What is the LTP?
The Legal Transition Programme (LTP) is the EBRD’s initiative to contribute to the improvement of the investment climate in the Bank’s countries of operations by helping create an investor-friendly, transparent and predictable legal environment. LTP’s activities focus on the development of legal rules and the establishment of the legal institutions and culture on which a vibrant market oriented economy depends.
How do the LTP objectives align with the EBRD's mandate?
The work of the LTP fits squarely into the EBRD’s mandate. The EBRD has long taken the view that the ‘transition agenda’ includes the development of legal rules and the establishment of the legal institutions and culture on which a vibrant market oriented economy depends. The LTP’s raison d’être has evolved steadily over the years as the region’s economies have developed and the need for institution-building has become better understood.
The overarching LTP objective is well-defined. The objective is to contribute to the improvement of the investment climate in the Bank’s countries of operations by helping create an investor-friendly, transparent and predictable legal environment. This objective is implemented by the LTT at three different levels. The LTP: (1) assists the Bank in its own investment strategy, (2) helps governments in the region achieve their institutional and legal reform programmes, and (3) aims to improve the investment climate for all investors.
How did the LTP objectives develop and what is their rationale?
The objective of the LTP was developed very early in EBRD history. It was first stated at the Colloquy on Technical Assistance for Reform of Economic Law organised by OGC in November 1991 and has been regularly re-stated ever since. The LTP has matured with the Bank. Recently, the Bank has also paid more attention to its ability to influence changes through policy dialogue. The LTP has been further confirmed as a key unit for the Bank’s mandate due to its specific expertise and experience in this area.
Are the LTP objectives periodically reevaluated?
The LTP’s specific objectives are periodically reevaluated and detailed in three-year Action Plans. These plans have covered the periods 2004-2006, 2007-2009, and 2010-2012. In each Action Plan, LTP objectives have been adjusted to take into account of the current legal, political and economic environment in the EBRD region of operations, as well as the EBRD’s investment strategy.
Summary of LTP Action Plans - 2004-2012:
The 2004-2007 Action Plan primarily consisted of confirming the structure and operational activities of the Team (extension of assessment work to all focus areas and deepening of standard setting activities). It also incorporated the then-present concern for institution-building (via training activities) and reflected the Bank’s new focus on the early transition countries (formerly named “CIS-7 countries”) by seeking to do more in that region.
The 2007-2009 Action Plan saw a marked extension of LTP work in new, related subjects within the existing focus areas (mortgage legislation, insolvency office holders, corporate governance of banks, training for PPP officials, power sector regulation), which reflected the demand the Team received inside and outside the Bank. It also announced a regional shift towards the east and south, reflecting the widely held expectation that countries of Central Europe would shortly ‘graduate’ from the EBRD.
Finally, the 2010-2012 Action Plan, which was drafted in the midst of the financial crisis, reflected the growing demand for LTP’s work within the EBRD. It emphasised the intention to increase linkages between LTT activities and other EBRD units and to introduce public procurement as a new focus area together with the full deployment of judicial capacity building activities. It also announced the strengthening of the east-south orientation for TC, but also including Russia whilst at the same time remaining open to Central European countries’ requests as a result of crisis.This Action Plan not only confirmed the rolling over of the assessment updates but also declared an intention to work on new impact assessment methodologies, with the view of producing more empirically tested data. Finally it paved the way for the creation of the Financial Law Unit and the work on Energy Efficiency.
How are the EBRD's operational priorities reflected in the LTP?
LTP’s operational needs and priorities have evolved with time in line with the EBRD’s own priorities.
Specific examples include:
- work on Russian Public Private Partnerships, which is fully in line with Municipal and Environmental Infrastructure, Transport, Energy Efficiency and the Russia Team’s mission;
- work on mortgage law, which supports the Financial Institutions and Mortgage Strategy;
- work on corporate governance of banks, which supports the Financial Institutions Group;
- work on warehouse receipts and crops receipts (which support the Agribusiness team);
- work on local capital market development, which support the Bank-wide initiative on Local Currency and Local Capital Market Development ;
- work on infrastructure regulation, which supports the work of the telecoms, power, and natural resources teams; and
- work on energy efficiency, which has become a priority throughout the Bank.
