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EXPERTS CLAIM 40% OF COMPANIES PRIVATIZED SINCE 1992 ARE NOT PROSPERING TODAY

"Large privatization" fails

The so-called "large privatization", conceived as the simplest method for passing large state-owned industrial companies over to private hands and consequently greasing up the process of the economies transformation, did not have the desired effect in Slovakia. Although state property did change hands, many new owners have not been able - or willing - to create conditions for sound development of their acquisitions.
Economic experts and labor unions claim that about 40% of companies privatized by the current administration of Vladimír Mečiar are in decline. They say that lack of funds due to excluding foreign capital from privatization, combined with clouding the process due to the handing out of property to party officials' cronies, have led to profit-taking and often to "tunnelling" of companies.

The so-called "large privatization", conceived as the simplest method for passing large state-owned industrial companies over to private hands and consequently greasing up the process of the economies transformation, did not have the desired effect in Slovakia. Although state property did change hands, many new owners have not been able - or willing - to create conditions for sound development of their acquisitions.

Economic experts and labor unions claim that about 40% of companies privatized by the current administration of Vladimír Mečiar are in decline. They say that lack of funds due to excluding foreign capital from privatization, combined with clouding the process due to the handing out of property to party officials' cronies, have led to profit-taking and often to "tunnelling" of companies.

Biting the dust

According to Brigita Schmögnerová, former deputy prime minister for the economy and SDĽ Vice-Chairman, up to 40% of privatized companies are in decline. "An expert assessment from the Slovak Chamber of Commerce and Industry (SOPK) put the share [of companies in decline] between one third and 40 percent," she said.

An independent economist who requested anonymity added that more than 400 companies from the total of 900 privatized, during the current government's reign have already filed for bankruptcy. "The Ministry of Justice has received many more proposals for bankruptcy, but only 400 of them have been [officially] declared until now," said the source.

Víťazoslav Moric, Vice-Chairman of the ruling SNS who sits on the Parliamentary Committee for the Economy, Privatization and Business, agreed that these numbers might be correct. However, he added he does not think the situation is unsustainable. "It is absolutely normal everywhere in the world," he said. "Some companies emerge, and others go out of business."

Schmögnerová said that the situation is particularly bad in the mechanical engineering industry and the textiles, clothing and leather industries. The two respective labor unions recently put together a document on possible sources of social unrest, listing 47 companies that are on the brink of collapse. All of them have either filed for bankruptcy, are late with paying salaries, are firing employees or have sent them home while paying them 60% of their salaries.

"I could count the prosperous companies in our sector on the fingers of one hand," said Peter Janíček, Vice-President of KOVO, Slovakia's largest labor union that watches over more than 120 companies in the engineering, electromechanical, foundry and mining industries.

Property handout to cronies

Janíček continued that one of the main causes of the sectors decline was privatization. Before privatizing large companies, he said, the government should have made sure that the law is respected, financial discipline obeyed, and that new owner's take their responsibility seriously. "To privatize does not mean to become rich, first and fore most it is taking over a responsibility," he said.

However, Ivan Mikloš, the sole opposition member of the Supervisory Board at the National Property Fund (FNM) state privatization agency, claimed that the large privatization scheme has, over the past three years changed into a massive handing out of state property to the relatives of ruling party officials.

Last month, Mikloš published a list of 15 top government officials' relatives who privatized various companies. Asserting it was only the tip of the iceberg, Mikloš said that the scale of this party indulgence was enormous. "In majority of all 900 privatization decisions, relatives of party officials, either on top, regional or local level, have been involved," he said.

Moric, whose wife had privatized ŽOS Vrútky, a company for maintenance of train cars, claimed there was nothing unlawful with his relative being involved in the privatization process. Blaming the last Czechoslovakian president Václav Havel for the unpleasant situation in engineering, Moric pointed out the weaponry conversion that Havel had advocated, hit many Slovak companies hard. "This was caused by an idiotic, unprofessional decision made by our predecessor, federal president Havel," Moric said, adding that it was the current government which finally began to tackle this problem.

Tunnelling in reality

Daniela Žuffová, Executive Secretary of the Labor Union of Textiles, Clothing and Leather Industries (SOZ TOK), said that only about ten percent of companies in this field could be labelled as healthy, adding that many have become victims of so called tunnelling.

"Many owners...when realizing that their abilities were leaving shortfalls, they created a daughter company, shifted all potential for profit there and left the mother company for liquidation," Žuffová said.

A good example of such a company, she continued, was underwear producer Finiš in the eastern Slovak town of Spišská Nová Ves. "It used to be a family jewel of the textile industry," said Otto Kremmer, SOZ TOK Vice-President, adding that the company began slumping right after its privatization in 1995.

In 1996, problems became obvious. Before privatization, the company recorded a net profit of 10-12 million Sk, but in 1996 it swung "into a huge loss," according to Ján Helebrandt, the company's current director. In 1997, the management decided not to pay salaries and at the beginning of 1998, it created a limited liability daughter company called Finis. To this company the owners moved all remaining capital.

The mother company is now in liquidation and the daughter runs at 20 - 25% because it lacks operating capital. Before the privatization, the company employed 1300 people, now it employs 300 who get paid just a sliver of their previous salaries. "The management has devastated the [mother] company so much that even tunnelling did not bring the effect they had hoped for," said Žuffová.

But Helebrandt denied accusations of tunnelling the mother company and accused labor unionists of the same thing. "I don't care about the bullshit somebody is spreading around," he said. "Take a look at [unionists] tunnelling labor union rehabilitation centers." Helebrandt claimed that the main cause of the slump was not the management's inability, but town and local customers terminating a contract for steam supply from the company's own heating plant. This, Helebrandt said, caused an annual loss of about 45 million Sk.

How to escape

According to a survey done at the beginning of 1997 by an independent Focus agency, 75% of Slovak citizens did not agree with the way privatization was being carried out in Slovakia. By the end of the same year, that figure rose to 85%.

Mikloš, who is also a coordinator in the economic section for the opposition SDK, said what is causing the citizens' disgust must disappear. "The main cause of the unbearable situation in privatization is the economic policy of the current government," he said, adding that if the opposition wins the September elections, a complete chronicle of Mečiar's crony privatization will be published and damage corrected.

Schmögnerová offered a firm vision for helping the troubled companies, explaining that teams of professionals should be created. "These teams would be responsible for choosing a new management and supervising new ownership relations," she explained.

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