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Books on Slovakia
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Update No: 115 - (21/12/06)
Slovak president wants Russia to join EU
The Slovaks want to mend fences with Russia, which is not after all the Soviet
Union. They are well aware whence their energy mainly comes from.
President Ivan Gašparovic told Russian leader Vladimir Putin in mid-November
that Slovakia would like to see Russia one day become part of the European
Union. Following recent calls by Slovak government officials for better
relations with Russia, Gašparovic told Putin that "European Union
representatives already realize" that Russia will eventually join the EU,
"even though that won't happen tomorrow or even next year."
This is pipedream stuff. But after all what do civil words matter?
The two leaders reported that work had already begun on securing a new agreement
on energy supplies from Russia to Slovakia, the real point of the business of
course, to take the place of the current deal, which expires in 2008. Putin said
Russia would like to participate in the modernization of Slovakia's nuclear
power facilities, and to improve military cooperation.
The Russian side also conceded that the 49 percent stake in the Transpetrol
pipeline firm that Slovakia sold to the Russian Yukos firm in 2002 could be
returned to the Slovak state, although talks also continue on whether another
Russian entity will secure the stake. Gašparovic said that "President
Putin confirmed all of our demands for the future."
Former Foreign Minister Eduard Kukan said he feared Slovakia's foreign policy
was changing from a Western orientation towards closer ties with Russia.
"We have seen various statements by the prime minister and the foreign
minister to the effect that we should be more active in our relationship towards
Russia," he said. "They should probably explain what they mean by
better relations."
However, Foreign Ministry spokesman Ján Škoda denied that Slovak foreign
policy was changing. "According to the Robert Fico government, foreign
policy should become more economic in nature," he said. "But it will
be built on everything positive that has been achieved, including in relations
with Russia."
Slovakia sets the pace for reform
Reform should be a banned word for journalists covering central Europe. Its
unqualified use implies that the tide is going only one way and that you can
either go with the flow - preferably as speedily as possible, catching the wave
and being borne aloft - or you can futilely rail against it, march into the
waves and drown.
But there is not just one model that central European societies must adopt.
Western Europe has diverse economic models ranging from the United Kingdom's
free market to the French social market, and it is a political decision which
one a new member should adopt. To demand "reforms" begs the question
of which direction the reforms should be heading.
Before applauding reforms one must also examine the content, to see if they are
really needed and well prepared, as well as the timing, because it can sometimes
be better both politically and economically for governments to take their time
introducing complex and painful changes.
Robert Fico, Slovakia's leftist premier since July, has suffered more than most
from this simplistic misperception of reform.
His rightwing predecessor, Mikulas Dzurinda, pushed through the most radical
reform programme in the region. Economists and business people were so enamoured
that they cited Slovakia as a model for sclerotic Western Europe. Conversely,
Fico was disparaged as the anti-reform candidate who would try to turn the clock
back.
Business was therefore shocked by the scale of Fico's victory and his decision
to opt for the "worst case" scenario of a coalition of his Smer
movement and two nationalist fringe parties.
Fico's initial lukewarm commitment to adopting the euro in 2009 led to a plunge
in the value of the Slovak crown at the end of June. The central bank spent more
than 3 billion euros - around one quarter of its reserves - trying to arrest the
crown's fall before Fico and his business-friendly finance minister, Jan
Pociatek, were able to restore confidence in the euro timetable.
Since that inauspicious start the worst fears have not been realized. Many of
Fico's campaign promises have been cut back and the reform framework has been
preserved. For example, the flat income tax has been maintained, though personal
allowances have been reformed to force high earners to pay more tax.
The crown is now at record levels and the rating agency Moody's even increased
Slovakia's credit rating in October to A1. The country is likely to be chosen as
the site of a huge new LCD plant by Samsung, demonstrating that foreign
investors remain bullish.
Economists and business people now damn Fico with faint praise, commending him
for making only minor changes to Dzurinda's reforms, as if anything his
government did would necessarily be negative. They now either see his government
as a giant waste of time or, if they are charitable, as a period when the
country treads water and catches its breath before another giant wave of
reforms.
Tried and failed
This overlooks first of all the problems with Dzurinda's reforms. Many were
successful but others, notably in the more complex areas of health care,
education, and welfare, either failed or created huge discontent or both.
For example, long-term unemployed - primarily Roma - were forced to do unskilled
manual work just to receive a lower level of benefits than they had previously
been entitled to. The aim was to cut welfare spending and improve incentives to
work. However, given that many Roma live in areas of very high unemployment and
discrimination, this simply deepened poverty and alienation.
The reforms were also shallow because the Dzurinda government did not tackle the
issue of how they would be administered. The impact of the reforms was eroded by
a state administration and local government that remained overstaffed,
inefficient, and obstructive. Ironically for a government that liked to boast
about attracting foreign investment, a good example of this is Sario, the
investment promotion agency, which remains a pale shadow of CzechInvest, its
Czech counterpart.
The reforms also ignored the chronic unemployment and poverty in eastern
Slovakia. Bratislava and western Slovakia boomed, but for those in the east
migration was the only way out. Only at the very end of his government did
Dzurinda target investment incentives at eastern Slovakia and accelerate
motorway building to link it to the west.
Using the healthy economy he has inherited from Dzurinda, Fico plans both to
improve the reforms and address problems that have been neglected. For example,
social benefits are being increased to tackle poverty, while Pociatek plans big
cuts in state administration through an ambitious e-government revolution.
In other fields Fico's party - true to its Slovak name - plans to go in a
different direction altogether. The flawed and unpopular health-care reform has
already been cancelled, while next year the Social Affairs Ministry should
reform Dzurinda's liberal labour law, aiming to restore workers' and trade union
rights and to maintain the flexibility that employers crave.
