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SLOVAKIA EARMARKS PROCEEDS FROM PRIVATIZATION DEALS TO HELP PAY THE DEBT OWED TO ČSOB

State agrees to fork over millions

SLOVAKIA will not appeal the verdict of the Washington DC-based international arbitration tribunal that ruled in favour of Czech bank ČSOB, deciding instead to take on Sk24.7 billion (€639 million) in debt.
In December, the International Centre for Settlement of Investment Disputes (ICSID) wrapped up an eight-year trial with a verdict that requires Slovakia to pay Czech bank ČSOB €639 million, a debt that emerged during the division of federal property during the split of the former Czechoslovakia.

SLOVAKIA will not appeal the verdict of the Washington DC-based international arbitration tribunal that ruled in favour of Czech bank ČSOB, deciding instead to take on Sk24.7 billion (€639 million) in debt.

In December, the International Centre for Settlement of Investment Disputes (ICSID) wrapped up an eight-year trial with a verdict that requires Slovakia to pay Czech bank ČSOB €639 million, a debt that emerged during the division of federal property during the split of the former Czechoslovakia.

The Slovak cabinet decided February 9 to give preference to an agreement with ČSOB over a settlement calendar, which, according to Finance Minister Ivan Mikloš, will save Slovakia Sk210 million (€5.2 million).

The Finance Minister said it pleased him that the cabinet reached an agreement, though the fact that Slovakia must pay the bill remains displeasing.

Slovakia will take Sk16 billion (€420 million) from state financial reserves by February 11 and approximately Sk8.5 billion (€220 million) as of January 1, 2006, to pay the debt off.

Privatization proceeds expected in 2005 will be used to pay the bill. If proceeds do not cover the debt, the state will borrow money.

"The payment will not affect this year's budget," said Finance Minister Mikloš.

ČSOB has removed its demand that Slovakia pay a 5-percent penalty. Slovakia's deadline to settle its debt with ČSOB lapsed on January 28, 2005, thus a 5-percent penalty interest started accruing January 29. In theory, the owed sum grows Sk3.43 million (€90,000) every day.

ČSOB seems satisfied with the payment arrangement and appears relieved that the case is nearing completion.

Milan Tománek, head of the ČSOB communication department, told The Slovak Spectator that the case must be viewed in context. "In 1993, the shareholders of ČSOB decided to free the bank of bad debts incurred during the socialist era. Slovakia had a duty to share this obligation. This is the angle in which the whole case must be seen," he said.

Tománek views the Slovak cabinet's decision against appeal as a good sign. "This is a strong incentive [for Mikloš] to reach a definitive closure of the case. By saying this, however, I imply that we still do not have the final version of the agreement on the table. It is possible that we will reach [closure] by the end of this week [February 10-13]," Tománek added.

The international arbitration tribunal upheld ČSOB's complaint regarding the debt of Slovak bailout bank Slovenská inkasná. The complaint emerged in the era when mutual property affairs between the former Czechoslovak federation partners were winding down.

The debt originates from the 1993 ČSOB revitalization scheme for Slovenská inkasná and Česká inkasná banks - state banks formed by the Czech and Slovak Finance Ministries, respectively, to enable the recovery of ČSOB's bad debts.

Slovenská inkasná took over about 25 percent of ČSOB's bad loans for more than Sk10 billion (€250 million). ČSOB's biggest debtors from Slovakia were former foreign trade companies Technopol, Martimex and Slovart. Slovenská inkasná took a loan to pay for the transferred assets.

The original agreement was that Slovenská inkasná's debt against ČSOB would be paid from claims toward the debtor companies. Slovenská inkasná, however, failed to collect those claims.

Tensions increased in 1997 when the Slovak Finance Ministry refused to take over ČSOB's claims. ČSOB demanded to be paid the claims immediately, amounting to Sk13 billion (€336 million). When Slovakia again refused, the bank turned to the arbitration tribunal, the ICSID.

Slovakia had the first option to appeal against technical aspects of the verdict by February 11, 2005; however, this only applied to the mathematical calculation of the owed sum. The verdict itself could have been appealed within four months, by the end of April 2005.

Mikloš seemed doubtful about the eventual success of appealing the verdict.

According to him, the obligation emerged unambiguously because of previous governments (from 1993 to 1997) and legally, the debt had been confirmed repeatedly.

"We assumed that it would have been difficult to question [previous verdicts]," said Mikloš.

The Finance Ministry claims the Vladimír Mečiar government did not pay enough attention to the process of restructuring ČSOB, which weakened Slovakia's position and strengthened that of the Czech Republic in the case.

The current cabinet claims that it has, in fact, inherited the problem from the Mečiar government. The Movement for a Democratic Slovakia (HZDS), Mečiar's party, has refused to accept blame.

Former Finance Minister Miroslav Maxon, who served in the Mečiar government in 1998, immediately spoke out against the allegations.

"Mr. Mikloš said that ministers who served up until 1997 are to blame. Everybody knows who the minister was before me," he told The Slovak Spectator. [The following served as Finance Minister between 1994 and 1998: Julius Tóth - 1993-1994; Rudolf Filkus -1994; Sergej Kozlík - 1994-1998.]

In early January, HZDS spokesman, Igor Žvach, rejected all notions of blame.

"As far as I know, there were undocumented claims by the Czech party; thus, the Slovak government in power between 1995 and 1996 paid only part of the claim and halted the settlement, suggesting that a different proceeding should have been agreed upon. It seems that no agreement was reached. After 1998, the Dzurinda government somehow brushed the whole thing under the carpet and let it develop this far," Žvach told The Slovak Spectator.

"I heard from [former Finance Minister Sergej] Kozlík that Slovakia's basic position was to reach an out-of-court settlement. If the Dzurinda government had opened up the ČSOB case immediately after 1998 and in some decisive way had presented Slovakia's arguments, things would have not turned out this way. There were grounds for an out-of-court settlement," Žvach claims.

Brigita Schmögnerová, the former Finance Minister serving in the first government of Dzurinda, said she inherited the case from Mečiar's regime.

Schmögnerová told the daily Pravda January 4 she does not think the verdict of the international arbitration tribunal was entirely objective.

According to her, there were initial efforts to solve the case out-of-court. One time, the ČSOB disagreed with the submitted proposal. Another time the Finance Ministry was unhappy.

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