% of GDP
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: 079 - (01/12/03)
The Slovaks have a coalition government in power, which is coping with an economic situation that is showing signs of improvement, the more welcome because the adjacent EU economies have been so long in the doldrums. GDP growth for 2003 is expected to come in at 3.9%, while it is predicted at 4% in 2004, the year of Slovakia's accession to the EU.
Unemployment is still almost 14% of the work force, admittedly down from 17% in February, while inflation is close to double figures, being 9.6% on an annual basis in October, the latest available figure. But the IMF in a recent evaluation is supportive, noting that growth is strong, macro-economic imbalances are narrowing, unemployment is declining and core inflation is low.
The country's external current account deficit is projected to narrow to 4% of GDP in 2003 and 2004, based on robust export growth as Germany and other EU economies begin to pick up.
Need to address fiscal problems
The IMF also notes that, as regards fiscal policy, the 2004 budget is a welcome step towards further fiscal consolidation. This is due to the government adopting an appropriate budget deficit target of 3.9% of GDP for 2004, while implementing an ambitious tax reform.
The IMF, however, states that the government needs to get a better handle on the finances of municipalities and the health sector. It also expressed disappointment at the rise in subsidies in the 2004 budget, all of the increase going to the agricultural sector. But then the IMF does not have to bear responsibility to the electorate.
Generally, the government is putting in a good performance. Premier Mikulas Dzurinda is proving an able operator and is even addressing unpopular issues, such as the Roma or gypsies, whom he visited at Letanovce recently.
He pledged to finance new homes for them in place of their slums, using EU funds for the purpose. He had with him EU Commissioner for Enlargement, Guenter Verheugen, to lend credibility to his pledge.
Car industry the dynamo of growth
The country's car industry, which is benefiting from investment by France's PSA Peugeot Citroen, is the motor of growth, along with transport equipment generally. An export offensive can be expected next year.
Total industrial production is up by 7.7% on the year, and gross earnings are booming at 64.3bn crowns. The economy is doing well, and in difficult circumstances. EU membership from June should consolidate the good prospects.
South Korean car maker conducts low-profile tour of car plant site
Hyundai, the Korean car maker, was indirectly responsible for a minor shake-up in the Slovak political scene recently, The Prague Business Journal has reported. The Slovak Minster of Economy, Pavol Rusko, who is also a founder of the top commercial TV station, Markiza, returned from a mission to South Korea and immediately sacked the head of Sario, the Slovak counterpart to CzechInvest who are charged with attracting foreign investment. Ladislav Balko will be replaced by Jan Bajanek, who in the past was rumoured to have been in the running to become the head of Markiza.
Rusko told Slovak media that the Sario agency had done "a very poor job" of negotiation with Hyundai regarding the siting of a new car plant. The minister said he had flown to South Korea at the last minute and managed to convince Hyundai officials to visit Slovakia on their tour of Central and Eastern Europe sites.
Rusko has offered the Koreans a site near the north-western Slovak town of Zilinia. Much to Rusko's dismay, Slovak journalists were waiting for the visiting Korean and government delegation upon their arrival and, according to the Intrnet edition of the Slovak newspaper, SME, he tried to shepherd them away from the site. SME quoted a Rusko team official as saying "He (Rusko) will to get out from the helicopter until you go away."
According to SME, investors were politely smiling when they were shown a small plan of a potential plant site posted on an advertising billboard with a former ad for bricks still visible underneath.
Ministry sells 2.23bn crowns of government bonds
The Slovak Finance Ministry sold 10-year government bonds worth 2.23bn Slovak crowns with an average yield of 5.129% during a recent auction, New Europe reported.
The ministry offered bonds worth a total of three billion crowns, said the National Bank of Slovakia (NBS). The minimum yield was 5.05%, the maximum 5.199%. Demand was not expected to top three billion crowns. The results were the same as those of the last auction, despite an intervening 25bn interest rate cut. Bratislava dealers did not know whether to expect another auction of 10-year state bonds in 2003. Those sold were part of an issue that could total 20bn crowns. In its first three auctions, the ministry has sold 10-year bonds worth 4.55bn crowns. The average yield has grown from 4.74% in July, to 5.02% on September 10th, to 5.115% on September 22nd.
SE sale piques Gazprom and UES interest
The Russian giant Gazprom and RAO Unified Energy System (UES) are considering taking part in the tender for the Slovak power producer Slovnske elektrarne (SE), Interfax News Agency reported recently. "It's possible that we'll submit a bid together with other companies, Central Europe is interesting especially as regards electricity exports," UES spokesman, Andrei Yegerov, was quoted as saying.
Reports in the Russian media have suggested that both firms could take part in the tender via a joint offer. Other parties interested in SE include the Czech power utility CEZ, German E.ON, Italian Enel, Electricite de France, Belgian Electrabel and International Power and British Energy. The deadline for expressions of interest was November 7th. SE operated two nuclear plants, two coal fired plants and several hydroelectric plants. The firm is responsible for 85% of Slovakia's electricity production. In 2002, SE produced 27,445 GWh of electricity, with just over 56% going to the country's three power distributors, while 9.4% went to SE's own customers and 26.4% was exported. SE is 100% state-owned via the National Property Fund.
EBRD green-lights investment packages for medium firms
The European Bank for Reconstruction and Development (EBRD) will invest between 120 and 150m (4.97-6.21bn Slovak crowns) in Slovakia in 2004, with support to focus on medium-sized businesses in the coming years, EBRD President, Jean Lemierre, was quoted as saying by Interfax News Agency at a recent conference.
The EBRD allocated 150m for Slovakia for 2003, from a total of 3.9bn it earmarked for support in 27 countries, Lemierre told reporters.
In the EBRD's view, there is room for more medium-sized businesses in Slovakia, which it considers key to a successful economy in the future. Funding of infrastructure development in rural Slovakia remains another major challenge, according to the bank.
The EBRD has invested some 1bn in Slovakia since 1991, with 90% of that going to the private sector. For example, the bank acquired minority stakes in the mobile operator Orange, the insurer Allianz-Slovenska poistovna and the aluminium producer
FOREIGN LOANS & AID
Slovak deputy premier, European envoy sign memorandum on financial aid
Slovak Deputy Prime Minister [for European Integration] Pal Csaky and the head of the European Commission delegation to Slovakia, Eric van der Linden, have signed the Financial Memorandum PHARE [EU economic reconstruction aid for Eastern Europe] 2003, through which Slovakia will receive 57bn euros from the EU, radio Twist in Bratislava has reported.
Within the framework of this international programme, the commission will fund altogether 33 projects aimed, among other things, at supporting small- and medium-sized businesses and equal opportunities initiatives.
Foreign trade balance surplus rises to the surface
The Slovak foreign trade balance showed a 42m Slovak crown surplus in September compared to a revised 1.63bn crowns surplus in August, Interfax News Agency reported, citing figures released by the Slovak Statistical Office (SUSR). The result was significantly better than the 2.3bn crown deficit analysts had expected.
The September result was fuelled by continued growth in exports, which stood at 23.7%, following a 25.7% gain in August. The growth of imports slowed to 8.5%, down from 14% in august.
The balance for the full nine months showed a deficit of 11.7bn crowns, a major improvement over the 60.5bn crown deficit in the same period a year earlier. Exports for first three quarters were up 22.4% to 585.16bn crowns, while imports grew by 10.7% to 596.27bn crowns.
Exports of transport vehicles jumped by just under 70% year-to-year in the nine-month period to 166.69bn crowns.
Exports of machinery and electrical equipment were up 21% to 107.46bn Slovak crowns, while exports of metals and metal products grew 17.3% to 81.85bn crowns.
In terms of imports, machinery imports added 13.6% to 153.82bn crowns in the first nine months, while vehicle imports were up 27.8% to 88.26bn crowns.
While the headline numbers are positive, the structure is not that favourable, said Komercni banka analysts. Though the overall performance is encouraging, it does not reflect the entire economy, they added.
"September's exports are still fuelled by earlier inflows of FDI. We assume that exports should maintain their decent dynamics also in the coming months. However, a slight deceleration caused by statistical effects will not surprise us. Furthermore, we still believe that we will see a positive gap between growth rates of imports and exports," KB analysts said.
Slovakia's biggest trade deficit for the nine-month period was with Russia, at 60bn crowns, followed by China and the Czech Republic, with 9.4bn crowns each. The country registered its biggest trade surplus of 28.7bn crowns with Germany.
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