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Books on Slovakia
REPUBLICAN REFERENCE
Area (sq.km)
48,845
Population
5,423,567
Capital
Bratislava
Currency
Koruna
President
Ivan Gasparovic
Private sector
% of GDP
60%
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Update No: 100 - (25/08/05)
The uneasy balance of power
Since October 1998, the SKDU's Mikulas Dzurinda has led a coalition government
that included the Christian Democratic Movement (KDH), the Party of the
Hungarian Coalition (SMK) and the New Civic Alliance (ANO). Dzurinda won a
second term as prime minister in September 2002.
In July, Dzurinda survived a no-confidence motion after only 60 members of the
National Council voted in favour of the SMER-sponsored proposal-short of the 76
required to actually topple the government.
The next parliamentary election is tentatively scheduled for September 2006.
Opposition party in clear lead in polls
Slovakia is doing very well (see below). But there are always losers in a
transition economy, bitter at paying the price of progress.
Consequently, the opposition Party Direction - Third Way (Smer) remains the top
political organization in the Slovak Republic, according to a poll by UVVM. The
vote for Smer would be 31.7 per cent in the next parliamentary election, if it
were held today.
The Movement for a Democratic Slovakia (HZDS) is second with 12.3 per cent,
followed by SMK with 10.9 per cent, and the Slovak Democratic and Christian
Union (SKDU) with 10.6 per cent.
Support is lower for the Slovak National Party (SNS), the KDH, ANO, the Slovak
Communist Party (KSS), the Free Forum (SF) and the Movement for Democracy (HZD).
In August, HZDS chairman and former Prime Minister Vladimir Meciar said the
party would not select candidates based on name recognition alone, saying,
"We are not taking this risk today. Instead, we will choose candidates who
have been with the party for years."
World Bank: Slovakia's GDP growth 5.1 per cent this year
The Slovak economy is outpacing that of any other EU country. According to
estimates from the World Bank, the economy will reach a GDP growth rate of 5.1
per cent this year, and remain unchanged over the next year, the SITA news
agency has reported.
The World Bank's opinion matches that of the Slovak Finance Ministry's
estimates. The ministry updated its prognosis for GDP growth in June from the
previous 4.9 per cent to 5.1 per cent.
According to a World Bank quarterly report monitoring Central European and
Baltic countries, the inflation rate in Slovakia should reach 2.8 per cent in
2005. In 2006, inflation should slow to 2.5 per cent.
The public finance deficit is predicted to reach 3.4 per cent of GDP this year.
The current account deficit should reach 4.7 per cent of GDP in 2005 and
decrease to 4.4 per cent next year.
"After an initial rise in investments, exports, growth of production, and
prices in the first half of the year 2005, the economic performance of the EU8
states, including Slovakia and the Baltic countries has slowed down," said
Thomas Blatt Laursen, chief economist for Europe and Asia for the World Bank.
The EU8 states include Slovakia, the Czech Republic, Hungary, Poland, Estonia,
Latvia, Lithuania, and Slovenia.
Slovakia: Has economic reform gone too far, too fast?
Slovakia is becoming a talking point in reformist circles in 'New Europe'-In a
recent television debate between Czech Prime Minister Jirí Paroubek of the
Social Democrats and Mirek Topolánek, the leader of the opposition Civic
Democrats, Slovakia was cited as an example 22 times.
For the former, the so-called Slovak tiger serves as a cautionary tale; for the
latter, it is an economic model. So what is life like in a country that has
embarked on reforms in many critical areas of life, reforms that seemingly await
the Czech Republic in the not-too-distant future?
Czech society is in a state of apprehension, knowing it cannot avoid fundamental
reforms forever and yet aware that they will hurt. It has now been two years
since Slovakia began its struggle to curb unemployment and health-care costs.
The European Union and the World Bank both praise the government of Slovak Prime
Minister Mikuláš Dzurinda. The Slovak finance minister, Ivan Mikloš, was
named "Finance Minister of 2004" by the U.K.-based Euromoney magazine,
which cited his tax reforms, including the introduction of a flat corporate and
income tax, as successes. While the Czech Cabinet recently approved more money
for the ailing health sector, Slovakia's health-care reforms have halved its
recent Sk 9 billion, (Kc 7 bin/232m Euro) public-health debt.
