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slovakia

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  SLOVAKIA

REPUBLICAN REFERENCE

Area (sq.km)
48,800

Population
5,415,000

Capital
Bratislava

Currency
Koruna

President
Rudolph Schuster

Private sector
% of GDP

60%

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Background:
In 1918 the Slovaks joined the closely related Czechs to form Czechoslovakia. Following the chaos of World War II, Czechoslovakia became a communist nation within Soviet-ruled Eastern Europe. Soviet influence collapsed in 1989 and Czechoslovakia once more became free. The Slovaks and the Czechs agreed to separate peacefully on 1 January 1993. Historic, political, and geographic factors have caused Slovakia to experience more difficulty in developing a modern market economy than some of its Central European neighbours.

Update No: 059

Slovakia is in a grave situation. It is facing elections to parliament in September. The present ruling coalition has taken an audacious reformist course, which has made it unpopular. It is unlikely to win.
The present premier, Mikulas Dzurinda, has a difficult job running the six-party coalition government. There are endless tensions between the various parties, which make it difficult to see how they could present a united front in the elections. 
The former dictator and premier (the important job in the country), namely Vladimir Meciar, now has a very good chance of returning to power. He heads the opposition and is riding high in the polls. The existing government has not made many mistakes, but has had to do unpopular things that were delayed under Meciar in his period of power, precisely because he is a populist interested only in power.
The main problem is a huge divide between the Bratislava region and the countryside and smaller towns to the east. Unemployment in the former is only 6%, but in the latter it is running at over 30% in some areas. Bratislava and its surrounds have a GDP at 95% of the EU average. Only Prague on 124% fares better as a region among EU entry candidates. But the rest of the country comes in at less than 50% of the EU average. A law to exempt investors from taxes in regions with more than 10% unemployment is under consideration and certainly seems a good idea.
Foreign investors prefer the developed region rather than the backward ones for all sorts of reasons. For one thing Bratislava is in the right place, only 60km from Vienna. It has the best-educated people, the institutes and infrastructure. This is the ruling coalition's natural power base. But the more numerous provincial population are generally behind Meciar. Hence why he is likely to win.
Foreign investors are staying way until they see the outcome of the election. The result is not likely to please them.
Meciar promises that he is a reformed man. He intends to tackle corruption, he says. It is certainly rife. Just perhaps, on the principle of poacher-turned-gamekeeper, he is the politician to make a dent on the problem, but don't hold your breath!

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AVIATION

SkyEurope Airlines to start domestic flights in Slovakia

SkyEurope Airlines of Bratislava starts its flight service with a regular route between Bratislava and Kosice on 13th February, flying three times a day during the week and once a day during the weekends, TASR web site has reported.
SkyEurope will use Embraer 120 aeroplanes with a capacity of 30 passengers and a flying speed of 552 km/hour.
The date for a further series of flights (Bratislava-Zurich) has been set for 4 March 2002... By 2002 and 2003, maybe earlier, SkyEurope Airlines wants to extend the choice of destinations to Paris, Brussels or London... In three years, the company also hopes to be profitably providing flights to Amsterdam, Prague, Rome and Milan. 
The basic capital of SkyEurope Airlines is, according to the trade register, 1m Slovak korunas, although shareholders have already approved raising that to US$2m (96m korunas). The major stake, consisting of 50.25 per cent of shares, is owned by the trading company SkyEurope of Bratislava. It was founded by Slovak and Belgium partners. 49.75 per cent is owned by the Spanish air operator Swiftair...

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CREDIT RATINGS

Fitch: Slovakia speculative

Ratings agency Fitch decided not to follow Standard & Poor's and Moody's, which last year moved Slovakia to investment grade, reports the Slovak Spectator. The agency elected in a ratings report published on February 4th to leave Slovakia at speculative grade with a positive outlook.
Fitch cited concern over Slovakia's record trade deficit, the recent forced departure of Finance Minister, Brigita Schmognerova, and the determination of the ruling coalition SDL party to halt the privatisation of gas utility SPP.
A tender for a 49% stake in SPP is in its final weeks. The sale is expected to fetch US$3-4bn, with the proceeds to be used to pay off Slovakia's debt and to jump-start pension reform. Analysts have warned that if politicians manage to torpedo the deal, Slovakia's investment reputation will be hurt.
Fitch also cited September 2002 elections as a risk, noting the possible return to power of three-time Prime Minister, Vladimir Meciar, whose authoritarian behaviour in the 1990s saw Slovakia dropped from both Nato and European Union front-runners.
In response, National Bank of Slovakia Governor, Marian Jusko, said the ratings agency had been "one-sided" in its evaluation of Slovakia, adding he was "disappointed" Fitch hadn't raised Slovakia to investment grade.

