"We are reaching a situation where certain interest groups are starting to dictate society's future development. It's known as corporativism."
"Ownership is a terrible thing - you need just one thousandth of a percentage point above 50 to enable you to act very aggressively toward your partners."
"When we compare the growth in foreign debt and the influx of foreign investment in just these last two years, it's clear that debt has increased far more than investment. "
"It's easy for the majority owner to put a cost price on the product and export it, not leaving a single crown here. Unfortunately that's what they do."
The debate, held at Štúdio S theater in Bratislava, centered on Slovakia's economic policy, with special focus paid to privatization, foreign trade and foreign investment. Posing the questions were four economic journalists: Jozef Hajko from Trend, Alica Ďurianová of Slovenský Profit, Ivan Štulajter from Radio Free Europe, and Robert Róm of the Slovak Press Agency. Radio Twist's Anna Vargová served as the moderator.
Hajko: Mr. Ducký, until recently you were a member of the government that came to power in 1994. You cancelled the second wave of coupon privatization and you commenced direct sales, which were often linked to strong management groups in the privatized companies, which were often close to the governing political parties. Groups who were closest to the government have become owners. These groups are now starting to exercise their power by exacting from the government protection and support of their interests, both at home and abroad. Will this ownership structure meet the principles of the market economy? Will this structure of owners maintain competition and bring good to the people of this country?
Ducký:The main role of privatization is to ensure greater prosperity for privatized entities. The coupon method does not provide this, because it doesn't produce identifiable owners. It doesn't produce capital. The assets acquired via investment companies were subject to speculative manipulation. Plans were adopted not for the development of the company but for the development of profit, irrespective of the company's future.
I was a kind of godfather to the law on the state's strategic interests. It has only one flaw. It should have been passed before privatization. There are firms in several sectors that shouldn't have been subject to privatization. Direct sales, yes, but we have to pay attention to the correct selection of people to carry out the privatization, to ensure the company's future prosperity.
Schmögnerová: Today we are witnessing the creation of several proprietorial groupings whose ambition is to exert their strength on state management, and to this end they are starting to take the reins of power. I could list several examples, not least the idea to change from coupon privatization to the so-called bond privatization. The clearly defined interests of certain groups are behind this. They were concerned that the 70 billion Sk of assets should not be divided among coupon holders, but that they could get their hands on them.
I could give you more examples, like the way the law was amended to allow bonds to be used to pay debts to the National Property Fund; the amendment to the income tax law, which allows these owners to deduct those investments that are deductible from the purchase price from the tax base too; the amendment to the law on strategic companies also suits a precisely defined interest group because it is these companies that have been classified as strategic. We are reaching a situation where certain interest groups are starting to dictate society's future development. It's known as corporativism.
Ducký: In those cases where the selection of owners is right, with employees where they show an interest, then privatization has great importance, and the results prove this day after day. My name is often linked to a group of powerful companies - they say I helped in the privatization process. Of course I helped by expressing my opinion on certain matters, and all of these companies are working well. They're all management-employee buy-outs, whether it be Slovnaft, Duslo Šaľa, or Matador Púchov.
I don't think it's wrong to deduct the investment from the price of a privatized company. When you take the future into account; if you increase the price for the privatizer, he puts it back into his costs and into the product price, which lowers competitiveness. We are in a process of transformation. We're not a country that has accumulated capital, like they taught us for centuries in our "political economy of capitalism" classes, and to have privatized in the way they advised us would have meant doing it without our own business people.
Štulajter: Ján Čarnogurský said that those people acquiring privatized property today approach him and ask how the KDH will behave towards them if they come to power. They ask whether their assets will be taken from them. Plenty of cases have aroused public attention, most recently the case of Nafta Gbely, where 46 percent of the shares of this so-called strategic company were obtained by a different trading company, which has its registered office in a derelict house surrounded by weeds. Mrs. Schmögnerová, what does your party intend to do with the current form of privatization if it gets into power?
Schmögnerová: The SDĽ has stated that we definitely will not go down the same path. You remember that November night in 1994, when 51 privatized companies were nationalized, companies privatized by the Moravčík government. We won't go down that road. If new owners are frightened that, if the SDĽ were in power, it would nationalize, this isn't true. But I will not pardon all that has gone on. Definitely not. We will examine all the privatization rulings, wherever the law was broken, and there will be consequences. We'll look at the purchase and sale contracts, whether they've been adhered to and there will be consequences there too. In those cases where there was a clear compromising of the state's interests, we'll simply revoke the privatization decision. That's the case in Nafta Gbely, for instance.
