TRANSITION TO CAPITALISM

Property of the Slovenian State

Is the property of the Slovenian state in new circumstances too great???? or is it a normal phenomenon for the current phase of transition?

AIM Ljubljana, 8 May, 1997

The transition from the single-party to the multi-party system caused great changes in the economic system, as well. All attempts to transform social ownership into private, and thereform into market competitive, made so far have failed. Simply, time works wonders, so the reform of economic legislature and the increasing significance of the economic and the legal system finally brought social ownership to its end. That is how transition from "eccentric finances", as a few years ago Professor Dr Ivan Ribnikar said, to normal polarization between private and state ownership was enabled.

Among the countries in transition, the process of privatization was the most successful in Hungary, Czech Republic and Poland, which have exceeded Slovenia in the speed of privatization. But, despite much criticism at the expense of the Slovenian model of privatization, real problems in this sphere are just appearing in the mentioned countries. The Poles and the Hungarians are just starting privatization of big enterprises, while in Czech Republic, almost a quarter of the economy is still state-owned. It should be taken into account that these countries of the former eastern block had a centrally-planned system in which everything was owned by the state, and they were practically not at all acquainted with the concept of social ownership which was introduced in Yugoslavia by Edvard Kardelj. It is just beginning to show, however, that their models of privatization are far from being perfect.

Professor Dr Joze Mencinger has been for quite a long time now among the critics of privatization in Slovenia, that is, of transformation of social ownership into private. Due to that, he even resigned in 1992 to the post of vice prime minister in charge of the eceonomy. He criticized primarily distribution of certificates on social property among all Slovenian citizens. Dr Mencinger is primarily sensitive to management companies and their authorized investment companies, which started working in 1994. Mencinger claims that investments of certified past labour has one big defect: lack of money. He warned that these funds invested 0 tolars (Slovenian national currency) into enterprises, just as much as certificate capitalists invest into funds. This leads to endless profitability of their investments into enterprises. We can freely say that Mencinger's forecasts in 1994 were clairvoyant, because nowadays things are becoming very complicated in authorized investment companies, as well as their management companies. This brings us to the essence of this problem and that is the fact that state ownership is one of the beneficial remedies for filling up the so-called "privatization hole"!

What is indeed state property of the Republic of Slovenia, which is attractive for numerous participants in the privatization process? According to information of the Ministry of Finance, at the moment, the state property consists of 18 state funds, 4 agencies, 2 banks, 410 public institutes and 36 public enterprises. It is interesting that in 1993, Slovenia had only 4 (para)state funds, and two years lated their number increased to nine, last year to 14, and now there are 18 already, and foundation of a few new ones is in preparation. Their joint capital exceeds the capital owned by all Slovenian banks, but according to the balance sheet it is one half of the balance sum of the banking system. This is a form of state investments which are rising the most. This is confirmed by a single glance at the statistics in the past few years. In 1993, in the 4 funds which existed at the time there was 76 billion tolars of capital, in 1994 there were 166 billion tolars of capital in 8 funds, a year later, 9 funds collected 344 billion tolars, and last year, there were 18 funds with over 500 billion tolars. But, one thing should be made clear. These funds are well-organized and well-controlled, so that they mean nothing bad. On the contrary, many states in the world have such funds, but they are more transparent.

The mentioned state property does not include the financial property of the Slovenian central bank, the health insurance company, the agency for the market of securities, in other words institutions which are not financed from the budget and whose operation is in the competence of the parliament. The state has significant ownership shares in some of the economic companies, such as for example: Ljubljana Airport, Slovenian Steel Works, Petrol, Istrabenz, Koper Port, Piran navigation complany, Radece paper industries, state roads company, Slovenian printing works, Maribor car factory TAM, and similar. The state is an interesting owner, and at times has a very specific way of thinking.

Let us, for example, take Petrol, 15.63 per cent of which is owned by the state. At the last convention of share-holders of Petrol, distribution of profit was discussed. They have decided to invest only 30 per cent of the profit for dividends, which means 1.46 billion tolars. The share-holders have decided to invest the remaining 70 per cent into longterm development of the enterprise, its modernization, new petrol stations by the highways, and investments abroad. Does this mean that the state would like to get 250 million tolars of profit from Petrol!?

After completion of the privatization process, another two spheres may fall into the hands of the state - insurance companies and gambling-houses. The assembly procedure for adoption of the law on privatization of insurance companies was completely interrupted. According to Slovenian legislature, there are three phases in adoption of each law. The first phase, or discussion on privatization of insurance companies entered into procedure more than two years ago, the second was ended in June 1995, and then the deputies demanded a new draft from the government. The latest draft law made by the Slovenian state prescribes temporary transition of shares of social capital of the insurance companies into the ownership of the state. If they would be taken over by the state, the possibility of restructuring insurance companies would be ensured without resources from the budget. The biggest Slovenian insurance company called Triglav is not at all enthusiastic about the manner social capital would be taken over, and in view of its power and influence, a lot may change.

The other sphere which might fall into the hands of the state are gambling-houses. They are all, bue especially the Hit enterprise which owns most of the Slovenian gambling-houses and among them the most successful one in Nova Gorica, have been in the focus of interest of various political parties for a few years already. Scandals followed each other, and perhaps that is the reason why the state has prescribed a solution pursuant which for the period of next four years, gambling-houses would become property of the Fund for Development, in other words, fall in the hands of the state, and after that, meaning after year 2001, economic entities would also be entitled to manage them, but only up to 20 per cent.

There is yet another portion of state-owned property which is highly topical. It refers to (for the time being) the biggest Slovenian banks - the New Bank of Ljubljana and the New Credit Bank of Maribor. Their financial rehabilitation has begun back in the beginning of 1993, and it will be completed probably in the beginning of next year when the Bank of Slovenia will issue a decision on final rehabilitation. This means that the hunt on the geese that lay the golden eggs had started a long time ago. For both banks it would have been ideal if they had been privatized with cash money - preferrably by domestic or other cridible investors. But, it is quite clear that politics has its interest in it. The coalition contract between the ruling parties, Drnovsek's LDS and Podobnik's SLS, testifies about it. It includes a part devoted to privatization of both mentioned banks. As concerning privatization of the New Bank of Ljubljana, even the President of the management of this bank, Marko Voljc, is suspicious. Nevertheless, after financial rehabilitation, the state will still be the owner of this bank and decide about its destiny, which certainly is not gloomy. This bank is already gradually re-establishing high rating in the assessment of investment risk (BBB+) even with the always cautious Americans.

Slovenia is therefore increasing its state property. Some western European countries classify Slovenia among developed countries due to this very criterion (management of state ownership). And the citizens can do nothing but hope that the state will be at least just as cautious with this property as its citizens.

Milan Povirk AIM