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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: 063 - (23/07/02)

EU approaches, so do elections
The switch of presidencies in the EU, Denmark taking over from Spain, is a key one for Slovakia. For by December its fate is likely to be decided, whether it joins in the first wave, as billed, or not.
The snag that imperils this is that before then it could have a new premier, the widely dreaded Vladimir Meciar. He is leading in the polls to win autumn elections.
It will need another show of unity to keep Meciar out by all anti-Meciar forces, the very thing that ousted him four years ago. The victory of the Social Democrats in the Czech Republic in June over the right might encourage them that it is just possible.
But Meciar is a formidable populist politician, who can rebut the charges that he is, or ever was, a dictator by pointing that he allowed himself to be voted out in 1998. A vote for him this time would not be the last valid vote a Slovak would have.
The new anti-EU mood in Central Europe is another plus for him. Not that he is opposed in principle to EU entry, but only wants it on better terms. Here the Poles are making the running in representing the interests of the Visegrad block as a whole (see Poland). 
The economic performance of the coalition government has not been too bad, with growth of GDP in the 2-3% range in the 2000s. But this is leaving a lot of people very poor. 

Castles for sale
The Slovaks are proving difficult newcomers to capitalist ways, who, nevertheless, are trying out novel solutions.
They have heritage problems with many of their old buildings, for instance, whose upkeep the state cannot afford since it is already in debt to the tune of US$11bn.
So the government has decided to sell 160 castles and chateau for a pittance, as little as a dollar in one case, but with the obligation attached that the buyers should maintain the property, an expensive commitment. The offer should obtain some reactions all the same.

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BANKING


Collateral law removes major lending barrier

The reluctance of banks to lend to small Slovak companies is expected to change following a Civic Code amendment making it easier to use movable assets as collateral for loans.
The changes, which take effect at the beginning of next year, are part of a three-year government strategy to restructure banks and companies and improve the legislative environment for lending, the Slovak Spectator has reported.
The Civic Code amendment has been praised by the European Bank for Reconstruction and Development, which has promised funding to help put the law into practice. "We are very, very pleased that this has been approved," said Alexander Auboek, the head of the EBRD office for Slovakia and the Czech Republic, which financially supported the changes. "Our internal management has also approved the second phase of the project, which deals mainly with the implementation of this law. I can't give you details now, but there will be more funding from the EBRD with respect to the implementation."
Under current legislation, small companies say they have difficulty meeting bank lending conditions. Loan collateral must be either in the form of fixed assets - which small businesses often do not possess - or movable assets that are handed over to the creditor for the term of the loans, thus preventing them from being used for business purposes by their owner.
For small trucking companies, for example, whose movable assets are essential to the daily running of the business, these lending conditions often prove insurmountable.
The new amendment on the other hand, will allow movable assets such as machinery, vehicles, warehouse stock or even receivables to be used as collateral while still remaining available for use by their owners, thus matching a lending standard fairly common in the western world. 
The other main thrust of the amendment is to increase lending security for banks by creating a register of movable assets that have been pledged as collateral to secure a loan. This rule, states a government explanation of the change, will prevent unscrupulous businesses from using the same assets to take out more than one loan.

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ENERGY

French firm buys stake in Slovak regional electricity distributor 


French power company Electricite de France (EdF) signed an agreement to buy 49 per cent of Slovak regional Central Slovak electricity distributor SSE for 158m korunas, in Bratislava on 25th June, TASR web site has reported. 
The transaction documents were signed by EdF Director for Central and Eastern Europe Paul Amoravain, Slovak Economy Minister Lubomir Harach, and two representatives of the FNM [National Property Fund] privatisation agency. 
On 22nd May, the government approved the results of tenders to sell 49 per cent stakes in the three state-owned electricity distributors - western ZSE, central SSE, and eastern VSE. 
Within five days of the signing, the French investor must pay 25 per cent of the purchase price into an account at ING Bank. The final payment is expected around the end of August, after the Antimonopoly Office has examined the deal. 
Under the acquisition, EdF will gain a majority of seats on the board of directors. The state retains a 51 per cent stake and a majority on the supervisory board. EdF reported a profit of 841m euros for last year and turnover of 40.7bn euros. 
The SSE is the second biggest of the three distributors, and last year had a profit of 1.57bn korunas (35.8m euros) on revenues of 18.1bn korunas.
The SSE runs 31,400 km of electricity lines over an area of 18,800 sq km, and serves 686,175 customers, including 4,702 companies.

