DEFINITE SECESSION?

Subject: Slovenia and YU debts

International financial undertakings of Slovenia

Ljubljana, June 17, 1995

Mid June in Slovenia passed undoubtedly in light of its success on the international level. A contract was signed with CEFT, signing of partial contracts on associated membership of the European Union with all the members of the Union began, representatives of the International Monetary Fund recognized convertibility to the Slovene currency - tolar, and in New York, Slovene negotiators reached an agreement with the International Coordinating Committee (ICC), which was an introduction into signing of a separate contract between Slovenia and commercial banks about discharging debts of former the SFRY.

Ever since the day it won independence, Slovenia believed that together with the majority of the newly established states on the territory of former Yugoslavia, it would manage to reach an agreement about all former republics which have won statehood becoming equal successors of the former state. Therefore, it counted not only on division of property, but also division of debts of the former SFRY. All the time, though, in Slovenia, a warning was repeated that the issue of debts was one of the most dangerous traps Slovenia could fall into, being objectively the best-off state among ex-Yugoslav republics. Namely, from the very beginning, there was a risk that war-stricken, impoverished republics of the former SFRY would not have enough money to pay back the debts to various foreign commercial banks, and that those who fared best would have to take care of the entire burden. And this, of course, refers primarily to Slovenia.

The agreement with the ICC reached in New York does not necessarily mean that a contract will be signed, because the agreement should be verified by owners of two thirds of Yugoslav debts. There are no guarantees for that, but Dr Mojmir Mrak, head of the Slovene negotiating team, believes that it will be possible to get the approval, because the ICC would not have negotiated with Slovenia in the first place. The essential presumption of the future contract which is at its initial stage at the moment is the fact that Slovenia would, pursuant to it, take over 18 per cent of commitments to all Yugoslav creditors. The only exception are the so-called "bound entities", meaning creditors who are physical or legal subjects (governmental or non-governmental) from the FRY and other subjects who directly or indirectly work for the benefit of such subjects. They are the subjects whose names appear on two lists. The first is the Ofac list, the institution of the US Ministry of Finance, which includes all those whose businesses are blocked, and the other is the list adopted by the ICC. In an interview given to Ljubljana daily Delo, Dr Mrak says that these are the countries under blockade: Lybia, Iran, Federal Republic of Yugoslavia... Among these subjects is the National Bank of Yugoslavia, the Associated Belgrade Bank with the seat on Cyprus, and some other institutions with seats in the FRY. This means that Slovenia will not pay the debts of the so-called "bound entities".

And while the negotiating team was very satisfied after the return from New York, the Slovene public is not too enthusiastic about the reached agreement. Many warn that Slovenia will have to take over some of the commitments which are due such as paying interest and the capital amount. Slovenian negotiators explain that pursuant to the 1988 contract with the NFA, the capital amount was due for payment on January 1 last year. The term for payment was 13 years, which means that it should pay 838 million dollars, as its share of the commitments, by 2006 - each year one thirteenth of the sum. And interests are a different issue. Yugoslavia and Yugoslav creditors stopped paying back the debts and interest for these debt in April 1992. That is why, together with its share of 18 per cent, Slovenia will have to pay a part of the interest which is due, reduced by the part it has paid in the meantime to banks by the end of 1993. This part of the due interests amounts to about 200 million dollars, but it increases every day and that is exactly why Slovenia is in such a hurry to pay back Yugoslav debts in separate arrangement. What partly contributed to the decision to make an arrangement with foreign commercial banks is probably the fact that other former Yugoslav republics do not seem to have any interest for the issues of division balance, because these newly established states are, quite naturally, more concerned about the war developments than contemplations about some problems they might face in an indefinite future which Slovenia is living in for a few years already.

Slovenia will lend money to the IMF

Besides its wise monetary policy, that is exactly what contributed to Slovenia's having a stable currency, the international convertibility of which was verified by representatives of the International Monetary Fund (IMF) in mid June when they stayed for a fortnight in Slovenia. "Slovenia is a splendid example how it is possible to reduce inflation below 10 per cent and achieve economic growth", head of the IMF mission, Russell Kincaid, says. That is why experts of the IMF forecast that the transition period will be shorter here than in any other country of the former socialist block. The delegation expressed satisfaction with the agreement which Slovenia reached in New York with a consortium of commercial banks. Resolution of the problem of the unallocated debt of the former joint state, for Slovenia, means also greater possibilities for foreign investments and purchase of modern technology. A member of the delegation, Willy Keekens, who is also Executive Director of the Belgian constituent of the IMF that Slovenia is also a member of, stressed that results of the Slovene economy and monetary policy offer this state a far easier and cheaper access to world finances. But, representatives of the IMF also stressed, Slovenia does not need any loans. In view of its foreign currency reserves and other economic factors, the IMF even counts on the possibility of Slovenia lending money to some of the economically less successful member states !

A significant topic on the agenda of talks with the delegation of the IMF was a discussion about the Slovene national currency - tolar. The head of the delegation, Russell Kincaid, emphasized that convertibility of the tolar was an established fact for more than a year and that in order to verify this fact, the Slovene Government needed only to apply formally for the approval of the IMF which would be issued with no further problems.

But, experts of the Monetary Fund also warned against certain problems which Slovenia would have to face sooner or later. According to what they said, these are large earmarked resources for retirement, health and disability insurance from the state budget, indexing which should gradually be abolished, and interest rates which should be reduced.

Janja Klasinc, AIM