Ducký:Now that I've heard that, I'll go into politics to make sure you don't succeed. Every government gives information to those groups that work with it. I don't see any problem there. The problem is when the selection is not up to scratch and the interest of society as a whole is not considered. You can't talk about the independence of the economy or the state if you don't have ownership under the political control of the whole society. Ownership is a terrible thing - you need just one thousandth of a percentage point above 50 to enable you to act very aggressively toward your partners.
Schmögnerová:You stated it is normal for each government to give the lion's share of privatization to those politically close to it. One advantage of the Moravčík government was that it was based on a wide spectrum of political parties and we monitored each other. Don't say we gave privatization projects to our political allies, it simply wasn't the case. Unfortunately the current circumstances are completely different. There is a conflict between wanting to privatize for the benefit of society, because the idea of privatization was to increase productivity and performance of state companies, and privatization for the benefit of a narrow group, as you said, politically close to the government of the day.
Ďurianová:Mr. Ducký, if the current government regards privatization as it is happening today as the right way to privatize, why doesn't it identify itself with it? Why did Mečiar say, regarding the privatization of strategic companies, that he has no influence at all, that it's a matter for the National Property Fund? On the other hand, Mr. Gavorník, the president of the National Property Fund, claims the opposite, that the most crucial agreements are made by members of governing coalition parties. And then there is the statement by Minister of Transport Alexander Rezeš, who said there are gentlemen's agreements, that people don't meddle in each other's sectors. Which people and which methods are taking precedent at the moment in privatization? How do you intend to tackle this problem as a member of parliament's privatization committee?
Ducký:I'll start with a clarification - I did not say each government privatizes with its political allies. It gives information to those groups that cooperate with it, they don't necessarily have to be political allies. That's what it was like under the government in which Mrs. Schmögnerová worked. Their grip on privatization was so firm that I didn't have access to the National Property Fund for nine months. Our grip is far less thorough.
As far as those questions go, you'll have to approach the prime minister and Mr. Gavorník because I, as minister of the economy, expressed my opinion on the method of privatization, not on who should be allowed to privatize. No government could privatize without making mistakes. The government can't be successful for all layers of society, because it won't reach all of them. As for what Minister Rezeš said, I interpreted it differently. Groups of people wanting to privatize or lobby groups should get involved in the areas that they work in and where they know the ropes. If someone owns a drugstore and wants to have a metal processing factory or vice-versa, they shouldn't.
On Foreign Trade
Schmögnerová:I would add that from June to July the deficit was 6 billion Sk and from July to August there was a growth of 3 billion Sk, so today the figure is around 35 billion Sk. This doesn't surprise us. Unfortunately we have been able to note only from the opposition benches that this will happen if no serious economic measures are taken. These measures were not approved, and I'm convinced that not even the Piešťany tea party will cause any significant change in this direction. Not that I wouldn't like to see this happen, but we have seen before that these sessions in Trenčianske Teplice, Šoporňa, I don't know where else, they've been everywhere...
Ducký:Stará Turá! (Laughter and applause from the audience.)
Schmögnerová: Stará Turá, maybe in Nová Turá, ...it's all a ruse to show how concerned the government is about it all. But even Mr. Ducký has said that this time they will approve a resolution on what has to be done. I'm looking forward to that. But the nub of the problem is really embedded in the core of the Slovak economy, which is very vulnerable to all fluctuations outside our borders. That vulnerability is in the structure of export and the economy as a whole, and if there are no profound changes here, then we can guarantee that we'll see the same trend in foreign trade continue.
Ducký:I'm disappointed, I expected to hear about what we should be doing and what they would have done if they had been in power. But it's harder...
Schmögnerová:We're not going to tell you...
Ducký:But it would bring happiness and benefits to the citizens.
Schmögnerová:Good, We'll tell them in time.
Ducký:Off you go then.... I think that the trade balance is no surprise; let's call it 30 billion Sk. About 7 billion Sk is import of military technology that doesn't worsen the balance of payments, so we have got what the army needs without any debt. Our government's ruling - and I was one of those who conceived it after the Czechs' unilateral cancellation of the clearing account - to cancel import duty on automobiles and the import charge on cars with engines up to 1500cc caused an increase in the import of cars over six months of last year of 6.5 billion Sk. And about 2 billion Sk was from consumption growth through wages, which also increased.
