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Bank-led Restructuring in Poland: The Conciliation Process in Action

Gray Ch., Holle A.
The Economics of Transition, , 1996

The Economic of Transition, Fall 1996

Abstract

Poland's 1993 Enterprise and Bank Restructuring Program (EBRP) tried to force state-owned commercial banks to build institutional capacity and resolve their problem loans. The outcome of its innovative bank-led workout ("conciliation") process, documented in this study of 62 firms, is decidedly mixed. The EBRP forced banks to confront their problems, helped them build institutional capacity in their workout units, and furthered the difficult task of weeding out and closing clearly unviable firms. Yet it had limited power to promote needed restructuring or privatization in firms. The conciliation agreements were relatively unsophisticated and included few tangible requirements for operational or managerial change. The first two years of implementation saw a slowdown (over earlier years) in the rate of layoffs, a decline in average operating profitability, and very little real privatization. The main impact of conciliation appears to have been to reduce debt service and thereby give firms "breathing room."