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  SLOVAKIA

REPUBLICAN REFERENCE

Area (sq.km)
48,800

Population
5,400,000

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: 058

The political situation in Slovakia is enough to cause alarm in Western capitals. 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. Were an election held tomorrow, he would win it hands down.
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. Meciar had been largely responsible for Slovakia seceding from Czechoslovakia in 1993, allowing him to become the big fish in a small pond. He was at the time genuinely popular, especially with the rural constituency. He still is. But the townsfolk and in particular the more educated strata of the population cannot stand him. It will be a bitter blow to them if the seasoned populist gets back in.
The present premier, Mikulas Dzurinda, has a tough job running the six party coalition government. There are numerous tensions between the various parties, which make it difficult to see how they could present a united front in elections due in September. An embarrassing spat took place in late January. On January 21st the finance minister, Brigita Schmoegnerova, was dismissed by her own Democratic Left Party, reflecting discontent with her pro-reform policies that have won her plaudits abroad, but not at home. Dzurinda bravely stuck by his minister and refused to allow her to resign. But this threatens to break up the precarious coalition. The stalwart premier may have to back down if the government is not to fall prematurely.
Perhaps he has no great desire to hang on to power, reckoning defeat is inevitable. Only after another spell of Meciar would the populace realise the error of their ways. But the risk is that once back he will never relinquish power again. He only did so in 1998 because he over-estimated his own popularity, as did Milosevic in Yugoslavia. He is unlikely to make the same mistake once more and has few scruples about the misuse of power and is an unabashed populist of the most disreputable kind.
Slovakia then is at crucial crossroads. What happens next could determine its fate for decades. The key problem is horrendous unemployment of over 20%, which is over 30% in rural areas. There is little the government can do between now and September to rectify the situation. Things look as if they are going to get worse before they get better in Slovakia.

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AVIATION

Sky Europe takes off with cheapest rates in Central Europe


Sky Europe, the new Slovak airline company, announced its maiden domestic flight was to be carried out on the Bratislava-Kosice route on 3rd February and its international flight was scheduled for February 11th, from Bratislava to Zurich, according to the Slovak Spectator. Tickets for these flights began selling on January 24th.
Sky Europe is the first low cost carrier in Central Europe. A one way ticket to Kosice from the capital will cost 990 Slovak crowns (US$20) not including airport fees and VAT.

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ENERGY

Bratislava, Warsaw mull Yamal pipeline development


Slovak parliamentary Chairman, Jozef Migas, spoke with Polish Prime Minister, Leszek Miller, in the Polish capital about the development of a new branch of the Yamal gas pipeline, BBC reported citing the Slovak News Agency, TASR. 
Migas said the construction of a Slovak access pipeline is feasible, while the likelihood of the Yamal branch running across Poland is also open to discussion. Miller told the Slovak official that his country will chew over the matter with Russia. In other developments, Migas mentioned the national minorities issue. Poland decided to reduce its financial minorities to 1.7m zlotys from 6m zlotys. Migas called on Miller to keep suitable conditions for the Slovak minority in Poland, which is seen between 10,000 to 20,000 people, and to ensure that the funding does not shrink.

Slovak gas utility decides to invest heavily in pipeline construction

Slovak gas utility, SPP, will spend 3,067mn korunas (72m euros) on pipeline construction this year, while last year it was only some 700m korunas, SPP supervisory board decided on 31st January, TASR web site has reported. 
An SPP spokesperson told the news agency on that the sum will cover 655 construction projects, of which two-thirds will be reconstructions; 237 new construction projects will need investments of 1,176m korunas, of which there are 90 new local pipeline buildings with planned investments of 305.5m korunas. 
The unavoidability of the reconstructions results from the bad state and length of use of the facilities. 
According to the spokesperson, the investment is restricted by SPP's losses in gas distribution. These losses are caused by the purchase price of Russian gas being higher than regulated sale prices in Slovakia...

Schuster urges parliament to fix minimum price for SPP sale

Slovak President Rudolf Schuster called on parliament to establish a commission to fix a minimum acceptable price for the privatisation of SPP, the state-controlled gas company.
The Slovak Spectator quoted the president as saying 150 or 200bn Slovak crowns "are both good prices." The tender for the 49 per cent stake is approaching the last phase. Major political disputes wreaked havoc on the sale of the country's most lucrative sell-off asset. 
Leader of the ruling coalition Democratic Left Party (SDL) Pavol Koncos, was quoted as saying the party "would do everything in its power" to alter the conditions of the company's sale. However, he added that only the party leadership could rule on the SDL's possible exit from cabinet if its demands were not met. According to local reports, SDL is seeking cabinet approval to change the stake sale to 24 per cent from 49 per cent.

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FINANCIAL NEWS

Slovakia's trade gap doubles in 2001


Slovakia's trade deficit for 2001 rose by 61.5bn year-on-year to 103.2bn korunas (2.43bn euros), according to preliminary figures published by the Statistical Office on 30th January,TASR web site has reported. 
December's deficit totalled 16bn korunas, with exports down by 3.7 per cent on the year at 43.7bn korunas, and imports up by 6.5 per cent at 59.7bn korunas. 
Exports for the year rose by 11.3 per cent to 610.7bn korunas, and imports increased by 20.9 per cent to 713.9bn korunas. 
In bilateral trade, the highest deficit was with Russia, 99.1bn korunas, and the biggest surplus was with Austria, 20bn korunas. 
In exports to major trading partners, those to Hungary posted a highest rise of 22.9 per cent, and to France a sharpest fall of 5.4 per cent. 
As for imports, those from Hungary registered the highest rise of 47 per cent. 
Exports to EU countries rose by 12.9 per cent to account for 59.9 per cent of the total, those to OECD countries increased by 11.3 per cent for 91.5 per cent, and to Central European Free Trade Agreement (CEFTA) countries by 10.6 per cent for 30 per cent. Imports from EU countries rose by 23.2 per cent to account for 49.8 per cent of the total, those from OECD countries increased by 24.2 per cent for 77.5 per cent, and from CEFTA countries by 27.1 per cent for 22.5 per cent.

