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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: 068 - (01/01/03)

The Slovenes have elected a new president, the former premier Janos Drnovsek, who has led their country for most of the more than ten years since independence in 1991. With 96.1% of the voted counted, Drnovsek polled 56.3% on December1st in the run off against his rival, Barbara Brezigar.

The new president
Drnovsek is still young in political terms at 52, but he has had a long stint in office. Never a communist, unlike his predecessor, Milan Kucan, he has been the architect of Slovenian reforms. As head of Slovenia's centre-left Liberal Democrats he was in an ideal position to do so.
He has governed with a four-party coalition since parliamentary elections two years ago. His government has achieved the long-sought goals of EU and NATO membership. Slovenia is to join the EU in May 2004 on current reckoning, while it has been included in the seven new members of NATO at the Atlantic organisation's recent meeting in Prague.
Drnovsek is evidently abiding by the well-known maxim that ten years or so is about the maximum for a democratic leader to be effective. Both De Gaulle and Thatcher ignored it to their chagrin.
The presidency is a largely ceremonial role. But Drnovsek is likely to give it more substance than Kucan, who confined himself to being an excellent ambassador and host for foreign dignitaries and leaders. Drnovsak is likely to attend future EU and NATO meetings, for example, having established a rapport with their main leaders and officials in the course of extensive negotiations.
His defeated opponent, Ms Brezigar, has put down a marker for the next presidential election in five years' time. With over 40% of the vote she made a good showing against the veteran premier. A state prosecutor and a political novice, she, nevertheless, failed to attract enough voters to support her claim that the country needs new leadership.

Slovenia faring well
This is not so very surprising. Slovenia has been doing well, even if not spectacularly. It is easily the most prosperous of former communist states, although it is disputable just how well-off it is. Some measures put its GDP per capita at over US$16,700, while others, concerned with purchasing power parity rather than the exchange rate, put it at a more modest US$10,000 or just less.
Clearly, Slovenia is a special case among the former Yugoslav states, a sort of aspirant min-Switzerland in the Alps, with banks, tourism and a cohesive, mainly mountain-reared population, who are highly educated and usually multilingual, like the Swiss.
Nothing really nasty happened to it on independence in 1991, unlike the other former Yugoslav entities. There was bloodshed in Ljubljana, the capital, but nothing remotely comparable to the wars further south. It is in every way a blessed land and its future in the EU looks bright.

EU beckons
The Slovenes will pose no serious problems for Brussels in the way of subsidies, being only two million in number. 
They have been prompt is negotiating l'acquis communitaire, with its 29 chapters, nearly all now completed. One consequence is a considerable relaxation of restrictions on foreign direct investments (FDI), about which the Slovenes have been wary. They have been worried about Italian mafia encroachment, not without reason if they look south down their peninsula towards Montenegro, Bosnia and Albania.
Foreign investors have been picking up on this existence of a new dispensation, allowing outright foreign ownership of land and full access to local markets and their facilities. FDI is consequently picking up. It rose by 10.9% in 2001, the biggest annual increase in the last four years. Total accumulative FDI in Slovenia stood at US$3.2bn at the end of last year.
The pattern of the future was revealed in the breakdown of the figures. The EU member states were responsible for 85.6% of FDI into Slovenia, with Austria accounting for more than 50%. This last fact is telling; history and geography really count. For long a part of the Austro-Hungarian empire, Slovenia consists of two former Duchies, Austria is right there next door.

FDI by Slovenia investors
Foreigners come to Slovenia because they see it as a natural gateway to the Balkans. This is something the Slovenes know full well. 
There has been a veritable surge in FDI by Slovene firms, it rising by 23.7% no less in 2000, also a record growth for the last four years. The pattern of old was repeated, reports the Slovenian Central Bank in its publication, "Foreign Investments 1994-2001," published in October. More than 50% of the investments went on to the other former republics of Yugoslavakia. People like to go where they know local conditions and are themselves known. This means investment flows southwards from Austria to Slovenia and further southwards from Slovenia to the former Yugoslavia and the Southern Balkans.

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EU ACCESSION

Finance minister: Slovenia must lower interest rates, inflation before EU entry


Events surrounding the final phase of negotiations on Slovenia's accession to the EU, increasingly show that not only a large amount of technical expertise on individual economic policies will be necessary, but that a wider concept of economic policy will also be decisive for our status in the new economic community. 
Polona Strnat Pecaric reported for Radio Slovenia: 
Slovenia actually has numerous good indicators. It has a good GDP growth, relatively low indebtedness, a low deficit and also low unemployment. Despite all this, though, Slovenia is still facing demanding challenges and tasks as part of EU accession. Finance Minister Tone Rop responded: "Our interest rates are still too high, our inflation is still too high and these are the key task which we have to tackle before we join the EU, before we also join the so-called ERM 2 [Exchange Rate Mechanism 2].
This is why we need to lead consistent policies and this is also what we discussed today - the taxation policy, the prices policy, monetary policy and also the policy of controlled prices."
It is a fact, that only coordination of all these policies can ensure Slovenia's success. Time is also of extreme importance here. It is already known that we are going to join the EU in mid-2004 and, in 2005, also partly the EU monetary area. By then, the state, companies, banks and the monetary policy need to be fully adapted, otherwise Slovenia could face big difficulties. But in an introductory speech delivered at the 7th annual conference of the section for European policy at the Ljubljana-based Chamber of Commerce, Rop stressed that he was optimistic: "I believe that there are positive trends, that we are lowering inflation, that we need to lead a decisive policy in particular next year in order to further lower it, we need to cooperate with the Bank of Slovenia..."
If the monetary authorities are also going to be consistent enough, Slovenia could have lower interest rates than now, lower inflation and more competitive companies. And with all this, the conditions for an efficient and equal integration into the EU would already be met.

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PHARMACEUTICALS

Lek sold to Novartis

The only thing that now stands in the way of the completion of the largest takeover in Slovenian history is some paperwork and for Novartis to make the €885m payment, Slovenia News has reported. Once this is done, a withdrawal of Lek shares from the Ljubljana Stock Exchange can be expected to take place, with Novartis controlling almost all of the Lek stock.
The anti-trust office also gave an official go-ahead for the Lek takeover in late November. As the office's chief, Andrej Plahutnik, said recently, the merger of the two drug makers was not contestable. The office, though, still has to write up the official permission for the takeover. 
While former Lek shareholders eagerly await their money, officials at the central bank have been working overtime to neutralise any negative effects of the large cash inflow. If the value of the tolar was to rise as a result, it would cause considerable harm to the Slovenian economy, especially the country's exporters, Bank of Slovenia officials have warned.
In order to stem the negative effects of such a large foreign currency influx, the central bank proposed two solutions earlier in November: a 270-day temporary buyout of shares with the possibility of a final sale and the issue of 360-day short-term securities.
Meanwhile, the two largest former Lek shareholders, the state-owned Pension Fund Management (KAD) and the Restitution Fund (SOD), have already announced their intent to re-invest their money. KAD is to invest a large share of the money into foreign securities. Meanwhile, SOD is to deposit ninety per cent of the money into loan stock and bank deposits, of which 95 per cent will be deposited at home and five per cent abroad. Once the Novartis purchase money is in Slovenia, analysts anticipate increased investor demand for other shares. 

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