With the Czech political right eyeing power - the ODS currently leads opinion
polls and a general election is slated for next year - it increasingly looks to
Slovakia for inspiration. In early May, Topolánek organised a conference on the
theme of flat taxes - and one of the lecturers was the Slovak finance minister.
The head of the reform team in the health ministry in Bratislava, Petr Pazitný,
is advising the ODS on its health-reform program, Blue Chance.
When it embarked on its reforms, Slovakia was in a unique situation. Years of
poor governance under former Prime Minister Vladimír Meciar led to a coalescing
of opposition forces. Most had had enough of state coercion, corruption,
intimidation and the country's increasing international isolation. A
center-right coalition led by Dzurinda formed a government following a 1998
general election. The government enjoyed 60 per cent approval ratings, a level
not seen since the first post-independence Meciar government. Today, after two
years of reforms, only one-third of the population says it trusts the
government, according to polls. Its supporters praise it chiefly for successful
EU accession and its foreign policy. In contrast, a poll by the Institute for
Public Affairs shows that two-thirds view the government's economic and social
reforms negatively.
"I sided with the reforms and with this government for a very long
time," says the editor in chief of the largest Slovak daily, Sme, Martin Šimecka.
Since the introduction of the new 19 per cent flat income tax, Šimecka's net
monthly salary is some Sk 5,000 higher. Even so, his initial enthusiasm has
evaporated. "I acknowledge that, without the reforms, we would long since
have been up the creek. But I also see the price that we are paying for them. It
seems too high."
The hopes that united people against Meciar and behind the new government have
been replaced by apathy, disillusionment and frustration. The reforms have
produced the greatest societal changes since Slovakia gained independence in
1993. The reforms truly affect everyone, but not all are benefiting.
"Entrepreneurs and richer people are making money from them. The lower
strata of society, however, are paying for them," Šimecka says. "They
were imposed too harshly and insensitively."
Youth exodus
"Thanks to the flat tax, my family and I are better off. I estimate
that my [net monthly] salary has risen by Sk 8,000," says Jaroslav
Gocaltovský, the mayor of Revúca, a small town of 14,000 people where
Gocaltovský has served three terms. But he hastens to add: "One-tenth of
the population is truly rich. Another 20 percent are, like myself, earning
decent money. One-third has no problem. But [the rest] now live in
poverty."
It is busy at Revúca's unemployment office. The head of the office, Ondrej
Kvetko, is one of the few people here who is unequivocally happy both with the
current government and its reforms. "I think that they're good, that they
are heading us in the right direction," he says. The flat tax has raised
his net income by about Sk 3,250 a month. His office has 6,700 people listed on
its books as unemployed, exactly one-third of the district's labour force. The
number considered to be in material need - those who are eligible for social
benefits on top of their unemployment benefits - is 3,500, close to half. This
group consists mainly of Roma, whose living standards have fallen drastically
since the reforms.
"Social policy used to be based on mass handouts … the system motivated
no one to find work: a family with children lived better on benefits than if one
member of the family had a job with average pay. That isn't the case anymore;
any form of activity is better than being on benefits," Kvetko says. At the
same time, he sees the downside of the reforms. "That isn't, however, the
case in our district, which has an unemployment rate of 28 percent. There really
isn't any work here." The workforce of the largest company in the region,
Slovenské magnezitové závody (Slovak Magnesite Works) in Jelšava, has shrunk
by two-thirds since the early 1990s. New investors are not rushing to this poor
region. Revúca is, then, a prime example of what many in central and eastern
Slovakia say: the reforms are good mostly for those in Bratislava, the wealthy
capital.
The combined pressure of the social reforms and minimal opportunities has given
rise to an unwelcome trend: people are leaving en masse to find work in the
Czech Republic, Austria, Germany and Britain.
Which way to market?
While a recent increase in Slovak value-added tax (VAT) means that the cost
of basic foodstuffs in Slovakia is now comparable to the Czech Republic, the
average Slovak earns one-third less than the average Czech. Unemployment is
twice the rate of the Czech Republic's. Within Slovakia the dichotomy deepens:
life in the Bratislava region - in terms of pay and job opportunities - is
completely different than life in central and eastern Slovakia. The situation in
the regions is exacerbated by the sizable - 30,000-strong - Roma community,
whose chances of making a living for themselves are much diminished.
