ofMacedonianwomenofworkingagewereemployed,muchlessthan51%intheEuropeanUnionand54%inOECDcountries.Nearlytwo-thirdsofthepeoplelookingforworkhadbeenwithoutajobforatleast4years,andtherewasevidencethatmostofthemwereyoung.

Fighting the problem at its source—the law

NumerousfactorscontributingtoMacedonia’ssoaringunemploymentwerebeyondthe country’s control, but reforming Macedonia’s labor law was a significant firststep in combating unemployment. The Labor Relations Act of 4 December 2003wasprincipallybasedona1993law(theLaborRelationsActof27December1993),writtenmainlywithsociallyownedandstate-ownedenterprisesinmind.Thegov-

Employing Macedonia’s youthAdamLarson,KirilMinoski,andJanetMorris

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ernmentsetouttopassanewlawtoaddressthechangesinMacedonia’seconomy.

Reformsfocusedon4keyissues.First,legislatorsintroducedmoreflexibilityinthetypesoflaborcontractspermittedandclarifiedthelanguageofprovisionsgoverningpart-timeandfixed-termcontracts.Second,theybuiltmoreflexibilityintoovertimeprovisions.Third,theysimplifiedredundancyprocedurestomakecomplianceeasierandlesscostly.Fourth,theymadechangestothecollectivebargainingframework,includingthosetocomplywithInternationalLaborOrganizationstandards.

Making the reform happen

WhentheSocialDemocraticUnionofMacedoniawonparliamentaryelectionsin2002,withBrankoCrvenkovskiasitshead,oneofitskeyelectionpromiseswastocreatejobs.AlthoughBrankoCrvenkovskilefthispositionasprimeministertobe-comepresidentin2004,thepartyremainedinpowerthroughoutthereformprocessthatledtoanewlaborlawin2005.

Aside from combating unemployment, the Macedonian government needed toreform its labor laws before it could join the European Union, after applying formembership in March 2004. The European Council Decision of 22 July 2003 setguidelinesthatcalledformemberstatestopromoteemploymentpoliciesthatwouldencourage jobcreation. It set thegoalofreachinganemploymentrateof70%by2010.Italsocalledformembercountriestopromotejobcreationbyimprovingtheadaptabilityofworkersandfirmstoeconomicchangesandrestructuring—andbytransformingundeclaredworkintoregularemploymentthroughmeasurestoelimi-nateundeclaredwork.

WorldBankeconomistArvoKuddoadvisedthegovernmentthroughoutthereformprocess.Hestarted inSeptember2004bypreparing listsofkeyreformobjectivesandproposingpossiblesolutionstothegovernment.ThenbetweenNovember2004andJanuary2005,laborandemployerrepresentativeshadtheopportunitytoexpresstheirviewsonthekeyobjectivesthroughwrittenproposalstothegovernment.

InJanuary2005meetingstookplacebetweenofficialsfromtheMinistryofLaborand Social Policy and several “social partners” (employers associations, tradeunions,andotherinterestgroups).Thiswasacrucialstep.Participantssharedtheirperspectives, voiced their concerns, and worked to hammer out a compromise. InMarch2005theMinistryofLaborheldadditionalconsultationssothatthevariousgroupscouldprovidefurtherinputonthedraftlaw.ThroughoutAprilandMaythepartieshotlydebatedarangeofreformproposals.

Laborunionswereatfirstdeeplyopposedtothereform.Butoncetheywerebroughtintothereformprocessandgivenavoice, theyworkedwiththegovernmentandemployer representatives to negotiate compromises. Key to making the processworkwas includingtheunions in thedrafting,rather thancraftinga lawwithouttheir input.ThroughsustainedinteractionwiththeMinistryofLabor, theunions

Employing Workers CASE STUDY: MACEDONIA

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cametorealizethatreformhelpseveryone.Thenewlawwaspassedwithoutdisrup-tivestrikesthatmighthaveimpededthereformeffort.

Thereformenjoyedsupportacrossthepoliticalspectrum.Infact,thegreatestsur-prise was probably the ease and speed of parliament’s passing the new law. Withunemploymentsopersistent,theoppositionpartymadeapointofnotchallengingthelegislation,andmostparliamentariansgenuinelyfavoredreform.Anditstotalcostwasminimal,becausetherewerenodirectcosts,simplythetimededicatedbystaffoftheMinistryofLabor.

Thegovernmentfirstsubmittedadraftofthelawtoparliamenton5May2005,andby22Julythefinalversionwaspassed.On28JulytheLaborRelationsActof22July2005waspublishedintheOfficialGazetteoftheRepublicofMacedonia,enteringintoforce8dayslateron5August2005.

Introduce flexibility, streamline, and clarify

The2005laborlawcreatednewandmoreflexibleoptionsforlaborcontracts,clari-fiedand liberalizedovertimeprovisions, limited theevents thatqualified forpaidleave,andstreamlinedredundancyprocedures.Italsoredefinedtheframeworkforcollectivebargaining,clarifyingseveralrulesandlimitingthedurationofcollectivebargainingagreementsto2years.


FIGURE 4

Timeline of labor law reform in MacedoniaJAN APR JULJUL OCT

EARLY 2004Labor ministry begins drafting new labor law.

FALL 2004First reform proposals.

WINTER 04/05Labor and employer representatives submit written proposals on desired provisions.

JANUARY 2005Second reform proposals.

FEBRUARY 2005International labor experts provide technical comments on draft.

SPRING 2005Labor Ministry holds extensive consulations with social partners.

MAY 5, 2005Government submits the draft labor law to parliament for �rst reading.

JULY 4, 2005Government submits the draft labor law to parliament for second and �nal reading.

JULY 22, 2005New law is adopted by parliament.

AUGUST 5, 2005New law enters into force.

Macedonian government debates reform proposals.

Focus group meetings with social partners.

Unions' support is won.


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Underthepreviouslaborlaw,somearticleswereambiguous,evenaboutwhattypesof contracts they purported to regulate. The new law clarified the rules applyingto fixed-term and part-time contracts, and promoted more diverse employmentrelationships by loosening restrictions on the use of fixed-term, temporary, andpart-timeemploymentcontracts.Article46,forexample,cappedthetotallengthoffixed-termcontracts(includingrenewals)at4years,upfrom3.

Previously, overtime was allowed only under exceptional circumstances, such asfires and epidemics. Under the new law overtime was no longer limited to thosecases.Weeklyovertimewaslimitedto10hours,annualovertimeto190hours,withlowerlimitsforminors.

Theoldlaborlawrequiredemployerstonotifyastateemploymentagencyeachtimeacontractwasterminatedduetoredundancy.Severancecostswerehighevenbyre-gionalstandards,withthemaximumpaymentsetat8monthlysalaries.Thenewlawrelaxedpreconditionsforvalidredundancydismissalsandlimitedmaximumsever-ancepayto6monthlysalaries.

The collective bargaining framework under the old labor law violated ILO stan-dards.Convention144onTripartiteConsultationrequired thatrepresentationbysocialpartnersbevoluntaryandthatcollectiveagreementsbindonlypartiestotheagreement.ButMacedonia’scollectiveagreementsboundtheentirepublicandpri-vatesectors,evenworkerswhoserepresentativeswerenotpartiestotheagreements.Asinglechamberofcommercerepresentedallemployers,whetheranemployerwantedtoberepresentedby itornot.Tocomplicatematters, the lawdidnotprovideclearrulesdefiningwhichpartieswerequalifiedtorepresentemployersandemployeesinnegotiatingcollectiveagreements,anditplacednolimitsonthedurationofacollec-tivebargainingagreement.

The new law made membership in trade unions and employers’ associations vol-untary.It laiddownrulesfordeterminingwhichpartiesmayrepresentemployersand employees in negotiating collective agreements. And the law made collectiveagreementsbindingonly for signatoriesandmembersof signatoryorganizations.Inaddition,itlimitedcollectiveagreementstoafixed2-yearterm,makingregularrenegotiationnecessary.

Improving opinions—an important first step

Forthegovernment,thepassageofthe2005laborlawwasagreatsuccess.Andun-derstandablyso:tohavesmoothlyadoptedareformofsuchbreadthwasnosmallfeat,especiallywiththedivergenceofviewsamongthepartiesinthediscussions.

Employersandemployeesalikearepleasedwiththeflexibilitythenewlawbroughttoemploymentcontracts. “Iconsider the lawpositive,”notesSlagjanMihajlovski,ownerof InfiniteSolutions,a softwaredevelopmentcompanywith20employees,“becausemanyof theobstacles toflexible formsofemploymenthavebeenelimi-

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nated.”MilivojeDzordevic,theowneroffx3x,avisualeffectsandanimationcom-panywith20employees,agrees, “Myopinionof the labor law ispositive, since itallowsmeflexibleformsofemployment[whichare]essentialforthenatureofmyproject-orientedbusiness.Thisissomethingthathasadirectimpactonthecompet-itivepositionofmycompany.”Twenty-year-oldMarkoCulev,apart-timeemployeeatthecompany,adds,“[It]allowedmetohaveapart-timejob,sinceIcouldworkonly4hoursadayduetomyvariousotherresponsibilities.”Heandotheremployeeswish,however, that apublic awareness campaignhadbrought thechanges in thelaborlawtothegeneralpublic’sattention.

Some employers and employer representatives feel that more reform is needed,though they consider the new labor law a move in the right direction. ValentinoKonstantinovski, owner of Etapa Project, an architecture and engineering firmwith 6 employees, is pleased that the new law “shortens employment and redun-dancy procedures,” but considers it “just the first step for establishing the overallframeworkthatwillsupportthegrowthofsmallandmediumenterprises.”DarkoVelkov,ownerofaprivateemploymentagencyfortemporaryworkers,VrabotuvanjeLeasing,andmanagerofthelargestprivateemploymentagency,Vrabotuvanje.com(meaning “Employment.com”) agrees, “[T]he new Labor Relations Act is a smallmovementinapositivedirection,butitisjustthefirststepintheadjustmentofthelegislationtothelabormarketneeds.”MileBoskov,presidentoftheConfederationof the Employers of the Republic of Macedonia, bluntly says that he supports an“ongoingprocessofregulatoryguillotine.”

Unionsandemployerorganizationsdisagreeover someofwhat they feel is goodabout the labor law. Labor unions emphasize that greater worker protections areneeded,whileemployerorganizationsliketheEmployers’OrganizationoftheRe-publicofMacedoniacomplainthatthelawisstilltooburdensomefortheemployer.Whilethequalityofthelegislationwashigh,thelawwastheresultofacompromise,andassuch,itprobablyfitnoone’sideal,“Thelawisnotperfect,butunderthecir-cumstancesandthecompromisesthathadtobemade,itwasasuccess.”

Butonepointwherebothunionsandemployerrepresentativesagreeistheircriti-cismoftheminimumrequiredbythenewlawforrepresentingemployersandem-ployeesincollectivebargainingnegotiations.AccordingtoArticles212and213ofthenewlaw,totakepartinthenegotiationsonacollectiveagreement,unionandemployerorganizationsmusteachrepresentaminimumof33%ofthetotalnumberofemployeesandemployers,respectively,coveredbythecollectiveagreement.

Theprobleminsomesituationsisthatnorepresentativeorganizationcanmeetthisthreshold.Whilethisisnotanobstacletocollectivebargainingatthefirmlevel,itisatthenationalandbranchlevel.BecauseMacedoniadoesnothaveatraditionoffirm-levelbargaining,bargainingcanshifttothefirmlevel,orunionscanconsoli-datetojoinforces.Ironically,thehighthresholdwasproposedbythedominantunionasawaytoprotectitsposition.Thestrategybackfired,however,becauseevenitfailstomeetthethreshold.


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Lesson—include social partners in the dialogue

Themainlessonforothercountriesisthatsocialpartnersneedtobeincludedinthedraftingprocessatanearlystage.Unions,chambersofcommercerepresentingem-ployers’ interests,andgroupsofbusinessexecutivesallparticipatedindiscussionsleadinguptothe2005reform.Thisgavethemavoiceandanopportunitytohavetheirinterestsaddressed,whichledtobroadacceptanceofthenewlaw.

