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Cabinet to revitalize cash-poor companies

After seven years of economic transformation, a team of leading government economic officials and bank leaders are set to perform bold surgery on the Slovak economic organism through a corporate revitalization plan that, if successful, will bring new life to dying domestic companies and resuscitate an economy that is gasping for fresh air.
Now that the cabinet has given its nod to the proposal, the measure has gone to parliament, where a vote is expected in May after the bill's passage in the committees. Even though the plan was introduced by Finance Minister Sergej Kozlík, it is evidently a product of Peter Staněk, who made this vision public as Prime Minister Vladimír Mečiar's economic advisor two weeks before his appointment to the finance ministry's state secretariat on January 28.

After seven years of economic transformation, a team of leading government economic officials and bank leaders are set to perform bold surgery on the Slovak economic organism through a corporate revitalization plan that, if successful, will bring new life to dying domestic companies and resuscitate an economy that is gasping for fresh air.

Now that the cabinet has given its nod to the proposal, the measure has gone to parliament, where a vote is expected in May after the bill's passage in the committees.

Even though the plan was introduced by Finance Minister Sergej Kozlík, it is evidently a product of Peter Staněk, who made this vision public as Prime Minister Vladimír Mečiar's economic advisor two weeks before his appointment to the finance ministry's state secretariat on January 28.

The law concerns companies "in an unfavorable economic situation," Staněk said. Elaborating further, he said revitalization could include any enterprise that meets one of the following criteria: produces goods or services conforming to the government's priorities, guarantees employment in the region in which it operates, secures economic development in an area with a low standard of living or secures the development of activities or regions considered by the government to be economically important.

A revitalization committee expected to be formed of several government ministers, National Bank of Slovakia (NBS) Governor Vladimír Masar and the presidents of Slovakia's largest financial houses - Slovenská Sporiteľňa, Všeobecná Úverová Banka, Investičná a Rozvojová Banka and Slovenská Poisťovňa will be in charge of deciding which companies will be tabbed for revitalization.

Revitalization prizes

A company plucked for revitalizaton could receive several prizes - including a delay of tax and insurance payments, penalties, fines and interest reductions, and payment of a company's liabilities by the state privatization agency Fund for National Property (FNM) and capitalization of assets. Also, no bankruptcy procedures can be initiated against an enterprise chosen to be revitalized.

Staněk expects companies' revitalization to jumpstart the whole economy. "Let me give you an example," Staněk said. "The Defense Ministry allocates 3 billion Sk every year to purchasing weaponry. Imagine this 3 billion Sk would be used to revive some of the engineering companies. The banks simultaneously would agree on a temporarily different payment schedule for past loans, and the execution of tax debts and penalties these enterprises have to pay the Ministry of Finance would also be halted at that time."

"If all of this happened," Staněk continued, "we could resuscitate some of the engineering companies so that by the end of this year they could produce a profit instead of a loss. Because of this, they would begin to pay back their loans to the banks, which in turn could use this money to finance smaller companies and smaller entrepreneurial projects. It could be done in such a way that the positive results would be shown by the end of '97."

In parliament, Kozlík, also a vice-premier of the economy, called this bill a lever that could revive domestic financial flows. "It is an original and systematic solution to activate accumulated bank reserves, unlock the blocked and non-liquid tax and other liabilities in order to spur the economic development of regions with high unemployment, develop important economic activities, revive facilities with a demand for their products, increase capacity utilization and consequently create conditions for paying off difficult debts," Kozlík said.

No supervisor

Jozef Košnár, the economic expert for the Party of Democratic Left (SDĽ), conceded that the problem of blocked financial flows, debt over-exposure and secondary insolvency is a menace. He said though that this issue should be solved in a systematic way, conforming to a market economy and transparently. "The law itself assumes that the revitalization committee's decisions will not be subject to a court review," Košnár said. "[It also] binds all participants with confidentiality, where [members'] partiality [in decisions] would be widespread, legal and the non-punishable."

Košnár also the fact that decisions will be made by a small group of handpicked officials answering to no one, a view seconded by concerns raised by both domestic and international economic groups (see story, page 5). "Why does the cabinet [legally required to answer to parliament], with a consensus of the banking sector, not decide itself?" he asked.

Kozlík, responding to those charges, said that the revitalization panel's decisions will deal with only a limited circle of creditors and that it will be more realistic for a revitalized company to pay its debts to other creditors than if were left to deal with the problem itself.

Handpicked companies

Another deputy not allied with the government coalition said that revitalization will be another reward for those who won companies in the latest privatization round. "Based on the privatization practices of the current government coalition during the last two years, we fear that the revitalization law will be the next tool to support those who took part in privatization [during that time]," said Pál Farkas, the economic expert of the Hungarian Christian-Democratic Movement. Košnár seconded: "What is the guarantee that it will not be another influx of money to enterprises with no future?"

Farkas added that the law spells out a selective approach to individual companies. "The committee will not be effective in our opinion, because representatives of neither professional [economic] organizations, nor the Supreme Control Office are included," Farkas said.

Michal Baránik, the economic expert for the leading governing coalition party Movement for Democratic Slovakia (HZDS), defended the selective approach, saying that in Slovakia's current economic state, general measures have no effect.

"Since 1990, both the federal and national governments have given hundreds of millions of crowns to help enterprises hit by conversion," Baránik said. "The money was spent [and] it had no effect. [These] measures did not fit into the framework of the transformation process. The revitalization draft law targets a systematic approach for the first time. It is bound with the process of production dynamization...and that is where I see its effect."

POSS ADDS

The economic surgical team made up of leading government officials ministers together with presidents of the bank behemoths want to cut off the unproductive fat and finally stop the flow of government funds into losing enterprises. Government economists then want to revive the slow flow of finances within the organism using various administrative bypasses so that the really working economic muscles could function again.

In an exclusive interview for the Slovak Spectator, the State Secretary of the Ministry of Finance Peter Staněk divided Slovak enterprises into three groups. The first one consists of 20% of successful companies the government does not have to take care of. "They are expanding, transforming themselves into multinational corporations, they can pay for anything and they work," Staněk said.

The bankruptcy law should concern the second group, consisting of 20% of enterprises. "They have to be eliminated from the system, kicked out, their property should be sold to cover at least part of their debts," Staněk said.

The remaining 60% of enterprises are profitable, but the profit is insufficient to pay off all kinds of loans. "They have to be clearly divided: these ones can be revitalized; we will try these too, but if it does not work out within a year, they will be out; and there is no sense trying to revitalize these and they will join the hopeless 20% of enterprises," Staněk concluded his vision.

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