Last year, the Slovak government's chief initiative was to launch its tax
reform. In essence, its first goal was to shift the tax burden away from direct
taxes (on income) to indirect taxes (on consumption). Secondly, it exchanged a
progressive income tax ranging from 12 to 38 per cent to a flat 19 per cent
corporate and income tax. According to Finance Minister Mikloš, the reform's
chief contributions are that those who benefit most are those who earn the most
and those who earn the least (roughly Sk 7,250 per month in income is tax-free).
The tax system is simpler, and tax remittance has increased. And, importantly,
foreign investors are showing more interest in Slovakia as a result of the flat
tax.
The reforms' basic maxim - that net income from employment should outweigh
social assistance benefits - sounds ideal. But people without an education and
without any prospect of finding work were driven into poverty by the changes.
The income of a four-member family consigned to living off state support of
approximately Sk 9,000-11,000 a month was reduced by half. And people find it
difficult to secure work in districts where every third person is without a job.
Moreover, despite the tax reforms, unemployment has not fallen. Indeed, at 18.1
per cent, the national jobless rate is now one percentage point higher than
before the reforms' introduction.
The most common billboard along Slovakia's roads and city streets these days
promises a "carefree old age": pension reform. Since January, Slovaks
can send half of their mandatory 18 per cent deductions for pensions to private
pension companies. The level of public interest is surprisingly high: 850,000
people have taken this option and five of eight companies now have the 50,000 or
more policy holders that they need to operate.
"The reforms are for the elite, not for us," a worker says, casually,
as he exits the gates of the Jelšava factory. A whole shift of workers is, like
him, clocking out. They certainly aren't a communicative bunch, either waving
their hands without a word or snapping: "I won't talk to you about work nor
pay." Perhaps they have good reason to keep quiet since security guards
immediately appear. "No interviews or cameras here," they tell us.
Only one says how the flat tax has affected him: "I used to [take home] Sk
15,000; now I get Sk 12,000."
Idol of reform
While the Czech and international media are praising the Slovak changes, the
domestic press is increasingly critical. And the criticism is far from being
restricted to the left-of-centre Pravda newspapers. Stories of people who are
worse off than before (mainly Roma, the handicapped, pensioners and low-income
earners) also feature in Šimecka's Sme, a right-of-centre paper.
"The only thing that matters now is money. The guarantor of the reforms is
Finance Minister Mikloš, but he sees the world too much through economic
indicators," Šimecka says. "At our paper, we too have a lot of young
fellows - economists - who only notice GDP (gross domestic product), the budget
deficit, and how real wages have risen. But where's the life in all of that?
Reform should only be a way of ensuring that people live better. But in
Slovakia, it's become a false idol. I sometimes have the feeling that the
politicians are pushing through these reforms not so much for the people, but
for themselves, for their reputations in the world."
Nevertheless, he says, "When I criticize the reforms, I'm not criticizing
their essence - theoretically, they are OK - but they shouldn't be imposed so
toughly. But there's no danger of that happening with you lot (Czechs)," he
says. "Your starting position is much better. But be careful about one
thing: Reform, but don't go crazy about it. We have gone crazy."
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AUTOMOBILES
Getrag Ford active in Kechnec
The foundation stone for the Getrag Ford Transmissions (GFT) Slovakia plant was
laid at Kechnec industrial park on July 7th.
GFT is investing a total of 345m Euro (13.2bn Slovak crowns) in Slovakia. It
will build a modern transmissions production plant and create around 750 direct
jobs, TASR news agency reported.
The company expects its annual turnover to reach 300-400m Euro. All of the
plant's output will be for export. GFT is the eighth investor in the 330-hectare
Kechnec industrial park.
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AVIATION
Slovakia mulls airport sales
The Slovak government unveiled its plans to sell up to 66 per cent of the
country's two main airports, Bratislava and Kosice, in a public announcement,
New Europe reported.
Interested investors were invited to register their interest at Meinl Bank,
which is advising the Slovakian government on the share sale.
"Investors have an opportunity to take part in the privatisation of 66 per
cent of the capital of one or both of the airports," the announcement said.
The operation is scheduled for completion before the end of the year, according
to information published by the Slovak government in June. A deadline of August
15th was been set for potential bidders to submit the necessary documentation to
government privatisation advisor, Meinl Bank AG. Potential investors had to
submit company data as well as details of any experience in running an
international airport.