Groupsincludedinthetalksareclearlymoresatisfiedwiththereform’soutcome.AcoSpasevskioftheMacedonianChamberofCommerce,representingtheinterestsofsmall-andmedium-sizeenterprises,calledthereformprocessa“positiveexperi-ence”andmadeapointofemphasizingtheconcreteresultsofconstructivecoopera-tionwiththegovernment.

Impact of the reform—an early indication of positive results to come

Giventhatthenewlawmakesiteasiertoformflexiblelaborcontracts,itwouldnotbesurprisingtoseeanincreaseinredundanciesintheshortterm,followedbyanincreaseinthenumberoffixed-termandpart-timecontracts.Butlayoffshavenotmaterialized.Macedoniawillneedtoexperiencebothaperiodofeconomicexpan-sionandoneofcontraction(afullbusinesscycle)beforetheeffectsofthereformmaterialize.

Anearlyindicationthatthereformisworkingistheriseinemploymentofyouthsages15–24.Inthesecondquarterof2006(themostcurrent laborstatisticsavail-able)ascomparedwiththesamequarterinthepreviousyear,employmentrose4percentage points (from 13.4% to 17.4%) and unemployment fell 5.2 percentagepoints (from59.8%to54.6%).Becauseyoungpeopleare thegroupmostactivelylookingforwork(astheyarejustenteringtheworkforce),theyaremostlikelytobeaffectedbythereformintheshortrun.

WilltheresultsofMacedonia’slaborreformcontinuetobepositive?Theearlysignsareencouraging.The2005laborlawwasacriticalmovetowardreducingunemploy-ment.Byconsultingwithlaborlawexperts,buildingbroad-basedpoliticalsupportfor the new legislation, and creating an effective dialogue with social partners,Macedoniahasmovedpastanobstaclethatimpedesmanycountries.

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AflukeoftiminghelpedMexicooverhaulitssecuritieslaws.“WefinisheddraftingthebillinMarch2004,toolatetosubmittoCongressthatterm.Butinsteadofshelv-ingituntilOctober,wedecidedtoshowittopeopleintheprivatesector,”relatesakeydrafterofthenewlaw.“Theirinputmadeallthedifference.”

Persistent underperformance

In2004Mexico’ssecuritiesmarketwasatinyfractionofwhatwouldbeexpectedfrom the size of its economy. The Republic of Korea’s gross national income wassimilar($600–$700billion)butithad10timesmorelistedfirms.Chinahadase-curitiesmarketwith4timesthecapitalofMexico’s.LatinAmericareceived9%ofglobalprivateequityflows,butMexico,withmorethanathirdof theregion’s in-come,receivedonlyatenthofthat.AndmorecompaniesweredelistingratherthanissuingnewsharesontheMexicanstockexchange. Investors looking formarketswiththegreatestliquidity,transparency,andshareholderrightswerenotinvestinginMexico.

Why? Antiquated securities laws and tightly controlled companies gave minorityinvestorslittleassurancethattheirrightswouldbeprotected.In2004,Mexicohadonly150companieslistedonthestockexchange,with60%ofthemcontrolledbya single shareholder.Adiagnostic reportby theWorldBank identifiedanumberofweaknesses in the legal framework, includinga lackofdefinition fordirectors’responsibilitiestowardthecompany.Thelawalsohadnorequirementthatsubsid-iariescomplywiththecorporategovernancerequirements,sonotsurprisinglymanylistedcompanieswereholdingcompanies,withsubsidiariesoperatingoutsidethefullcorporategovernanceregime.Itwasdifficultforminorityshareholders—oranyoutsiders—toverifymanagers’financialconduct.

Theresult:insiderdealswerefrequent,channelingwealthoutofthecompanyintothecontrollingshareholders’pockets.“TherewasasayinginMexico:richbusiness-men,poorcompanies,”saysonereformer.

An opportunity to reform

TheFoxadministration’ssuccessinotherfinancialsectorreformsbuoyeditshopestoimproveMexico’ssecuritieslaws.Accordingtoonegovernmentofficial,“Earlierfinancial sector reforms were not very charged politically.” Securities regulationswereseenasanotherstepintheadministration’seffortstoreformMexico’sfinancialmarkets.Congressionalchampionsofreformwerealsovocal:onecongresswomanchallengedtheministeroffinancetoattackvestedinterestsinthesecuritiesmarkets,tauntinghimwiththe label“ministerofstagnation”ifhefailedtopushsecuritiesreform.

ThehighlypublicizedEnronandWorldComfinancialscandalsintheUnitedStatesgaveMexicanpolicymakersanotherpoliticalopportunitytopushthroughtheircap-italmarketreforms.Ratherthanrewriteexistinglegislation,theMinistryofFinance

Protecting investors from self-dealingMelissaJohnsandJeanMichelLobet

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decidedtodraftacompletelynewact.Thegoal:greaterMexicancompetitivenessintheglobalcontestforfunds.

“Mexicohasahugeneedandabigappetiteforcapitalinvestment,”saysonepart-neratatopMexicanlawfirm.Mutualfunds,pensionfunds,andforeigncapitalinsearch of new destinations for investment had so far avoided Mexico. “There arefundsinMexicotogoaround.Butwithoutprotection,peoplewon’tinvestlocally.”

A small drafting team

Theoriginaldraftingteamforthenewlawwassmall:aseniorMinistryofFinanceofficial,aseniorofficialfromtheComisiónNacionalBancariaydeValores(“CNBV,”Mexico’ssecuritiesregulator),alawyerfromeachoffice,and2outsidelawyers.TheystartedwithaconceptualbasedraftedinOctober2002andworkedthrough2003writingthenewlaw(figure5).OnlyinFebruary2004didtheycompleteafulldraftforinternalreview.Amonthandahalflater—ayearandahalfafterbeginning—thejointteamwasreadytopresenttheproposedlawtoCongress.“Wethoughtweweredone,butitwasonlythebeginning,”saysonememberoftheteam.

Thereformteam’s timingwasoff. InMarch2004Congresshadonlya fewweeksuntil theendof the session. Itwas too late to submit sucha largeand importantpieceoflegislation.ButratherthanwaitingtounveilthebillinCongressandwork

Protecting Investors CASE STUDY: MEXICO


FIGURE 5

Timeline of investor protections reform in Mexico

1. Min. of Finance and securities regulator (CNBV) create reform team

2. Reform team drafts new securities law

3. Internal discussions within Min. of Finance and CNBV to �nalize draft law

4. Private sector representatives review proposed law

5. Reform team and private sector lawyers meet weekly to revise law

6. Second version of proposed law distributed, debated

7. Government presents draft law to congress

8. Supporters lobby for passage

9. Congress debates and passes law

10. 150+ meetings with accountants, regulators and lawyers to discuss reforms

2003 2004 2005 2005JAN • • • • • •• • • • • • • JAN • • • • • • • • • JAN DEC•• • • • • • • • • • ••

Finance minister speaks out against amendments that would dilute the new regulations.

Amendments fail.

2nd draft distributed at Christmascongressional break

1st draft distributed during summer congressional break

Enron scandal in the U.S. provides political opportunity for reform

6-person team is shielded from internal politics while drafting

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through any opposition there, reformers took a novel approach: they invited therelevant stakeholders to review a “pre-draft” and participate in shaping it before submittingthebilltoCongress.

Thisprocesstook2steps.First,reformersmetwitheverygroupthatwouldbeaf-fectedbythenewlegislation(businessassociations,financeprofessionals,theMexi-canbar,thestockexchange,andlistedcompanies)topresentthegoalsofthereform.These goals were to strengthen the Mexican stock market through 1) new listedfirmsand2)higherdemandforMexicanfirms’stock.Asthegovernmentofficialsexplained,thelawsoughttoaccomplishthisthrough3approaches:1)streamlinedregulations for listing a new company; 2) increased transparency and minorityinvestorrights;and3)acorporatestructureforlistedcompaniesthatmorecloselyreflectedinternationalbestpractices.

Second,afterthepresentationsthereformersinvitedagroupofprominentprivatesectorlawyers,representativeofallthegroups,toformadraftingcommittee.Thiscommitteewouldgothroughtheexistingbill—keepingthegoalsforthelegislationinmind—andeliminateanyambiguities,contradictions,andloopholesthatmightbefoundinthe“pre-draft”text.

Ministry of Finance and CNBV officials met with representatives of top MexicanlawfirmseveryThursdayeveningbetween5pmand8pm,April toSeptember. “Icallthemthe$15,000meetings[theamounttheattorneyswouldtypicallychargefortheirtime].Intheend,wecompletelyrewrotethelaw.Andthefinalproductmetourgoals—greatertransparencyofpubliccompanyoperationsandbroaderprotectionofminorityshareholderrights,”saysoneofficial.

The political battle

Thepoliticalbattlecamenext.ThenewdraftwassubmittedtoCongressinOctober2004. Although its prospects were uncertain down to the final vote, it ultimatelypassedinsubstantivelythesameform1yearlater.

OneofthebiggestmediaconglomeratesinMexicowasthemostvocalopponentofthebill,protestingtheminorityshareholderprotectionsandthedisclosureprovi-sions.ThegroupalsoarguedthatthenewlawwastoosophisticatedforMexicoandtoocloselymatchedtheUnitedStates’Sarbanes-Oxleylegislation.

Atonepointitseemedthereformeffortwouldfail.InNovember2005theMinistryofFinancemadeanall-outefforttoshepherdthedraftsecuritieslawthroughCon-gress.Butopponentsofferedamendmentsthatwouldaffect4keyprovisionsofthebill—amendmentsthatwouldevisceratethe law’s innovativeprotections.AndtheopponentswereadeptatusingtheiraccesstotheMexicanmediatosquelchsupportforthebill.

TohelpmakethecaseforthecompletelawwithoutamendmentstotheCongress,FinanceMinisterDiazpulledintheWorldBank’sDoing Business team.Diazasked

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theteamtouseits“protectinginvestors”indicatorstobenchmarkthedraftsecuri-ties lawproposedbythegovernmentagainst theexisting lawandagainst thewa-tered-downalternative.

Theresultswerestriking.Undertheexistinglaw,Mexicoranked125of145countriesmeasuredbytheDoing Businessinvestorprotectionindex,withsomeoftheweakestprotectionsintheworldforminorityshareholders.AmongLatinAmericancoun-triesmeasured,onlyHondurasandVenezuelahadweakerinvestorprotection.

IfMexicopassed the lawaspresentedby theMinistryofFinance,Mexicowouldshootuptherankingindex92spots—to33.“Sincewe’rethe20thlargesteconomyintheworld,wethoughtweshouldberankedaround20ontheDoing Businessrank-ings.Butevenwiththeimprovement,westillhoverinthe30s.Westillhaveworktodo,”saidoneMinistryofFinanceofficial.Underthealternativelaw,Mexico’srankwouldfallto132.

Disclosure and director liability—two key provisions

The difference hinged on disclosure anddirector liability provisions. The law pro-posedbythegovernmentstrengtheneddis-closurerequirementsfordirectorswhofaceaconflictof interest in theirdealingswiththe firm. It also broadened the company’sresponsibility to report any transactionswithcompanyinsiders.Andthelawmadeit easier for shareholders toholddirectorsaccountable for actionsharming the com-pany. Mexico’s performance on the Doing Business “extentofdisclosureindex”undertheproposedlawwouldincreasefrom6to8(onascaleof0to10),anditsscoreonthe“extentofdirectorliability”wouldrisefrom0to3(figure6).

Withtheproposedamendments,however,Mexico’sperformanceonthe“extentofdisclosureindex”wouldslidebackwardssignificantly.Theopponents’billremovedallrequirementsforacompanytoreportlargetransactionswithadirectororcon-trolling shareholder immediately to the marketplace and in the annual report. Italsoremovedanyobligationforthedirectororcontrollingshareholdertodiscloseaconflictofinteresttotheboard.

Minister Diaz presented these results to Congress, along with myriad other rea-sonstopassthenewlawuntouched.“ThesimulationsstirredenormousinterestinCongressandinthemediabyshowingthedramaticdifferences inMexico’sbusi-ness environment if the law were not adopted,” says one of the bill’s proponents.


