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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: 068 - (01/01/03)

The Slovak republic has been included in the latest batch of entrants to NATO, confirmed as such at the NATO meeting in Prague in November. There are those inside and outside the Atlantic organisation who have misgivings about this, not excluding certain Slovaks themselves.

Corruption as threat to NATO
Few doubt that the old order in Slovakia was thoroughly corrupt, whether that of the communists in their later days, or that of Vladimir Meciar, the authoritarian ruler of the new state in its first years of separation from the Czech Republic, 1993-98, which he did so much to devise. A huge question mark remains over whether it would be safe to have such a partner in NATO's innermost confidence.
That Slovakia has made progress since Meciar's departure in 1998 is not in dispute, both in preparation for NATO and in economic affairs. But there comes a point when a country's leaders "stop winning praise merely for not acting like tyrants," remarks the Slovak Spectator of late. Meciar sabotaged a referendum on NATO membership five years ago; and only three years ago Slovakia was excluded from a NATO expansion round in 1999 that comprised the other three Visegrad nations, Poland, the Czech Republic and Hungary.
The situation has certainly been improving. The 1998-2002 coalition government, under Mikulas Dzurinda as premier, restored the rule of law and stopped the secret service being used as a political instrument to harass 'internal enemies,' while it brought some transparency to sales of state property and clarity and responsibility to economic planning. Indubitable progress has been made, and the international community heaved a collective sigh of relief when earlier this year in the summer Dzurinda was able to survive elections to parliament as prime minister, albeit with a new team of coalition partners, while Meciar, although his party attracted the highest proportion of votes (19% to Dzurinda's 15%), in fact in power terms lost ground and was excluded from office, probably for good. His supporters are the rural folk and the veterans, quite understandably nostalgic for the old farm subsidies and pensions of communist times, but they are dying off. 
Dzurinda may be an incorruptible and likewise his closest colleagues. But that a rotten apple or two can be found in any coalition of forces in Slovakia has been established to most people's satisfaction by the conduct of five ministers fired for corruption in the previous Dzurinda cabinet. One of them, former defence minister Pavel Kania, has restarted work on his massive Bratislava villa after his sacking, paying 'cash down' for new windows, a paint job and other finishing touches in order to make the mansion habitable by the spring. Kania was evicted from his post in early 2001, after alleging that he was financing the Sk15m (US$350,000) project from windfalls and regular winnings at gambling; his salary as MP and minister would have entailed him in taking 25 years to pay off the outlay, even if he never spent a sum on anything else.
Kania was gambling as a matter of fact - on the possibility that he would never be found out. As defence minister, after all, he had enormous clout and leverage to concoct a cover-up. But, thanks to Dzurinda's efforts to clean up the government's act, he was found out.
The West is not really so concerned at how much bribe money is changing hands in Slovakia. By Western standards Kania's malfeasances are small beer. The worry is that if venality is operating at the highest ministerial levels, then yet another rogue minister could sell NATO secrets for gain. 
There is the related problem of trusting former top communists and SkB secret agents, who are still occupying top jobs in public life, unlike in the Czech Republic. Slovakia needs to start putting corrupt politicians and high-profile criminals, with links to the former and to venal bureaucrats, on trial. Unless this is done, Slovakia is likely to be kept in a limbo outside the inner ring of member states where the real decisions are made. 

The government in agreement
The leaders of the four centre-right parties that won a narrow majority in recent parliamentary elections signed a coalition agreement on October 8th. They vowed to remain united, while pursuing a programme of painful social reforms, to be launched in the first half of their four-year term.
The agreement aims to guarantee the government's slim two-seat majority in the 150-member parliament. Each party has a veto over basic government proposals as a gross breach of faith. Since any such back sliding would involve collaboration with opposition leader, Meciar, it is unlikely to happen. The unspoken objective of the coalition is to keep him out in the cold, aware that his return to office is the one thing that could jeopardise Slovakia's EU entry, now so strongly endorsed and welcomed in Brussels. The entry date is set for May, 2004.
The spoken areas of the agreement include reforms to the welfare, education, health, pensions and other social programmes. They are likely to be coordinated at every stage with the EU.

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ELECTRONICS

Sony Slovakia eyeing higher production at Trnava plant


Sony Slovakia, the subsidiary of the Japanese electronics giant, said it will boost production at the Trnava-based plant, but added it will not increase investment considerably, New Europe reports. 
Sony Slovakia produces TV sets and components geared for the international market. The company recorded a jump in output of three million products, bringing the overall figure to 6.92m for the fiscal year, period ended March 31, 2002. Sales reached 7.3bn Slovak crowns for the same period. "The long term plan of the company is to double this output over the next three years," Sony Slovakia Director, Werner Student, was quoted as saying. 
Even though Sony Slovakia has paid out 947m crowns since its launch six years ago, the company will not spend any more money in the coming years. What Sony Slovakia will do is boost productivity and improve its current operations. 

