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SLOVENIA

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REPUBLICAN REFERENCE

Area (sq.km) 
20,273

Population 
1,935,677

Capital 
Ljubljana 

Currency 
Tolar 

President 
Janez Drnovsek

Private sector 
% of GDP 
40% 

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Update No: 088 - (27/08/04)

Shock result
The Slovenes gave their ruling party for twelve years, the Liberal Democratic Party (LDS) a rude jolt in elections to the European Parliament on June 13th. They fared poorly, while a new party altogether, the New Slovenia Party (NSi) scored 23.2% of the vote. This put them ahead of the DS and its coalition partner, the Pensioners' Party, on 22.2%.
Elections to parliament are coming up this autumn so that the issue is not without consequence. Nevertheless, observers are confident that the success of the NSi was no guide to general elections. Voters just wanted to give LDS a warning shot across its bows. 
After twelve years in office it would be surprising if it had not become rather complacent and even corrupt. There is need for renewal of policies and personalities, so many feel.
The silver lining for Premier Anton Rop and his LDS government is that his true rival, the Slovenian Democratic Party (SDS), came in third on 17.2%. Turnover was especially low at 28%. There is a strong suspicion that LDS votes stayed at home. They will doubtless re-appear at the general elections.

Excellent record
The economy has been faring well in the last decade or more, GDP growing by 4% per annum and inflation being contained to low single figures. This gives little scope for criticism, it might be thought. 
This is not the view of the head of the SDS, Janez Jansa, who is castigating the government at every turn. He may not succeed this time round. But he is building himself up as the opposition champion.

European commission worries over convergence programme
The European Commission (EC) was rather critical in assessing Slovenia's first convergence programme on June 24th, eleven days after the electoral upset. A warning was signalled to Slovenia that its budget situation could turn out worse than anticipated, particularly as this year's macroeconomic risks could lead to higher spending than has occurred in the past.
According to the EC report, the plans to balance the budget are slow and the programme is rather apathetic in setting budget goals. The same report noted that the strategy is targeted towards healthy public finance and a balanced budget, whereby Slovenia plans a reduction of the budget deficit from 1.9% this year to 0.9% in 2007.
Although the deficit is below the prescribed ceiling of 3%, the Commission is not pleased. According to the report, with the planned deficit, Slovenia is only approaching a balance towards the end of the planning period, which is not in line with the mid-term goal of the stability and growth pact.
This year the state of the budget can be worse than anticipated as macroeconomic risk can lead to increased consumption. According to the Commission, the programme only briefly reviews the structural reform agenda.
It also announces further measures to sustain economic growth, for example by promoting job creation oriented investment and removing structural rigidities in the labour market. However, the programme does not dwell upon the specifics of the restructuring process; policy goals seem fairly general and are only unusually accompanied by well-elaborated measures, the report incites.
The commission says that Slovenia faces risks of budgetary imbalances in meeting the costs of an ageing population. Implementing thoroughly the pension reform and putting in place a stable health care system, together with securing an adequate primary surplus, are essential for placing public finances on a sustainable footing. Macroeconomic plans to bring annual economic growth close to 4% until 2007 are rather optimistic, according to the Commission. This is particularly the case for this year, when the state expects a 3.6% growth, while the Commission expects it to stand at 3.2%.
For the rest of the period covered, the evolution of growth is "broadly in line" with the Commission projections. A similar assessment was given for inflation, which is to stand at 3.3% this year and is to drop under 3% next year according to government plans.
"The long-term sustainability of lowering inflation still relatively high at 4.7% on a 12-month moving average basis - needs to be strengthened. A good coordination of economic policies is regarded as key in bringing down inflation durably," according to the Commission.
The Commission points out that the year-on-year consumer price inflation rate was 3.9% in May, although acknowledging that the country managed to bring down inflation 7.5% in 2001 to 4.6%.