FIGURE 6

Protecting investors in Mexico—big improvementsDoing business indicator score (0–10)

6

0

5

8

3

6

Extent of disclosure

Extent of director liability

Ease of shareholder

suit

Old law

New law

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“Ifapprovedasproposedbythegovernment,thenewlawwouldenhanceinvestorprotectionandfosterinvestmentinpubliclytradedandevenprivatelyheldcompa-nies.Butifthechangesproposedbytheoutsidegroupwereaccepted,theoppositewouldhappen.”

Thebillpassedthelowerchamberwithouttheamendmentson6December2005and was confirmed by the Senate a few days later. Heads of manufacturing andinvestment companies lobbied for its passage, thanks to the tireless work of thereformerstoworkwithlocalbusinessleadersandtheircounselwhiledrafting.Thenewlaw(LeydelMercadodeValores)cameintoeffect28June2006.

What does the new law do? Attack self-dealing

TheLeydelMercadodeValores:

· Definesclearlythedutiesofcompanydirectors.

· Heightens disclosure requirements for related-party transactions (transactionsinvolvingaconflictofinterestwithacompanyinsider).

· Requirescommitteesof independentboardmembers toreviewexecutivecom-pensationandrelated-partytransactionsinpubliclytradedcompanies.

· Lowerstheownershipthresholdforminorityshareholderstosuefordamages.

· FormallyestablishesthesubpoenapowerofMexicanregulators.

· Increasescriminalpenaltiesforcorporatecrimes.

Thelawattackedself-dealing.Previous legislationgaveboardmembers,directors,andshareholdersbroadandimpreciseresponsibilitybenchmarks.Thenewlegisla-tionpresents2distinctdutiesfortheboardofdirectorsofapubliclyheldcorpora-tion.

First,adutyofcare.Boardmembersmustfulfilltheirdutiesingoodfaithandplacethebestinterestsofthecorporationandtheentitiescontrolledbyitabovetheirownpersonalinterests.Theymustattendboardorcommitteemeetingsanddiscloseallinformationnecessarytomakedecisions.

Second,adutyofloyalty.Thisdutyforbidsdirectorsandindividualswithdecision-making authority over the corporation from diverting to themselves or to otherpersonsabusinessopportunitythatbelongstothecorporation,withoutalegitimatecause.Theycannotfavorashareholderorgroupofshareholdersattheexpenseofothers.Norcantheyvoteonissuesinwhichtheyhaveaconflictofinterest,ormakeinappropriateuseofprivileged information.Beyondthesebroadfiduciaryobliga-tions, the law provides a nonexhaustive list of activities considered disloyal andbehaviorsthatconstitutealackofdiligence.

“Fiduciarydutyisthefoundationthatholdsupthebuilding,”remarksoneMexicansecuritiesexpert.“Before,thelawwastoobroadandimprecise.Itsaidyoucould


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doeverythingtosomeone,butintheendyoucouldn’tdoanything.Itwasabombwithout a fuse.” The new law blended broad concepts with specific examples ofwhatthelawmakershadinmind.Theresult,impermeabletoloopholes,isenforce-ablebyjudges.

The new law also extends corporate governance obligations to subsidiaries. Andfinally,thelawrequireslistedcompaniestosetupcommitteesofindependentdirec-tors.Thesecommitteesreviewdealsinvolvingseniorexecutives,limitingexecutives’abilitytousethecompanyresourcestofundlavishlifestylesorenrichthemselvesatcompanyexpense.

Lawyersenthusiasticallygreetedthegreaterdisclosureforcorporateactivitiesandstrongerstandardsfordirectors’obligations.“Itkeepstheproperbalancebetweenprotection of minority shareholders and protection of the company from overlyburdensomeregulatorycompliance,” saysonepractitioner. “Themain tension inthelawisnotaproblemofshareholdersinapulverizedmarket.Itismoreamat-terofputtingaminorityshareholderonthesamelevelasthelargeshareholders,”addedanother.

Introducing a new corporate form—the SAPI

Thenewlawdidn’tonlytargetlistedcompanies.Facingagapbetweenstrongcor-porategovernanceprovisionsforlistedcompaniesunderthenewsecuritieslawandweakerregulationsforprivatecompaniesunderthecompanylaw,drafterssoughtamiddlegroundforlargerprivatecompaniesseekingabroaderinvestorbase.Theyfounditinanewtypeofcorporateform:onewhoseadoptionisoptional,butwhichoffersenhancedcorporategovernance,minorityrightsandbetteraccesstothestockmarketasawaytoattractminorityinvestors.

That new corporate form is the Sociedades Anónimas Promotoras de Inversión(SAPI).SAPIsarestockcorporationsthatofferminorityshareholderstherighttoappoint board members, call for extraordinary shareholders meetings, bring civilactionsagainstboardmembers,andpostponevotingwithlowerownershipthresh-oldlevelsthaninothercorporateforms.Inexchangeforvoluntarilyadoptingtheseprovisions, SAPIs enjoy exemptions from the general corporations law to allowshareholdervotingagreements,tag-alonganddrag-alongrights,buy-backmecha-nismsfortheredemptionofshares,andrestrictionsonpreemptiveandexitrights.

AuthoritieshopeSAPIswillbolsterthelownumbersofnewofferingsontheMexi-cansecuritiesmarketbycreatingabreedinggroundforlistedcompanies.“Compa-niesthatadopttheSAPIregimewillsignalpotentialinvestorsthatthecompanyisagoodrecipientofprivateequitywithacrediblelegalcommitmenttohonorthecor-poraterightsofinvestors,”announcesoneSAPIpromoter.Evenwithoutanultimatelistingonthestockmarket,theregulatorsaimtoincreasemedium-sizecompanies’accesstoequityfinancingthroughthenewstructurewithoutoverloadingthemwithcomplicatedcompliancerequirements.


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The initial impact—balance, transparency, openness

Initialsignsindicatethatinvestorsarehappywiththenewsecuritieslaw.“Beforethenew law, investorswerediscouragedby the familydominationofMexicanfirms,”saysoneMexicanlawyerwhorepresentsMexicanandforeigninvestors.“Previously,investorsandjointventurepartnershadtobattleforthe51%share.Lawyershadtobeextremelycreativetogetprotectionsfortheirclients.Andwewereneverquitesurethatthejudgeswouldupholdtheprotectionsweworkedintothebylaws.”Nowlocalbusinessesandforeigninvestorsfeelthenewlawhasincreasedbalance,trans-parency,andopenness.

Thisgreaterconfidence is supportedby market indicators. The value ofsharesandotherequitiesontheMex-ican stock exchange increased overthe previous year by 13.1% in thefirstquarterof2006and15.1%inthesecond—the 2 quarters immediatelyfollowingpassageofthenewlaw.Themarket has continued to performwell over time: the IPC, Mexico’sprimary stock market index, showsasteadyincreasebetweenpassageofthenewlawandMarch2007(figure7).TheMexicanstockmarketalsorecordedahistoricalhighinforeigndirectinvest-ment,at$128,813million,withinayearofpassingthelaw—a20.89%increasefromthebeginningof2006.AndprivateinvestmentfundsinMexicoincreasedby84%in2006overtheyearbefore.Themanyinfluencesoninvestmentflowsmakeitdifficulttoattributethesemovementsdirectlytothenewlegislation,butsuchfiguressupportthegeneralargumentthatMexicohasbecomemoreattractivetoinvestors.

Businessesaretakingadvantageofthelaw’sinnovationsaswell.Morethan40SAPIshavebeencreated,voluntarilyadoptingstrictercorporategovernancerulestoattractmoreexternalfinancing.TheNationalAssociationofCorporateLawyers,AmericanChamberofCommerce,CámaradeComercio,BarraMexicana,MexicanAssocia-tionofFinancialLaw,AsociaciónMexicanadeCapitalPrivado,andtheAsociaciónMexicanadeInstitucionesBursátileshaveallheldworkshopsonthebenefitsoftheSAPIforcompaniesandinvestorsalike.


FIGURE 7

Mexico’s stock performance soars

2004 2005 2006 2007

10,000

20,000

15,000

25,000

Índice de Precios y Cotizaciones

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Opposition continues

Yetoppositiontothenewlawcontinues.Assoonasitcameintoforce,themediagroupthatwasinitiallythemostactivecriticofthelawchallenged54ofitsarticles.Thegroup’sallegations:

· TheCNBV’snewabilitytoissuesanctionspriortoalegalprocedureinfrontofthecourtviolates theconstitutionallyprotectedright tobepresumed innocentuntilprovenguilty.

· Thelaw’snewdutiesfordirectorsandauditorsviolatetheirconstitutionalrighttowork.

On18September2006aMexicanadministrativejudgefoundinfavorfor3ofthegroup’scompanies,sothe54articleswillnotapplytothesecompaniesuntilafinaldecision on the provisions’ constitutionality. The provisions in question, if foundunconstitutional,couldberevokedfortheentirepopulace.AsofMarch2007,therehadbeennofinaldecisiononthematter.

Talking with stakeholders—priceless

Despite this threat, lasting lessons arise from Mexico’s securities law reform. Pri-mary among them is the value of involving stakeholders early on in the process.“Throughthedraftingcommittee,businessgroupswereabletomaketheirpointsabouttheproposedregulations.Andthenwe,astheregulators,madeourpoints.Intheendwecametocommongroundthatserveduswellduringthepoliticalfight,”explains one reformer. “But you can’t elaborate along the way with them,” warnsanother.“Thatwayyoulosethepen.Youmusthavethevision,presentacompletedraft,andtakemodifications.”

Mexico’spolicymakershavesinceincorporatedtheselessonsintomajorlegislativeefforts.“Whatwepassedwastoorevolutionarytoregulatebyimposition,”saysonedrafter.“Theopen,inclusiveprocessledtoabetterlaw.”Hewasclearonitsvalue:“AsMasterCardsays,priceless.”


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Mosttaxreformshave1goal:increasetaxrevenues.Egyptisnoexception.Withabudgetdeficitin2004of£E40billion,8.3%ofgrossdomesticproduct(GDP),Egypthadtoreform.FinanceMinisterYoussefBoutros-Ghalisaid,“Doingnothingisdefi-nitelynotthesolution.Thegreatestenemytoreformsisinertia.”Egyptdidnotstandstill.Afterreform,taxreturnfilingsincreasednearly50%andincometaxrevenuesgrewasashareofGDP,evenwithratecuts.

With8.2millionpeopleintheinformalsector,37%oftheworkforce,therewasagreatopportunityforbroadeningthetaxbaseandincreasingrevenues.Taxevasionwasthenorm,withmutualdistrustbetweentaxpayersandtaxauthorities.Taxrateswerehigh.Egyptcharged32–40%oncorporateincome,morethantwicethe15%inJordanandLebanon.AndEgyptwasthesecondworst intheregionineaseofpayingtaxes.

InJuly2004anewcabinettookofficewithamandatetoreform.Oneofitsgoalswastoincreaseemploymentthroughinvestment.Todoso,ahighprioritywasplacedonamendingthetaxlaw,customslaw,andcustomstariffsandonenactingcompetitionandantitrustlaws.MakingEgyptiantaxlawclosertointernationalpracticewouldincreaseEgypt’scompetitivenessand itsattractivenessasadestination for foreigninvestment.

The boldest reform would be to simplify tax law so that every business faces thesametaxburden—withnoexemptions,taxholidays,orspecialtreatmentsforlargeorforeignbusinesses.Manytaxlawsstartthatway.Butwhenhardtimescomeandgovernmentsneedrevenue,theyoftenraisetaxrates.Andlargeorwellconnectedbusinesses usually get special treatment. Soon the tax law becomes riddled withexceptions,generallyattheexpenseofsmallbusinesses,whichhavetheleastabilitytolobby.Thispushesthemintotheinformalsector.

