The International Institute for Middle-East and Balkan Studies (IFIMES) in Ljubljana, Slovenia, regularly analyses events in the Middle East and the Balkans. IFIMES has prepared an analysis of current events in Slovenia following the appointment of the new government. The most relevant and interesting sections from the comprehensive survey entitled “Slovenia:Bad Bank – a model for plundering the state of Slovenia” are published below.
SLOVENIA:
Bad Bank – a model for plundering the state of Slovenia
At early parliamentary election held on July 13, 2014, Slovenia got its new winner – the Party of Miro Cerar (SMC) which celebrated historical victory with 34.49 percent of the vote. The election brought about tectonic changes in Slovenian political scene. The runner-up was Slovenian Democratic Party (SDS) with 20.71% of the vote, followed by the Democratic Party of Pensioners (DeSUS) with 10.18%, the Social Democrats (SD) with 5.98%, the United Left (DSD, IDS and TRS) with 5.97%, New Slovenia-Christian Democrats (NSi) with 5.59% and the Alliance of Alenka Bratušek (ZaAB) with 4.38% of the vote. Interestingly, the winner of previous election Positive Slovenia (PS) did not make it to the Parliament this time.
Slovenia was generally believed to have successfully carried out the transition. It was often praised and presented as a success story and as the country that joined the EU in 2004 with the best starting position. Today it seems, though, that the transition was far from being successful as it was presented in numerous reports and assessments drawn up by “reputable” Slovenian and international institutions.
Membership in NATO and especially in the European Union (EU) presented a historical opportunity to realise the dreams of many generations of Slovenians for a better and brighter future. However, after gaining membership in the EU Slovenia started to regress – not because of the EU but because of itself and its unrealised reforms. In this respect Poland can be referred to as a best case example – it took advantage of its EU membership as a new member state and made a huge progress in its economic and social development.
NOT PREPARED FOR THE CRISIS
Parliamentary election in 2004, right after the country joined the EU, was won by Slovenian Democratic Party (SDS) and its leader Janez Janša became the Prime Minister. This was actually the only election to be won by Janša and his SDS in more than twenty years since have been present in the Slovenian political arena. During their term of office Slovenia marked high nominal economic growth and therefore Janša's government often tries to take all the credit although that growth was mainly the result of favourable global economic situation and export-oriented domestic economy. However, during the economic boom Janša's government obviously failed to prepare the economy and the state for the upcoming economic crisis and recession. Certain responsibility should also be assumed by Slovenian and international experts on economy who failed to anticipate the crisis or its extent.
A LOST OPPORTUNITY
The next parliamentary election in 2008 saw the victory of the Social Democrats (SD) led by Borut Pahor who became Prime Minister. The state was not prepared for the crisis and the weak government further aggravated internal problems. The conflict between the social elites led to massive interruptions of financing facilities that were provided for management buyouts. Under the pressure from the government, state owned or co-owned banks rejected the extension of loan arrangements to many companies. Numerous managers were persecuted through criminal investigations and court proceedings. At the same time the government capped management salaries, which further discouraged managers from running companies. Managerial activities have thus become socially criminalised. More and more companies went bankrupt and thousands of workers were left jobless. The State did not look for an appropriate model to save those companies and jobs, nor did it ensure social justice through additional taxation of the newly emerged tycoons, although successful economic operation and preservation of jobs would have served the public interest by providing the necessary budgetary resources. The responsibility for inappropriate government action at that time is generally attributed to former Prime Minister and incumbent President of the Republic of Slovenia Borut Pahor.
A NEW MODEL FOR PLUNDERING THE STATE OF SLOVENIA
Political instability led to early election in the autumn of 2011. Despite winning the election Positive Slovenia (PS) in its leader Zoran Janković, the Major of Ljubljana, did not manage to be elected as the new Prime Minister. The new government was then formed by Janez Janša, the president of the second-placed SDS. Numerous experiences have shown that prime ministers who come second-placed in the election usually do not manage to run the government for a longer period. Janša's government managed to establish two institutions with the aim to introduce centralised control over Slovenian economy: Slovenian Sovereign Holding (SSH) for managing state shareholdings in companies, and the Bank Assets Management Company(BAMC), popularly called the Bad Bank, whose task was to relieve companies from the credit burden and to write off and transfer bad debts. Basically this system serves as a new model for plundering the state. After Slovenia gained independence a part of social elites had plundered the state through “tycoonisation” and appropriation of socially owned assets. Paradoxically, now the government itself has established the institution that would enable further plundering of the state. By introducing foreign managers and experts in BAMC the interest groups established control over the economy and economic flows.
In early 2013 the Commission for the Prevention of Corruption (CPC) published a report containing serious accusations against Janez Janša and Zoran Janković concerning corruption. This led to a political crisis and the fall of the coalition and Janša's government. A new government was formed with Prime Minister Alenka Bratušek who also temporarily presided the Positive Slovenia (PS). Her government enormously increased state borrowings under high interest rates. Those borrowing activities are criticised for lack of transparency – the level of state indebtedness during her government is one of the most protected secrets. At the same time Bratušek's government followed the orders from Brussels and put on the list for privatisation 15 leading Slovenian companies including the national telecommunications operator Telekom Slovenije and the Aerodrom Ljubljana airport. It is true that the state of Slovenia holds a significant share in national economy, but that does not justify the decision made by Bratušek's government to privatise companies that are of vital importance for the state. The ownership structure should be improved, but not in a way that enables other countries to become de facto owners of vital Slovenian companies. Such an example is the Republic of Austria which became the owner/co-owner of many telecommunication companies in the region though its ownership of Telekom Austria. Thus those privatisation processes actually enabled Austria to nationalise other country' assets.
