18 out the equity of state-owned enterprises that were also the banks' main borrowers, thus breaking the ownership links between the two entities (Abel and Szakadat 1997; Borish, Ding and Noel 1996a). The Polish govermment prohibited the seven bank participants of the recapitalization program from making new loans to non-performing borrowers (i.e., state-owned enterprises) (World Bank 1993). All seven banks were sold to foreign investors within five<sup>yearsofthe</sup> launch of the conciliation program. The subsequent privatization of the banks in Hungary to foreign investors had a more profound impact ultimately than the repeated public injections of capital (World Bank 1997c; 1999b). To the contrary, in Thailand bank and corporate restructuring continued to be hampered by direct ownership links. And while direct ownership links are limited in Japan, indirect links or the _keiretsu_ structure remained intact and continued to hamper bank and corporate restructuring.

**_Overall conduciveness_** _of_ **_the incentiveframeworkfor corporate restructuring._** Column 6 in Table 5 summarizes the overall conduciveness of the incentive framework for<sup>corporate</sup> restructuring in the sample countries five years after the onset of the crises. As the table illustrates, only Chile and Poland upgraded its incentive framework significantly to<sup>reach2.8 and</sup> 2.5 respectively on a scale from one to four with four signaling a highly conducive<sup>environment</sup> for corporate restructuring. Norway, which started out with a relatively conducive regime, as indicated by its score of 2.8, improved its framework to 3.3 thereby nudging it closer<sup>to</sup> international best practice. The remaining four countries made only limited improvements to their framework leaving impediments to corporate restructuring largely unaddressed. Out of these four countries Argentina's framework remained furthest away from international best practice with a score of 1.2, followed by Thailand (1.7), Hungary (1.9), and Japan (2.2).

# E. **Results of the Restructuring Efforts**

The aim of corporate restructuring is to attain viable corporate financial structures in a reasonable amount of time. Therefore, we determine that a country's decentralized restructuring approach was successful if it has led to viable financial structures of corporations<sup>withina five</sup> year time frame. We assess on a scale from one to four the financial situation of the corporate sector. The decentralized restructuring strategy is then judged to be successful if the overall sector either scores a three or a four meaning that the weighted average interest coverage ratio of corporations exceeded three and that the share of companies with an interest coverage ratio of below one is less than 20 percent.

Figure 4 illustrates that the corporate sectors in only three out of the seven sample countries attained viable financial structures within a five year timeframe. In Chile, Norway and Poland corporate distress was significantly reduced during the crisis period and corporations were put on a sounder financial footing. The remaining four countries-Argentina, Hungary, Japan and Thailand-were less successful in encouraging creditor led workouts and therefore the finns in these countries still exhibited substantial distress five years after the onset of their respective crises.

While Chile started out with a weak overall incentive framework for corporate restructuring, the country updated several components of the framework significantly by