For five years there has been no investment in this country and everyone criticizes the government because there is no restructuring. Then when the restructuring starts, you start shouting that imports are on the increase. Slovnaft is going to invest 30 billion Sk by the end of the year 2000, in two and a half years Mochovce has to invest 27 billion Sk to at last produce electricity that has not been produced for seven years, as was planned. And we are importing electricity worth almost 2 billion Sk. In my opinion there's no problem, these processes are irreversible. If someone thinks he can change the economy's structure in one year, he's wrong. You can't do it in five years or even in ten.
Schmögnerová:Some facts are being covered up. If we look at machinery import growth, we find it only exceeds overall import growth by a single percentage point, in other words nothing dramatic has happened in the import structure. One of the measures that could have been taken and would have been a certain motivation for the business community, was to invest in machinery and equipment and to adopt tax measures, but you chose to support privatizers and discriminate against those who could really invest, regardless of what the ownership structure was.
On Foreign Investment
Ďurianová:Slovakia has, compared to neighboring countries, a far lower influx of foreign capital. On the other hand, and especially this year, we have observed a large number of loans from abroad. The balance of payments deficit is large. If you include the repayments of these loans - the banking sector's foreign exchange reserves have declined by 10 percent - this is creating big problems for the National Bank. Where do you see the causes of this situation, of this structure, and do you think the situation will turn around in the near future?
Ducký: Everyone wants an influx of foreign capital, but we should know what kind of capital and where we want it. You well know the country is cheap. One booklet of coupons at nominal value meant 30 shares at 1,000 Sk. One thousand crowns - that isn't even enough to buy you lunch in Germany. So foreign capital, yes, where it brings quality and, in particular, markets. One problem I see is that the capital that arrived here didn't bring new markets, but gained markets here. Either ours directly or somewhere else down the line.
The fact that there is such an influx of capital shows that people are not afraid to come here. On the contrary, they are coming here in droves - Slovnaft, without state aid, has secured $200 million, the Slovak Electricity Company has secured $200 million under very attractive terms, not to mention the Gas Company, and it's the same with other companies. We have foreign exchange reserves of around 4.8 billion and the state debt is one of the lowest around. The overall debt, state and companies combined, is around 5 billion, but the state owes only around one-third of that. So on the one hand we want it, but when it's here we ask whether it's good that it's here. Maybe without that careful approach to foreign capital, the GDP growth wouldn't have been as it is.
Schmögnerová:I would bring the foreign debt up to date a bit. Today it's more than 6.1 billion and it's important to realize that in the last two years it has grown by 2 billion. This increase in debt is being caused by the business sector. It's not just foreign loans that don't have state guarantees, a large number of these loans do have state guarantees, the examples which you gave, Slovnaft, Slovak Electricity Company are those where there is no such guarantees. The dilemma is this: what is more beneficial - foreign loans or foreign investment. Of course, you have to look at all the specific terms and conditions but generally the loan must be repaid - you have to repay the principal and the interest. The foreign investor, if it's a good or so-called strategic investor, comes with investment that helps the company develop, brings new know-how and technology, or even brings a new market. These are the kinds of investors we would like to see here. So the question now is, why then in the most recent period have we seen a marked rise in gross foreign debt? When we compare the growth in foreign debt and the influx of foreign investment, in just these last two years it's clear that debt has increased far more than investment. In 1994 the opposite was true.
Ducký:I have the same dilemma, why did foreign capital come here, without bringing markets with it...
Ducký:It's true, it hasn't brought markets. I don't want to name the firms as I don't want to offend them, but I could name a whole reel of companies that have grown through foreign investment, and how have they behaved as far as profit and tax is concerned? It's easy for the majority owner to put a cost price on the product and export it, not leaving a single crown here. Unfortunately that's what they do. So we are defending ourselves. If someone wants to come here but without these kinds of antics, then he's welcome. Capital is supra-national but we can't do anything about it. It works for the countries that provide it. So yes, we want foreign capital, but in the sectors where it will bring new technology and the markets we want, because without them there's no economic development.
These excerpts were transcribed and translated from Slovak by Paul Kaye.
9. Oct 1996 at 0:00