# V. **Lessons from Cross-Country Experience**

Table 4 summarizes the main characteristics of the country cases including the size of the banking system and the depth of the capital market, the quality of the legal framework as measured in the enforcement of creditor rights and the arnount of assets transferred to the respective AMCs. As the Table indicates, initial conditions for AMCs were significantly weaker in the developing economies while at the same time AMCs in these countries had to deal with a notably larger problem as assets transferred to these agencies accounted for a large amount of banking system assets. For example, the legal framework was considerably weaker in developing countries and capital markets were less developed, as indicated by the low bond market capitalization. Governments in Ghana and the Philippines tried to compensate for the weak legal framework by granting superpowers to their respective AMCs (see Table 5). In both cases this strategy proved ineffective as despite strengthened creditor rights the courts remained either debtor friendly-Ghana-or the overall efficiency of the court system did not improvePhilippines.

**Table 4 Characterization of Country Cases**

||||Initial Co|nditions||
|---|---|---|---|---|---|
||Enforcement<br>of creditor<br>rights|Private<br>sector<br>claims in<br>percent of<br>GDP|Bond market<br>capitalization<br>in percent of<br>GDP (Private)|Peak level of<br>NPLs<br>(in percent of<br>financial system<br>assets!|Amount of assets<br>transferred (in percent of<br>financial sstem assets)d|
|Finland|18.0|87|39.7|18.7|5.2|
|Ghana|1.0|6|NA|60.0|50.8|
|Mexico|6.0|41|1.1|18.9|17.0|
|Philippines|7.7|79|16.6c|23.1|21.7|
|Spain|8.0|88|43 <sup>.</sup>2<sup>d</sup>|5.7|1.4|
|Sweden|24.0|145|_58.5_|10.8|7.4|

_Source:_ a. The product of an index of how well the legal framework protects secured creditors and a law and order index. Creditor right index taken from Porta et al (1997) and law and order index taken from International Country Risk Guide, various editions. The index ranges from 0 to 24 with 0 as the lowest and 24 as the highest score. d. author's calculation. b. IMF, International Financial Statistics. Private sector claims and bond market capitalization are shown at the onset of the financial crises in these countries. c. 1983. D. 1990.

Table 5 presents an overview of the main characteristics of the AMCs established including its narrow objective, type of assets transferred-real estate assets or assets or loans to politically motivated loans-the independence of the agency, legal superpowers and funding resources. The table highlights that the success of the AMCs in developing countries was mainly hindered by the following factors. Firstly, AMCs in developing countries mostly received non-real estate, state-owned enterprise assets, or assets reflecting political connections. All of these types of assets tend to be harder to restructure especially for a government agency. Secondly, many AMCs in developing countries had to resolve large amounts of banking system assets and received assets regardless of their size. Thirdly, AMCs in developing countries were not set up as independent institutions and thus were susceptible to political pressure. Finally, they