Eliminating exemptions and reducing tax rates

Fewreformersdareeliminateexemptions,reducetaxrates,andclarifytaxrules.ButEgyptdid just this. InJune2005theEgyptianparliamentapprovedLaw91/2005.Nowallcompaniesareequalunderthelaw,payinga20%taxonprofit(not32%or40%,dependingon theactivity,plus2%asdevelopmentduty).New taxholidaysand special exemptions were eliminated, as was the state development duty. Andtherulesformultinationalcompanieswereimproved.EgyptnowusesadefinitionofpermanentestablishmentbasedonUNconvention;newrulesfortransferpricingandthincapitalizationareinplace.

Thewithholdingtaxoninterestandroyaltieswasreducedfrom32%toa20%flatrate.Thecalculationofassetdepreciation isspecific in thenewlaw,unlikeprevi-ously,whenthedifferentrulestocomputedepreciationgavemuchdiscretiontothetaxinspector.

Thepersonalincometaxwaschangedthroughthesamelaw.Thehighestpersonaltaxratewentfrom32%to20%.Allindividualtaxpayersgetanannualtaxexemp-

Adding a million taxpayersRitaRamalho

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Paying taxes CASE STUDY: EGYPT

tionof£E4,000.Benefits inkind,suchasmedical insurance,arenowtaxexempt.AndthetaxbasenowincludesresidentsworkingabroadandnonresidentsworkinginEgypt.

Taxationadministrationalsoimproved.Self-assessmentreplacedadministrativeas-sessment,essentialforthetaxreform.AsBoutros-Ghalisays,“Thepointofthenewlawistosaywhatyouwant:whateverclaimyoumake,webelieveyou,noquestionsasked,butyouwillbeheldcriminallyresponsibleandaccountableforyourclaims.”Undertheoldlaw,thetaxpayerwasconsideredguiltyuntilproveninnocent.Nowthetaxadministrationtruststhetaxpayer.

The tax authority does not examine the tax return at the time of submission.Instead, the authority thoroughly audits a sample of taxpayers within 5 years ofsubmission.Agraceperiodexemptednon-registeredtaxpayersfromoldtaxesdueiftheyregisteredandpaidtaxunderthenewlaw.Andcompaniescannowsubmitcomputerizedrecords.

Underthenewlawthereislessroomforinterpretation,reducingthepossibilityofnegotiatingtaxes.AsAshrafal-Arabi,theseniortaxadvisertothefinanceminister,says,“Bargainingisnotinthedealanymore.”Replacingtheoldsystemofbonusesfor tax collection for inspectors, the punishment for noncompliance was mademoresevere,andtheaccountantwasmadeliablefortheveracityoftaxinformation.Underthenewlaw,theaccountantcangotojailfortaxevasion,andfinescangoupto£E10,000($1,839).Atthesametime,thetaxappealsprocessimprovedtoensuretaxpayers’ rights are protected. Taxpayers who overpaid are entitled to a refundwithin45daysofthereimbursementapplicationdate.Thegoalofthereformwastomakethetaxadministrationmoretransparentandfair.

Passing the reform

InJuly2004newreform-mindedcabinettookofficeandoneoftheprioritiesofthenewministeroffinance,Boutros-Ghali,wastoimprovetheincometaxlaw.InlateAugusttheInternationalMonetaryFundreceivedarequesttoassistwithdraftingthenewlaw.Ittooklessthanamonthtoproducethefirstdraft.InOctober2004thegovernmentannouncedtheintentiontochangethetaxlawtoreduceratesandimprovetaxcollection.Italsostartedamediacampaigntoinformthepublicaboutthepossiblereform.BytheendofOctoberthelawwasfinalized.

Thelawwaspreparedsoswiftlybecausethefinanceministerwascommittedtotheproject. In November 2004 the cabinet approved the new unified corporate andincometaxlaw.Theapprovedversionwasdistributedtotheprivatesectorandtointernational organizations for review—and sent to the parliament. Roundtableswereheldwithchambersofcommerce,majoraccountants,andtaxpayersinthe6monthsbeforethelawwaspassedinJune2005.Thelawforpersonalincometaxwaseffectiveon1July2005andforcorporateincometaxon1January2006.


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Thereformmetlittleopposition.Thepublicingeneralagreedthatitwasneededandwashappywiththeprospectoflowertaxrates.Theoppositioncamefromthecom-paniesthatlosttheirtaxholidays(5or10yearsofcorporateincometaxexemption).Themajorchallengewasimplementingreform.Alongwiththereductionintaxratestherewasamajoreffortforadministrativereformwithinthetaxauthority.Changingfromadministrativeassessmenttoself-assessmentmeantawholenewwayofcol-lectingtaxes.Thetaxadministrationwasnotverysupportivebecauseitwasunfamil-iarwiththenewsystemandthoughtthatithadmorecontrolundertheoldsystem.Ithadtobeconvincedthatthechangewaspositive,donethroughtraining.

More tax revenues—better economic performance

Over2.5milliontaxpayerssubmittedtheirtaxreturns,asignificantincreasefrom1.7million in2005, inpartbecauseof theamnesty for taxevasion.Thisnumbermayseemlow inacountrywith74millionpeople.Butnotall taxpayersneed tofilereturns.Ifthesolesourceofincomeiswageincome,taxesarewithheldatthesource.

Taxpayerswithincomeotherthanwagesmustfileataxreturnattheendoftheyeartodeclarethatextraincome.Sothe2.5milliontaxpayersincludeonlycompaniesandthefewwageearnerswithextraincomefromasmallbusiness.Taxrevenuesin-creased,eventhoughthegovernmentexpectedareduction.Corporatetaxrevenueswentfrom£E22billioninfiscalyear2004to£E39billioninfiscalyear2005,despitethefallincorporatetaxrates(from32–40%to20%).Personalincometaxrevenues

JANUARY 1ST 2006Law e�ective for corporate income

JUN 05Parliament approves new law

FEB 05Executive regulations prepared

NOV 04Private sector review and public discusion of new law

NOV 04Government sends law to parliament

NOV 04Cabinet approves new law

OCT 04Government announces intention to change tax code

SEPT 04Draft of income tax law is prepared

JULY 04New reform-minded cabinet takes o�ce


The cabinet sets custom and tax reform as the major priorities

Little oposition, except from bene�ciaries of tax breaks under old system

New law takes e�ect,retroactive for all 2005

Tax o�cials trained on new audit and record system

Media campaign informs the public about new law

FIGURE 8

Timeline of tax reform in EgyptAPRJUL JULOCT OCTJAN APR JULJAN

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alsoincreased, ifmarginally, from£E8.1billionto£E8.3billion,againdespitethedropinrates.Overallincometaxrevenueincreasedfrom7%ofGDPto9%.

Personalincometaxrevenuesincreasedbothforwageincome(6%)andforsmallbusinessincome(4%).Muchoftheincreaseincorporateincometaxrevenuecamefromtheoilsector,whichexperiencedaboominprices.Thisisstillapositiveresultforthereform:thetaxratewascutbyhalfandcorporatetaxrevenueshardlyfell.Sothetaxbasemusthaveexpanded.Morecompaniesarecomplyingwiththetaxsystem—morethanamillionmore.Thetimetocomplyincreasedfrom504hoursto536becausecompaniesarestilladaptingtothenewsystem,takinglongerthisyeartoprepare,file,andpaycorporateincometax.

Egypt’s economic performance also improved. Growth in income per capita rosefrom 2.5% to 4.8%. Domestic investment went from 18% of GDP to 18.7%. Thebudgetdeficitwasreducedandforeigndirectinvestmentincreased.

Learning from mistakes

Bothtaxpayersandtaxofficerswilltaketimetoadapttothenewsystem.Thekeyistokeeplearningfrompreviousmistakesandimprovethesystem.Furthermore,thetaxreformisnotlimitedtochangingtheincometaxlawonly.AnextrastepwastakeninMay2006whenthesalestaxdepartmentandtheincometaxdepartmentweremergedintotheEgyptiantaxdepartment.With1taxauthoritytodealwith,companiesdonothavetodoubletheireffortstopaytaxes.Thegovernmenthasalsoproposedchangestothesalestaxlaw.Themomentumofsuccessfulreformcreatesroomforfurtherreform.

Thenew lawchanged the taxcollection systemprofoundly.Taxpayersused tobetoldwhattopay.Nowtheycomputethatthemselves.Somefounditdifficulttocom-pletethetaxforms.Forinstance,theformforcompanieswithanaccountingsystemis46pageslong.Mistakeswerecommon.Severalsectionsoftheformwereleftblankjustbecausethetaxpayerdidnotknowhowtofillitout.Norweretaxofficersfullypreparedtoexplainhowtheformsshouldbecompleted.

ThesolutionwastoextendthefilingperiodtotheendofJuly,thentotheendofNovember2006.Theextensionsallowedpeopletocorrectpreviousmistakeswith-outhavingtopayafine.Thelesson:havemoredirectcontactwithtaxpayersandanswertheirquestions.

Prepareforimplementation:thetrainingoftaxofficerswasnottimely.ItoccurredinbatchesandnewtrainingcourseswerestartedevenaslateasOctober2006.Onthepositiveside,taxofficers’lackofknowledgeaboutthelawwasidentified,andthetaxauthorityistryingtosolvetheproblem.Thenewlawbringsmoresophisticatedconcepts,suchasthincapitalizationortransferpricingrules,whicharemoredif-ficulttoimplement.



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Thenewresidence-basedsystemismorecomplexthantheprevioussource-basedsystem,sotrainingisessential.Atrainingcenterfortaxadministrationwillbeop-erating in mid-2007. With the self-assessment system, tax inspectors become taxauditors. Rather than assess the tax due, they accept the calculation done by thetaxpayerandauditafewtaxpayersbasedonriskassessments.Buttheyneedtrain-ingtobecomeadeptauditors.AsofMarch2007ataxauditmanualwasstillunderdevelopmenttohelptaxauditors.Lessonlearned—preparetaxofficerswell,becausetheyareanessentialpartofimplementingthereform.

TheMinistryofFinancefirstdraftedandapprovedthelaw,thendevelopedexecu-tiveregulationstoimplementit.Theseregulationsareaworkbookthatclarifiesthenewtaxlaw,anessentialpieceoftaxreformimplementation.Afterthatcamethetaxformsandtheawarenesscampaignandtraining.TheMinistryofFinancehaslearnedthatthismaynothavebeentherightsequence.Boththetrainingandtheawarenesscampaignswouldhavebeenmoreeffectiveifstartedearlier.

Still a long way to go

Boththepublicandthegovernmenthaveapositiveviewofthereform.SherifHas-san,ownerofamedium-sizebusiness,says,“Iusedtopay40%ofprofits,nowIpay20%andIdomyowntaxassessment.Idon’thavetowaitforthetaxinspectortotellmewhattopay.Ofcourse,I’mhappywiththisreform.”Thegovernmentseesbettereconomicperformance,highertaxrevenues,andhappierbusinesses.

OthercountriescanlearnfromEgypt’sexperience.Thefocuswasonattractingnewtaxpayersintothesystem,accomplishedbyloweringtaxrates,simplifyingtaxcom-pliance,reducingthediscretionarypoweroftaxinspectors,andseeingthetaxpayerasactinglegally,butimposingharshpenaltiesotherwise.Othercountrieswithlargeinformalsectorscanusethisreformasatemplateforbroadeningthetaxbaseandincreasingtaxrevenues.

MahmoudMohieldin,theministerofinvestment,says,“Egypthastakenstridesinthe right direction by introducing these reform actions. However, we still have alongwaytogo,maybeanother15–20yearsbeforeEgyptcanaccomplishthemoredifficulttaskofeliminatingilliteracy,improvinghealthconditions,andintroducingdemocraticgovernance.”

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TradeisnoweasierinPakistan,withcustomsclearanceattheKarachiinternationalcon-tainerterminaldroppingfrom10daysin2004to4hoursin2007.Customsrevenuesarealsoup,from115billionrupeesto138billion,despiteareductionintariffs.

