Formation of the non‐state sector and privatisation in Kazakhstan and Uzbekistan

In this paper, we take a detailed look at one Polish bank's experiences with financial sector reforms focusing on a bank-led enterprise-restructuring plan that linked directly bank privatization and recapitalization to bad-debt workouts. Based on personal interviews and original statistical data, we evaluate the performance of Bank Depozytowo-Kredytowy (BDK) in promoting financial and operational restructuring of its clients. We found that BDK continued to provide soft lending to keep four old military‐industrial companies afloat and actually increased its exposure to these companies during the program. The five success stories among BDK's clients were companies that had external agents other than the bank promoting and monitoring their operational restructuring. From our case study of BDK, we conclude that, while banks may play a role in financial restructuring of their clients, their ability to affect operational restructuring is quite limited. Moreover, stateowned banks are particularly vulnerable to incentive problems when dealing with large state-owned enterprises that may be too big or too political to fail.