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Investors uneasy about future of privatization

Six months before parliamentary elections, all opposition parties have promised that after winning at the polls, they will carry out reprivatization, which in fact means a state action to first repossess some privatized enterprises and then resell them, all the while respecting legal norms.
On the one hand, opposition leaders feel bound to appease the widespread fury aroused by the sales of lucrative companies such as Nafta or Slovnaft to government cronies for a fraction of their market value during the reign of Prime Minister Vladimír Mečiar. On the other hand, they have not yet solved the question of how to carry out the scheme without scaring off the foreign investors they desperately need to restructure the slumping Slovak economy.

Six months before parliamentary elections, all opposition parties have promised that after winning at the polls, they will carry out reprivatization, which in fact means a state action to first repossess some privatized enterprises and then resell them, all the while respecting legal norms.

On the one hand, opposition leaders feel bound to appease the widespread fury aroused by the sales of lucrative companies such as Nafta or Slovnaft to government cronies for a fraction of their market value during the reign of Prime Minister Vladimír Mečiar. On the other hand, they have not yet solved the question of how to carry out the scheme without scaring off the foreign investors they desperately need to restructure the slumping Slovak economy.

The fundamental question therefore seems to be: Will foreign investors be willing to purchase the repossessed companies if they cannot be certain that these will not be repossessed again by some future government?

"There is no good way out of this," said Ivan Mikloš, former Privatization Minister and currently the opposition's only representative on the National Property Fund's (FNM) Supervisory Board. "All solutions are risky and harmful in some way and we are trying to find the optimum one that hurts the least. We will offer to foreign investors what they desire the most: a stable, transparent economic and political environment. The reprivatization of illegally privatized companies is an essential component of renewing the rule of law."

Earlier this year, Mikloš co-authored a privatization blueprint of the Slovak Democratic Coalition (SDK), an opposition group with a narrow lead over Mečiar's HZDS in the latest opinion polls.

But while the opposition is getting ready to hop in the driver's seat next September, the ruling HZDS refuses to admit that the law was broken in any privatization case during their reign. "My answer to such accusations is a resolute no," said Ján Cuper, a HZDS legal expert. "Any reprivatization would be an act of revenge and not a legal act."

Indeed, some market analysts maintain that the importance of reprivatization to future foreign investment is being overrated. "I don't think they (foreign investors) care too much about it," said Martin Barto, an analyst with ING Barings. "What they are really interested in are clear rules and continuing privatization. They would welcome it if the new government offered remaining state properties - Slovenské Telekomunikácie, Všeobecná Úverová Banka or some utilities - for sale."

But Rudolf Lachkovič, Chairman of the Association of Investment Companies and Funds (AISF), warned that such indifference to the need for reprivatization might be dangerous. "[Indifference] is true of portfolio investors," Lachkovič said. "But many strategic investors are interested in privatized companies. They are very careful about those that [the opposition claims] may be reprivatized and will remain so until the ownership is rock solid."

Lachkovič explained that this cautious approach may keep foreign investment trickling rather than roaring in, a situation that Slovakia has been unable change since gaining its indepedence in 1993. In fact, last year the FDI inflow became an outflow - according to the Slovak National Agency for Foreign Investment and Development (SNAZIR), Slovakia was a net corporate FDI exporter in 1997.

Despite SNAZIR's figures, Cuper is not worried about the lack of foreign investment. "I don't think there is a lack of interest in investing in Slovakia, this is just a cliché of the opposition and election propaganda," he said. "And I also think that investment will come to Slovakia no matter whether there is an HZDS or an SDK government."

Lachkovič said that if the opposition gets a chance to carry its scheme out, it has to avoid extremes at either end of the spectrum. "From what I know, most foreigners acknowledge the need to clean the slate from an ethical and legal point of view, and they accept the necessity of reprivatization," he said. "On the other hand, they do not wish to be caught in the middle of a renationalization process."

Whatever the new government does, Lachkovič continued, it has to do it quickly, so that the road may open for an influx of foreign investment. "In the past, the [current] opposition showed that it understands how necessary it is to act swiftly in this area," Lachkovič said.

There is, however, one major obstacle in the way of a quick solution to the reprivatization dilemma: Slovakia's notoriously slow court system. Nevertheless, all opposition politicians agree that the courts will have to decide which privatization contracts are declared void, since respect for the rule of law is an essential component of their vision for Slovakia after their election victory.

Moreover, at least one of the SDK's potential government partners is more concerned about the rule of law than about speeding up foreign investment. Róbert Fico, a legal expert of the second largest opposition party, the Party of the Democratic Left (SDĽ), sent a clear warning to all potential buyers: "no one can guarantee that there will be no suit filed against a particular company, and there can be no time limit imposed for such a suit to be filed."

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