**Pollcy Research**

## **Socialist Economies Reform**

# WPS 893

Thispaper-a productof the Socialist Economies Reform Unit, Country Economics Department-is part of a larger research effort on legal reform in Central and Eastern Europe. Copies are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact CECSE, room N6-035, extension 37188 (April 1992, 35 pages).

The government of Slovenia is moving rapidly to promote the growth of an efficient market economy. One of the most important tasks it faces is the development of a legal framework that can act as a decentralized "invisible hand" to replace previous administrative controls and steer the private market in an efficient direction.

Gray and Stiblar describe the current legal framework in Slovenia in several areas - including contract, company, bankruptcy, constitutional, real property, intellectual property, foreign investment, and antimonopoly law. These areas of law define (I) property rights, (2) the means to exchange them, and (3) t' rules for competitive market behavior. They formn the bedrock of a legal system for a market economy.

The situation that Slovenia faces in undertaking legal reforms differs from that for other Central and Eastern European (CEE) countries for three reasons. First, Yugoslavia took an independent course and began experimenting with the introduction of market forces soon after World War II. As a result, Slovenia - which was the richest of the Yugoslav republics - leads other CEE countries in standard of living, experience with markets, and openness to influences from abroad (particularly from Westem Europe). Second, unlike other CEE countries, the federal structu.e of Yugoslavia over the past 40 years has granted considerable law-making powers to the republics. The issue of federal-republic legal relations and "conflicts of laws" has thus always been central. Third, Slovenia is trying to resolve the question of which Yugoslav laws to adopt and which to replace with wholly new Slovene legislation. Legal "succession" has become a major issue.

Slovenia has progressed steadily toward creating a basic legal framework in which the private sector can grow and develop. It benefits from the efforts that Yugoslav economic and legal reformers have made since mid-1988, and from its willingness to adopt many of the Yugoslav solutions upon independence rather than trying to start again from scratch.

Few changes appear to be needed in some areas of law - including company, foreign investment, and intellectual property law. But in others, such as bankruptcy and antimonopoly law, both the legal framework and the legal institutions to interpret and implement the law still lack an adequate structure and sufficient credibility to support a private market economy. As in other post-socialist economies, real property rights is an area of tremendous uncertainty, both because of Slovenia's determination to reverse the past through reprivatization and because of the limits it places on foreign ownership.

- Finally, true legal reform not just on paper - cannot move more quickly than political and economic reform. If Slovenia can advance on the political and economicfronts as well in 1992, it can create an attractivc setting for new private investment.

_ _ .__ _ _ _ _ _ _ _ _._ _ __ _ _ c The Policy Research Working Paper Series disseminates the findings of work urdcr way in the Bank. An objective of the series is to get these findings out quickly, even if presentations are less than fully polished. The findings. interpretations. and conclusions in these papers do not necessarily represent official Bank policy.

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