When the LTP Action Plans are prepared, feedback is obtained from the Banking Department and other relevant Units and reflected in the document. The Action Plan is then approved by the Executive Committee, which confirms that the Plan adequately reflects the EBRD’s operational needs and priorities.
How is the LTP currently organised and what are its activities?
The Team is organised as a dedicated team of specialised lawyers working on a series of legal topics and pursuing various activities under a so-called ‘virtuous circle’: standard-setting, assessment, legal reform projects, and outreach. This system has allowed the Bank to establish a strong track-record in legal reform activities. It is noteworthy that the EBRD is the only IFI where legal reform is addressed comprehensively (i.e. via work on standards, assessment, outreach and country projects) and consistently through a single, dedicated unit. In particular, the presence of strong in-house expertise in specific focus areas has been the best strategy to promote successful activities. One of the best examples of this approach is secured transactions, where the EBRD has been a leader for two decades and is highly regarded in legal reform circles as well as in research and academic circles.
What are the core areas for legal intervention?
The selection of core areas is a fluid concept that has evolved over time and is intended to match the Bank’s investment strategy. In particular, since 2001, we have seen new core areas being added (public procurement, judicial capacity building), and also new sub-subjects developed within existing core areas. This is vital in ensuring that the advisory services that the Bank can offer remain at the cutting edge of financial techniques (e.g. securitisation) and take into account new research of legal reform impact (e.g. on credit bureaus). The infrastructure regulation area has also evolved significantly, starting from a pure telecoms focus (which was very much in line with the Bank’s initial investment strategy) to expand into other infrastructure areas such as power and energy, natural resources and ultimately energy efficiency.
Are any changes anticipated in the core legal areas for interventions in the future?
Changes are anticipated in the future, because the EBRD’s investment strategy is constantly evolving, exact predictions cannot be made as how this will be reflected in the programme. An example of change is the addition of public procurement as a new focus area in 2009. Looking ahead, we anticipate that the expansion of EBRD activities to North Africa might make it necessary to introduce new topics to the programme. Another new trend is the growing importance of energy efficiency matters and energy renewables in the EBRD’s country strategies. The LTT has started looking into this sector and is likely to strengthen its energy efficiency activities in the future.
How does the EBRD conduct legal assessments?
Since 2000, the LTP assessment programme has gone from strength to strength, the general trend (as emphasized in the LTP Action Plans) being to complement the analysis of the law with practical input on how the law is being used and how well it fulfills its economic objectives. This has been done in particular through the reformed Legal Indicator Survey which has been carried out since 2003, and also increasingly with assessments that incorporate the ‘law in action’ within their very methodology.
LTT assessments have also been widely published on the EBRD's website, in the Bank’s legal journal Law in transition, and in other EBRD and external publications. They are also used to prepare the legal annex to the Bank’s country strategies and to measure ‘legal risk’ in the context of EBRD investment operations. We believe that making such information widely available encourages local debate about the need for reform within particular countries and also allows governments themselves (or their technical advisers) to tap directly into this wealth of information.
How have the core areas evolved over the years as regards legal assessment work? Are there any anticipated changes to the assessment approach and methodology?
The LTP assessment work is in constant evolution (see ‘Promoting Legal Reform in Eastern Europe: the EBRD Approach’, M. Nussbaumer and F. Dahan). The methodologies have evolved over the years, moving from relatively simple tools (e.g. desk study of the laws as in Sector Assessments) to more complex assessments (e.g. public procurement assessment, telecoms assessment) that include practical information on the effectiveness of the legal framework against its economic objective. This evolution was made possible thanks to the increased capacity of the LTT; in particular the strengthened internal expertise and the reliance on steady annual budgets.
