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> The absence of ownership links and the existence of a well functioning legal framework in Norway were favorable initial conditions for restructuring - as evident in its overall incentive structure's score of 2.9 (see Table 4). Adequately capitalized banks as well as the improvements in banks' operations and in the accounting framework during the crisis period provided creditors and borrowers with the incentives to engage in restructuring. Among the seven countries, Norway's framework - which scored the highest of the country cases (3.3) -was the best placed for applying the decentralized approach. While it is difficult to separate the effects of proper incentives from the economic recovery that began in the last year of the crisis, the financial positions of both banks and corporations quickly turned around.

While the incentive framework was relatively weak in Poland at the start of the crisis (compare Table 5), the government enhanced the framework by significantly augmenting bank capital positions and accounting regulations and severing ownership links between banks and corporations. Moreover, the bank and enterprise restructuring program included conditions on bank recapitalization and time-bound limits on debt workouts. Poland succeeded to reduce the bad debt problems of the seven participating banks and managed to encourage some operational restructuring by enterprises during the period of the program. The restructuring program led to improved quality of borrowers, increase in bank equity, improved bank lending and strict prudential rules (International Monetary Fund 1999c). Nevertheless, two Bank studies have concluded that operational restructuring as a result of the debt workouts occurred at a much slower pace than expected (Gray and Holle, 1996a; World Bank 1997b). In the end, the quick resumption of growth in Poland, as GDP rose at an average 6 percent per year in 1993-96, helped accelerate enterprise restructuring (World Bank 1997c; 2000a; Barbone 2000).

The decentralized corporate restructuring strategies that governments adopted in Argentina, Hungary, Japan and Thailand were and in some cases are still severely hampered by an inadequate incentive framework. In these countries, corporate debt levels continued to be high and companies' financial structures remained weak, five years into the crisis.

Argentina's overall incentive framework was barely strengthened such that the framework was still not conducive for corporate restructuring five years after the onset of the crisis. The government aggressively implemented a costly strategy of bailing out insolvent borrowers. Along with such strategy, the authorities relied on liquidations or forced mergers of financial institutions to resolve the crisis. Despite these efforts, the corporate sector was persistently in financial distress (World Bank 1985) and the government failed to address weaknesses in the capital position of banks, accounting rules and legal framework amidst a fragile macroeconomic environment.

With a weak incentive framework (a score of 1) at the outset (compare Table 5), Hungary relied heavily on public injections of capital to strengthen the incentives for restructuring. However, repeated public recapitalizations - without strengthening bank incentives and supervision nor empowering the out-of-court system - did achieve little progress in enterprise restructuring. Five years later, Hungary's banking problems continued to remain unresolved and the financial position of the corporate sector continued to be weak. The situation improved markedly only after the authorities changed course four years after the crisis began and opted not only for bank privatization but also for a comprehensive reform of the regulatory framework and