Failures of earlier reforms

CustomsreformsarenotnewinPakistan.Indeed,computerizingthecustomsser-vicesstartedin1979.MorerecentinitiativesincludeanExpressLaneFacility(1998)tosimplifytheexaminationprocedure,anElectronicAssessmentSystem(2000)toautomateassessment,andaRiskIndicatedSelectiveExamination(2002)toassessriskintheexaminationprocedure.Othercustoms-relatedreformsincludeoutsourc-ingcustomsvaluationfunctionstopre-shipmentinspectioncompanies,simplifyingandenhancingtheinstitutionalsetupforthedutydrawbacks,andbringingcustomsvaluationintoconformitywithGeneralAgreementonTariffsandTradeArticle7.

Despite thegoodintentions,customsclearancecontinuedtobecumbersomeandslow.Clearinganimportcargorequired62–113stepsand26–34customsofficials.Clearing an export cargo required 31–46 steps and 17–20 handling officials. Notsurprisingly,thislefttradersinPakistanatacompetitivedisadvantage.

Why the inability of the earlier efforts to ease customs clearance?

· Thereformswerepiecemeal.Clearinggoodsoftenrequiredachainofprocesses(declaration,valuation,examination,payment,andrelease).Sotackling1linkinthechain,evenifeffective,didlittletoshortenclearancetimeswithoutattendingtotheotherlinks.

· Keystakeholderswerereluctanttoparticipate.Tradersexpectedthatsimplifyingthedutydrawbacksystemwouldbelessadvantageoustothem.Customsauthori-tiesexpectedthatanewvaluationschemewouldmeanlargerevenuelosses.

· Politicalinstabilitymeantthatinthe10yearsto2002,theaveragetenureofthechairmanoftheCentralBureauofRevenue,apoliticalappointee,waslessthanayear.

· Theturnoverofkeycustomsstaffwashigh,hamperingcontinuity.

· Customs operations lacked funds. Indeed, a fiscal crisis in 2001 prompted thereformoftheCentralBureauofRevenue(CBR), theumbrellaorganizationforPakistancustoms.

WhenPresidentPervezMusharrafcametopowerinOctober1999,heappointedareform-mindedfinanceminister,ShaukatAziz.Together,theypushedforreformsinseveralareasoftheeconomy,withrevenueadministrationbeingoneofthemostchallenging. In2000 thebudgetdeficitwas6.4%ofGDP, taxreceiptswere insuf-ficienttoservicedebt,andtherewerehardlyanyfundsremainingfordevelopment.Further,theabilityofthegovernmenttoeffectivelydeliveressentialpublicserviceswasunderthreat,andhyperinflationwaslooming.Reformingthetaxadministra-tionwasthesinglemostimportanteconomictaskfacingthenewgovernment.Itwasnotanoption—itwasanecessity.

Speeding up tradeAllenDennis

�0

A task force to review and recommend

PresidentMusharrafsetupanindependenttaskforceinJune2000toreviewthetaxadministrationandrecommendhowbesttoimproveit.HeadedbySyedShahidHu-sain,aretiredWorldBankexecutive,thetaskforceconsultedwidelywithintheCBRandamongvarious tradeassociations. It lookedatall aspectsofCBRoperations,includingsalestax,incometax,excisetax,andcustoms,andpresenteditsfindingsinMay2001.

In a big departure from the past, the task force viewed customs not merely as arevenuegenerationagency,butasanintegralpartofeconomicdevelopment.Itsawthemajorbenefitfromimprovingcustomsservicesinanimprovedtradingenviron-ment,withreducedtradingtimes,costs,anddocuments.Increasedtradingwouldcreatejobs,spureconomicgrowth,andenlargetherevenuebase.

Thetaskforcealsoconfirmedtheinadequacyofthepiecemealapproachtoearliercustomsreforms.Andflaggingcorruption,itidentifiedseriousproblemsinbusinessprocessesandorganization,humanresources,andinformationmanagement.

A reform unit set up

ThechairmanoftheCBR,RiazMalik,wasgiventhetaskofcomingupwithareformprogram. The CBR reform cell had to grapple with several issues. Should the taxcollectionsystembeprivatized,turningtheCBRintoacorporation?Whatshouldbethetimeframeforachievingtheoverallobjectives?Howshouldsalariesbead-dressed?Shouldexpertsfromtheprivatesectorbehiredforspecificassignments?

ThereformunitreceivedinputoninitialdraftsofthereformagendafromtheWorldBank, InternationalMonetaryFund,UNConferenceonTradeandDevelopment,anda foreignconsultingfirm(MaxwellStamp).Theseconsultationsenabled it toassembleacomprehensiveprogramtoreformtheCBR,approvedinMarch2003.

AspartoftheprogramtheCBR’sCustomsAdministrationReform(CARE)setoutto redesign processes in customs operations and modernize customs services—throughround-the-clockclearance,self-assessments,riskmanagement,apaperlesssingle-window environment, and reduced opportunities for discreet interactionbetweenimportersandcustomsofficials.

As with the failed Public Revenue Authority Bill in 1998, the 2003 reform facedhurdles.Staffresistedchange,fearingjoblossesfromtherationalizationofabloatedworkforce.Staffalsohadinterestsvestedinacorruptandbadlymanagedcustomsadministration.Government rules andprocedures reduced theflexibility that theCBR needed to hire private sector experts and offer higher salaries to CBR staffthantootherpublicservants.Alsoneededwasalegalbasisforre-engineeringthecustomsbusinessprocesses throughanelectronicdata interchange.That’snotall.Possiblepoliticalchangescouldremovegovernmentsupport.Andseveralaspectsofthereformagendawereexpensive,requiringexternalfunding.

Trading Across Borders CASE STUDY: PAKISTAN

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Start with quick wins

The reform cell strategy was to implement the short-term, less costly, quick-winreforms immediately while preparing the ground for the medium- to long-termreforms,perhapsmorecomplexandcostly.

Amongthequickwinswassimplifyingthedocumentsrequiredfortrading—asim-pleadministrativedecisionwithverypowerfulconsequencesfortheeaseoftrading.Tradersneededtosubmitonly1document,thePakistanGoodsDeclaration.Otherreformsfollowed:

· TheCBRreducedthemaximumtariffratesandthenumberoftariffbands,sim-plifyingthevaluationofcustomsduties.

· TheCBRpublishedanewprofessionalcodeofethicsandconduct,signallingtostafftheintenttoeliminatecorruption.

· Tosustainthereforms,theCabinetCommitteeforFinanceandRevenue,headedby theministeroffinance, and theCBRBoard,weregivenfixed5-year terms.ThecommitteeoversawtheCBRreformandreporteddirectlytothepresident,therebybringingconsiderablepoliticalclouttothereform.

· The legal basis for several of the medium- to long-term measures was soughtfromtheMinistryofFinanceandthelegislature.TheseincludedtheCBR’sabilitytoformulateitsbudgetandadministrativepoliciesinspecificareas,tohaveflex-ibilityinspendingitsbudget,todecideitscompensationstructure,andtoadoptitsownhumanresourcerecruitmentanddevelopmentstrategy.Giventhestrongbackingforreform,thenecessaryapprovalsweregranted.

Envisaging resistance tocostlier long-termreforms, theCBRadoptedaproactivechangemanagementstrategy,seekingtoinvolvestaffinthereformprocessbyde-fining expectations, building consensus, and articulating a clear vision. Workers

FIGURE 9

Time to import cut in Pakistan

Inlandtransportation

Pre-arrivaldocumentation

Port and terminal

handling

Customs and technical control

18days

11days

14days

Total time cut from 39 days to 19

2 days

2006

2007


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fearingjoblosseswereassuredthattheywouldnotbeforcedoutoftheirjobsandthatallworkersdepartingvoluntarilywouldgeta“goldenhandshake.”Thishelpedreduceearlyresistancetoreform.

Costlier long-term reform

Finance. While implementing the quick win measures, a medium to long-termreformwasalsobeingprepared.TheInternationalMonetaryFund(IMF)approvedaPovertyReductionandGrowthFacilitywithPakistanin2001,includingtaxpolicychangesandtheCBRreform.TheWorldBankapprovedaprojectdealingwiththeCBR’smedium-tolongertermreformprograminDecember2004,withmodern-izingcustomsbeingasignificantcomponent.The$149millionproject,co-financedbythegovernmentofPakistanandtheU.K.DepartmentforInternationalDevelop-ment,istobeunderimplementationuntil2009.

Human resources. Amajor long-termgoal is torationalizetheworkforce.TheCBRisknowntobeoverstaffed,particularlyatlowergrades.Withamovetomod-ernrevenueadministration,lowerskillswouldbeinevenlessdemand.Animprovedcompensation package for the reorganized CBR has been agreed upon. All staffareexpectedtoapplyforvacanciesandthoserecruitedwillhaveamorelucrativepackage.Newstaffareexpectedtohavehigherqualifications,andthestafftrainingprogramhasbeenimprovedtobuildcapacity.Forstaffnotrecruitedthestrategytoreducetheworkforceisvoluntaryandspacedover5years(2005–09).CBRofficerswith25yearsofserviceareexpectedtoretire.Andanysurplusstaff,particularlyatlowergrades,wouldbeofferedcareercounselingandretraining.

Modernizing customs services. Customs procedures are being modernizedthrough the Pakistan Customs Computerized System (PACCS). Unlike previousstandalonemodules,thePACCSisacomprehensiveintegratedinformationtechnol-ogysystemtoimplementusermanagement,carrierdeclaration,goodsdeclaration,risk management, assessment, examination, payments, management informationsystems, transhipment management, status notification, clearance management,adjudicationmanagement,securitymanagement,bondedwarehousemanagement,andataxnode.Thenewsystemstreamlinestheclearanceprocess(allowingforpre-arrivallodgingofdeclarations,electronicpayment,andsignatures)andappliesriskmanagement.

PACCS was piloted in April 2005, and the electronic submission of documentswasfullyimplementedattheKarachiInternationalContainerTerminalbyJanuary2006.Traderscannowlodgedocumentsbeforegoodsarriveattheport,avoidingcustomsdisputesbecausethesystemautomaticallydeterminestheduty.Thankstoriskprofiling(green,yellow,andredlanes),customsofficialsdomuchlessphysicalinspectionofgoods.

ThesuccesschalkedupsofarismainlyatKarachiInternationalContainerTerminal,itiscurrentlybeingrolledoutto11othercustomscollectorates.


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FIGURE 10

Timeline of trade law reform in Pakistan Source: Doing Business database.

Setting up of reform task force

Task force presents findings

Design of reform by reform cell

Legislative and administrative measures

Study of other customs administrations

Customs Software evaluation, analysis and design phase

World Bank approves funding for project

Implementation of pilot integrated computerized customs clearance system

Implementation of full-scale computerized customs clearance system in Karachi

Roll-out of new system to 11 other Customs collectorates

Work force rationalization

2001 2002 2003 2004 2005 2006

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Commercial cases in the Nigerian state of Lagos can now be resolved in about ayear—instarkcontrasttothesituationduring16yearsofmilitaryrule.In1997theaveragedurationof commercial casesbefore thecourtwasover4years,andnewcasesfiledinthelate1990sdidnotstandareasonablechanceofbeingconcludedwithinadecade.Peoplehadnofaithingettingjusticethroughthecourts.

LagosstartedreformingthecourtsafterNigeriareturnedtodemocraticgovernmentin1999.Thegovernor-electofLagos,SenatorBolaAhmedTinubu,promisedtoputthingsright.Immediatelyafterhiselectioninlate1999,hecreatedajusticepolicycommitteetoreviewtheentirelegalsystem.Theheadofthiscommittee,ProfessorYemi Osinbajo, commissioned a widely publicized study that showed the judicialsystemtobesufferingfromrampantcorruptionandseverebacklogs:99%oflaw-yers polled agreed that the Lagos judiciary was corrupt.And pending before theHighCourtinMay2000were40,000cases,with10,000newcasesfiledeveryyear.

AssoonashewasappointedattorneygeneralofLagosinJune1999,Osinbajostartedreformingtheentirejudiciary,relyingonstrongsupportfromTinubu.Judicialre-forminLagoscontinuestoday.Whilesomereformswereimplementedimmediatelyafterthenewgovernmentwaselected,othersareongoing7yearslater.