Overall, Fico's reforms will be much more modest than Dzurinda's, but it is
often essential to pause in order to assess and correct the impact of reforms
and to build popular support for the next step.
It should not be forgotten that Dzurinda never really had a popular mandate for
his bold reform program. Most of the reforms were at best sketchy before his
coalition's narrow election victory. His government rushed the implementation of
the reforms because it knew it would never have a second chance.
By contrast, Fico now enjoys record electoral support and is in a strong
position to win the next election and push through further reforms at a time and
pace of his own choosing.
Fico says coalition supports 2007 budget proposal
Slovakia's coalition parties agreed to support the 2007 budget after Prime
Minister Robert Fico accepted some demands by his partners to raise spending
while keeping the deficit below the deficit as planned.
The gap will remain at the proposed level of 2.9% of GDP, compared with 3.6%
forecast by the Finance Ministry, Smer party head Fico told journalists late
yesterday after meeting with the heads of the other coalition parties. They
agreed to raise spending on some areas such as railway transport and housing,
Fico said, without elaborating on financing. "The parties of the ruling
coalition have agreed to support the budget" in parliament, Fico said.
"We will keep the planned deficit at any price." Fico's
four-and-half-month old cabinet is struggling to balance a campaign promise to
help the poor with a need to reduce spending enough to qualify for the euro
adoption targeted in 2009.
To qualify for the switchover, the country needs to squeeze the fiscal gap below
3% of GDP next year. Meeting the 2007 budget plan would allow Slovakia to adopt
the euro earlier than its neighbours, provided the nation will also succeed in
reducing inflation. Neighbouring Czech Republic and Hungary abandoned their
targets for the switchover in 2010. Slovak lawmakers are scheduled to start the
budget debate December 5. The spending plan is based on a projected GDP growth
of 7.1% next year, average inflation of 3.1% and the average unemployment rate
of 10%. (Bloomberg)
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AGRICULTURE
Farmers to get 10.5 billion in direct payments this year
The agricultural payment agency (PPA) has already decided on about 10 per cent
of subsidy requests by farmers, Slovak Spectator reported on December 1st.
In total, the PPA plans to pay out some 10.5 billion Slovak crowns to farmers,
most in the form of a flat subsidy for farm areas and contributions for
disadvantaged areas and areas with environmental limitations, it was reported.
Slovak Agriculture Minister, Miroslav Jurena, was quoted as saying that
"4.8 billion crowns will be allocated for flat subsidies according to farm
area, 2.2 billion crowns for crops on arable land, and 441 million crowns for a
special payment for sugar producers," and tobacco growers would get 112.2
million crowns in total, hop growers 2.7 million crowns, dairy cattle breeders
120 million crowns and breeders of sheep and goats 171 million crowns.
The remaining 3.1 million crowns will go to disadvantaged areas. The Slovak
Agriculture Ministry plans to satisfy 90 per cent of all applicants for
subsidies by the end of December.
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AUTOMOBILES
Zizala to invest 11m Euro in plant in Krusovce
Construction of a new industrial plant by Zizala Lichtsysteme began in the
industrial park in Krusovce near Topolcany (Nitra region) on December 1st,
Slovak Spectator reported.
The Austrian investor plans to produce light systems for the car industry and to
create 120 jobs. Investment costs are to reach 11 million Euro, and production
should start in May next year.
Slovak Economy Minister, Lubomir Jahnatek, who helped lay the foundation stone,
promised that the state would provide support to the company in the form of a
tax break. According to company representative Hubert Schuhleitner, Zizala
Lichtsysteme is considering a gradual expansion of production in a further three
stages over five years, creating up to 400 jobs. At the moment, the company has
plants in Austria and the Czech Republic.
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FOOD & DRINK
SAB Miller consolidates its operations
A new company called Pivovary Topvar will launch operations on the Slovak beer
market next year as a result of the merger between the Saris and Topvar
breweries owned by South African brewery group SAB Miller, Slovak Spectator
reported on November 28th.
"When choosing the name for the company, we followed the practice of SAB
Miller's European breweries, which connected the word Pivovary (Breweries) with
a famous local brand," Company Director, Imrich Havris, was quoted as
saying. The merger is scheduled to be completed on January 1, 2007, when Pivovar
Saris becomes a successor company to the Topvar brewery.
Topvar will be erased from the corporate register as of this day, it was
reported. On the same day, Pivovary Saris will be renamed Pivovary Topvar.
Pivovary Topvar will include two separate production units: the current
breweries in Topolcany and in Velky Saris. The company will have its
headquarters in Topolcany, but the company management will be located in
Bratislava.
Tesco-Carrefour merger decision postponed
The Tesco and Carrefour retail chains did not receive a decision from the
competition authority on their proposed merger on the Slovak market by the
expected November 20th deadline, Slovak Spectator reported on November 21st.
The Anti-Trust Bureau (PMU) said it would now rule by January 17th, 2007 on the
deal, PMU spokesperson, Alexandra Bernathova, said. "This is the final
deadline for the office to decide on the merger," she was quoted as saying.
The PMU extended the deadline in order to study how the terms and duties in the
draft deal submitted by Tesco will affect the market. The deadline for the
decision on the takeover of Carrefour's Slovakia outlets by Tesco has already
been extended several times.
Under the existing plan, Tesco and Carrefour will exchange units in order to
pull out of countries in which they have small market shares. This should
strengthen the positions of both companies in their countries of operation.
Tesco wants to sell Carrefour six stores and two building sites in Taiwan for
57.4 million Euro, while in return it should receive 15 Carrefour hypermarkets,
11 in the Czech Republic and four in Slovakia, it was reported.
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