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SLOVAKIA

 

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REPUBLICAN REFERENCE

Area (sq.km) 
48,845

Population
5,430,033 

Capital 
Bratislava 

Currency 
Koruna 

President 
Ivan Gasparovic

Private sector 
% of GDP
60%

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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 Mikulas Dzurinda. 
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 economic outlook.
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 analyst said.
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 opposite.
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 years ago.
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 half.
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 years."
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 integration platforms.
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 coalition.
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 said.
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.

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AUTOMOBILES

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 reported.
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. 

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FOREIGN LOANS

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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