Books on Slovakia
% of GDP
Update No: 113 - (26/10/06)
Pragmatism tempers populism
Elections in June produced a new government, one viewed as the nightmare
scenario by investors: a left-populist coalition pledging to reverse liberal
reforms for which there had been little popular mandate in the first place.
After early elections on June 17th, the Cabinet was appointed July 4th.
"The government has fulfilled some of its election promises in a
spectacular way by using the good state of the Slovak economy [from which] it
has funds to distribute money," said Grigorij Meseznikov, director of
Slovakia's Institute for Public Affairs (IVO).
Meseznikov said that the basic touchstone of the ruling coalition of Prime
Minister Robert Fico's Smer party, the Slovak National Party (SNS) and the
People's Party-Movement for a Democratic Slovakia (LS-HZDS) is the halting of
reforms implemented by the previous two right-wing Cabinets of Mikulás Dzurinda.
The current ministers are trying hard to combine promises with pragmatism, but
they lack a clear plan. "Their solutions are improvisational,"
And while a few changes, such as rolling back health care payments, have been
highly touted, little of substance has really been accomplished. Petr Just, a
political analyst from Prague's Charles University, said he believes that the
new Slovak government's action has been quite slow so far. "For the time
being, the government hasn't yet found courage to profoundly change the reforms
that Smer criticized so much before the elections," Just said
In the event, it has proved to be more cautious than its campaign rhetoric
suggested it would be, keen to keep investors interested in continuing to enter,
with massive projects in manufacturing impending, particularly in the car
industry. Slovakia and the Czech Republic are being dubbed 'The New Detroit.'
Spectacular rise in popularity at home in his first 100 days
The popularity of Slovakia's strongest parliamentary party, Smer, is on the
rise. As recent public-opinion surveys indicate, even more people would cast
their votes for Prime Minister Fico's party, if elections were held now than in
June of this year.
While Smer earned 29.14 per cent of the votes in the June 17 elections,
according to a recent median.sk public opinion poll 45.3 per cent of those
polled now support Smer. A Statistics Bureau survey, meanwhile, puts the number
at 43.7 per cent.
Sociologist Olga Gyarfásová of the Institute for Public Affairs think-tank
said the rise was due to the fact that people who did not vote in the June
elections now tended to support Smer.
Political scientist Peter Ucen of the International Republican Institute (IRI)
said that voters have so far seen neither real improvements nor real damage from
the tenure of the new government.
Fico has promised voters that his government will do more for them than the
previous right-wing government of Mikulás Dzurinda, and that it will spend more
on social welfare. According to Ucen, Fico has so far given the impression that
he is moving in that direction. "This gives satisfaction to uninformed
people who have no idea what this government's new legislation means," he
told the SITA news wire.
The Cabinet of Slovak Prime Minister Robert Fico during its first 100 days in
power has mainly benefited domestically from the popular support it won by
turning back a few fiscal reforms, but its reputation has remained unfavourable
abroad. This is not just among apprehensive foreign investors. It is true of
those on the left too.
Even after three months in power Fico has not managed to improve his
government's image abroad. They say the government's reputation has been harmed
by the participation of the right-wing SNS in the coalition, as SNS chairman Ján
Slota is widely considered a nationalist, and something of a thug - his
statements have been linked to several anti-Hungarian incidents.
Ms Gyarfásová said she believed the suspension of Fico's Smer party by the
Party of European Socialists (PES) will not have any impact on Smer supporters,
who tend to identify with Fico's view that the European socialists punished Smer
for doing politics for the people. The sociologist said Smer supporters are
reluctant to admit that in working with the far-right SNS, the party breached
the PES rules, or that Smer's isolation could cause the isolation of Slovakia on
the international scene.
Moreover, tension with Hungary has also rallied voters to the government rather
than turned them away. "It was proof for them that Smer and the Slovak
National Party are parties that will defend the interests of the Slovak
majority," Gyarfásová said.
Early fears unjustified
Economists, though, while upbeat, still had reservations. The fear of a
worsening economy, about which economists expressed concerns after the June
elections, hasn't been fulfilled since the ministers assumed their posts.
The draft 2007 state budget, which will influence the plan to adopt the euro in
2009, will be the key factor for a further development in the economy, experts
say. The draft budget was discussed by the government and scheduled to be
presented to the parliament in October. The draft budget is in line with
"The changes made so far [before the budget proposal] haven't been as
radical as expected," said Peter Stanek of the Economic Institute of the
Slovak Academy of Sciences (SAV). They're rather cosmetic adjustments that won't
jeopardize Slovakia's reform potential for the time being, he said.
Slovenská sporitelna chief analyst Juraj Kotian said the confirmation of the
pledge to introduce the single European currency in 2009 was Fico's crucial
"The initial uncertainty after the government was formed was curbed by the
prime minister's statements that the Cabinet will meet a 3 percent public
finance deficit in proportion to gross domestic product [GDP] next year,"
Kotian said. It was the first time that the government didn't have to come up
with austerity measures after elections, but the Cabinet hasn't yet presented
its own proposals to stabilize the economy, he added.
The decisions that Fico's Cabinet have made so far don't hamper Slovak economic
growth, and the country remains attractive to foreign investment, said Peter
Havlik of the Vienna Institute for International Economic Studies (WIIW).
But some analysts were hard pressed to find areas for praise. "I don't know
if we have managed to identify any positive steps with this government. We
rather feel that things are quietly and slowly going in the wrong
direction," said Richard Durana, head of the Bratislava-based think tank
Institute of Economic and Social Analysis (INESS). "This government
definitely isn't as beneficial to the economy as the previous one was,"
Highlights of Fico's first 100 days
Key events and measures of Prime Minister Robert Fico's coalition
July 4 President Ivan Gasparovic appoints the new government headed by Smer
July 19 The government approves the nomination of Fico's aide Jozef Magala as
head of the Slovak counter-intelligence service (SIS). Gasparovic appoints
Magala on July 27th.
Aug 4 The government decides to abolish the Sk 20 (Kc 15/ 0.54 Euro) and Sk 50
fees patients had to pay for every visit to a doctor and for a day spent in
hospital, respectively. This is the first reform introduced by the previous
Cabinet that Fico's Cabinet scraps.
Fico's government wins the confidence of parliament. In its policy statement
that the parliament approved, the government says that it would reintroduce two
value-added tax (VAT) rates and introduce a millionaires' tax, draft a timetable
for the Slovak troops' withdrawal from Iraq and make changes in social welfare,
health and labour legislation.
Minister of the Interior Robert Kalinák (Smer) dismisses the whole Slovak
Aug 7 Ján Packa, then-director of the Office for the Protection of
Constitutional Officials, is appointed new police president.
Aug 9 The government dismisses the head of the State Material Reserves
Administration and the whole management of the Slovak Land Fund. It appoints
Marián Cakajda the new head of the Material Reserves Administration.
Aug 16 The government decides to scrap the planned privatisation of the
Bratislava airport by withdrawing from a contract the previous government signed
with the tender's winner.
The government approves the limits for the state budget deficits for the next
three years in a way enabling Slovakia to meet euro adoption conditions as of
Sept 13 The Ministry of Finance proposes a series of tax changes aimed at
increasing state revenues from taxes to cover a planned increase in social
expenditures. The proposed tax bills, however, don't cancel the current 19
percent flat income tax. They only reduce tax relief for companies and people
with high incomes.
Slovakian unemployment has fallen to the lowest point since the country
became independent in 1993, a government office said October 17th, reaching 9.75
per cent in September. The September 2005 unemployment rate in Slovakia stood at
11.2 per cent.
The jobless rate had fallen from 9.85 in August, according to the number of
people officially registered as unemployed and looking for work, the Office of
Labour, Social Affairs and the Family said.
The figure represents Slovakia's country's lowest unemployment rate since
independence after the break-up of former communist Czechoslovakia. Slovakia
joined the European Union and NATO in 2004.
Before joining EU, Slovakia undertook austere economic reforms that ultimately
created tens of thousands of jobs and attracted foreign investors.
Global car industry's roadmap leads to Trnava
The medieval Slovakian town of Trnava would seem to be an unlikely backdrop for
a key hub of the global car business, Deutsche Presse-Agentur (dpa) reported.
But, Trnava, which lies a short half-hour drive north from the capital
Bratislava, is rapidly emerging as a new key part of the country's burgeoning
auto industry following the opening by French carmaker PSA Peugeot Citroen of a
new US$920 million state-of-the-art plant in the town.
"Trnava has a 100-year machinery tradition," town mayor Stefan Bosnak
told the dpa. "Every new factory means the creation of new chances for
economic growth and gain, tax income and new jobs," he said. With the
lowest labour costs in the European Union, a flat tax, a skilled workforce and
perched between western and eastern Europe's auto markets, Slovakia has recently
become a major new destination for investment from the world's leading car
Indeed, when Peugeot began producing cars in Trnava in June this year it joined
leading auto groups such as Germany's Volkswagen AG and America's Ford Motor
Company, which have already set up shop in Slovakia with the dramatic expansion
of the nation's car industry helping to underpin its post-communist economic
transformation. KIA Motors, an offshoot of South Korea's largest carmaker,
Hyundai Motor, is also gearing up to open up a new US$870 million factory in the
northern Slovakian town of Zilina in December producing cars designed
specifically for the European auto market
The plant, which is KIA's first in Europe and is one of the largest in Central
Europe this year, is expected to produce 300,000 vehicles a year by 2009 and
employ about 3,000 people.