More FDI required
Slovenia's parliamentary committee for the economy recently amended and confirmed the government proposed act on the promotion of foreign direct investments (FDI) and the internationalisation of companies.
According to Economics Minister, Matej Lahovnik, a newly promoted 32-year old youngster, the main purpose of the act is to create an institutional basis for an efficient promotion of FDI and accelerated internationalisation of Slovenian companies, in particular small- and medium-sized enterprises.
Among measures to promote FDI, the act introduces measures to offer free information, counselling and other services to foreign investors, as well as the promotion of the country as an investment destination and financial incentives for investments.
Under the act the government must adopt a five-year programme for the promotion of investment. Funds for financial incentives are provided by the national budget and other domestic and foreign sources.

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AVIATION

Adria Airways purchases new plane to make it 9

Slovenian national airline Adria Airways recently purchased a new plane to expand its aircraft fleet to 9. The new Canadair Regional Jet 200 can transport 50 passengers, the Slovene press agency reported. 
The purchase deal was signed on July 21st, the Chairman of Adria Airways, Branko Lucovnik, and Steve Ridolphy, president of the Bombardier Regional Aircraft were present during the signing ceremony. The price of the plane, to arrive in January, was favourable, as Adria has been successfully working with Bombardier for a long time, the Slovenian air carrier said in a press release. A CRJ 200 usually costs around US$20m. Adria has been successfully cooperating with Bombardier in servicing Bombardier jets, as it was in 2002 chosen as the first and only authorised maintenance service centre in Europe. Adria also announced its plans to buy another plane from the Canadian manufacturer by the end of the year.

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FOREIGN ECONOMIC RELATIONS

Slovene, Swedish finance ministers discuss EU's financial perspective

The EU's next financial perspective, tax harmonization and economic cooperation topped the agenda of a meeting between Slovenia's Finance Minister, Dusan Mramor, and his Swedish counterpart, Bosse Ringholm, STA News Agency reported.
A recent meeting, part of Mramor's working visit to Stockholm, has shown that the Slovene and Swedish governments share stances on the next EU budget, the Slovene Finance Ministry said. Mramor and Ringhold identified the similarities particularly in that budget money should be used with a view of achieving Lisbon Strategy goals. The common agricultural policy should moreover be reconsidered and a proposal to introduce European tax scrutinized from the budgetary point of view.
According to the same source, the proposals to harmonize taxes in the European Union are problematic for both Slovenia and Sweden, and should be re-examined from the aspect of tax autonomy.
One of the engagements on Mramor's agenda was also a conference of economists associated in a group discussing alternative perspective on finance. 

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FOREIGN LOANS

Slovenia to receive EU funding for acquis implementation

Slovenia is expected to receive €8.68m from the European Union budget this year in order to boost the country's administration capacity in implementing the acquis, the government stated after its weekly session on July 29th, STA reported. 
According to the government's press release, the money is to be spent on 19 projects in agriculture, statistics and financial supervision, environment and internal market, and judiciary and financial supervision among other areas.

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TOURISM

Istrabenz Tourism Sector to develop further

The Portoroz-based hotel group controlled by the tourism and energy group Istrabenz, plans to buy two or three more hotels, and over the next five years manage a further 2,000 hotel rooms, the chairman of Hoteli Morje Holding told the daily Dnevnik on July 17.
According to Niko Trost, who is also a member of the Istrabenz management board, the hotel chain is interested in hotels in Lipica, a village in western Slovenia that is home to the famed Lippizzaner horse, as well as the centre of Ljubljana and the capitals of the former Yugoslavia. Moreover, the group is interested in the tourist areas on the Istrian peninsula, Kvarner and Dalmatia in Croatia as well as Montenegro. "We have already offers on the table for investment in Italy and Austria," Trost told the paper.
The company is more interested in managing other companies than buying ownership stakes, the official said. He refuted the allegation that the tourism sector got part of the funds Istarbenz acquired by selling out its 50 percent share in OMV Istrabenz (that is some SIT 23 billion / 96 million Euro).
"The tourism holding does not count on those funds as we can attain our goals without the parent's money," he said. He believes that investment in tourism is attractive because it is stable, although expected earnings are not so high.
Istrabenz set up the Hoteli Morje holding in April this year. Apart from Hoteli Morje, it also includes Palace Hotels and the Koper Marina on the coast, the company managing the Postojna Cave and the hotels there, the Kras tourism company and a hotel in Opatija on the Croatian cost. In all those companies Istrabanz hold an average ownership stake of 90 percent.

