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Agency lone crusader for industry survival

Karol Balog's handlebar mustache bristles with indignation when he considers the fate of Slovakia's medium-sized industrial companies. "Many of these companies have good products and viable operations, but no one to help them out of their debt problems," he says, adjusting his large frame in a creaking office chair. "When banks are in bad shape, everyone rallies around and throws good money after bad, but few governments are willing to help failing industrial companies."
As the general director of the Bratislava-based Agency for Industrial Development and Revitalisation (AIDR), Balog's job for the last two years has been to throw lifelines to as many medium and large Slovak industrial firms as he can.

Karol Balog's handlebar mustache bristles with indignation when he considers the fate of Slovakia's medium-sized industrial companies. "Many of these companies have good products and viable operations, but no one to help them out of their debt problems," he says, adjusting his large frame in a creaking office chair. "When banks are in bad shape, everyone rallies around and throws good money after bad, but few governments are willing to help failing industrial companies."

As the general director of the Bratislava-based Agency for Industrial Development and Revitalisation (AIDR), Balog's job for the last two years has been to throw lifelines to as many medium and large Slovak industrial firms as he can. With seven million euros in funding from the EU's Phare programme, the AIDR in December 1997 launched the Slovak Programme for Enterprises with Excess Debt (SPEED); 26 months later, Balog had in his hands a final list of 28 firms which the AIDR would be assisting through partner searches, loan and management restructuring, marketing and HR programmes.

But as Slovakia launches the painful process this summer of sorting out which industrial companies will survive and which will be left to wither on the vine - a process known as 'corporate restructuring' - Balog fears that many salvageable firms will be closed by creditors unwilling to take a risk on their clouded futures.

To make matters worse, AIDR itself has been told that its Phare funding will not be extended beyond 2000, meaning that the agency has only six months to realise its 28 assistance projects. "We will make the best use of the time we have left, but I have to admit that SPEED has turned out to be a rather unfortunate acronym for this project," Balog said.

Stuck in the past

Deeply indebted and desperately short of operating capital, Slovak industrial firms are in crisis. According to research performed by the economic weekly paper Trend, industrial firms collectively lost 17.9 billion Slovak crowns ($416 million) last year on turnover of 663 billion crowns ($15.4 billion). At the same time, they play a vital role in the economy, employing almost 20% (480,948) of the nation's workforce.

Last December, the government launched a bank restructuring programme that will culminate in the sale of the biggest three state banks to investors, and will free up capital flows by allowing the banks to begin lending money again. Combined with a new Bankruptcy Law, which should be passed by parliament by the end of March, the bank restructuring programme will give creditors the incentive and the power to force the nation's troubled industrial companies to restructure, fire incompetent managers and start repaying their debts.

Balog fears that many viable medium-sized firms (those employing more than 250 people) will not be given a fair chance to restructure. Their problems, he says, are mostly inherited from the 1989 to 1993 era, and range from excruciating debt crunches to managements which speak no foreign languages and have little understanding of global markets; from hapless marketing schemes to outdated production facilities - solving which problems is not normally the specialty of creditor banks.

"These companies are not in a position to help themselves," he said. "They are below the 'radar range' of the government, which is focused on large firms like [steelmaker] VSŽ, while the banks are either unwilling or unable to help. So they get stuck in between."

In the absence of a systematic government programme to help struggling firms, Balog feels the SPEED initiative and his AIDR deserve a better fate. While they can only help a tiny fraction of Slovakia's troubled firms - the 28 companies selected have a turnover of 19.2 billiion crowns (2.9% of Slovakia's industrial total) and employ 25,486 employees (5.3%) - many of the companies are desperately important to the regions in which they are located. "It's like a patient with cancer," said Balog. "If you can give them even an additional five years of life, that means a great deal to the people involved."

On the other side of the coin, many of the companies targetted for assistance by the AIDR expressed frustration with the many delays the programme has encountered, and said they needed money, not advice, to solve their problems.

AIDR has three consortia which visit candidate companies, prepare aid strategies, and then oversee their implementation. Although the consortia were selected in the summer of 1998, contracts with them were not signed by Phare's head office in Brussels until May 1999, and consultants did not set foot on Slovak soil until September last year. Thus, the three-year SPEED programme has been reduced to little more than 12 months of effective working time.

"It's been over a year, and so far we've heard a lot of big promises but we've seen no action," said Jaroslav Kubečka, the boss of the Association of Slovak Textile and Clothing Manufacturers.

Merina Trenčín, a western-Slovak textile maker selected for AIDR help, is a member of Kubečka's association. "We know full well how to market our goods. They can't just come in here and say, 'you're doing it all wrong.' Besides, our companies are indebted, but no bank will take a chance on a firm which has bad results. SPEED has basically offered us nothing. They should have come up with a smarter approach and a more appropriate name."

Miroslav Bednár, spokesman for the Slovenské Lodenice Komárno shipyard, another AIDR-selected firm, said his company had not received a visit by the agency's consultants until two weeks ago. He expressed optimism that an "objective appraisal" by AIDR people might help the shipyard reform its management structure.

According to Jarl Hansstein, co-ordinator of the Clinvest consortium which is working with the AIDR, Brussels bureaucracy rather than local barriers was to blame for the delays in implementing SPEED. "I'm very tired," he said. "It's a lot of work, and we have to concentrate many resources in a short period. It's an interesting programme, but the set-up is complicated and there are many bureaucratic steps to be followed with a Phare programme."

But Hansstein maintained the AIDR project, as well as Clinvest's consultancy work in Slovakia, should be continued even after the end of Phare funding next January. "We don't just want to finish the job and go home [in January] - that makes no sense," he said.

Balog agreed. "Our main aim is to make the AIDR sustainable," he said. "We are looking for further Phare projects, and we could advise the FNM [state privatisation agency] on the sale of some of the companies left in its portfolio. But we would also like to provide services to Slovak companies on a commercial basis, such as benchmarking for a retainer fee. Our expertise makes us unique on the Slovak market."

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