The potential bidders will receive the tender rules and sign a confidentiality
agreement. They will then submit their preliminary bids for one or both of the
airports.
The Slovak state, which currently holds 100 per cent of both airports, will
retain 34 per cent after the privatisation. Of this, it plans to cede a 10 per
cent stake to the regional governments and a further 10 per cent to the towns of
Bratislava and Kosice. The statement said investors might decide whether to seek
to buy the two airports together or separately. It added that expressions of
interest should come from investors experienced in operating international
airports, or from consortia which include such a strategic partner. The
transportation ministry has said it wants to complete the airports sale by the
end of 2005. Bratislava Airport, the largest in Slovakia, has seen a sharp
increase in passenger traffic in the past few years, mainly thanks to new routes
operated by low-cost airlines. Bratislava is only around 50 kilometres from
Vienna Airport, and it has been posing increasing competition to the main
Austrian airport. The biggest Slovak air carrier is low-cost airline SkyEurope
Airline, which carries more than half of the total number of passengers
transported in Slovakia while easyJet and Ryanair have regular flights from
Bratislava. Britain's easyJet launched services to Slovakia at the end of 2004.
Further carriers include Czech Airlines, Austrian Airlines, Deutsche Lufthansa
as well as domestic airlines Slovak Airlines and Air Slovakia.
The number of passengers almost doubled to 893,614 in 2004 from 480,011 in the
previous year, and the airport expects to handle more than million people this
year. The number of passengers at all the country's airports rose by 66 per cent
in 2004 compared with 2003 to a total 1.3 million. The airport in Kosice was
used by 230,000 travellers in 2004, an increase of 23 per cent compared with
2003.
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ENERGY
Enel investment plan extension
Italian utility, Enel, agreed with the Slovak cabinet on an extension to the
deadline for submitting its investment and development plan for Slovakia's
electricity utility, Slovenske elektrarne (SE), the Slovak Economy Ministry said
recently, New Europe reported.
Enel now has until the end of August to submit its plan. The plan was originally
due in at the end of June. Preparing the SE investment plan is one of the
conditions set before Enel can definitely take control of a 66 per cent stake of
SE shares. "The August date is a result of mutual agreement. We understand
the situation in Enel, the management of which changed recently, and that's why
they need more time," said Economy Ministry spokesman, Maros Havran.
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FOREIGN INVESTMENT
Hankook deal still possible
Slovakia wants to renew talks with South Korean tyre producer Hankook Tire.
Economy Minister, Pavol Rusko, was expected to meet with the Hankook vice
president to discuss the issue, The Slovak Spectator reported recently, citing
the daily SME.
Economy Ministry spokesman, Maros Havran, said that the two parties were going
to try and reach an agreement over an acceptable amount of investment
incentives. The Slovak cabinet rejected the originally required incentives for
Hankook. The Korean company was due to invest 500m Euro into a new plant in the
town of Levice, Slovakia, and hire 1,600 people.
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MANUFACTURING
MAN Steyr to open Slovak plant
Austrian truck producer MAN Steyr will start producing parts for trucks in the
Slovak town of Banovce nad Bebravou, in the region of Trencin, in the autumn of
this year, The Slovak Spectator reported.
The plant in Banovce nad Bebravou will start out with 25 employees, but within
three years this will increase to 300, the report said. The Banovce plant will
be producing parts for MAN's plants in Vienna and Steyr.
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MINERALS & METALS
Swedish SAPA eyes Alufinal
Swedish firm SAPA is to acquire Alufinal, the largest unit of the ZSNP aluminium
smelter complex in Ziar nad Hronom, if the anti-trust authority (PMU) approves
the takeover deal, The Slovak Spectator reported recently.
Alufinal specialises in the production of aluminium profiles for electrical and
mechanical engineering as well as the furniture industry. SAPA is one of the
leading aluminium profile producers, with operations in Europe, Asia, and North
America, and a turnover of 14 billion Swedish crowns (1.49 billion Euro).
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TOURISM
Tourists flock to Bratislava
More and more tourists are visiting Bratislava, the Hospodarske noviny daily
reported on July 8th.
While in 2003 around 304,000 tourists came to the Slovak capital, the figure
rose to 380,000 in 2004. During the period January-April 2005 there was a 12 per
cent year-on-year increase in tourists. The increase is partly attributed to the
February 2005 US-Russia summit that was held in Bratislava.
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