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Bonds away: FNM critical of cabinet plan

The Dzurinda government has finally made up its mind what to do about the 33 billion Slovak crowns in privatisation bonds issued by the FNM state privatisation agency in 1999 that fall due at the end of 2001. Cabinet decided on January 26 to pay citizens back in cash, as well as allow the bonds to be exchanged for shares in companies owned by the FNM state privatisation agency.
According to political and economic analysts, the decision obeyed political rather than economic logic. The government had calculated that citizens would prefer cash rather than shares in strategic state companies, as had earlier been planned, since many elderly bond-holders had given up hope of ever being repaid for their original investments.

The Dzurinda government has finally made up its mind what to do about the 33 billion Slovak crowns in privatisation bonds issued by the FNM state privatisation agency in 1999 that fall due at the end of 2001. Cabinet decided on January 26 to pay citizens back in cash, as well as allow the bonds to be exchanged for shares in companies owned by the FNM state privatisation agency.

According to political and economic analysts, the decision obeyed political rather than economic logic. The government had calculated that citizens would prefer cash rather than shares in strategic state companies, as had earlier been planned, since many elderly bond-holders had given up hope of ever being repaid for their original investments.

Eyeing the 33 billion Slovak crowns that must be paid for the 2.2 million bonds by the end of 2001, FNM officials predicted that the government wouldn't have sufficient funds by the end of that year to pay for the bonds. Government members said that the state would draw on revenues from privatisations planned over the next few years.

FNM chief Jozef Kojda viewed the assurances with scepticism. "The government will have to use money from the privatisation of state utilities to restructure these firms, not to pay off FNM bonds," he said. According to Kojda, the decision not to exchange bonds for shares in state companies had been taken to drum up political support.

Government officials, for their part, cited the results of public opinion polls which said that most Slovak citizens would rather take cash than shares in state-owned strategic companies.

"The results of the polls proved that people have negative memories of the first wave of coupon privatisation," said Michal Horváth, head of the capital market section at the Finance Ministry. "They were offered shares in some companies but never saw the promised money which should have been paid to them in the form of dividends." Horváth characterised the government's decision not to exchange FNM bonds for shares in strategic state companies as more reasonable to Slovak citizens.

Marek Jakoby, an analyst with the economic think tank MESA 10, agreed with Horváth's reasoning, but warned that the government wouldn't have enough money by the end of 2001 to fulfill its promises. "This means the government will have to take a loan to pay the bonds, and as we know, each loan spoils the country's credibility," Jakoby said.

However, Jakoby saw one solution as the exchange of FNM bonds for five year state bonds. "Big banks and pension funds would certainly go for these bonds, which are much more stable than shares in strategic companies. Another advantage is that the value of these bonds will grow in the future, so people would actually gain more than if they got paid by the end of 2001," Jakoby said.

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