Corrupt judges dismissed

The1999NigerianConstitutioncreatedtheNationalJudicialCouncil,anindepen-dentbodythatcanrecommendtheappointmentandthedismissalofjudgestothepresidentandstategovernors.

Before2000nojudgehadeverbeendisciplinedforcorruptioninNigeria.Tosani-tizetheNigerianjudiciary,theNationalJudicialCouncilinstitutedareviewpanelin2001.Overthenext6yearsitreviewed130judges,recommending8fordismissal,15forcompulsoryretirement,and13forreprimands.Asof2002,21magistratesand3highcourtjudgeswereeitherdismissedorretired—themostthoroughoverhaulofthejudiciaryinNigeria’shistory.

On22May2001theLagosJudicialServiceCommissionappointed26judgesfromdiversebackgroundstotheHighCourt,bringingthenumberof judgesto50andreducingtheaverageagefrom55to44.Theappointeeswentthroughacomprehen-sive6weektrainingprogram,includinglegal,Internet,andcomputertraining.In2003another6judgeswereadded.

Appointingjudgesfromvariousbackgrounds—fromuniversities,finance,andcom-merce—turnedout tobeagoodstrategy.Sixyears later,someof themosthighlyregardedjudgesarethosewithexperienceinareasotherthancourtroomlitigation.

Toattracttherightcalibertothebenchandreducethedependenceonbribemoney,judges’monthlysalariesquadrupledfrom$600to$2,400between1999and2001.On topof the salary, each judge receivesmedical insurance, a freevehicle, andafamily house. A study showed that the greatest concern for judges is post-retire-

Repairing a car with the engine runningSabineHertveldt

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menthousing.Thecompensationpackagenowallows judges to leadcomfortablelives.Andsince2000,theNationalJudicialCouncilhasgiveneachjudgeanallow-anceof$1,568forcourtroomexpenses,withauditorsroutinelyinspectingexpensereceipts.

Alsoin2000and2001,22newcourtroomsfortheHighCourtwereconstructed,and18wererehabilitatedandsuppliedwithcomputers,generators,andaircondi-tionersatacostofmorethan$9.6million.Achallengethenandtodayiselectricity,withthecostoffuelforgeneratorsrunningthousandsofdollarsamonth.

In2001,whenthe26newjudgeswereappointed,specializeddivisionswereintro-ducedintheHighCourtforcommercialcases,land,family,revenue,criminal,andgeneralcivilmatters.Eachjudgewasappointedtoaspecializeddivision,dependingonbackgroundandprofessionalexperience.Forexample,JusticeAtinukeIpaye,aformer family lawprofessor,wasappointed to the familydivision. JusticeHabeebAbiru,alawyerwithextensiveexperienceinpropertylaw,wasappointedtothelanddivision.

Enforcing Contracts CASE STUDY: NIGERIA


FIGURE 11

Timeline of judicial reform in Lagos1999 • 2000 • 2001 • 2002 • 2003 • 2004 • 2005 •

Tinubu elected governor; Osinbajo appointed attorney-general

Perception of corruption survey

22 new High Court rooms + 18 refurbished court rooms

First Summit of Stakeholders decides review of High Court Rules is needed

Specialized divisions created within Lagos High Court

Rules Committee meets regularly to discuss new High Court Rules

High Court Rules �nalized

Court Automated Information System established

Citizens Mediation Centers in 12 Nigerian states

National Judicial Council travels to Nigerian states to present judges' performance

• Judge salaries increased 4-fold

• Start of review panel for Nigerian judiciary

• Second Summit of Stakeholders reviews draft High Court Rules

• Citizens Mediation Centers established in Lagos

• 26 new judges appointed in specialized divisions

• Lagos parliament adopts High Court rules

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New rules for the High Court

On16October2000,theSummitofStakeholdersontheAdministrationofJusticeinthe21stCenturyconcludedthatreducingdelaysanddecongestingthecourtswouldbeimpossiblewithoutreviewingthecourtrules.ThereviewstartedinApril2002.

The10membersoftheRulesCommitteewerechosenfromprivateattorneys,serv-ing and retired justices, the Lagos Ministry of Justice, and representatives of theLagosbranchoftheNigerianbarassociation.Hurilaws,anongovernmentalorga-nizationofhumanrightslawyers,preparedafirstsetofdraftrules,inspiredlargelybytheU.K.courtrulesaftertheWoolfreform.TheNigerianInstituteofAdvancedLegalStudiesthendraftedasecondsetofrules.FromApril2002toearly2003theRulesCommitteemetweeklyandsometimesdailytoreviewexistingrulesandtotakethebestideasfromthe2setstoproduceafinalversion.

Onimportantissues,suchasintroducingpretrialconferences,acommitteememberwasaskedtoprepareaseparatememotobediscussedatthefollowingcommitteemeeting.Heateddebatestookplaceoncontentiousissues,suchasputtingacaponthenumberofextensionsandadjournments,whichsomecommitteememberssaidwouldviolatefundamentalrights.

Inearly2003theRulesCommitteepresenteditsdraftrulesatthesecondSummitofStakeholders.Allkeyofficersofthejusticesystemwerepresent,whichwaspar-ticularlyusefulinwinningoveragroupofopposinglawyers.TheRulesCommitteeamendedsomeof itsrulesandfinalizedthembytheendof2003.InMarch2004theLagosStateLegislatureadoptedthemwithoutchangesandinJune2004thenewrulesenteredintoforce.

The new High Court rules include three innovations to reduce court delays and frivolous cases:

Frontloading evidence.Itisnowmandatoryforpartiestosubmitallevidencethey intend to relyonat the startof the legalproceedings. If theplaintiff fails tosubmittheevidenceupfront,hisclaimwillnotbeacceptedforfilingatthecourt’sregistry.Becausepartiesmust submitwitnessdepositionsandcopiesof alldocu-mentstheyplantouseduringtrial,theyarediscouragedfromfilingfrivolousclaimsmeantonlytoexertpressureontheotherparty.

Deadlines for actions. The2004rulesspecify timeframes to takecertainac-tions.Forexample,defendantsareexpectedtofileastatementofdefensewithin42daysofreceivingthestatementofclaims.Theoldruleshadnotimeframes.

Pretrial conferences. A promising aspect of the reform was the mandatorypretrialconference,aninformalmeetingofthejudgeandthepartiestoexplorethepossibilityofsettlingthecaseamicably.Theconferencesalsolimittheareasofdisputeandsettlepreliminaryapplications,suchaschallengestothecourt’sjurisdiction.

The2004LagosHighCourtruleshaveservedasamodelforotherNigerianstates.


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Automating court information

TheCourtAutomationInformationSystemstartedinJanuary2005.JusticeAbisoyeAyo, a judge in the commercial division, has managed it since inception. HavingworkedintheUnitedStatesforanITcompany,shecloselymonitorsweeklyprogressmadebyall300judicialassistantsandcourtrecorders,courtregistrars,secretaries,andcomputeroperatorsinputingcourtcasesandcaseeventsintothesystemovertheintranet.TheobjectivewasforalllitigationcasestobeuploadedtothesystembyApril2007.Inthenearfuture, lawyerswillbeabletoregistercasesandfollowthemonline.

Thesystemseeks toreducecasebacklogandcourtdelays,assigncasesrandomly,andcalculatecourtfeesautomatically.Moreimportant,itwillmeasure,manage,andimprove individual and overall judicial performance. Case disposition standards,basedontypeofcase,arereportedforeachjudge.Thesystemwillalsomonitortheperformanceofjudgesagainsttargets.

Citizens mediation centers

AspartoftheAccesstoJusticeProgram,5citizensmediationcenters,modeledonU.S.communitymediationcenters,opened inLagos in2000. In thesecenters,38trainedmediatorsworktosettlesmalldisputesthatwouldotherwiseendupinthecourts.Themediatorsarelegalcounsels,employedandpaidbytheLagosMinistryofJustice.

The5centersinLagosresolvedisputesquickly,freeofcostfortheusers,andtheyrespond to people’s need to have their day in court—without getting stuck withformalisticandlengthycourtproceedings.TheLagoscentershavesofarreviewedmorethan17,000cases,resolving15,950ofthemamicably.Partieswereadvisedtoseekredressincourtinonly332cases.

Fewer cases go to court and fewer cases stay in court

Fewer court cases are filed. Up to 25-30% of all commercial cases are re-solvedduring thefirst5monthsof theproceedings,andaveragecourtdelaysaremuchreduced.Furtherimprovementsinefficiencyareexpected.

Fewer cases go to court. ThecitizensmediationcentersinLagoshavehandled17,000casessofar,manyofwhichwouldnormallyhaveendedupincourt.Alargenumberofcasesarenowfiledat themediationcentersbecause theyare resolvedfaster,atalowercost.In2005,inspiredbytheenormoussuccessofthecentersinLagos,all35stateattorneysgeneraldecidedtoestablishsimilarcenters.Twelvearealreadyinoperation.

Fewer cases stay in court. Duringpretrialconferences, judgesmeetwiththeparties informally and explain to each the strengths and weaknesses of the case.Theytellthepartieswhattheoutcomeofthecaseislikelytobeifthecasewereto


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gototrial.Attheendofthemeeting,thepartiesdecideeithertosettlethecaseorgototrial.Thejudgedraftsapretrialconferencereport,describingthehistoryofthecase,theissuesthepartiesaredisputing,andtheoutcomeofthepretrialconference.Ifthepartiesdecidethecaseshouldstillgototrial,thecaseisallocatedtoanotherjudge, toavoidconflictsof interestbetween the judgeactingasmediatorand thejudgeactingasadjudicator.

Becauseofthemandatorypretrialconferences,upto30%ofallcommercialcasesarenowdisposedwithinthefirst5monthsoffiling.Beforethenewruleswereinplace, all cases, once filed, stayed in court until a final decision was reached. Toinsurethecontinuedsuccessofpretrialconferencesjudgesmustbetrainedintheirnewroleasmediators.

Average court delays reduced. For commercial cases the average time toreach a decision after filing a case dropped by 38%, from 730 days to 457. ThatmovedNigeriafrom105thto66thpositionintheDoingBusinessrankingsforcon-tractenforcement.Incaseswheredefendantsdonotpersuadethejudgethattheyhaveareasonabledefense,summaryjudgmentscanbegiveninabout8months.

Reform is like repairing a car with the engine running

Nearly85%ofreformstakeplaceinthefirst15monthsofanewgovernment.Re-centlyelectedgovernmentstrytopushreformsthroughatthestartoftheirterm,asLagosdid.

It did not take years of careful strategizing to build new courtrooms and repairexistingones.LessthanayearafterOsinbajowasappointedasattorneygeneralofLagos,26 judgeswereappointed, specializeddivisions setup,and judges’ salariesincreased.

Manyjudicialreformsfailbecausetheyaddresssymptoms,nottheproblem’sroots.Tobeeffective, judicialreformmustaddressallrelevantissuesatonce, including:attractingandretainingtherightpeopleatthebench,disciplininglawyerswhoen-gageindelaytactics,establishingmoderncourtrules,limitingthenumberofcasesthatgotocourt,limitingthenumberofinactivecasesthatstayincourtforyears,automatingcourtproceduresandmeasuringjudicialperformance.

Lagosdidnotonlymodernizeditscourtrules,dismissedcorruptjudges,andintro-ducedalternativedisputeresolution.Itstartedafightonallfronts,withoutallowingthechallengestoaffectitsdeterminationtoprovideafairandefficientjusticesys-tem,withaccesstojusticeforall.

What gets measured, gets done. Measuring performance enhances perfor-mance.Thisapplies toall, including judges. If lazy judgesarenotdisciplinedandhardworkingjudgesarenotcompensatedorpromoted,performanceflags.


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TheNationalJudicialCouncilmonitorsjudicialperformanceatthefederallevel.InMay2006officersfromtheCounciltraveledtothe36Nigerianstatestoannounceits ratings of individual judges. Those who scored poorly were invited to providean explanation. Although the performance evaluation system is still developingandoftencriticized, judgesnowknowtheyarebeingmonitoredbyaninstitutionwithdisciplinarypower.Thisinitselfhasbeenuseful:thepoorestperformershavealreadyleftthebench.

