Utilization of Eurofunds in Slovakia – An Opportunity for Growth or for Corruption and Clientelism?

[11.10.2012, Ivan Kuhn, Dušan Sloboda and Radovan Kazda, PAPERS AND STUDIES]

Nontransparent allocation and thefts within procurement procedures. Holding back of the information. Non-compliance with the senseless goal of regional disparities reduction. Politicians' prattles on the utilization. Doubtful efficiency and incredible wasting. This is also a way to perceive our first more than seven years of experience with the eurofunds.

Since the beginning, the eurofunds are accompanied by jurisdictional fights. These include the disputes on the number of operational programs and the ministries responsible therefor, the fights for its administration between the regional and central Governments and, at last, but not at least, the political games questioning whether the role of the main coordinator belongs to either Government Office or a ministry in charge with the regional development during the pre-admission period, right with regard to the so wistfully expected income from the eurofunds after the country has been admitted to the EU. These fights were not and are not about better allocation of public fund nor they are about regional development. Primarily, these are bigpower fights for the direct influence on whose „boys“ the eurofunds will be straightly allocated to. Since the programming periods are not exactly identical to the electoral periods, the Governments will always either blame each other for unflattering utilization or usurp also the other's merits in case of good pace in the eurofunds spending. Chapter |1| gives our view on the eurofunds utilization.

Wasting in eurofunds is not only when the money from our taxes are spent for useless projects published in well hidden cork boards, declared right for the cork board authors themselves. Logos for millions, over-priced legal services, non-market high prices for ads in media, hundreds of pages of permanently reviewed manuals for the bureaucratic apparatus, hundreds of new bureaucrats and their training in luxury hotels. Dirty wheeling-dealing for the sponsors of the ruling parties. Also the intelligence service points out at high corruption and clientelism degree. Also this endless wasting is one part of the eurofunds utilization. Chapter |2| summarizes the selected cases.

The eurofunds are allocated in the EU for tens of years already. Their scope is continuously widening (new regions, new support targets) although they are unable to meet the defined goals efficiently. The growth of the public sector role in the society (since most of the eurofunds are allocated to support the projects executed by either central or local Governments) and the increase of both corruption and clientelism are the negative aftermaths of this policy. An example thereof can be found in the eight social enterprises in three regions (with the least economic development and the highest unemployment). These enterprises were supposed to be donated millions of euros for their activities by the government from the European Social Fund. The social enterprises were the government-subsidized project of the Minister of Labour Ms. Viera Tomanová aimed to the employment increase. Both businesspeople and municipalities were welcome in this business. Pursuant the act valid from May 2008 (with paragraphs related to social enterprises in force from September 2008), this had to be either company or non-profit entity employing disabled unemployed persons who had to constitute 30 percent of the headcount at least. At the same time, the social enterprise had to utilize 30% of the profit at least “for creation of new jobs or improvement of labor conditions each year“. The project had to operate for five years at least, with the government subsidies paid during 28 months. The eight model projects had to be donated by an irrevocable financial contribution from ESF equal up to 95% of the justified costs. As it was found later on, in most of the model projects the priority was not the creation of new jobs, but attempts to misuse both EU and Slovak Republic budget finances in favor of people connected to one of then ruling parties. We focused on social enterprises in Chapter |3|.

EU supports with high amounts also such private projects, which have very low likelihood to succeed on the market basis. The EU support tools are based on wrong presumption that the private capital market will not be able to respond flexibly to the market demand generated by the Government's decision. Subsequently, this error generates series of errors, market distortions and contributions to the market monopolization. We demonstrate them in the Chapter |4| with an example of subsidizing in waste management.

Step by step, the long-year thesis of the politicians on eurofunds reducing the regional disparities becomes less and less audible. There is no wonder since the reality does not prove it. From our admission to EU, the difference in registered unemployment between the districts even increased. Moreover, the eurofunds in Slovakia do not come first of all to those regions where they should according to the political declarations. For more details, read in Chapter |5|.

Corruption and clientelism thrive also in eurofunds in Slovakia. The reason why is that neither ministries nor another public administration bodies participating in the eurofunds allocation are automatically obliged to publish all information on the decision-making procedure of the applications (projects) approval. Complicated bureaucratic mechanisms on both sides (both donors and recipients) means unnecessary costs and time losses, and it generates the room for unequal, inequitable and nontransparent decision making. In Chapter |6|, we bring our systematic suggestions for changes and the summary of selected changes made during the last period.

Ivan Kuhn
Analyst of European Affairs and Eurofunds Utilization

Dušan Sloboda
Analyst of Public Administration and Regional Policy Areas

Radovan Kazda
Analyst of Environmental Policy Area

The full text is available here as an Adobe Acrobat PDF and also presented below: