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slovenia

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  SLOVENIA

REPUBLICAN REFERENCE

Area (sq.km)
20,300

Population
1,930,132

Capital
Ljubljana

Currency
Tolar

President
Milan Kucan

Private sector
% of GDP

40% 

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Background:
In 1918 the Slovenes joined the Serbs and Croats in forming a new nation, renamed Yugoslavia in 1929. After World War II, Slovenia became a republic of the renewed Yugoslavia, which though communist, distanced itself from Moscow's rule. Dissatisfied with the exercise of power of the majority Serbs, the Slovenes succeeded in establishing their independence in 1991. Historical ties to Western Europe, a strong economy, and a stable democracy make Slovenia a leading candidate for future membership in the EU and NATO.

Update No: 060 - (18/04/02)

The Slovenes are front-runners for EU membership. Their president is Milan Kucan, who is enormously popular, although debarred for standing for a third term in elections this year. As president he wields no formal control over decision-making, but he still has huge influence over Slovenian politics, which he has dominated since becoming chief of the country's Communist Party in socialist Yugoslavia in the mid-1980s.

Sales of banks
President Milan Kucan has raised doubts about selling foreign investors majority stakes in the state-owned banks that dominate the country's banking sector.
Mr Kucan's comments, in an interview with the Financial Times, underline continuing political uncertainty over the sale of stakes in Nova Ljubljanska Banka (NLB) and Nova Kreditna Banka Maribor (NKBM), which account for nearly two-thirds of Slovenia's small banking market.
A fierce debate on the banks' future continues despite the issuing of privatisation tenders last September.
Slovenia is one of the last post-communist transition countries still to have a banking sector dominated by the state. In most others, majority stakes have been sold to foreign banking groups, which have brought in fresh banking expertise and capital.
Mr Kucan said that now was not the best time to be selling banks to foreign investors. Supply of banks for sale exceeded demand.
He said: "The question is, 'is it absolutely necessary to sell a bank only to foreign investors in the process of privatisation?'"

EU entry
Janez Drnovsek, the premier, is concerned that the terms on which Slovenia is being offered entry are the same as other candidates For the Slovenes are in a different class from other countries in transition. Their per capita income is in the EU class already at US$16,800, on a par with Greece or Portugal. 
The premier regards ten years as too long a transition period for agriculture. Brussels is offering just 25% subsidies initially. Regional policy funding in prospect is also too low, in his view.
But precisely because Slovenia is such a success story its pleas for earlier subsidies than for the others are not likely to be met. The Slovenian Minister for European Affairs, Janez Potocnic, was met with a polite refusal to intercede on Slovenia's behalf when he went to London in February.

Economic record
GDP was rising by 4.6% on an annual basis last year, after a rise of 5.2% in 2000. Industrial output rose by an even more striking 9.4% in 2001 after a rise of 7.4% in 2000. 
There are problems of course. The rate of unemployment at 12% of the work force is far higher than the government would like, as is the rate of inflation at 9%. But the government is maintaining a sound fiscal policy; the public budget is in modest deficit of 1.1% of GDP, while the external account is in deficit to the extent of only 0.2% of GDP.
The clarification of its legislation in its negotiations with Brussels is helping greatly to create a more business-friendly climate. Slovenia has completed most of the 29 conditions of the EU acquis. With a highly educated work force, an excellent location athwart the Alps and impending EU membership, Slovenia should soon be attracting far more foreign investment than it has so far done, around US$2bn. 

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FINANCIAL NEWS

Pace of change is too fast for Slovenians

The vast packing cases leaving Litostroj EI's Ljubljana factory testify to the company's problem. Many contain turbines destined for hydro-electric plants in countries that were once Yugoslavia's fellow members of the non-aligned movement, the Financial Times has reported.
The movement - for countries outside the two fold-war superpower blocs - were key customers for Litostroj in the 1970s and 1980s
Many were keen to develop their economies through then-fashionable hydro-power schemes. Other customers were elsewhere in socialist Yugoslavia yet since the disappearance of both markets, much of Litostroj's work has been simply to replace worn-out equipment supplied during the boom years. Like companies in many transition countries, Litostroj has struggled to adjust.
By 1997, the present company's predecessor, had debts of €51m and was losing Dm1.5m (€765,000) a month. The response of Slovenian politicians illustrates its distinctive path of economic development.
Foreign investment in key industries has been treated warily as Slovenia has sought to preserve the prosperity it achieved in socialist Yugoslavia.
Litostroj should not be sold to foreign investors or put into bankruptcy, the politicians decided. A joint venture proposal from ABB, the Swiss-Swedish engineering group, was turned down. Instead, the state-owned Slovenian Development Corporation poured money into the company. Technical advice was sought from Slovenian universities. Then a new, restructured company was sold to Slovenian investors.
As in many Slovenian economic decisions, the most important considerations were the preservations of jobs and the avoidance of sudden change.
Many in Slovenia's business and political elite argue that this approach is justified by the results.
Tea Petrin, minister of economics, points to steady GDP growth of around 4.4 per cent annually from 1997 to 2001, high GDP per head and relatively low unemployment of 7.2 per cent, based on International Labour Organisation measures.
We believe we are doing relatively well," she says, adding that the manufacturing sector has a strong record in exporting to western markets. In 2000, around two-thirds of Slovenia's trade was with the EU.
"Our companies are entering the world economy," she says. "If you have quality products that match the demands of foreign consumers, it's relatively easy."
Yet others believe too many reforms - including Litostroj's restructuring have been half-heart compromises.
Trouble, the say, is being stored up for the future. Anton Rop, the finance minister, insists the public finances are in good shape. Mili Kus, of Ljubljana-based e-Brokers, say ballooning deficits in the health and pension insurance funds could soon pose a problem. 
Many companies, she adds, carry excess labour and are inefficient, particularly those not competing in export markets. Certain industries should have gone through reform earlier than the year 2002. "We have a very heavy bill to pay for this," she says, "in constant state budget deficits."
Monetary policy has helped to delay restructuring. The Bank of Slovenia - which targets only the exchange rate as a policy tool - has kept the tolar steady in real terms to help exporters.
Neven Borak, a prominent economist, says the policy may produce more pain once Slovenia switches to the Euro.
"Losing the possibility to manipulate the exchange rate will make more difficult the position of exporting companies," says Mr Bork. "They will then face the real cost of restructuring…."
Many observers believe that greater foreign investment would produce some of the change needed.

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FOREIGN ECONOMIC RELATIONS

Investment in Macedonia on the rise

Economic co-operation between Slovenia and Macedonia is intensive and important for both countries. Slovenia notes a constant surplus in trade exchange with Macedonia, despite a drop between January and November 2001, Slovenia Weekly has reported.
Slovenia and Macedonia have already signed the most important agreements in the economic field, including an Agreement on Free Trade, Agreement on the Mutual Protection and Stimulation of Investment, Agreement on Regulating Mutual Property Law Relations and a Convention on Avoiding Double Taxation regarding income and property tax.
The problem of the surplus in the trade exchange with Macedonia is being resolved through investment in Macedonia, where over 70 Slovenian companies have their own or representatives offices that are majority owned or in the form of a mixed investment. Despite the grave political and economic conditions in Macedonia, Slovenian investment there has been growing for the fourth year in a row. Macedonia's importance for Slovenia's investment abroad is reflected in the fact that Macedonia was in third place regarding the value of investment in 2000.

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INTERNATIONAL COOPERATION

Scientific potential

A delegation of the Ministry of Education, Science and Sports, headed by Minister Lucija Cok visited China in the last week of February, Slovenia Weekly reported.
The visit was aimed at examining the possibility of expanding cooperation in education, science, technology and humanities. Since 2001, Slovenia and China have taken part in 20 joint projects. Apart from meeting the Chinese Education and Science Minister Xu, Minister Cok visited the Chinese Academy of Social Sciences, two universities, the Hi-Tech Business Zone in Beijing and the Centre for Studies about Life in Shanghai.
The Slovenian delegation also visited the western province of Guizhou, where a group from Slovenia's Ljubljana University is taking part in a Slovenian- Chinese project to revive the Karst mountains.

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TRANSPORT

Government draft allocates 389m Euros for motorway

The 2002 draft annual plan on the development and maintenance of Slovenia's motorways, passed by the government recently, notes that a total of 87bn tolars (389m Eurso) will be allocated for the construction and maintenance of motorways this year, New Europe has reported.
The draft plan envisages most funds coming from a special tax paid on petrol (33.5bn tolars), Transport Ministry State Secretary, Anton Sajna, said at a news conference following the government session. Toll collections will bring in 23bn tolars (103m Euros), while credits will secure 29.3bn tolars (131m Euros), Slovenia Business Weekly informed.
Some 15 kilometres of new motorways will be opened for traffic this year on the main road connection between Ljubljana and Slovenia's second biggest city of Maribor.
Sajna said the government hopes to boost construction of motorways in order to complete the motorway programme by 2010.

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