Measuringperformanceisusefulatalllevels,includingthelowest:allsupportstaffintheLagosHighCourtmustnowsubmitweeklyprogressreportsonthenumberofcasestheyenterinthecourtautomationsystem.AfterJusticeAbisoyeAyocollectstheprogressreports,shedistributesthemtoalljudgesforthemtoseewhichstaffmembersareperformingwellandwhichappeartobebusyonlywhenthejudgeisaround.Healthycompetitioncandowonders.

Adjust foreign models to local needs. Reformers often look abroad forinspiration.ThecitizensmediationcenterswerecopiedfromtheU.S.model,suc-cessful in largecities likeNewYork.Theydowellbecause theyare freeandtheirproceduresaresimple.

But highly complex features from courts in developed countries cannot be easilytransferred to developing countries. The committee in charge of the new LagosHighCourt rules rejected theU.K.multiple case-track systembecause itwas tooadvancedforLagos.

Implementing reforms—avoiding one step forward, two steps back. Judicialreformneedsconstantfine-tuning.InLagosthenextchallengesareestab-lishingseparatecommercialcourtswithtailor-maderulesforcommercialcasesandreducingthelongdelaysbeforetheappealscourts.ProgressintheHighCourtrisksbeinglostifreformsarenotextendedtotheappealscourt.

Initialpositiveresultscandisappearquickly,anddisillusionoverfailedreformscanleadtoquestioningwhetherfurtherreformsareworththeinvestment.Toavoidtheriskofgoing1stepforward,2stepsback,reformsmustbeimplementedatalllevelsandtheireffectsmeasuredconsistently.

ThatiswhyLagosisnowturningtoitsappealscourts.Ofallcasespendingbeforetheappealscourts,80%areagainstinterlocutoryordersfromtheHighCourt.Suchordersdealwithproceduralissues,suchaswhetherornotthecourthasjurisdictionto decide the case or whether the time limits to file have passed. Although HighCourtjudgesmaycontinuetodealwithcaseswhileaninterlocutoryorderisbeingappealed,somecasesaresuspendedwhilewaitingfortheappealscourt’sdecision.This is an important reason why the disposal time before the High Court is notfasterandcaseskeepaccumulating.Expandingthereformsandchangingtheap-pealscourtrulescanensureprogresscontinues.


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Winding up a failed Serbian enterprise could take 10 years or more.The entirebankruptcy process was susceptible to corruption by bankruptcy administratorsandjudges—includinganinfamousgroupknownasthe“bankruptcymafia.”Afteraggressivereforms,theaveragedurationisnowlessthan3years,andtheprocedureitselfenjoysgreatertransparencyandprofessionalism.

The new government that took power in January 2001, led by reformist PrimeMinisterZoranĐinđić, facedadaunting task.Since thebreakupofYugoslavia in1991-92, Serbia had become embroiled in one regional military conflict after an-other.Theseconflictsravagedaneconomyalreadyweakenedbygeneralgovernmentmismanagement.By2000Serbia’sgrossdomesticproduct (GDP)washalf thatof1989,publicdebtwas130%ofGDP,andinflationhit113%.Between1994and2000theYugoslavdinarlost97%ofitsvalue.

The Đinđić government made the privatization of state-owned enterprises a cor-nerstoneofitsliberalizationprogram.InJanuary2001MinisterofEconomyAlek-sandarVlahovićannouncedthat“4yearsfromnowsociallyownedcapitalwillbecompletelyeliminated”;inJune,Parliamentpassedaprivatizationlaw.Butitsoonbecameclearthatmorethan50yearsofstateplanningandneglecthadleftalegacythatnoprivatizationlawalonecouldfix.

AWorldBankreportobserved thata“functioningbankruptcy law is required inSerbiatoprovideanefficientalternativetothemethodsofprivatizationofsocialandstatecapitalsetoutinthePrivatizationLaw.”TheMinistryofEconomyestimatedthat 3,000 enterprises were irretrievably inefficient and impossible to privatizethroughregularauctionsandtenders.Theywouldfirsthavetoberestructuredandthenprivatizedinbankruptcyproceedings.BankruptcyreforminSerbiawasthuscloselylinkedtoprivatization.

The law then in effect—on forced settlement, bankruptcy, and liquidation—wasnot adequate. Courts applied it unevenly, opting in many cases for an unofficialand ad hoc “working bankruptcy” that prolonged the existence of uneconomicalenterprisestopreventjoblosses.Thelawalsofailedtoproperlydefinetherolesandresponsibilities of bankruptcy administrators and creditors, and it contained noprovisionforreorganizingviablecompanies.

Drafting and passing the new law

Vlahović,whosevisionandsupportofthereformprocesswerecrucialinlaunch-ingthebankruptcyreform,decidedtopushforwardwithplanstoprivatizeSerbia’sstateandsociallyownedenterprisesandintroduce, intandem,anewbankruptcylawattherepubliclevel.HeorderedanewlawdraftedinDecember2001,delegatingthetasktoaninitialworkinggroupthatincludedseveralcommercialcourtjudges,lawyersandlawprofessors.

Progressonthenewlawwasrelativelyslowuntil2003,whendonorpressureandtheneedtofitthelawintotheSerbianparliament’sscheduleledVlahovićandDeputy

Faster, more orderly exitJustinYap

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Minister Mirko Čvetković to demand an accelerated timeframe. At his request,a group of 4 Serbian and several foreign experts from the World Bank and U.S.AgencyforInternationalDevelopment(USAID)producedafirstdraftwithinthetimedemanded.

ThecoregroupsubmittedthedraftforpublicconsultationwithvariousSerbianlegalauthorities,includingjudgesofthecommercialcourts,thehighcommercialcourts,and the Supreme Court of Serbia, as well as chambers of commerce, attorneys,andlawprofessors.Inaddition,thechambersofcommerceorganizedforumsandroundtablestopromoteanddiscussthedraftlaw.

TheMinistryofEconomydistributedthedrafttotheMinistriesofFinance,Justice,andLabor(aswellasthemajortradeunions)forreviewandcomment.AftertheMinistryofEconomyreviewedthecommentsandfinalizedthedrafttext,thegov-ernmentofSerbiaapprovedthedrafton5June2003.ThedraftwasthenhandedovertoalegislativepaneltopolishthetextandprepareitforreadingbyParliament.

Threemonthsearlier,however,theassassinationofPrimeMinisterĐinđićplungedSerbiaintoapoliticalcrisisthatstalledthelaw’spassage.Afurthersetback:theDe-cember2003electionsbroughttopoweragovernmentthathadnointerestintheproposedlawandthatwithdrewthebillfromParliament.OnlyinMarch2004didthegovernmentpickupthedraftagain.InJuly2004,ParliamentapprovedaversionofthedraftrevisedslightlytoincludetheUNCITRALModelProvisionsonCross-Border Insolvency. The Law on Bankruptcy Proceedings entered into force on 2August2004andtookeffecton2February2005.

Training administrators and judges

Trainingtheadministratorsandjudgeswasimportantinimplementingthenewlaw,whichcouldworkonlyifthepartieswithadirecthandinbankruptcyproceedingswerefamiliarwiththelaw.SerbiaenlistedUSAIDandGermany’sGesellschaftfürTechnischeZusammenarbeit(GTZ)toputtogethertrainingprograms.

Administrators—valuations in 22 minutes! USAID organized 6 seminarstotrainadministrators.“Theseminarsfocusedonpracticaltraining,”explainsMiloStevanović,theUSAIDconsultantwhoassistedthecommitteeindraftingthelaw.Forexample,theseminarstriedtoeducateadministratorsonhowtoworkwithinthenewlaw’sstricttimelimits.“Administratorsthoughtitwasimpossibletoperformavaluationin30days—theythoughtthat1personwouldhavetocounteverynutandboltinthefactory,”Stevanovićcontinues.“Webroughtin1professionaltrusteeandaskedhimtogiveavaluationofthehotelwheretheconferencewastakingplace.Hecameupwithavaluationin22minutes—everyonewasstartled.”Otherseminarsemphasizedotherpracticalissues,fromdemonstratinghowmanycreditors’claimsanadministratorcanevaluatein1hour,tohowtoconductassetsales.

Bankruptcy CASE STUDY: SERBIA

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Judges—observing proceedings firsthand in Los Angeles.Soonafterthereleaseofthefirstdraft,SerbianmembersoftheoriginaldraftinggroupjoinedU.S.andGermanexpertsintouringthecountry’scommercialcourtstoseetheproposedchanges.

USAIDalsosponsored2conferencesforSerbianjudgestodiscussissuesthatarosein their practice, the first in Vršac, a town in the Vojvodina region near the Ro-manianborder,and the secondatLepenskiVir, a significantarcheological site ineasternSerbia.ThenewlawmetconsiderableresistanceandskepticismattheVršacconference, but the judges warmed to the law somewhat at Lepenski Vir, as theygraduallybecamefamiliarwiththereforms.

Somecommercial court judgesalsohad theopportunity toobservefirsthand theworkingsofbankruptcycourtsoverseas.USAIDconsultantStevanovićled3groupsof8commercialcourt judgeson1-or2-weekstudy tours toLosAngeles, toob-servetheU.S.BankruptcyCourtfortheCentralDistrictofCaliforniainaction.ThejudgessawhowU.S.judgesreliedonattorneystodraftorders,usedautomation,andrantheirbackoffices.

AccordingtoStevanović,itwasan“eyeopener”forthejudgestoseetheoperationalnuancesofacourt thatworksquickly,effectively,andefficiently: “One judgesaidshehadthoughtthereformsweremovingmuchtooquickly,butonceshesawhowthingsworkedinLosAngeles,shesaidsherealizedthat‘wewereincrediblybehindandhadtomovemuchfaster.’Anotherjudgereportedthat,ifhehadhadtheclarityofwhathesawinLosAngeles,hewouldneverhaveopposedthechangesinthelawinthefirstplace.”InStevanović’sopinion,thestudytoursbenefitedtheimplement-ersofthereformasmuchastheybenefitedthejudges:“Foreverydimewespenton[thetours],wesavedtimeandeffortonovercomingresistancefromthejudges.Theywerewelcoming[thenewlaw]insteadoffightingit.”StevanovićsaidthatthestudytoursalsobolsteredUSAID’scredibilityasreformers,asjudgescould“feelandtasteandsmell”forthemselvesthatwhattheywerebeingtoldwasnotjustdrytheory,butcouldbeappliedintheirpractice.

TrainingforjudgesdidnotendafterParliamentpassedthelaw.BeginninginJune2004GTZorganizedsix2-dayseminarsforCommercialCourtjudges,ledbyJudgeRudolfVoss,anexperiencedinsolvencypractitionerfromMunich.

In2006GTZorganized4roundtablesattendedby15–20commercialcourtjudgesand representatives of the Privatization Agency and the Bankruptcy SupervisionAgency.Theroundtablesallowedparticipantstodiscussissuesinimplementingthenewlaw,especiallyproceduresinvolvingsociallyownedenterprises.Basedonthejudges’ownevaluations, thesessionswerea“comprehensivesuccess.”MilošBaltić,coordinatorforGTZ,observes,“Althoughbothsideswerereluctanttoopenthedia-logueatfirst,afterthefirsthalfhour,itwasdifficulttogetthemtostoptalking.”


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Eliminating delays

Lawyers,administrators,judgesontheHighCommercialCourt,andofficialsintheBankruptcySupervisionAgency,whilevoicingsomereservations,declaredthem-selves satisfied with the reform. One attorney noted that bankruptcy proceduresnowmovemuchfasterandthatthereisnoroomfordelaysanduncertainties.Otherimprovementsincludetheenhancementoftheroleofcreditorsandthemorestrin-gentqualificationsrequiredofbankruptcyadministrators.AccordingtoJayAllen,insolvency counsel at the European Bank for Reconstruction and Development(ERBD),thereform“leadsthewayintheregion.”Meanwhile,theWorldBankcom-mendedthelawasbeing“designedtominimizetheimpactofexistinginstitutionaldeficienciesinthejudiciaryandthetrusteecommunity.”