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ENERGY

Gazprom scraps pipeline

Russian gas giant Gazprom has scrapped a project to build a new natural gas pipeline bypassing Ukraine through Poland and Slovakia reports the Slovak Spectator. Reuters quoted a senior Gazprom manager as saying the firm wanted to come to terms with Ukraine, which Russia has accused of stealing gas from Gazprom's Bratstvo pipeline.
The 'Jamal' pipeline project, which was first proposed in March 2000, had run up against opposition from Poland, which was reluctant to cause offence to Kiev.
Slovakia and its SPP gas utility had been in favour of the new pipeline from the beginning, expecting additional transit revenues to come to US$60m annually. SPP now handles about 80% of Gazprom's gas exports to western Europe.

Slovak gas utility head welcomes privatisation bid by foreign consortium

Following the submission of a single bid for Slovak gas utility SPP on 28th February, independent MP Robert Fico and opposition leader Vladimir Meciar said that the sale should not proceed, TASR web site has reported. 
"Since only one bid arrived at the Privatisation Ministry, it is necessary to declare a new tender or seek a different approach to SPP's privatisation. There is no other solution," Fico, the chairman of Smer non-parliamentary party and a member of the SPP privatisation commission, told journalists. 
A multinational consortium of Gaz de France, Germany's Ruhrgas, and Russia's Gazprom made an offer for the 49 per cent stake and management rights said to be around 130-135bn Slovak korunas (US$2.7bn)...
By contrast SPP director general, Miroslav Lapunik, said the consortium's entry would be positive for SPP. "They are European giants and long-term partners who understand the gas industry," he told the Slovak news agency, TASR.

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FINANCIAL NEWS

Slovakia's balance of payments figures for 2001 show surplus shrinks

Slovakia's payment balance surplus from January until November 2001 dropped by a huge 42.1bn Slovak korunas year-on-year, central bank NBS revealed on 22nd February TASR web site has reported. 
Payment balance surplus in the aforementioned period was 1.97bn korunas compared to 44.07bn korunas in 2000. According to NBS, the reason is in the high deficit of the current account of the balance of payments, which reached 72.18bn korunas for the first 11 months, up 51bn korunas on the year. 
In November 2001, the current account deficit was balanced by a surplus on the capital and financial account amounting to 64.92bn korunas up by 8.4bn korunas year-on-year. The current account deficit was a consequence of the trade balance when imports were higher by 87.16bn korunas against exports. Trade in services posted a surplus of 19.85bn korunas in the first 11 months. Current account revenues reached a deficit of 13.74bn korunas and current transfers reached a surplus of 8.87bn korunas. The balance of direct investments on the financial account ended with a surplus of 66.05bn korunas, and portfolio investments with a deficit of 15.57bn korunas. 

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FOOD & DRINK

Slovakia secures EU future for its traditional domestic products

After accession to the European Union, Slovakia will be allowed to bring into the common market traditional domestic products such as bryndza (sheep cheese) as well as retain the appellation "Kabinet" for its top wines. These demands were secured by Slovak negotiators at the recent round of accession talks with the European Commission in Brussels, Agriculture Ministry division head Lubomir Micek told the TASR News Agency on 14th February.
Slovakia was even allowed to continue producing bryndza from unpasteurised milk, but under strict EU hygiene regulations. The finest wine in Slovakia comes from the Tokay region, most of which is in Hungary. 
According to Micek, there are no major obstacles to overcome in agriculture. "Technical negotiations may be closed during the first half of 2002. After Denmark takes over the EU presidency from Spain in second half of 2002, the two most serious files will be closed - production quotas and direct payments for new EU members," he said.
Under the EC's latest proposals, agrobusiness from candidate countries will be entitled to only a quarter of what farmers in existing EU countries get. Micek believes this violates the principle of equal opportunity for businesses. "If the Union really enacts disproportion payment, we should at least be given higher quotas and granted wider protection of our internal market," he said.

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FOREIGN LOANS & AID

Slovakia to return part of economic reconstruction aid to EU

Slovakia will return to the European Union 534,800 euros (22.4m korunas) of PHARE programme aid [for economic reconstruction of Eastern Europe] which it drew without authorisation, the cabinet decided 27th February TASR web site has reported
Inspections have revealed misuse of PHARE resources allocated for General Technical Aid Fund projects in 1991 and 1996, before the current government came to power. In March 1997, the European Commission had a London accounting firm Lubbock Fine conduct inspections at the Slovak Foreign Ministry, national coordinator of the PHARE programme. 
Repayments will be financed from the government reserve fund and Foreign Ministry accounts. Slovakia is obliged by law to transfer these payments either from the national fund or state budget into a special account of the Union.