In future, it is expected that the more complex tools, including the analysis of legislation and practice will become the norm. There is also a plan to undertake new assessments that will capitalise on the special position of the EBRD in these markets, by making more use of hard data (as opposed to perceptions).
One example is provided through the implementation of the ‘Distressed debt and creditor rights in enforcement law’ Project. which entails working with local banks that would be prepared to share extensive data on their loan portfolio (including non-performing loans) and to run economic regressions in order to analyse how the present legal framework for secured transactions and insolvency affect the strategy of lenders in dealing with NPLs.
What is Standard-Setting?
LTT has contributed to (and sometimes taken the lead in) the international community’s effort to put in place appropriate standards in commercial legal and regulatory matters.
Given our adherence to the additionality principles, the LTP activities in standard-setting have been tailored towards subjects where we have identified gaps in the existing body of literature and standards (e.g. secured transactions, corporate governance of banks) or needs to adopt a more specific approach to transition economies (e.g. telecoms regulatory infrastructure). The LTP has also endeavoured to favour coordination as much as possible. In many instances, the work has been carried out in conjunction with other international organisations (such as the OECD, IFC, UNECE, etc).
A specific area that deserves attention is the LTT collaboration with the CIS Inter-parliamentary Assembly to prepare model laws. This collaboration has led to the adoption of four EBRD-sponsored model laws (on bank insolvency, investor protection, securities law, and company law).
In addition to these products, all focus areas have developed a set of ‘Core Principles’ covering their respective subject matters. The main purpose of the Core Principles is to express key points in a simple, easily digestible format to start policy dialogue within a given country. These Principles may not be setting standards strictly speaking, but they are nevertheless very useful.
Ultimately, LTP work on standard-setting aims at putting forward a message that is relevant to the EBRD countries of operations and consistent with the Bank’s overall objectives – and, like the assessment work, will hopefully encourage reform.
How is standard-setting conducted in each of the core areas? Are any changes anticipated to the standard-setting methodology and/or activities?
No particular changes are expected on the methodology. The preparation of standards will remain based on a strong expertise in the team followed by an extensive consultation process. We believe that the financial crisis has revived the demand for standard-setting, especially in financial markets, as a way to counteract the risks of developing models that could lead to imbalances and dangerous practices.
Activities will continue to be guided by the additionality principles, which means that standard setting will be pursued on a very selective basis, in areas where the EBRD is particularly well placed for putting forward innovative ideas (e.g. the pre-harvest financing in the form of crops receipts that are currently being carried out by the LTT in conjunction with the Agribusiness banking team). Standard setting will take place where there is a specific need that is not addressed by other organisations.
What is the LTP approach to Outreach Activities?
The LTT counsel have been actively involved in outreach activities towards a wide diversity of audiences: business communities (in public events, conferences, workshops, seminars), Law schools and universities, legal community (contributing articles in EBRD and external publications). LTT regularly hosts conference either in London HQ or in the countries of operations (in 2006 there was a Workshop on Secured Transactions reform and access to credit, co-hosted by the World Bank and the EBRD; A Corporate Governance of Banks Roundtable in Tbilisi (2007) and Belgrade (2009)). These events are ideally placed to make our work better understood by the rest of the Bank and nurture links with other teams in the Bank (Banking, Office of the Chief Economist, etc).
Every year, LTT organizes a ‘legal panel’ at the EBRD Annual Meeting on important legal reform subjects, which again contributes to making LTT visible to the rest of the Bank (and importantly to the Board of Directors).
Moreover, LTT counsel are members of high profile panels in their field of expertise which are set up by sister organisations and other IFIs.
What has been the experience in disseminating the LTP results in the various focus areas? Are any changes anticipated to the outreach methodology and/or activities?
LTT is constantly looking for new avenues in which to conduct outreach activities. For the past four years there has been a successfully run training course on Financial Law Issues for Transition Economies Lawyers together with the London School of Economics.