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EU ACCESSION

Slovakia EU candidate with biggest influx of direct foreign investment in 2000 


Among EU candidates, Slovakia posted the biggest influx of foreign direct investments [FDI] as a share of GDP in 2000, according to statistics published by the European Commission in Brussels on 8th July, TASR web site has reported. Slovakia's FDI in 2000 represented more than 9 per cent of GDP, while second-placed Estonia's was less than 7 per cent. 
Between 1996-1999, Slovakia's figure was under 2 per cent, one of the lowest of any candidate. By volume, most investments went to Poland, the Czech Republic and Hungary. In 1996, these countries accounted for 82 per cent of the total, and in 2000, 69 per cent. 
As many as 87 per cent of all investments in candidate countries came from the current EU members, chiefly France (24 per cent), Netherlands (21 per cent) and Germany (19 per cent).

Slovakia uses 95-96 per cent of available EU funds for reconstruction

Slovakia has so far adopted 91.2 per cent of European Union legislation and is therefore very likely to join the bloc in 2004. So says a new Slovak Academy of Sciences study, Economic and Social Considerations of Slovakia's Entry into EU, which Deputy Prime Minister for European Integration Maria Kadlecikova and Parliamentary Foreign Committee Chairman Peter Weiss presented to journalists on 4th July, TASR web site has reported.
Slovakia is now using 95-96 per cent of available EU Phare [EU economic reconstruction aid for Eastern Europe] funds and needs to consider co-financing future development projects rather than relying exclusively on EU aid, they said. 
After successful completion of the accession process, Slovakia's allocation of EU structural fund will be raised from the current 100m euros per year to between 500-700m euros. The structural funds along with higher FDI [foreign direct investment] will be key impetuses to raising Slovakia's economy to the EU level. The whole integration process will cost Slovakia around 200bn korunas, and although the higher competition will initially be painful for businesses, entry will be beneficial for citizens, said the deputy prime minister.
"Slovakia's main economic challenge during the integration process will be to boost labour productivity and competitiveness, which is now at around 50 per cent of the EU average," she added. Economy challenges are also posed by the harmonization of tax policy For example, VAT could rise by 5 per cent and consumer taxes by 20 per cent. On the other hand, direct taxes should fall... 

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FINANCIAL NEWS

Slovakia reports almost 4 per cent growth in first quarter 

Slovakia's gross domestic product (GDP) grew by 3.9 per cent in the first quarter of 2002 to stand at 244.8bn korunas (5.5bn euros), TASR web site reported on 13th June quoting the Statistical Office (SUSR) In the first quarter of 2001, the year-on-year growth was 3 per cent.

Slovak Statistical Office issues projection of key indicators in 2002 

Slovak Statistical Office (SU) and INFOSTAT (Institute of Informatics and Statistics) predict the gross domestic product (GDP) will grow by 3.7 per cent in 2002, an office deputy chairman said on 13th June, TASR web site has reported. 
The inflation rate should be at 4.6 per cent according to the office, and at 4.7 per cent according to INFOSTAT by the end of this year. The office expects average inflation at 3.8 per cent, while INFOSTAT prognoses say it will be 4 per cent. 
Employment should go up by 0.1 per cent, or by 0.6 per cent according to SU and INFOSTAT, respectively. Unemployment rate will be at 19 per cent, INFOSTAT expects it to be at 18.7 per cent. Both institutions say unemployment will drop, according to SU by 1.2 per cent, while INFOSTAT predicts an even larger drop by 2.3 per cent. 

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FOREIGN INVESTMENT

Slovak-Japanese electronics joint venture to open in Slovakia

Slovak - Japanese joint-venture Sluzba SIIX laid the foundation stone of a production plant for electronics in Nitra on 1st July, TASR web site has reported. 
A venture of Nitra-based VDI Sluzba and Japan's SIIX Inc., Sluzba SIIX has basic capital of 3m euros and should be producing by next January. It expects to employ around 300 people...
SIIX has annual turnover of 1bn euros and manufactures mainly in Asian countries. The Nitra venture is its first plant in Europe...
Sluzba VDI is one of Slovakia's largest makers of electronics for the motor industry. It also has a joint venture with French firm, Plastohm SA, established in December 2000.

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