Books on Slovakia
% of GDP
Update No: 090 - (27/10/04)
EC head designate lauds Slovak reforms
Slovakia continues to be praised as a star performer in transition economics by
Western observers. Jose Barroso, the designated head of the European Commission
(EC), said in early October that other countries could take inspiration from the
reforms undertaken by Slovakia in recent years.
Barroso made the remarks after a meeting in Bratislava with Slovak Premier
On the subject of Slovakia's economic growth and recently-adopted flat tax,
Barroso rejected the proposal by France and Germany that all corporate taxes in
the EU be harmonized and that countries with low tax rates be penalized. Some
type of harmonization is a good idea, Barroso told reporters, but the
French/German proposal is "not realistic."
Coalition mid-term outlook is promising
The mid-term progress reports on the Dzurinda coaltion government are coming in.
Despite having a minority position in parliament, the ruling coalition has made
good on a big chunk of its campaign promises. The consequence is that early
elections are unlikely.
This is so, even though various mid-term polls tracking public perception of the
cabinet's performance indicate that most Slovaks are unhappy with the nation's
Still, with many of the coalition's planned reforms passed and partially
implemented, analysts agree that Dzurinda's right-wing cabinet will probably
serve its proper four-year term.
Sona Szomolányi, a political analyst and director at Comenius University's
political science department, described the first two years of the Dzurinda
cabinet as "a resolute enforcement of the cabinet programme in a series of
reforms", reports The Slovak Spectator.
She continued: "Although the ruling coalition suffered internal conflicts
that later led to the loss of its parliamentary majority, the will of the
parties was not inhibited."
Apparently, the coalition's will does not align with that of the people.
According to the Polis Slovakia poll, 65 per cent of respondents are unhappy
with the cabinet's performance. Szomolányi thinks that negativity is an
appropriate response, particularly because the reforms passed by the current
cabinet (pension, healthcare and tax reforms) result in "an increase in the
social and economic expenditures" of the average person. "As a norm,
people in general think from the point of view of the family budget. They are
less inclined to look at the long-term perspective of the reforms," the
Szomolányi noted, however, that pessimism was a typical Slovak trait, a fact
borne out by several recent international polls. A survey of the CEORG
institute, published in Brussels on October 11, reported that Slovaks are more
negative about their economy than any other V4 nation [Poland, Hungary, and the
Czech Republic]. Nearly 70 per cent of respondents assessed the economic
situation in Slovakia as "bad", with just 2.5 per cent stating the
Another poll, this one by the European Foundation for the Improvement of Living
and Working Conditions, showed that pessimists prevail over optimists in
Slovakia. Compared to other Europeans, Slovaks as a whole are less happy with
their lives. Grumpiness and dissatisfaction aside, Slovaks continue to support
the ruling parties. Popular support is largely comparable to what it was two
One exception is the NewCitizen's Alliance (ANO) party, whose leader, Pavol
Rusko, is blamed for destabilising public support with his inflammatory
behaviour. Support for ANO has plunged to less than 5 per cent, which is the
threshold for entering parliament. To combat weak ratings, the party recently
launched a new programme catering to the middle class called "Modern
Society". ANO has pledged to fulfil the programme during the term's second
Apart from ANO, where slipping public support has triggered the establishment of
new programmes, Szomolányi believes that the other parties will stay on track.
"The experienced ruling coalition parties know that [to maintain public
support], they must concentrate on implementing their reforms in the next two
She added that different issues will be important to voters in 2006, when the
four-year term ends, compared to the issues that captured public support in 2002
and 1998.In the 1998 national elections, the first Dzurinda cabinet was a
direct, oppositional response to the authoritative PM Vladimír Meciar regime.
In the 2002 elections, the second Dzurinda cabinet won on its reform and EU/NATO
Two thirds of Slovaks said that entering the EU in May 2004 was the biggest
success of the current cabinet. Equally appreciated was Slovakia's joining of
NATO, followed by the cabinet's fight against organized crime and the
strengthening of the Slovak currnecy, the Polis poll showed.
According to think tank director, Grigorij Mesežnikov, who oversees the
Institute for Public Affairs, political disputes between parties of the ruling
coalition have contributed to the sliding popularity of the entire ruling
Mesežnikov argues that these fights, including a verbal brawl between the
liberal ANO party and the conservative Christian Democratic Movement, and splits
in Dzurinda's Slovak Democratic and Christian Union and ANO, all of which led to
the loss of its original 76-seat parliamentary majority to its current 68-seat
minority, have had a negative impact on the cabinet's popularity.
But Szomolányi disagrees with Mesežnikov's opinion, saying that reforms, not
political squabbles that attract the attention of political pundits, are
responsible for the cabinet's falling popularity. "There are perhaps 5 per
cent of people who watch the political developments closely, and these are the
political commentators and elites. But for the common people, it really is the
impact of reforms that make them unhappy with the cabinet," she said.
Szomolányi also noted that, historically, ruling parties are rarely popular in
Slovakia. She said that the Slovak media is misleading when it suggests that the
next two years will be merely a forum for the parties to prepare for the 2006
elections. "There are plenty of things left to do - drafting school reform
measures for instance. Or take healthcare reform. Remember, it was just passed.
Its implementation is a major process that awaits completion," Szomolányi
Meanwhile, Dzurinda said in a recent interview with TV Markíza that he was
thankful to Slovak citizens for making it possible for his cabinet to carry out
their reforms. "Our citizens showed major strength and morale, and I hope
that the coming months and years will prove that [the sacrifices] are right for
tomorrow," he said.
Car plants' launch to boost GDP
The launch of production in two car plants in Slovakia will drive Slovak gross
domestic product (GDP) growth from its current 5 per cent to 6 per cent, Elena
Kohutikova, Vice Governor of the Slovak National Bank (NBS), said, New Europe
Both PSA-Peugeot Citroen and Hyundai/KIA are building plants in Slovakia. The
facilities should be operating at capacity by 2007 or 2008. "After the
launch of the two car producers, we expect the economy to have a growth
potential of over 6 per cent," Kohutikova said. "We will have current
account surpluses, which of course will create a certain space for good
development of other monetary indicators - for inflation also from the view
point of exchange rate developments." In the second quarter of 2004 Slovak
GDP grew 5.4 per cent. For all of 2003, GDP rose 4.2 per cent, and it is
expected to rise 5.5 per cent this year by the Slovak Statistical Office (SUSR).
The NBS estimates this year's growth at a more modest 4.4 per cent.
Cheaper loans abroad with better Fitch rating
After Fitch agency upgraded Slovakia's ratings on liabilities, economics
analysts expect there will be cheaper loans available for the country abroad,
New Europe reported recently.
According to Slovenska Sporitelna (SLSP) bank analyst, Juraj Kotian, larger
companies should also enjoy better conditions when borrowing money abroad. ING
Bank analyst Jan Toth, said that Fitch only aligned its rating to that of
Moody's (from June, revising outlook from stable to positive for A3 country
ceilings and government bond ratings).
"Fitch was cautious mainly due to Slovakia's past, reaching back to (former
three-times Premier Vladimir) Meciar. The agency was not probably sure whether
the reforms may be reversed and an early general election held," Toth
noted. The upgrade of Slovakia's rating means that Fitch is not concerned about
Slovakia's ability to pay its liabilities, and that firming of the Slovak crown
could pose a major threat to the country's economy. "This is a clear signal
for the crown to firm. We expect it to reach 39.5 crowns per Euro by the end of
this year," Kotian noted.
"Should the crown's firming get strong, the central bank will probably
intervene directly through the market or by reducing key interest rates,"
said Uni-Bnaka analyst Lubomir Krsnak. NBS spokesman, Igor Barat said the
central bank sees no reason at the moment to comment on crown's development.
Fitch rating agency upgraded Slovakia's long-term foreign currency (FCY)
liabilities to A-, long-term local currency (LCY) liabilities to A+ and
confirmed short-term liabilities at F2.
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