WB President J. Wolfensohn.
Speaking at a February 7 press conference, Vaškovič said that pressure on Slovakia to accept the IMF loan package "shouldn't be over-dramatized," but that the Finance Ministry was against taking the loan since it would send a poor signal to foreign investors. "Standby loans are normally given to countries experiencing serious problems," he said. "We have done a great deal in macroeconomic stabilisation, which is why we think Slovakia's request would be taken as a bad signal of problems to come."
Vaškovič was supported by a senior analyst with a foreign bank, who expressed surprise that Slovakia was being pressured to sign a standby loan deal. "The IMF does not disburse funds except on a balance of payments rationale, and Slovakia doesn't qualify here," he said. "Since Slovakia is trying to raise its prestige level to that of its neighbours, none of whom has taken a standby loan for five years, this would do some damage."
IMF standby loans are normally given to help countries out of grave economic difficulties, such as balance of payments problems or runaway fiscal deficits. Signing a loan agreement gives a country access to IMF funds, but does not require that a loan be drawn. According to Katarína Mathernová, an advisor to Deputy Prime Minister for Economy Ivan Mikloš, IMF standby loan packages normally go "hand in hand" with World Bank adjustment loans of the kind Slovakia is requesting for its bank restructuring programme.
"An IMF loan is not the kiss of death," she said. "Coming as it does with technical assistance and economic advice, it would actually help Slovakia to rebuild its reputation on international markets."
Mathernová, in turn, was supported by Martin Barto, the head of strategy at state bank SLSP. Barto approved of the standby loan notion, saying that countries which took such loans had to conform to a rigid programme prescribed by the IMF, which boosted investor confidence that the economy was moving in the right direction. "If we are afraid of the targets which the IMF would set for us, then we are stupid," he said.
Last December, Slovakia began an ambitious plan to revitalise its major state banks by transferring over 70 billion Slovak crowns in non-performing loans from the VÚB, SLSP and IRB state financial houses to the Konsolidačná Banka hospital bank. Vaškovič reported the World Bank had recommended the government transfer a further 35 billion crowns in bad loans to Konsolidačná, in the second phase of a 'cutting out' programme that will leave the state banks with loan portfolios containing about 20% of non-performing loans - the maximum level that potential foreign buyers are expected to tolerate.
With a potential bill for bank restructuring of over 100 billion crowns, financial assistance from the World Bank is a pre-condition for the plan to succeed. But even though the Slovak government cannot afford to ignore the advice of the World Bank, the details of the bank's assistance - and that of the IMF - remain to be ironed out.
"We can negotiate, and if our arguments are stronger than theirs, in the end the World Bank officials will change their minds," Vaškovič said. "The IMF standby loan is not an explicit condition right now," agreed Mathernová, herself a former World Bank employee. "There are exceptions to the rule, such as technical assistance packages, but they require the IMF's seal of approval."
Vaškovič reported the World Bank also urged greater haste on the restructuring process, a demand that the government may be unable to meet. Both the amount and timing of the second bad loan carve-out would depend on diagnostic audits being conducted at the banks, he said, as well as on the recommendations of J.P. Morgan, which was appointed as the main advisor for the privatisation process at the end of last year
According to Miloš Božek, an analyst with J&T Securities, the latest advice of the World Bank proved only that the World Bank and the IMF had some general formulas which they followed without regard to the specific situation in each country. He urged the Slovak government to defy pressure to conform to the scripts prepared by the two institutions.
"The IMF recently burnt its fingers during the Asian crisis, when it forced Asian countries to take standby loans without regard to their individual situations," he said. "However, those countries which refused to take the loans now seem to be doing much better in their economic development than those which accepted them."
14. Feb 2000 at 0:00 | Peter Barecz and