Investment Compact Project Team Meeting

1. Regional Flagship Initiatives (RFIs)

On the following two pages a summary chart of the 18 regional flagship initiatives proposed by international agencies and SEE Country Economic Teams is outlined. This shows all RFIs proposed to date. All detailed information available on these has been previously circulated to Project Team members.

2. Status of RFIs

At the 1 ^st meeting of the Investment Compact Project Team in Ljubljana on the 19 April, 2000 the first group of 6 priority RFIs was selected for action and funding. This was done mainly on the basis of the ratings received from CETs and Project Team members and evaluation by OECD These six RFIs are shown in bold font on the chart outlining all proposed activities and some summary comments on action (see pages 3 and 4). In some cases initial funding has been provided and further support will be made available subject to performance in developing work programmes.

At an informal meeting of CET Leaders in Bucharest on 30 May, 2000 it was decided that two additional RFIs dealing with Corporate Governance and the South East Europe Economic Forum should be progressed and presented at the Project Team meeting on 6 July for approval. These are also shown in bold font on the chart (see no. 7 and 8 on page 4) and fuller details of these RFIs are attached to this note (see pages 6 and 10 respectively). Investment Compact Team members are requested to approve the action proposed with these RFIs.

Investment Compact Project Team members are invited to comment on remaining RFIs listed in the attached chart. In some cases there are a number of items under one heading. Some of these activities need further review as they appear to overlap with existing ones. Therefore funding for such activities is not being provided until the need, purpose, scope or amalgamation of the type of initiatives is reviewed (for example, there have been 3-4 recommendations to establish new websites, which requires a coordinated approach).

3. Request to Project Team participants at London Meeting, 6/07/2000

Attendees at the meetings are requested to review this list and (a) note the progress with RFIs approved (b) approve the two additional RFIs proposed for implementation in 2000 and (c) give their views on which further RFIs should now be considered for funding .

It should be noted that it will not be feasible to fund all RFIs under (c) for the amounts requested at this point of time. Moreover, the list of RFIs needs to be further scrutinised and evaluated. There are a number of RFIs that overlap, other RFIs may not be necessary because of work already done or underway and in some cases it is not clear that proposed RFIs will have significant impact on policy reform to warrant funding.

Corporate Governance Roundtable for South East Europe

Background

In the framework of the informal consultations taking place on RFIs submitted for consideration by the Project Team, the proposed initiative on Corporate Governance is deemed a very important one for a number of partners from the region, several international organisations and aid institutions. Statements in this respect were also made at the working meeting of Country Economic Team leaders, held in Bucharest on 30 May. It is therefore proposed that this RFI should be supported under the Investment Compact.

In order to structure the initiative in a way to best address the needs of all partners from South East Europe, it is proposed to proceed with an intermediate step this year, namely with the organisation of a senior experts meeting reviewing corporate governance in one country from the region. In a separate session of this meeting, the experts of the region will be provided with the opportunity to make short presentations on the main characteristics and respective current problems facing corporate governance. Concrete considerations regarding the possible implementation of the proposed regional initiative on corporate governance will be made at the concluding session.

Following interest expressed by Romania regarding this initiative, it is proposed to organise a meeting on "Review of Corporate Governance in Romania". The meeting would take place in November/December 2000, the venue will be determined at a later stage.

Objectives of the meeting : (i) Review the corporate governance landscape in Romania to consider possible policy measures to improve corporate governance (ii) Present trends in international governance to economic decision-makers in Romania in order to create a better understanding of the fundamental role of corporate governance (iii) Explore the possibilities of expanding the initiative to the region and the concrete activities to be implemented.

Outputs of the meeting :

1. Launch of policy dialogue between a network of senior policy-makers, regulators and market participants from OECD and SEE countries and identify issues of particular interest in the region. In this introductory meeting, future needs and priorities will be explored for (a) further country-specific work in Romania and (b) a regional initiative.

2. Preparation of a country review on the main corporate governance trends in Romania, using the OECD Principles of Corporate Governance as a conceptual framework. This could include an empirical survey of ownership structures, corporate governance practices and regulatory provisions.

Co-operation with other Project Team members

Co-operation with other Project Team partners is important in order to explore synergies, speed up the launch of the activity and secure its financing.