TheBankruptcySupervisionAgencyisoneoftherealinnovationsofSerbia’sbank-ruptcy law, especially in the Balkans and continental Europe. An agency withintheMinistryofEconomy, itwascreatedtoregulatethebankruptcyadministratorprofession.RobertGourley,oneofthearchitectsofthereform,saysthathisexperi-ence with the Canadian licensing system led him to promote a similar system inSerbia.Thecodeofethicsandprofessionalstandardsforbankruptcyadministratorswasanothermajorstep.Sofar412individualshavepassedthelicensingexamforbankruptcyadministrators,339arelicensedbytheagency,and237areinvolvedinbankruptcycases.

The law measurably improved all the major areas it was intended to address

Strict deadlines. The reforms set clear timeframes for completing particularpartsofthebankruptcyprocedure.Theaveragetimeforacompanytogothroughbankruptcyhasfallenfrom7.3yearstoonly2.7.Thisshorterdurationhasalsore-ducedthecostofbankruptcyandenhancedrecoveryforcreditors.Allwage,rent,andutilityexpensesincurredbythedistressedcompanyafterthestartofproceed-ingsareconsideredbankruptcycostsandhavepriorityovertheclaimsofunsecuredcreditors.

Clearly defined roles of bankruptcy administrators. Thenewlawre-quires thebankruptcyadministrator toconsultwithcreditorsonmost importantdecisions. For example, the bankruptcy administrator must now obtain creditors’writtenconsentbeforesellinganyassets,takingaloan,orgrantingalien.

Reduced corruption. Only timewill tellwhether thenew laweliminatescor-ruption.Butthelawputsinplaceseveralmechanismsthatdiscouragecollusion:thelicensingofbankruptcyadministrators;theseparationofpowersamongjudges,ad-ministrators,andcreditors;andcreditors’greaterabilitytoinfluenceanddetermineoutcomes.Thenewlawalsorequirescreditors’writtenconsentforassetstobesoldthroughdirectnegotiationswithaprivatebuyer.


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Priority rankings to creditors’ benefit. Secured creditors now enjoy a“super-secured” position that stands above and apart from the priority rankingsgrantedtoothercategoriesofcreditorsandclaims:(1)bankruptcycosts,includingpost-bankruptcywages,rentandutilities;(2)pre-bankruptcywagesupto1year,andunpaidsocialsecurityandhealthcontributionsforupto2years,beforetheopeningofthebankruptcyproceedings;(3)taxclaimsupto3monthsbeforetheopeningofthecase;(4)allothercreditors.Thetimerequirementsreducetheclaimsrelatedtobankruptcycostsandpre-bankruptcywages,benefitingunsecuredcreditors.

Higher qualifications for bankruptcy administrators.Althoughmanyof theadministratorswhopassed licensingexamswerealsoadministratorsunderthe old system, Jovan Jovanović, director of the Bankruptcy Supervision Agency,reportsthatthelicensingrequirementshavehadapositiveeffectonadministrators’senseofprofessionalism.Thepassratewasonlyabout20–25%forthefirstexams,but50%forthelastexam.Jovanovićsaidthatthisincreasewasduetoadministra-tors“takingtheirjobsmoreseriously.”

Buy-in is crucial

Obtainingthebuy-inofthevariousstakeholderswascrucialtothereform’ssuccess,butalsoanareawithlessonsforfuturereformsinSerbiaandelsewhere.Meetingswithunionrepresentativestovetthelawallowedtheunionstofeelthattheycouldhavetheirsay.Andintheendtheunionscameoutforthelawbecausetheyreceiveda(capped)wagepriorityclaimthatnonethelessrankednearthetop.

Notallstakeholdersgavetheirunequivocalbuy-in.Despitetheapparentsuccessofthetrainingforjudges,perceptionsofjudges’acceptanceofthenewlawaremixed.Gourley,oneof thekeypeoplebehind thereform,explained that,byaltering thebalanceofpowerbetweenjudgesandcreditors,thenewlaw“underminednotonly[judges’]independencebutalsotheirfreedomofaction.”That,ofcourse,waspre-ciselythepoint.Asaresult,thelawwasneverwidelyacceptedamongalljudges,andtodayasegmentofthejudiciaryconsistseitherofpassivecooperatorsorjudgeswhoareactivelytryingtounderminethelaw.

OneuniqueoutcomeofSerbia’sbankruptcyreformistheemergenceofanadhoccommitteethatgroupsrepresentativesfromthePrivatizationAgency,USAID,andGTZ, as well as 2 supreme court judges, 2 high commercial court judges, and 6commercial court judges. At its biweekly meetings, 20–25 people discuss issuesin the day-to-day practice and implementation of the bankruptcy law. The issuesraised—typically5or6permeeting—aretrackedandrecordedonagrid.Themeet-ingshelppreventmisunderstandingandmakeiteasiertogetstakeholders’buy-in,sinceinterestedpartiescanvoicetheirconcernsandrespondtoreal-lifeissuesthatcropupinimplementingthelaw.


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New bankruptcy supervisory agency—a great success, but…

The Bankruptcy Supervisory Agency is generally recognized as one of the greatsuccessesofthereform.Butthereisdisagreementoverwhetherithasassumedthefullmantleofdutiesitwasintendedtotakeon.Ithasbeenverysuccessfulintrain-ing administrators, instituting professional standards, conducting examinations,andissuinglicenses.Butithasnotyetassumeditsintendedsupervisoryand—es-pecially—disciplinary functions, stymiedbyanonbindingsupremecourtopinionlimitingitsregulatoryfunctions.

Oneobserver,toremainanonymous,says,“Theagencywastold,‘You’retheregula-tor’andtheresponsewas‘What’saregulator?Youcan’texpectsomeonetomakefireiftheyhaven’tseenfirebefore.’”Thatmakesiteasyfortheagencytostrayoutofareasitwassupposedtoregulateintoareaswhereitwasnot.

Overall, however, Serbia’s experience of bankruptcy reform appears to be an ex-ampleof agenerally successful reform that continues to inspire efforts to furtherimprovethecountry’sbankruptcylaw.


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EgyPt

AshrafAlArabiDeputy Minister for Tax Policy

AmrELmonayerSenior Assistant to Deputy Minister of Finance

MohamedFahimPriceWaterhouseCoopers, Cairo

SherifMansourPriceWaterhouseCoopers, Cairo

GeertenMichielseEconomist, International Monetary Fund

TerrenceMurdochUSAID, Cairo

VictorThuronyiInternational Monetary Fund

EL SALvADoR

MayradeMoránDirector of the Commission for the Study of Reforms to the Commercial Code

FelixSafieDirector, the National Central Registry

ManueldelValleDirector of the Commercial Registry (June 2003)

EduardoZablah-ToucheHead of the Technical Secretariat of the Presidency

FyR MACEDonIA

MileBoskovPresident of the Confederation of the Employers of the Republic of Macedonia

MarkoCulevpart-time employee at fX3X

MilivojeDzordevicManager and owner of fX3X

NikolaEftimovFederation of Trade Unions of Macedonia (SSM)

DraganJovanovskiHead of the legal department of a labor union

ValentinoKonstantinovskiManager and owner of Etapa Project

ArvoKuddoSenior Economist, World Bank

SlagjanMijalovskiManager and owner of Infinite Solultions

EvgenijNajdovEconomist, World Bank, Skopje

AcoSpasevskiMacedonian Chamber of Commerce

DarkoVelkovManager of Vrabotuvanje.com (Employment.com) and owner with Vrabotuvanje Leasing

ThecasestudiesweresponsoredbytheDoing BusinessprojectandUnitedStatesAgencyforInternationalDevelopment.

AmyAllen,TomJersild(independentconsultant),JimMcNicholas(independentconsultant),KirilMinoski,JamesNewton,FarahSheriff,ZoranSkopljakparticipatedinpreparationofthecasestudiesbyBoozAllenHamiltonInc.onbehalfofUSAID.

Doug Balko, Caroline Brearley, Jelena Bulatovic, Wade Channel, Irina Gordeladze, David Gosney, PeterLampesis,MargaretaLipkovska,MarioMartinez,StevenNdele,CoryO’Hara,MarkPickett,MajaPiscevic,AmyCoganWares,LisaWhitleyofUSAIDprovidedcommentsandreview.

ThecasestudieswereeditedbyBruceRoss-LarsonanddesignedandproducedbyGerryQuinn.

Theprojectwasmadepossiblebythegenerouscontributionofmorethan100publicofficials,lawyersandbusinesspeople:

Acknowledgements

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MExICo

JorgeFamiliarCalderónExecutive Director, World Bank

JoséAntonioGonzálezAnayaDirector General, Securities & Insurance, Ministry of Finance

EugeniaGonzálezRivasJunior Partner, Goodrich, Riquelme y Asociados

YvesHayaux-du-TillyLabordePartner, Jaureguí, Navarrete y Nader S.C.

JorgeSánchezJunior Partner, Goodrich, Riquelme y Asociados

nIgERIA

HabeebAdewaleOlumuyiwaAbiruJudge in the Land Division at the Lagos High Court

AugustineAdetulaAde-AlabiChief Judge of Lagos State

AdolphousAkwumakwuhieAssociate attorney at Aluke & Oyebode

JoannaKataBlackmanConsultant, World Bank

AbisoyeEstherAyoJudge in the Commercial Division at the Lagos High Court in charge of the CAIS project

AnseAguEzetahPartner at Chief Law Agu Ezetah & Co.

TundeFagbohunluAttorney at Aluko & Oyebode, former member on the Committee establishing the 2004 High Court Rules

JeanPaulGauthierConsultant, World Bank

DanladiHaliluSecretary at the National Judicial Council

AdeIpayeSenior Special Assistant (Legal Matters) to the Governor of Lagos State

O.AtinukeIpayeJudge in the Commercial Division at the Lagos High Court

Alh.MuktariA.TambawelDeputy Director at the National Judicial Council

YemiOsinbajoAttorney General & Commissioner for Justice of Lagos State

EmiolaOyefugaSenior State Program Officer, UK DFID Security, Justice and Growth Program Nigeria

PAkIStAn

ManzoorAhmadAmbassador and Permanent Representative of Pakistan to the WTO

SERbIA

JayAllen,MilošBaltić,NatašaCvetićanin,PredragDejanovićAttorney at Law, Ninković Law Office

AleksandarDmitrovAttorney at Law, Prica & Partners

NikolaĐorđevićAttorney at Law, Janković, Popović & Mitić

JelenaEdelmanAttorney at Law, Prica & Partners

JelenaGazivodaAttorney at Law, Janković, Popović & Mitić

RobertGourleySenior Private Sector Development Specialist, The World Bank, Advisor to the Privatization Agency of the Ministry of Economy

HugoGreenAdvisor to the Serbian Privatisation Agency Bankruptcy Unit and to Serbian Bankruptcy Supervision Agency

JovanJovanovićDirector, Bankruptcy Supervision Agency of the Republic of Serbia

BiljanaKozlovicAdvisor, USAID-Serbian Enterprise Development Project

BrankaKulićDeputy Director, Bankruptcy Supervision Agency of the Republic of Serbia

Acknowledgements

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RadomirLazarevićPresident, High Commercial Court of the Republic of Serbia

AndrejaMarusicAttorney at Law, Council for Regulatory reform and Chair of the Board of SBRA

MihajloPricaAttorney at Law, Prica & Partners

MajaPiscevicSenior Legal Advisor, Economics and Governance Office USAID/ US Embassy Belgrade

MomirRadicAttorney at Law, Radic Law Office

DraganaStanojevicDeputy Chief of Party, USAID/Bankruptcy and Enforcement Strengthening Activity (BES)

MiloStevanović,ChiefofPartyBankruptcy and Enforcement Strengthening, Com-mercial Court Administration Strengthening Activity, Booz Allen Hamilton

JelisavetaVasilićformer Justice, High Commercial Court of the Republic of Serbia

DjordjeVukoticAttorney at Law, Council for Regulatory Reform

TanjaUnguranAttorney at Law, CMS Reich-Rohrwig Hasche Sigle d.o.o.

Acknowledgements

Celebrating

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