Tourist board happy with H1 statistics

The Slovenian Tourist Board is said to be satisfied with the half-yearly tourist figures, which indicate that the number of foreign visitors rose by 7% year-on-year, STA reported recently. 
The statistics also show that the number of overnight stays generated by foreign tourists went up by 2%. "The goal is to see 4% growth in the number of overnight stays by foreigners this year. Judging by the half-yearly figures, this is likely to be achieved," Meteja Tomin Vuckovic of the Slovenian Tourist Board told STA. A remarkable growth of around 30% in the number of overnight stays by French, British, American, Scandinavian and Israeli tourists was reported. The growth in the number of British guests is attributed to the commencement of low-fare flights between London and Ljubljana, while that of other tourists is said to be the result of successful marketing campaigns. According to Tomin Vuckovic, Slovenia is not an exception to global tourism trends in that the number of foreign visitors is growing at a faster pace than the number of foreign overnight stays. On the basis of the half-yearly statistics, a good season can be predicted Tomin Vuckovic said. Revenues from tourist stays in Slovenia grew by 6% to €461.44m in the first 6 months of this year.

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TRANSPORT

Transport infrastructure on track for expansion

Slovenian Railways on July 29th signed a contract worth €77.8m with Siemens on the delivery of 20 multi-purpose electric engines for freight transport, with the engines scheduled for delivery between mid-2006 and beginning of 2008, STA reported. 
In the first half of this year, Slovenian Railways posted revenues of 33.4bn tolars (€139.3m) and a net profit of 613m tolars (€2.56m), which is in stark opposition to high losses posted in the previous years.
Slovenian Railways general manager, Blaz Miklavcic, and Gottfried Schuster, the head of the Austrian subsidiary of Siemens signed the contract. Miklavcic stated that the purchase of new engines is crucial for the company to achieve its long-term objectives.
Presently, the state-owned Slovenian Railways uses engines that have been in use for an average of 30 years, which means they are less reliable and quite expensive to maintain, the report said.
Miklavcic is highly grateful to the government for responding quickly to the company's proposal to purchase new engines, which will also make it possible to fund the project. The new engines are expected to enable the rail operator to better supply bigger customers, make freight transport operations more flexible and eliminate difficulties stemming from the lack of engines abroad. In addition to Slovenia, the new engines will be able to operate in Austria, Germany, Italy, Hungary and Croatia.
As a result, the Slovenian railways will be able to operate joint trains on longer international routes. A good performance of the company's freight transport division is one of the main reasons behind the company's first positive results in years.
In another major transport improvement project the government decided on July 29th to speed up the construction of the Maribor-Lendava motorway in southeast Slovenia, after the locals threatened to block the regional road if the government failed to take any measures to alleviate the situation.
STA reported that Prime Minister Anton Rop visited the region promising that the motorway would be constructed by 2008 at the latest. The premier, who was accompanied by Transport and Environment Ministers, Marko Pavliha and Janez Kopac, respectively, and parliament speaker Feri Horvat on his working visit, said that the government had not yielded to the demands but that it assessed the arguments as justified.
The cabinet announced that the heavy goods vehicle traffic at the Dolga vas border crossing soared by 86% after May 1st and on the Lendava ring by as much as 105%, according to the roads directorate.
However, the transport and interior ministries were assigned to change the decree the restriction of heavy goods freight and prohibit the traffic of lorries on the Lendava-Pocehova main road between 6am and 1pm on Saturdays.
The government will provide 140m tolars for the short-term measures this year. A total of 791m tolars will be provided for the measures in 2005 and another 430m tolars in 2006.

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