The WB and USAID have been particularly active in corporate governance in Romania. Given the existing agreement between the OECD and the WB to jointly work on promoting good corporate governance, the OECD will seek WB co-operation in the preparation and organisation of the initial meeting, as well as for the follow up. USAID knowledge of the subject through country specific work, including in Romania and the region, is particularly important in order to better understand and address the specific needs of the region. The avenues for co-operation with the USAID will also be explored

What follows is the description of the overall regional flagship initiative, as formulated at this stage. The considerations and proposals of Project Team members regarding the content and output, will be used to prepare a final proposal. The latter will be presented and discussed at the proposed initial meeting of this initiative on "Review of Corporate Governance in Romania".

Introduction

Good corporate governance is essential to attract and retain investment and is also an important contributor to the performance of enterprises. Though the importance of good corporate governance has long been recognised, it became a priority issue as a result of a number of regional crises in the financial markets. It is now recognised that better corporate governance can result only from a sustained effort to improve the regulatory/legislative framework, the institutional capacity for its implementation and, most importantly, private sector practices and perceptions.

The OECD and World Bank agreed in May 1999 to work closely in promoting improved corporate governance worldwide by establishing the Global Corporate Governance Forum on the basis of the OECD Principles of Corporate Governance.

Three Regional Roundtables have already been launched for Russia, Asia and Latin America. The launching of other roundtables (for Africa, Middle East/North Africa and Eurasian Transition Economies) is currently been considered with regional partners.

The South East Europe Corporate Governance Roundtable

The overall goal of the proposed South East Europe Corporate Governance Roundtable is to assist decision-makers from the public and private sectors in their efforts to improve corporate governance in the region. This will be achieved by providing a forum for the discussion of best practice and national experiences in a multilateral setting. The creation of the Roundtable responds to a demand for advice from the public and private sector experts, who seek to build confidence in the South East Europe markets and the rule of law.

Objectives

1. Promote better corporate governance in South- East Europe.

1. Improve the understanding of corporate governance and assist in developing policy responses.

1. Promote an ongoing dialogue between the private and public sectors.

1. Monitor and evaluate developments in the region.

1. Identify needs for technical assistance in the region.

Main Outputs

1. Policy meetings. The Roundtable will bring together a network of the main decision-makers from the public and private sectors (see Part C) to provide policy advice and to facilitate an exchange of multilateral experience.

Rationale: This will provide the main vehicle for eliciting discussion on corporate governance conditions and setting priorities for reform efforts in South East Europe.

(A) Meeting agendas will reflect the main chapters of the OECD Principles. Empirical studies and other policy papers will be prepared along the same lines, providing a basis for discussion between the public and private sectors. Policy recommendations will be formulated. To implement reforms, participating institutions from South East European countries may use the conclusions and recommendations from the discussion and papers. However, it is not the intention of the Roundtable to perform a detailed review of legislation. (B) In addition, the Roundtable could act as a clearing-house for needs and supply of technical assistance, facilitating the co-ordination of coherent and continuous policy advice to the region on corporate governance by various donors. (C) The Roundtable will also help channel international expertise, providing guidance and s upporting local efforts to introduce mandatory and voluntary standards , driven by professional associations, large companies and investor groups. This could complement efforts at the regulatory and enforcement level as well as help the emergence of a culture of compliance and disclosure.

Timetable: Four meetings will be planned until the end of 2001. Meetings will cover issues such as shareholder protection and equitable treatment, transparency and disclosure, as well as the role of the boards.

2. A dedicated internet site and discussion group. These will serve as tools for information dissemination and exchange. A n electronic discussion group will be set up to allow Roundtable participants to engage in a year-round discussion and exchange information on issues of immediate concern.

Rationale: The dedicated internet site will provide investors, companies, government officials and civil society with a venue to share prominent research, working papers, studies and information on the latest regulatory and practical developments in the area. It will allow Roundtable members to m onitor and co-ordinate the reform effort, identify needs and survey progress through the literature.

Timetable: The electronic discussion group will be created at the beginning of 2001. A dedicated internet site will be developed in mid-2000 and maintained by South East Europe partners, building institutional capacity.

3. A White Paper on corporate governance reform for South East Europe. A corporate governance white paper for the countries of the region will be developed and endorsed by the Roundtable. This would be a consensus-building exercise conducted within this senior but unofficial group of corporate governance experts, aimed at creating a home-grown voice for reform in South East Europe. It will help policy makers, legislators and companies focus their effort to address corporate governance problems at different levels. The White Paper will also serve international financial institutions in their effort to review corporate governance developments and assist reform efforts in a systematic, focused way.

