Who Owns the Privatised Enterprises?

PIFs Complain of Being Cheated While the State Claims the Opposite

It is hard to tell who is at this moment the rightful owner of some 500 privatised enterprises in the Federation of Bosnia and Herzegovina (F B&H) with all rights and obligations. These enterprises are on a verge of collapse because of the inherited debts. The new owners, mostly PIFs (Funds for Privatisation Investments), claim that they have been cheated while the old one - the state - replies that buyers knew what they were buying.

AIM Sarajevo, September 11, 2001

Enterprises, which were transferred from state into the hands of Privatisation Investment Funds in a large-scale privatisation organised in the Federation of B&H, have become the matter of dispute between the old and new owners. The inherited debts of privatised enterprises, which resulted from unpaid taxes, pension and health care contributions, unpaid wages and debts to banks and suppliers, amount to DM 2 billion. The new owners of privatised enterprises (mostly PIFs) lack fresh money needed for investments and restarting of production, let alone covering of inherited debts. Therefore, they see a solution in the state's generosity, which they are asking to write-off the enterprise debts (at least those for taxes, contributions and unpaid electricity bills), for the sake of "better future". The PIFs' key argument is the future fate of several thousands of workers of these enterprises who could easily become jobless if their enterprises "expire" under the debt burden.

Now, PIFs claim that the state has cheated them in the process of privatisation of these enterprises, because "had they known the amount of their debts, they would have never bought them". On the other hand, the state is washing its hands of the whole problem accusing PIFs that by demanding the writing-off of enterprise debts they are trying to ruthlessly rob the state and citizens of their remaining property and say that they have no right to complain because "they knew full well what they were buying" and that all they care for is "making profit". This whole story with debts of privatised enterprises and their future fate assumed a political dimension when the current authorities of F B&H accused the PIFs founders of having framed (together with the former ruling SDA and HDZ set) a concept for the write-off of debts of privatised enterprises as a grand finale of a serious fraud and are now using workers of those enterprises as a tool for exerting political pressure.

And while trading of shots between PIFs and the F B&H authorities goes on, major privatised enterprises are hanging in the air. The state thinks that they are no longer its problem, while the new owners do not want to formally take over enterprises until the problem of inherited debts is resolved. In the meantime, thousands of workers are at the end of their tether. In the past five years everyone reassured them that their agony would be over once their enterprises were transferred into private hands and that the production would finally be relaunched which would enable them to earn their living. Instead, privatised enterprises are now faced with a realistic possibility of bankruptcy, which implies laying off of all workers and their uncertain future and survival. Obviously, the privatisation of state enterprises has not resolved the problem of frozen B&H economy. Meeting face to face with cruel reality could not be postponed forever because the problem of inherited debts is just a symptom of a disease.

In past years, as the owner of the greater part of enterprises and employer of the vast majority of workers, for the sake of preserving social peace the state turned a blind eye to enterprises that did not pay contributions and other dues. Since these were mostly inefficient and insolvent state enterprises that were indebted to each other, as well as to their owner - the state - everything stayed in the "family". The state as the owner, i.e. the then authorities were unwilling to do the dirty work (reduction of employees to an economically justified level and closing down of those hopeless ones) necessary for enabling these enterprises, at least partially, to compete on the market because in that case they would have certainly lost the elections. Instead, they postponed this unpleasant task until privatisation was over so that the workers might direct their dissatisfaction against new owners.

From all accusations the state and PIFs mutually exchanged, the most controversial was the one that "PIFs are only interested in profits". Reproaching owners and investors, no matter who may they be, their interest in making profits testifies of the lack of understanding about the essence of market economy or, to put it more precisely, capitalism. Business is a rough sport and the only indicator of success or failure is the realised profit.

The sooner we accept this fundamental principle of capitalism the better it will be for everyone involved. Enterprises are not welfare institutions and welfare is the state's problem. The B&H economy is in the current state precisely because of the confused roles. In short term, social peace can be bought by forcing enterprises to put employment above economic efficiency and profit. Over the long term, this will bring such enterprises, as well as their owners to inevitable ruin, which means that everyone will lose same as the state which will, at the end of the road, have to face a true social revolt when there will be no one left with whom it could share the burden of providing for dozens of thousands of workers.

On the other hand, front men of PIFs were not so uninformed when they bought enterprises in the large-scale privatisation as they are now trying to present, because even laymen knew that economically successful and healthy state enterprises are a rarity here. What makes the situation even worse is that the state property was paid in privatisation certificates of citizens which, true, served for "settling of accounts" between the state and its subjects, while "real" money is needed for the revitalisation of production in enterprises, which neither the PIFs nor citizens have. Apart from the money (which no one has), much greater problem might be the shortage of qualified managers who would be able to take over the running of privatised enterprises and PIFs lack these personnel resources even more than financial ones. It seems that neither the new nor the old owners of former state enterprises are able to find their way in the new situation and under the rules of market economy.

The escape from harsh reality is nearing its end and mutual accusations for things that were not done in the past will not help either the enterprises or their workers. Therefore, the only solution is for everyone to accept his share of responsibility, be it the state or PIFs. The state has to accept the fact that it will have to find a way to somehow provide for workers who will inevitably lose their job, while the PIFs cannot expect someone else to cover losses of firms that they now own. Anyway, in B&H there are no other enterprises that can be bought with privatisation "papers" (in the form of privatisation certificates) and since they have no cash they cannot expect to become co-owners of "General Motors" or "Coca Cola".

Drazen SIMIC

(AIM Sarajevo)