Another 10,000 associated jobs are expected to be created in the region near the
KIA factory. There is also potential for growth in Slovakia's domestic car
market. At about 250 cars per 1,000 inhabitants, Slovakia has one of the lowest
auto ownerships in the European Union. Slovakia was one of 10 largely Central
European states that joined the EU in May 2004.
The emergence of a car industry in Slovakia reflects developments in other parts
of Central and Eastern Europe with key auto makers piling into Hungary, Poland,
Romania, Russia and the Czech Republic, and as a consequence helping to power
economic growth across the region.
But the recent rapid growth of Slovakia's new auto sector means that the country
is set to become the world's largest car producer per capita in the next two
years, rolling out about one million autos a year after it beat off rivals from
bigger Central European states in a bidding war for the KIA and Peugeot car
investments. Once home to Slovakia's communist-era utility vehicle maker TAZ,
Trnava, like the rest of the country's economy, slipped into the Central
Europe's economic slow lane in the years following independence in 1993 after
the break-up of Czechoslovakia and the arrival of an authoritarian government in
Bratislava. But now Trnava's 72,000 residents enjoy one of the lowest
unemployment rates in Slovakia with people heading for the town in search of
work and a raft of new shops and car component businesses springing up around
the historic town.
The new Peugeot factory, which is expected to produce about 500,000 vehicles by
the end of the decade, should employ about 3,500 people generating another 2,000
subcontracting jobs in the Trnava region.
Moreover, unemployment in Slovakia, a country of 5.4 million, has been falling
on the back of the country's booming economy. The country's jobless rate dropped
from about 20 per cent six years ago to 9.85 per cent in August, its lowest
level since independence.
According to the Slovakian central bank, the opening of both the KIA and Peugeot
factories will result in the country's economic growth soaring to seven percent
next year after six per cent plus in 2006. But as a sign of the intense
competition that has hit the global car industry, Peugeot announced this month
that it was scrapping a 350 million Euro plan to build a second plant at its
Trnava sire as part of a new cost-cutting drive.
In the meantime, as a sign of the growing strength of the Slovakian car sector,
component suppliers are also moving into the country with the US car industry
supplier TRW beginning the construction of a new US$27-30 million factory in
Bytca in the country's northwest. To be completed in 2008, the TRW factory will
produce plastic components for KIA Motors Slovakia, PSA Peugeot Citroen and the
German BMW and employ up to 700 people. Meanwhile, a Ford-Getrag joint venture
in Slovakia is producing all-wheel-drive systems for Ford Europe.
New Slovak government seeks energy-price controls
Slovakia's new left-wing leaders plan to take control of the country's energy
and water prices by January, Slovak Economics Minister, Lubomir Jahnatek, said,
Deutsche Presse-Agentur (dpa) reported on October 6th.
The plan drafted by Jahnatek is supported by Slovak Prime Minister, Robert Fico,
whose June election victory over the former conservative premier, Mikulas
Dzurinda, has triggered shake-ups in economic policy.
The proposal would reverse a 2002 liberalisation of energy markets enacted by
Dzurinda, who sought to cut political influence over price decisions. Since
then, an independent regulatory agency has set the prices formerly controlled by
government ministers. Now Jahnatek said he wants "the opinion of the
(economy) ministry for price proposals to be binding" on the regulators.
Under the proposal, Jahnatek's office would have the final say over public and
commercial prices for natural gas, electricity and water. Jahnatek has already
discussed the plan with European Commissioner for Energy, Andris Piebalgs.
Sony to invest 2.7bn crowns in Nitra factory
The Japanese company Sony electronics is due to build a TV producing factory for
2.7 billion Slovak crowns in Nitra, about 40 kilometres from its existing plant
in Trnava in western Slovakia, Slovak Spectator reported.
The factory will employ about 3,800 people. Construction should begin this year,
while production should start in August 2007. The facility will start with
making LCD sets and gradually include the manufacture of video equipment.
The plant's production capacity will be three million television sets per year.
Test production will begin in September 2007 and full operation should start in
2008. Sony has been making television sets for a decade now at its existing
plant in Trnava. This plant will be shut down and its 1,500 workers will be
offered new jobs at the Nitra plant. Vlado Kalina, the head of the Slovak
Electro-Technical Industry, said Sony would have no problem finding employees
near Nitra. "They will find plenty of available labour in the vicinity and
will benefit especially from the former employees of the Tesla Vrable [bankrupt
electronics plant]," Kalina said.
Sony has so far invested 1.6 billion crowns in its plant in Trnava, which it
built in 1996. The Sony investment represents a success for Nitra after its
failure to land major investments by Dell and LG Electronics, both of which
chose Poland instead.