Rationale: The OECD Principles are general in nature. They give a broad, global vision of what constitutes good corporate governance. A reform agenda needs to take into account the specificity of the South East Europe legal and cultural traditions, specific transition-problem with institutions and market conditions in which companies operate. The Roundtable will provide a forum in which the Principles can be used to address specific challenges in the region, providing a template for reform . Like the OECD Principles, the White Paper would be non-binding. Its purpose would be to serve as a reference point. Policymakers from South East Europe could use it as they evaluate and improve the legal, institutional and regulatory framework for corporate governance; companies as they develop their own practices; international organisations and donors to identify priorities for technical assistance.

Timetable: Establish a small drafting group of experts to guide the process in June 2000. Distribute a draft electronically in the end of 2000 and adopt a first draft at the first half of 2001. This would be a working document, which will benefit from the subsequent Roundtable discussions. A final White Paper will be endorsed by late 2001.

Participants and Partners of the Roundtable

The Roundtable will consist of approximately 40 core participants.

South East Europe participation : A major ingredient for the success of this work includes, inter alia , ownership of the Programme by the shared responsibility of authorities and private institutions. The main South East Europe counterparts to this project would be Securities Commissions, self-regulatory associations and shareholders associations. Participants will include the leaders and experts from the stock exchanges, other securities markets institutions and the corporate sector, as well as stakeholders. To give this effort a broader scope, input will be sought from the state asset management and privatisation bodies, competition authorities, etc.

International partners : In addition to the OECD and the World Bank, the EBRD as well as other multilateral and bilateral institutions will be invited to contribute their expertise and financial resources to back the programme. The World Bank/OECD Private Sector Advisory Group will provide international leaders and experts from the private sector. Selected legal, financial accounting professionals and academics might also be invited to participate.

South East Europe Economic Forum

1. Description

The Southeast Europe Economic Forum, this year titled “Economic Growth in Southeast Europe – Re-igniting the Engine: Security, Social, Institutional Aspects” is an annual event, with usual attendance of more that 1000 representatives of the international business circles, politicians, academicians, media representatives, representatives of NGOs, students, etc. It will be held 16-18 October 2000, Sofia, Bulgaria.

The forum will focus on topics, such as the regional aspects of gglobalisation, the Stability Pact for South East Europe – a year later, the EU integration – the regional dilemma, the competitiveness issue, administrative reforms and institutional barriers, public infrastructure, information technologies – the value added in the sector, the media’s vision for the region, etc.

2. Background

It is generally perceived that the level of regional co-operation in Southeast Europe is lagging behind the process of individual country’s integration in pan-European and other regional structures. While all of these processes might have a complementary character, developing regional initiatives, public and private networks leading to a common posture of the countries in the region is a prerequisite in tackling an ever-increasing range of challenges.

Similar attempts have been done elsewhere in the world where Governments, Investment Promotion Agencies, Chambers of Commerce, leading corporate and public figures, have joined forces in an attempt to establish a network capable of integrating efforts and resources in attracting international business to their region. Those attempts have proved successful as countries have realised that they have limited chance of conducting a purely national and isolated economic development strategy.

There is a plethora of events that each country organises in an attempt to attract attention. Many of these are organised by professional organisers, based out of the region, who often fail to display a long-term or consistent commitment to the problems of the country and the region. There are a number of fora and seminars that are organised at different levels in Europe and the world (World Economic Forum, EBRD, IMF-WB annual meetings, etc.) that are dedicated to the region. Yet very few have been generated locally or allow a more detailed insight into the issues from a local or regional perspective.

Hence the need for a Southeast Europe Economic Forum, which could become the regular regional event with each country organising it in a rotational principle. Its first edition in October 1999 was possibly the largest regional economic forum with more than 1000 participants from all over the world. The need to go regional was recognised ever since the Bulgaria Investment Forum and the Bulgaria Economic Forum were held in 1997 and 1998, respectively.

3. Stability Pact Commitments, Objectives

• develop a business dialogue that allows for periodic consultations between the private investors, foreign and domestic and the Government.

• develop a dialogue with other elements of civil society, including trade unions and Non-Government Organisations, on the role of investment in sustainable development.

• identification of investment impediments and a constructive dialogue on regulatory reform and on improving the investment climate.

• strengthen regional and international co-operation.

• Taking effective measures to combat bribery and corruption of public officials, inter alia through enactment and effective enforcement of law on accepting and soliciting bribes as well as regional anti-corruption initiatives.

4. Progress to Date on Forum in 2000

• Main topics of the forum programme developed.

• Speakers identified.

• Networking between government agencies and NGOs established.

• Venue selected and reserved (National Palace of Culture) and time of the forum fixed.

• Initial marketing activities initiated.

5. Contacts – Lead Agency/Agencies