management training and by enabling secondment of best managers<sup>abroadinitiateda process of</sup> substitution of clients and suppliers from the FSU with new ones<sup>from the non-FSUcountries.</sup> Transformed enterprises, managers, consultants now generate demand<sup>for a transformationof the</sup> business environment-which is what PSD III might have done. In<sup>thiscontext, when thereare</sup> strong local constituencies pushing for reforms, the reforms have<sup>a much better chanceof being</sup> implemented. So the first principle is taking a long term view of<sup>the transformationprocess.</sup> Even an orderly exit proved not to be implementable in short term<sup>as themost commonlyfailed</sup> conditionalities had to do with the numbers of enterprises that had<sup>to be liquidated whichthe</sup> governments refused to do or otherwise avoided doing.

## Overview of ARIA Results

Since 1995, The Moldova NGO - "ARIA" - has completed the restructuring<sup>of 90 enterprises.An impactstudy</sup> conducted of the Moldova Project indicates that outcomes have been both<sup>positiveand significant,in termsof</sup> productivity, sales growth, exports, tax payments and other areas. Highlights<sup>of the resultsof theimpact study</sup> are as follows:

- In 1995, the firms that were to receive project assistance were on<sup>average</sup><sup>_worse_offat theoutset than</sup> comparable Moldovan firms that were never helped by the project.

- * By the end of 1999, despite generally worsening economic conditions<sup>in Moldova,Project-assistedfirms</sup> were _more productive andpaid more taxes per worker,_ than their unassisted<sup>counterparts.</sup>

- * Project assistance is consistently, positively and significantly correlated<sup>with realproductivitygrowth,</sup> growth in sales and growth in exports.

- * Project-assisted firms have been significantly more successful in _attractingforeign_<sup>_direct investment,_have</sup> _changed suppliers more aggressively,_ and _rely less on barter and_<sup>_offsets_than other, comparablefirms.</sup>

- * Project-assisted firms have experienced _greater management_<sup>_turnover_than other firms.</sup> * The Project has, in connection with the restructuring of about<sup>90 enterprises, ledto the creationof more</sup> than 450 SMEs. About 80 of these SMEs are spin-offs from restructured enterprises<sup>and the remainderare</sup> either new businesses created from assets sold by restructured enterprises, or independent<sup>smallbusinesses</sup> which have been attracted to newly-created industrial parks.

- * Overall, it is estimated that 9500 employees have been laid off in<sup>ARIA restructurings,while a totalof</sup> 10800 new jobs have been created.

- [Source: 'New Firms from Old: Building Capital through Enterprise Restructuring."<sup>Memorandum by Paul</sup> Siegelbaum, Washington: World Bank, May 2001.]

# _Achieving self-sustainability: large scale of intervention_

To make the home-grown process of transformation self-sustainable,<sup>one or twofootholdsisnot</sup> enough; the inertia of inherited soviet enterprise behavior and dominant<sup>rent-seekingwould</sup> quickly choke the few firms behaving differently. So the second principle<sup>in designing self-help</sup> programs is the scaling up to a critical mass of local advisors capable<sup>of restructuring mass</sup> privatized enterprises, critical mass of managers appropriating<sup>moreglobal approachesand</sup> management style, and a critical mass of reformed and restructured<sup>enterpriseswith ownersthat</sup> understand the need for a level playing field (that does not favor<sup>well-connected,often dying</sup> firms of the past). Working with associations of entrepreneurs,<sup>publicizingwidelyachieved</sup> results in Moldova and other transitional economies accelerates<sup>formationof wider pro-reform</sup> constituencies.

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