Political cleavage within Positive Slovenia, notably between Ljubljana Mayor Zoran Janković and Prime Minister Alenka Bratušek, and the former's victory at the party's extraordinary congress led to Bratušek's resignation and new early election on July 13, 2014.
In the difficult economic position, complicated political situation and complete lack of trust in political parties and politicians, Slovenian political arena was marked by a new phenomenon – the Party of Miro Cerar (SMC). The party was registered practically one month before the election when a professor of law at the University of Ljubljana Miro Cerar,who is perceived by Slovenian public as one of the leading and most reputable legal experts, decided to form his party together with a group of followers. At the time of general disappointment over the current situation in Slovenian society, SMC advocated a different approach to politics. Thanks to Cerar's spotless past and his new approach to politics his party won the second best parliamentary election result since Slovenia's independence. SMC represents a unique phenomenon in the history of modern democracy: no other party has ever been formed only 40 days before the election to mark such sweeping victory at the polls which enabled it to decide not only about the destiny of Slovenia but to take decisions at the EU level as well. The election has shown that the citizens want some serious changes, but the question is how to bring them about.
BAD BANK – AN ALIENATED CENTRE OF POWER
The Bank Assets Management Company (Bad Bank) was established by Janez Janša's government pursuant to the Act Defining the Measures of the Republic of Slovenia to Strengthen Bank Stability (ZUKSB) which entered into force in end-2012. Its task was to systematically facilitate the restructuring of banks that were facing severe solvency and liquidity problems. By the end of 2013 the government thus recapitalised the two largest banks (NLB and NKBM) and transferred a substantial part of their non-performing assets to the Bad Bank. They entered 2014 with strengthened balance sheets and with sufficient capital and liquidity to start new lending and thus facilitate renewed economic growth in Slovenia. But in reality this meant that bad debts were only transferred in accounting terms while the banks were recapitalised by the state using the taxpayers' money.
Besides enormous salaries for its managers and insufficient control over its activities the Bad Bank started to operate as an alienated centre of power serving various interests, forgetting that its initial task was to serve the interests of Slovenian state. Assisted by political elites, especially from the current government, certain individuals and interest groups managed to bring foreign managers and experts to the Bad Bank in order to carry out the “dirty” business, enable certain law firms to make fat earnings and create new/old tycoons and enable them to gain untransparent ownership of assets. It all seems that the Bad Bank and its financial transactions and flows will become the subject of Interpol's investigations.
It will be interesting to find out where the millions of taxpayers' money have disappeared.
The main problem of the Bad Bank is that it has no set of criteria or a model for enterprise restructuring. It therefore proposes bankruptcy proceedings for most of the companies whose assets it takes over. As this scenario is already provided for in existing legislation, there was no need to establish the Bad Bank for those purposes.
Thus the winners of creating the Bad Bank are a) the banks which were relieved of bad debts from companies and thus significantly improved their balance sheets, and b) indebted companies (tycoons) which were relieved of their debts and then, thanks to untransparent procedures and their personal connections, they used third persons/law firms/“unconnected” companies to take over or even hire “their own” companies or buy back – at very low price – the non-performing assets that had been transferred to the Bad Bank.
The question on the necessity to establish the Bad Bank is therefore very relevant. Did the state really need and does it still need an intermediary for the write-off and transferring of bad debts? In early years following Slovenian independence certain social elites plundered the state and now the state is plundering itself. This has to be stopped!
CONSOLIDATION OF SLOVENIA
The new Slovenian government should stop the regression trends that are visible in all spheres. This is its key task according to which it will be judged by the voters and written down in their political memory. Government's performance will be measured mostly on the basis of its ability to stimulate the recovery of national economy and to assert the rule of law. It will be important that it does not repeat the mistakes made by previous governments – it should make sure that the key positions in state-owned companies are occupied by competent professionals and experts who are politically independent. This is the only way to reject the stereotype that the state is a bad manager. The state can be a good manager when companies are run by competent businessmen instead of individuals appointed on the basis of their political party connections .
The staffing policy will be the hardest test for the new government. Miro Cerar's government should not repeat the mistake made by the Citizen's List (DL) which had thought that individuals from state administration, notably from the public sector, can become the actors of economic development. Being reproached for giving preference to lawyers and academics when it comes to staffing is not a good sign that the new government will be able to pull Slovenia out of the crisis. Instead of following their narrow party-based interests, the elected representatives of citizens should make sure that renowned experts from various fields are enabled to contribute to the consolidation of Slovenia. Thus the lawyers should ensure the functioning of the rule of law and public administration and eliminate loopholes in the law that enable manipulation and stifle the business environment. On the other hand capable managers with sufficient courage, knowledge and experience to pull Slovenia out of the crisis should ensure proper management of the economy without following the interests of destructive lobbies. Besides the normative idealism the lawyers should ensure a safe environment for domestic and foreign investments. These are the expectations of voters that were expressed at this year's early election.
It is vital for Slovenia to improve the environment for foreign investments since its current legislative solutions and incentives to not provide an attractive environment for foreign investors. The economy should be run by competent managers instead of political party “soldiers”. The level of state and company borrowing should be reduced. Economic growth is the answer to numerous, especially financial questions. Slovenia should take advantage of its membership in the EU and NATO as well as its strategic partnerships concluded with France, Germany and Turkey.
All these tasks can be realised if the state and its political leaders set some clear goals. As long as Slovenia has no such goals its consolidation will not be an easy task. The new Slovenian government is faced with the most difficult task since the country's independence and its Prime Minister will be able to cope with it if he follows his values and transforms them into a clear executive policy. This is feasible and vital for Slovenia.
Ljubljana, December 19, 2014
