Back in 1993, Zuzana Bartová and her husband Jaroslav, both retired, decided to invest their life savings of 180,000 Sk into the Všeobecný Investičný Fond (VIF), a mutual fund managed by the First Slovak Investment Fund (PSIS).
In early 1995, the Bartos were looking forward to collecting their money, which had grown to 270,000 Sk. They wanted to help their children buy apartments. However, they could not collect. Deputy Finance Minister Jozef Magula decided in early March 1995 that PSIS had acted illegally and banned its activity.
By the end of the year, the Supreme Court overturned the Finance Ministry's decision. Yet despite the court's decision, Magula took over two months to give PSIS its license back. Almost immediately after giving it back, Magula declared an inspection on PSIS and forbade the investment firm from trading in the meantime. The decision left the Bartos unable to retrieve their money.
"We knew that putting money in a privately-run fund may be more risky than putting it in a savings account in a bank,'' said Bartová, a former university professor. "If PSIS went bankrupt, it would hurt, but we would deal with it. However, what is happening now is a very different case. This is not bad management, this is interference of state bureaucracy."
The Bartos were pioneers - there was no collective investment during communism. The only options to save money during that era was in Štátna Sporiteľňa (state savings bank). With the collapse of communism in 1989 and introduction of the market economy, more banks began offering their services to citizens. The capital market took off with the opening of the Bratislava stock and option exchanges in 1993, and a handful of investment companies which decided to open mutual funds when voucher privatization came along. The funds gathered clients slowly, but word of promising yields spread quickly.
"A friend of mine had money in a fund and got a 19.5 percent dividend," recalled Barto, a retired sociologist. "Money in a fund is more mobile, and having it there is much more advantageous than having it in a bank.''
A thorn in the state's side
In 1995, though over 98 percent of the people's savings was still in banks, collective investment was rising. PSIS was managing almost 90 percent of all money that people had placed in mutual funds in Slovakia. According to many, its dominance caused it to become a thorn in the state's side, especially because PSIS was supporting opposition parties and the anti-government daily Sme.
Magula claims that his moves with PSIS were carried out to protect the law and the interests of small investors. PSIS officials disagree. So the battle lines are drawn, which from the looks of it, will drag on for a long time, leaving the Bartos and approximately 50,000 other small investors more-or-less helpless viewers, unable to get all their money back.
On February 29, Bartová wrote Magula a letter with one question. "In what way are my interests as a VIF investor protected by keeping the fund frozen for almost a year?"
"I admit that PSIS's management could have made some mistakes, but the sanctions you imposed on them appear to be too heavy-handed," the letter continued. "Moreover, they affect us, the small investors."
A week later, Bartová got a response from the ministry, promising a reply if Bartová paid 200 Sk within 15 days. "We said, 'Whatever, let's pay them!' Bartová recalled few months later. "We were curious what would happen."
A three-page answer arrived. "Despite the court's ruling, the fact remains that the state's inspection of the capital markets has uncovered a law that was broken by PSIS," wrote Dušan Koledzai, director of the ministry's capital market section. "PSIS's illegal activities, like its handling of property to the disadvantage of owners has been documented."
The Bartas are not as enthusiastic about collective investment as they were before. "We did not count on the state's power to mess with private money," Bartová said. "We thought that 1989 put an end to that kind of attitude." Many experts in the investment field agree that Magula's moves have considerably shaken people's trust in collective investment.
"I wouldn't say that collective investment is dead, but it's going to need a long time to recover," said Rudolf Lachkovič, president of the Association of Investment Funds and Companies.
According to Lachkovič, the turbulence in collective investment only reflects an overall plague in the Slovak capital market, such as bad legislation which Lachkovič said, "degenerates property in investment funds and mutual funds, does not create suitable conditions for collective investment, does not protect small investors, but does allow for highly unqualified intervention by the state."
Lachkovič warned that if current legislation as well as the state's micromanaging of the capital market do not change, "in three to four years, the Slovak capital market will degenerate into the background, lacking the ability to effectively accumulate and allocate investments [and]... lacking ability to provide finances for prospective business projects on one hand and to evaluate investors' money better than banks on the other."
11. Sep 1996 at 0:00 | Jana Dorotková