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Russian debt quarrel leaves cabinet tainted

3s.jpg####photo: Marek Velček - SME## The Slovak government has said it wants to stop accepting weapons from Russia as payment on a $1.2 billion debt that the former Soviet country owes to Slovakia. Indeed, the cabinet has said it wants to remove the taint of corruption and profiteering from the debt-settlement process, and to make all deals with Russia transparent.
The task of restoring public faith in the debt settlement process was handed to a joint Slovak-Russian Commission, which met on March 17 to 18 in Bratislava to agree on both the volumes and content of goods that would be imported from Russia in repayment of the debt.
But even as the commission sat, fresh allegations of corruption flared. A letter written in February by Finance Minister Brigita Schmögnerová to her Russian counterpart, Mikhail Zadornov, and then leaked to the media, has been flourished by critics of the process as proof that money and partisan interests still govern how the debt is settled.


Devín Banka, its emblem pictured above, is at the centre of a controversy over repayments of the Russian debt. Critics have said the government SDĽ party used its influence to win a contract for the bank.
photo: Marek Velček - SME

The Slovak government has said it wants to stop accepting weapons from Russia as payment on a $1.2 billion debt that the former Soviet country owes to Slovakia. Indeed, the cabinet has said it wants to remove the taint of corruption and profiteering from the debt-settlement process, and to make all deals with Russia transparent.

The task of restoring public faith in the debt settlement process was handed to a joint Slovak-Russian Commission, which met on March 17 to 18 in Bratislava to agree on both the volumes and content of goods that would be imported from Russia in repayment of the debt.

But even as the commission sat, fresh allegations of corruption flared. A letter written in February by Finance Minister Brigita Schmögnerová to her Russian counterpart, Mikhail Zadornov, and then leaked to the media, has been flourished by critics of the process as proof that money and partisan interests still govern how the debt is settled.

A money-spinner

"The clearing of foreign debt has always been a damned good business," said Marek Jakoby, an analyst with the independent think tank Mesa 10.

Jakoby explained that under the government of former Prime Minister Vladimír Mečiar, the job of clearing the Russian debt was given to business allies of Mečiar's HZDS party, prominent among whom was the commercial bank Devín Banka, led by Mečiar crony Karol Martinka, owner of the spa-facilities in western Slovak city of Piešťany.

Jakoby explained that the companies involved in clearing the debt between the two countries made enormous profits on commissions which came out of Slovakia's state budget. A report carried by the private station TV Markíza on March 4 claimed that in the past, Devín Banka had made over 20% commission on settled debt payments.

With the change of government last September came an apparent change in debt settlement techniques. The new cabinet of Prime Minister Mikuláš Dzurinda made transparency in debt settlement a priority, while Dzurinda, as well as Economy Minister Ľudovít Černák and Deputy Prime Minister Ivan Mikloš, said that a public tender would be held to choose the firms and financial mediators who would be awarded the task of settling the debt.

Then came a bombshell - a letter written by Schmögnerová to Zadornov on February 19 announcing that Devín Banka had once again been charged with settling financial transactions connected with the debt repayments - without the calling of a tender.

TV Markiza then reported that Slovenské Elektrárne, a state-owned monopoly energy producer, was to settle debt worth $150 million in Russia.

Slovenské Elektrárne General Director Štefan Košovan told the press on March 8 that the company's board of directors had designated Devín Banka as the financial mediator for its transactions, again without a tender.

Close ties

Devín Banka General Director Ľubomír Kanis told the daily paper Pravda on March 8 that Devín Banka had been awarded the debt contract because of its prior experience in handling the work as well as the many contacts the bank had formed in Russia. "I categorically deny the accusation of clientelism," he said. "I'm convinced that if the government does not simply follow media rumours but looks at the advantageous conditions of individual offers, it would choose Devín Banka again to settle the debt."

Schmögnerová also lashed out at the press, saying that reports of influence peddling had "scandalised my reputation."

But allegations of corruption proved difficult to shake. Schmögnerová, Devín Banka's Kanis and Slovenské Elektrárne's Košovan - who, before his current position, was chairman of Devín Banka board of directors - are all members of the same party, the Democratic Left (SDĽ).

Devín Banka is also the only advertiser in the third edition of the newly-created political weekly Slovo, whose editor-in-chief, Braňo Ondruš, is also the SDĽ spokesman.

"The overwhelming interest shown by the SDĽ party today in keeping Devín Banka in the game of settling the Russian debt just proves the hypothesis that most probably there is a financial connection between Devín Banka and the SDĽ," said Ľuboš Kubín, a political analyst at the Slovak Academy of Science.

But Ondruš, when contacted by The Slovak Spectator, said that "there is no connection between the SDĽ and Devín Banka beyond the fact that Kanis is an SDĽ member."

"I have no information whether Devín Banka supported the SDĽ during elections," he continued, "but if so, it was only in the form of a loan."

Devín Banka was a natural choice as the administrator of the debt, Ondruš said, given its Russian contacts.

"Even someone of average intelligence and a below-average grasp of how things work in Russia would understand that only a firm which has close and long-term ties can do business there," he added.

Regarding Slovo, Ondruš said "Devín Banka is not our only advertiser, but it is the biggest."

New deal

While Devín Banka remains a fixture of Russian debt settlement in Slovakia, however, other elements of the deal are changing. The March 17-18 commission meeting was held just a week after the Slovak cabinet announced to the Russian government that Slovakia was cancelling a decision to accept the S-300 defence missile system as a form of debt payment.

The contract on the import of S-300, worth 6 billion Slovak crowns ($149 million), was signed under the former Mečiar government. The new cabinet claimed further imports of Russian weapons would harm the country's ambitions for NATO membership.

Russian Cabinet Office head Yuri Zubakov was quoted by the Slovak news agency TASR on March 16 as saying that the decision to break the contract with Russia "harms the reputation [of Slovakia] as a commercial partner and customer".

After arriving in Bratislava the next day, however, Zubakov told Slovak journalists that Russia has not asked Slovakia for compensation for withdrawing from the contract, as the media had widely reported.

"We're sitting at the negotiating table and trying to find solutions comfortable for both sides," Zubakov said.

The Russian debt to Slovakia was originally owed to the former Czechoslovakia, but was separated from the larger sum after the country split in 1993. Slovakia signed an agreement with Russia in 1994 on what form debt payments would take.

In 1995, the debt amounted $1.7 billion, but by March 1999 had fallen to an estimated $1.2 billion.

According to a 1995 agreement between the Slovak and Russian finance ministries, the Russian side has been repaying its debt with goods instead of cash, due to Russia's shortage of hard currency.

To date, Slovakia has imported goods worth almost $700 million of the debt figure, when accumulated interest rates are taken into account. Among the articles that Slovakia has received are four TU-154 passenger aircraft, five MiG-29 fighter jets, cars, chemical products and many other goods like coal, nuclear fuel and weapons.

The debt was also used to cover the $20 million mission by the first Slovak astronaut to the Mir space station in February this year.

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