How does the LTP approach legal and institutional reform? What is the approach to LTP / LTT legal and institutional reform methodology and activities?
- a political commitment by the country’s government for the reform’s broad objectives and implementation of the project (which is confirmed by a formal letter of request);
- a reform area sufficiently close to LTP in house expertise that it is felt that EBRD involvement would add value and in line with the EBRD investment strategy (to that the project can capitalize on the special EBRD status of investor);
- a commitment to undertaking consensus building for the reform among stakeholders, including the private sector;
- sufficient funding to cover external consultancy and other services; and
- additionality vis-à-vis other aid providers.
Given these requirements, the LTP tends to engage in country projects on a very selective basis, after extensive due diligence, and to focus on projects where a strong transition impact can be expected.
Project origination can vary very much: in the past ten years, projects have been brought to the attention of the team either at the initiative of the local authorities or at the request of the Bank.
What activities have been undertaken in each of the core areas? Are there any examples of groundbreaking or innovative projects?
For the LTT in general, the perception of success usually comes from the external recognition of the project’s effectiveness. In other words, we do not take the outputs necessarily as a sign of success, but if third parties or objective assessment confirm the project’s impact, we feel we can declare success.
- The Russia Corporate Governance Code project occupies a very special place in the LTT’s track record, as it involved excellent cooperation with a Russian authority (the Federal Commission on the Securities Market) and delivered a product that was modern for its time (2002). The Code, endorsed by the Government, went on to have a strong impact on the Russian corporate governance landscape following the Stock Exchange decision to make it applicable via a comply-or-explain mechanism.
- The Communications Sector Training Programme, 2009, which is run in the Caucasus has been successful so far. It is a good illustration of the renewed approach to project design, project development and broader dialogue with authorities which we believe is the key to achieving sustainable results.
- The Slovak secured transactions reform project (2000-2003) took place in the ideal socioeconomic and political context, which allowed excellent relevance for the country and quasi perfect efficiency and effectiveness. Moreover, monitoring that was done on the use of the reform has demonstrated its sustainability. For reference, see ‘Why Slovakia has the world’s best rules on collateral’, The Economist, January 2003; ‘The Slovak secured transactions reform: ingredients of a successful reform and reflection on its achievements’, Katarina Mathernova, Secured Transactions Reform and Access to Credit.
How are projects chosen and selected?
There is a mix of scenarios possible. Sometimes a request comes ‘out of the blue’, because the counterpart has heard of the LTP. In other cases, the project is the result of a policy dialogue conducted by the LTT and/or other Bank units in order to address a transition challenge identified in the given country. Before the project can go ahead, a number of conditions must be met, including:
- request from country authorities
- potential for transition impact
- in line with LTP expertise
- additionality (i.e. no other donor providing the same assistance)
- funding available (donor or EBRD)
Can you tell us more about activity specific issues?Has LTP / LTT established partnerships with other assistance providers?
LTT management has aimed to implement the recommendation of an evaluation conducted in 2001 by encouraging the LTT specialist counsel to forge partnerships with other aid providers in their respective focus areas. Generally, it is found that the most efficient way to ensure donor coordination is through personal contacts among specialists as well as regular visits to sister IFIs.
This has led to many links with aid providers. Specifically worthy of mention are the collaborations with IDLO on judicial capacity building matters, UNICTRAL on public procurement, secured transactions and insolvency, INSOL International on insolvency, World Bank-IFC on secured transactions and insolvency, IMF on insolvency, UNECE on public-private partnerships, the OECD and the IFC on corporate governance.
The main actors we see in the countries of operations are the World Bank, the EU Commission, USAID and GtZ. Here too, we aim to coordinate (or even collaborate in some cases). A recent example of such collaboration was the preparation in 2009 of the Judicial Capacity Building Phase V in the Kyrgyz Republic. The EBRD and IDLO collaboration allowed the main organizations working on judicial training in the country to sit at the same table and agree on a division of tasks in the new training programme for candidate judges, based on the respective strengths of each organization.