No more borrowing: NBS

Slovakia will not opt for international borrowing in the next few years, the National Bank of Slovakia (NBS) has said, the Slovak Spectator reported.
The NBS suggested in its first session this year in mid-January that due to positive developments on the domestic bond market, banks in Slovakia would not need international borrowings before 2003.
In that year Slovakia might roll over a maturing issue of foreign currency-denominated government bonds issued in 1998 and therefore may need the help of foreign financial houses.
Slovakia also did not borrow abroad in 2001 thanks to developments on the domestic bond market and increased purchases of crown-denominated state bonds by foreign institutions.

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FOREIGN INVESTMENT 

State hoping elections won't kill FDI


Foreign businesses are likely to adopt a more cautious approach to investing in Slovakia this year because of the upcoming parliamentary elections, government officials have said, The Slovak Spectator has reported.
However, there are hopes that established investors could attract some of their foreign suppliers to set up in Slovakia soon.
Investment experts at the Economy Ministry said that the government would like to finish the partial privatisation of its energy utilities such as gas industry SPP and three regional electricity utilities before the September elections. It would also be relying on large foreign investors, mainly carmaker VW Slovakia and steelmaker US Steel, to use their reputations to promote Slovakia abroad and bring more of their suppliers into the country.
While the country should not expect too many new foreign companies to break ground in Slovakia, privatisation and supplier-based investments should bring Slovakia a record investment figure, the officials said.
"We can hardly expect inflows of new 'greenfield' foreign investment into Slovakia in an election year," admitted Martin Kapko, the deputy director of the business environment department at the Ministry of Economy.
But he added: "Companies such as VW Slovakia and US Steel have the potential to lobby for Slovakia abroad and attract their suppliers to come here, so apart from revenues from privatisation, foreign capital might also come from that source."
Other projects which may generate interest among foreign investors, given the finished infrastructure and cheap land they offer, include the industrial parts of eastern Slovak chemicals firm, Chemes Humenne and connectors manufacturer Molex Slovakia. Electronics company, Siemens, which has several business interests in Slovakia has also given notice of new investments.
"Investors who are attracted by these big companies do not take into consideration the fact that there will be parliamentary elections at the end of September. They come because of their customers," Kapko said.
"Take the example of VW Slovakia - this company has had good relations with every government because every government wanted good relations with them. They are a sort of 'shop window' for Slovakia because they turn out 15% of total Slovak exports," he added.
While government officials expect a deceleration in the absolute number of foreign investors moving to Slovakia this year, investment inflows should remain strong, with a 49% stake in the gas utility SPP expected to bring in as much as US$3bn, half again as much investment as the country drew in the record setting year, 1999.

Two Slovak financial companies taken over by American investor

All branches of Slovak brokerage BMG Invest and finance company Horizont Slovakia were closed as of 4th February. In a statement provided to the TASR News Agency the companies say they have closed to allow an audit by the American investor that took them over on 31st January. They will reopen following completion of the audit and registration of the new owner in the Slovak Business registry.
Speaking to TASR, Horizont Slovakia Public Relations Director Miroslav Rogansky denied that the affiliates had closed due to difficulties in meeting payments to clients. According to Rogansky, the audit should be completed within two weeks. 
Regarding speculations that Slovak group Sipox Holding wanted to enter the companies, Sipox Chairman Jozef Majsky told TASR web site that he had no interest in them since his business activities were in different areas. 
Pavol Rusko, the co-owner of independent TV station Markiza and chairman of ANO [the New Citizens' Alliance] nonparliamentary party, also denied any involvement with the sale, but admitted to being interested in buying Horizont's stakes in Slovak media.

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INFORMATION TECHNOLOGY

Microsoft signs Lol with Slovakia for IT development


The Slovak government said it hopes a deal inked between its officials and international software giant Microsoft will help Slovakia become active in the information technology sector, according to Europemedia.net. Microsoft chairman, Bill Gates, met with Slovak Prime Minister, Mikulas Dzurinda, and Education Minister, Milan Ftacnik, wherein they signed a letter of intent. Under the terms of the deal, Microsoft will work with the Slovak government to develop the trade potential and competitiveness of Slovak companies in the EU market. Slovakia will also gain support to construct its information technology sector so that it could become a top-notch maker of software development.

Czech firm takes Kiwwi

The Czech company, Globaltel, has become the sole owner of the IT firm, Kiwwi, in both Slovakia and the Czech Republic, the Slovak Spectator has reported.
Globaltel bought the stake from the bankruptcy trustee of the mother company, Kiwwi CEE Holding, on January 18th.
The new owner is likely to keep the company's name, however, it will expand its services, mainly a high capacity Internet connection. Investments which have to be made to maintain current Kiwwi operations and expand services, have been estimated at €5m.

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