One of the reactions to the above-described pre-election promises of Zeman and his social democratic marketing from the turn of 1997 until the elections before the summer of 1998 was the enactment of the consolidation process. Let us recall how this actually came about.
Let us recall the methods of privatisation described above and their problems that emerged in the late 1990s and that needed to be addressed around the time of the Zeman government.
The credo of Klaus’s privatisation was that the hitherto state-owned enterprises would be de-nationalised. Already in the so-called small-scale privatisation, individual small entrepreneurs bought smaller production or business units. But people, potential entrepreneurs, did not even have these small sums to buy, for example, a shop in their street. They had to borrow money. The loan could have been provided by a neighbour or by money institutions, of which more than 50 sprung up at this time.
According to Klaus’s vision, the coupon method was supposed to eliminate the threat of corruption by ensuring that all citizens interested in coupon books would acquire shares in the companies to be de-nationalised. A strong Czech entrepreneurial class would also be born. Then all that was left was to find entities to finance these entrepreneurial ventures. In other words, it was necessary to find someone to lend the money. Apart from dozens of private banks, the greatest liquidity was hidden in a few of the largest banks. But the process of privatisation of these largest banks was delayed compared to the privatisation of manufacturing companies. As a result, in the 1990s, loans to all sorts of unsuccessful entrepreneurs, peasants and outright criminals were provided by state-owned banks, with politicians sitting in the driving seats. These “bankers” often had no idea about the banks’ management or the evaluation of business plans. They had only a political mandate to lend to virtually any idea of new entrepreneurs. In addition to the political mandate, they had their own intentions, which they had no reason to stifle bad projects.
The interconnectedness of banks and corporates, leading to a lethal cocktail of non-performing loans littering the banks, was further compounded by the fact that virtually all large banks had their own investment funds. These funds were in turn owned by privatised enterprises to which the asset-linked banks lent generously for practically anything. The term “banking socialism” was already in use at that time in connection with this interconnection of all kinds of relationships, resulting in the default on a large part of the loans.
But let’s go back to the time of Miloš Zeman’s premiership. At that time, non-performing loans of individual privatised companies or their owners amounted to around half a trillion crowns. A small part of it was in the portfolio of small banks that went bankrupt in the second half of the 1990s.
However, about ninety-five percent of bad loans were held by the three largest banks – Komerční banka, Česká spořitelna and Investiční a poštovní banka. In the first two, the state had a major stake at the time. In the summer of 2000, the bank’s owner, the Japanese group Nomura, was forcibly expelled from Investiční a poštovní banka.
The consolidation institutions were used by the government to carry out the process of bank debt relief and a kind of reprivatisation described below. First of all, it was the Consolidation Bank Prague. It was established just after the Velvet Revolution, and was then called only Konsolidační banka, after the division of Czechoslovakia the Czech part was called Konsolidační banka Praha.
Act No. 239/2001 Coll., on the Czech Consolidation Agency and on Amendments to Certain Acts , then transformed this bank into the Czech Consolidation Agency.
And how did the consolidation system work?
The banks’ receivables, i.e. the loans granted, which proved to be uncollectable for the above reasons, were transferred to the Consolidation Bank (Consolidation Agency).
These NPLs were subsequently sold by the consolidating bank/agency to new buyers. This was done for around 30%, but sometimes also for 10% of the original price.
The practice at the time was that a borrower of a bank that considered its loan uncollectible and therefore transferred its loan to the Consolidation Bank was given the opportunity to acquire its own debt for a tiny fraction of the original value.
In the following parts of the publication, only a few cases are presented which illustrate the functioning of the overselling and the damage caused to the taxpayer. We do not believe that the system described was accompanied by any transparent selection of a new purchaser or perhaps by good public oversight. At that time, the purchaser of the loans did not depend on the offer made, but rather on connections in the management of the Consolidation Agency, acquaintances in the leadership of the opposition parties or the helpfulness of the bribed MPs who controlled the supervisory board and the board of directors of the consolidation institutions.
When the former owner bought his own debt for a fraction of the value, the question arises as to who in those thousands of cases got cold feet and forgave the rest of the loan. It was the Consolidation Agency (formerly the Consolidation Bank of Prague), which were state organisations. So we, the taxpayers, paid it all.
For the thoughtful reader, the question of who is responsible for these hundreds of billions may then arise in his mind. First of all, we have a wide range of politicians from the first half of the 1990s, led by Václav Klaus, who enabled or themselves implemented the privatisation that resulted in hundreds of billions of dollars of bad or hard-to-obtain loans. Subsequently, we have a political powerhouse led by Miloš Zeman, who made this criminal overselling possible. We should also not forget the successive governments that have failed to allow a thorough investigation of both previous trials and the eventual recovery of compensation for the criminal links in the resale. This culminated in the consolidation master Andrej Babiš, who remained silent and still criticised the process instead of helping to unravel it.