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ENERGY

Hungarian owner of Slovak oil giant presents medium-term outlook

Hungarian oil group Mol, owner of Slovak oil refiner Slovnaft, plans to raise its gross profit (EBITDA) by at least US$1bn by 2005 and reach ROACE (Return on Average Capital Employed) of 17 per cent, TASR web site has reported.
Mol representatives presented a three-year strategic outlook in Budapest on 25th November, two days after the company signed an agreement to raise its controlling 36.2 per cent stake in Slovnaft to 67.8 per cent. 
According to the forecast, operational efficiency should improve by US$175m. Capital expenditure (excluding acquisitions) should reach a cumulative US$2bn, of which US$110m should be invested in modernization of the production of polypropylene in Slovnaft. 
Revenues from synergy with Slovnaft should total US$50bn by 2005. Hungary and Slovakia will be the basis of the group's expansion into the other seven countries of Central Europe. 
Both Mol and Slovnaft dominate their national markets and the group has 10 per cent of the Czech and Romanian markets. In the retail market, Mol wants to raise the sales per petrol station in Slovakia from the current 1.5m litres to 2.5m litres in 2005, and in Hungary from 3.5m litres to 4m litres. The stated aims should help the group to secure its leading position in this part of Central Europe and its position among the biggest European oil companies, according to the outlook.

MOL to pay US$85m in cash for 32% of Slovnaft

MOL, the Hungarian oil and gas concern, will pick up a 31.6 % stake in Slovak oil refinery, Slovnaft, from the Slovak groups Slovbena and Slovintegra. A US$350m cash and share-swap deal will make it final, according to The Financial Times. MOL is prepared to spend US$85m in cash, in addition to 984,000 of its own shares now held by the Treasury that will go to the Slovak groups.
Pending approval by the Slovak and Hungarian competition watchdogs, the agreement accounts for the second stage of MOL's purchase of the Slovak group. Once this deal passes, MOL will hold a 67.8% controlling stake in the company. A near 10% stake in MOL will be controlled by Slovbena and Slovintegra.
In a statement, MOL said the agreement will benefit both companies, as profitability will expand and any local nationalist opposition will be allayed.
As per this contract, Slovnaft's worth stands at some US$1.1bn, against US$725m when the Hungarian company purchased its first 36% stake two years ago.

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FOOD & DRINK

Heineken subsidiary threatens investment freeze

The Slovak unit of Dutch brewery, Heineken, has announced that it may freeze investments following a ruling by the Anti-Monopoly Office to reject its entry into a regional distributor, according to local reports. Since 1995, Heineken Slovakia has spent f3.5bn Slovak crowns in investments. 
"The office's decision took 150 days to arrive, and it was motivated more by the campaigns of the competition, breweries Steiger and Topvar, than by the fact," Heineken Slovakia head, Jean Paul van Hollebeke was quoted as saying.

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FINANCIAL NEWS

Slovakia welcomes IMF report approving of economic measures


Reacting to the report of the International Monetary Fund (IMF) mission to Slovakia, Finance Minister Ivan Miklos said it confirmed that the direction of the government's economic policy and approved measures was essential, TASR web site, has reported. 
"It shows that Slovakia has a good chance to have sustainable economic growth, while improving competitiveness, restructuring and attracting financial investments - provided that it continues in reforms and integration," he added. 
However, the positive expectations of economic and political development are reflected in an influx of capital that is forcing the koruna to firm. This could be a problem from the viewpoint of maintaining overall economic stability, and thus the cabinet has to act with fiscal policy and the NBS central bank with monetary policy, according to the minister. "We can call it a tax on success," Miklos said, adding that "progress in the restructuring of the economy will be necessary to keep the koruna's firming exchange rate sustainable." 
He believes current development of the Slovak currency requires reduction of the public finance deficit, and says that in this regard the cabinet will discuss possible changes in the budget proposal. These will include possible reduction of state subsidies for mortgage interest rates and construction savings. 
The IMF report published on 20th November recommends the cabinet to make fiscal policy as tight as possible in order to address an excessively firming koruna and high deficit in the balance of payments current account. Although the IMF praises austerity measures in the state budget proposal for 2003, it criticizes the fact that fiscal consolidation will not occur this year. The IMF considers the planned deficit of 5 per cent GDP in 2003 as adequate, but says the state budget still includes certain risks for which the government should be prepared, such as corporate tax revenues around 5bn korunas below estimate. Expected indebtedness in health sector could also be only "a rough estimate" regarding the fact that there were much higher arrears in 2002. 

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