How does LTP / LTT encourage broader participation from within countries of operation?
Legal reform projects are typically implemented through a transparent and inclusive process and consensus building. LTT counsel meet with a range of interested parties in designing the project (far broader than the government agency making the assistance request) and in many instances facilitate the creation of a working group (official or informal) that draws on a range of government officials and frequently includes judges and private lawyers, business and banking representatives who will oversee the reform. These working group members play a very important role in steering the project once it gets underway. In many ways, we believe that one important contribution that the LTT can make is building know-how within the country on how to conduct a proper consultative and transparent process for law reform.
In what ways does LTP / LTT address issues relating to implementation and enforcement in projects?
The most successful legal reform projects have had implementation and enforcement components, which in some instances have been the core of the project’s activities. During the last couple of years, many projects have implemented this approach. For example:
- Hungary Secured transactions institution building project
- Insolvency Regulator Capacity-Building in SEE
- Russian Insolvency Administrators Capacity Building
- Regional Communications Sector Training Programme, originally focusing on Caucasus countries, more recently extended to other CIS countries)
What sort of role could LTP / LTT play in Advanced Transition Countries (ATCs) in the future?
The latest LTP Action Plan makes it clear that LTT’s interventions will be limited in ATCs. Only in cases where there is a compelling case for technical assistance, accompanied by available funding, will the team be able to engage in TC.
The Plan also states that the global 2009 crisis has slowed down the transition process in ATCs, and that there might be more opportunities there for LTT than previously expected. LTT management believes that the team should remain engaged in ATCs in specific areas. A typical example is the Bank’s Local Capital Market Initiative, which includes assessment and possible TC to countries like Hungary, Romania, or Latvia. However, this engagement is likely to be more in the form of policy dialogue between the Bank and the authorities rather than technical assistance per se.
The lesson from the ATCs that could be exported to the less advanced countries might be that it should never be assumed that an economic development model that has developed successfully in one market may necessarily work seamlessly in another. There should always be constant monitoring of the macro and micro economic effects of the legal and regulatory framework.
Based on experiences in the Early Transition Countries (ETCs) (particularly Central Asia) what project related knowledge could be exported to other countries?
The experience in ETCs has been mixed. On the one hand, the legal and political environment there can be unstable (e.g. ‘revolutions’ in the Kyrgyz Republic) or hostile (e.g. Uzbekistan, Turkmenistan), which can make projects more challenging. On the other hand, some of these countries are small and quite willing to receive advice and collaborate with the EBRD to exploit their specific advantages (e.g. Armenia, Kyrgyz Republic, and Moldova). The lessons learned by the Team are (1) that it is crucial to pay even more attention to the political context as it is less likely that the private sector will play an active role in encouraging reform, and (2) always ensure that the economic objectives of the reform are well understood and adhered to before launching a new project (e.g. the Turkmen secured transactions / credit bureau project, which is stalling because the authorities are demanding the development of a credit bureau whereas the EBRD insists on a project which will also encompass the review of the policies and regulations around lending).
What is the future role of LTP in other countries? What is the feasibility and what are the challenges of exporting LTT / LTP experiences to Turkey and North Africa?
It has already been noticed that the Turkish ‘legal reform market’ is different from what we have experienced in other transition countries, primarily because the context of ‘transition’ may be much weaker than the context that has existed for two decades in the former Soviet block. Turkish counterparts also seek models from Western Europe and may see little similarity between their experience and that of countries in Central and Eastern Europe.
This challenge is expected to be even bigger in North African countries, where the socio-politico-legal environment is completely different from transition countries in which we understand that reform fatigue has built over the last few decades. The EBRD intends to gather maximum information and lessons learned from other IFIs that have operated in the region (e.g. World Bank, IFC, African Development Bank), and aim to establish a new approach to policy dialogue and technical assistance over the coming months.