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Ms. Juliana Dutra Araujo, Jose M Garrido, Emanuel Kopp, Mr. Richard Varghese, and Weijia Yao
This paper presents principles that could guide the design of more targeted policy support and facilitate the restructuring of firms adversely impacted by the COVID-19 pandemic. To this end, the paper takes stock of vulnerabilities and risks in the enterprise sector and assesses countries’ preparedness to handle a large-scale restructuring of businesses. Crisis preparedness of insolvency systems is measured according to a newly designed indicator that includes five dimensions of the insolvency and restructuring regime (out-of-court restructuring, hybrid restructuring, reorganization, liquidation, and the institutional framework). Vulnerabilities tend to be more pronounced in jurisdictions with shortcomings in crisis preparedness, and those countries need to step up efforts to improve their insolvency systems.
Ms. Juliana Dutra Araujo, Jose M Garrido, Emanuel Kopp, Mr. Richard Varghese, and Weijia Yao

creates adverse selection and moral hazard on the side of the firms ( Mishkin 1999 ). A weak financial sector is unable to provide the financing necessary to restructure firms. 3 ▪ The Asian financial crisis produced evidence that corporate restructuring is essential for economic recovery and must be supported by an adequately capitalized financial sector ( Das 2000 ). This crisis also showed that in the absence of properly functioning insolvency systems, out-of-court restructuring offers a viable alternative, particularly for large companies. Out

Mr. Ben J. Heijdra and Ms. Jenny E Ligthart

recoup the revenues from firing taxes on the workforce laid off. Therefore, in transition economies featuring a large share of restructuring firms, these schemes have limited practicability as an instrument to stimulate employment. Typically, the scheme could be applied to sectors of advanced economies in which the government considers the rate of labor turnover to be”socially excessive” to motivate employers to retain and train their workers. Some industries facing very uncertain final demand patterns—mirrored in their labor demand—may need to be exempted from the

Mr. Thierry Pujol and Mr. Mark E Griffiths

output contraction and accumulated losses. It is argued that, due to this slow restructuring, firms are likely to increase their relative prices or to run deficits. As a result, they are less responsive to traditional macro-policy instruments. Therefore, to the extent that such firms represent a sizable proportion of output, we show that a “hard-currency” strategy to reduce inflation may be unexpectedly costly. 19/ The move to a market economy was accompanied by a relative price shock of unprecedented magnitude. This shock created a fault line between two groups of