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FORESTRY

Wood processors get funds

The Economy Ministry has allocated Sk40m for developing small and medium sized wood processing enterprises in 2002, the Slovak Spectator has reported.
The funds are to cover interest payments on commercial loans used by the companies in the acquisition of tangible and intangible assets. The programme is set to continue until 2005 and distribute a total of Sk340m
Economy Minister Lubomir Harach said that if the privatisation of monopolies is successfully completed, annual government subsidies could climb to Sk100m.
According to the plan, government support of the wood processing industry should allow Slovakia's producers to increase yearly exports by up to Sk5bn. Applicants for subsidies must meet a number of requirements including increasing volume of processed wood, using types of wood where supply exceeds demand, and creating employment. Harach hopes the project will result in 1,300 new jobs.
The ministry also plans to support the construction of a pulp and paper mill in conjunction with strategic investors. Possible locations for the mill are the Povazie region in west Slovakia, Spisska Nova Ves and Vranov nad Toplou, both in east Slovakia. The products of the mill should go to the Caspian region which is, according to Harach, accessible and still unsaturated.
Harach estimates that total investment will exceed Sk10bn.

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MINERALS & METALS

VSZ share sale approved

The Financial Markets Office on February 6th unfroze a transaction it halted last year involving the sale of 21% of shares in steel maker VSZ; the sale was to go forward soon, reported the Slovak Spectator recently
Just days before the decision, John Goodish, head of steel maker US Steel Kosice, met economy Minister, L'ubomir Harach, for 90 minutes to discuss the VSZ share case. US Steel had declared an interest in the shares but had been unable to come to terms with the Economy Ministry, which was reportedly asking too high a price.
The shares were subsequently sold on the Bratislava bourse an hour before trading ended on the last business day of 2001 to three investment firms - Penta Group, J & T and Istrokapital - arousing suspicions the deal had been arranged long before. Goodish said "this is a country and a government which has committed itself to transparency, but this was a transaction that according to the world was not transparent."
The Attorney General's office has said it is investigating the deal on evidence of possible insider trading.

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PHARMACEUTICALS

Slovakofarma-Leziva merger in the offing

A merger between pharmaceutical maker Slovakofarma and Leziva Phraha, the leading Czech Republic-based pharmaceutical company, may be on the cards, the Slovak Spectator reported recently. Leziva's majority owner, US fund Warburg Pincus, has shown interest in obtaining a controlling stake in Slovakofarma. The deal is pending approval from both the Slovak and Czech anti-monopoly offices. "The synergy from the union should mean that we concentrate our resources on speeding up our innovative activities," Leziva's Director General, Jiri Michal, was quoted as saying. If the deal is approved, the merged group will be ranked in the top five companies in Central Europe

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SHIPPING

No bidder for Slovak shipyards accepted by state privatisation agency

Slovak state privatisation agency FNM did not accept any of the bids submitted in the tender for 100 per cent of Slovenske Lodenice Komarno [shipyards] of Bratislava (SLKB) and SLK Stroje a Mechanizmy (SAM) [shipyards machinery factory] of Komarno. 
The two companies were established from the remains of Slovenske Lodenice [shipyards] of Komarno (SLK), which went bankrupt in 2001. 
Slovakia's state privatisation agency FNM President Jozef Kojda told the Slovak news agency TASR on 22nd February that the executive committee must now find a solution for raising the 60m Slovak korunas needed to finish two seagoing ships by SLKB. According to Kojda, a new tender will be announced within three months with only two criteria: price and the bidder's obligation to increase basic capital. 
FNM launched a tender for its 100 per cent stake (held via its subsidiary brokerage firm Dlhopis) in SLKB and SLK on 3rd January. The bidders in the final round included the Dutch OEP together with Penta Group investment company of Slovakia and Hungarian Equinox company (with German capital) on the other hand. Another alternative was the revival of the shipyard by the National Property Fund (FNM) through increasing SLKB's capital by 60m korunas from fund's sources.

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TOURISM

Czech spa to become new owner of Slovak spa 

The Czech spa Lecebne Lazne Marianske Lazne will become the new owner of Piestany Spa (Slovenske Liecebne Kupele/SLK), a National Property Fund (FNM) spokesperson told the TASR News Agency 15th February. 
The FNM presidium's decision was recommended by the FNM executive committee and the adviser for the sale of a 67 per cent stake in SLK, the Benefit Finance company. Recently, the Sme daily reported that almost 100 per cent in Marianske Lazne spa is owned by Danubius, a Hungarian company controlled by British stockholders.

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