As Deputy Prime Minister for Integration Pavol Hamžík was dismissed May 4 amid a scandal over possible embezzlement of EU funds, crown developments on the forex market - a barometer of political or economic instability - surprised foreign observers.
The crown reached a record high for the year strengthening from 43.55 to 43.20 against the euro on May 4, the day Hamžík was recalled by the government. Market watchers explained that while political turmoil and government scandal had been dominant forces on the forex exchange last year, the focus had now switched to the success of economic reforms and any events directly affecting foreign direct investment (FDI).
"When the news [about Hamžík) broke, I thought 'oh dear, this isn't what we need right now', but surprise, surprise, the currency wasn't put under pressure," said Jeff Gable, an economist with Deutsche Bank's bureau in London. "Two years ago, such an event would have had devastating consequences, but not now."
It's the second time in recent weeks that the threat to the markets posed by political turmoil has been overestimated by foreign analysts. Finance Minister Brigita Schmögnerová's March threat to resign over a proposed income tax law was portrayed as a bluff by cabinet colleagues, and was largely ignored on the forex market, the crown dropping only 0.13 against the euro (a fall of less than one third of a percent).
Local dealers explained that the economic reforms which Deputy Prime Minister for Economy Ivan Mikloš and, ironically Schmögnerová, had spearheaded since 1998 had taken deep enough root to reassure investors they could not be turned back unless one or both cabinet officials were actually to step down.
"One always expected a more significant reaction from investors to the potential recall or resignation of these two people. They are connected with reforms, and therefore closer to investors' interests," said Finance Ministry spokesman Peter Švec.
However, just six months ago the situation was very different. In November last year, a referendum on early elections sponsored by the HZDS opposition party was held. The prospect threw a scare into the markets, and the central bank was forced to intervene as the crown tumbled from 42.65 to 43.80 against the euro within a month after the plebiscite was called.
Prior to that, in July 2000, the crown dropped 0.4 crowns in a single day when Schmögnerová survived a no-confidence vote from her own party - the SDĽ.
Eyes on the collective prize
This year, however, the markets are focused on the record $2 billion Slovakia drew in FDI in 2000 thanks to its reforms, and its hopes to build on this in the next 12 months, say analysts.
"Last year investors were looking closely at Slovakia's political turmoil. There has since been an improvement [in market reactions], and investors are less likely to view corruption [alleged of one of Hamžík's subordinates] as endemic in the government, but instead as just among a few individuals here and there. This year the markets are much more inclined to stay focused on the FDI story," Deutsche Bank's Gable said.
Hamžík's departure may have left Slovakia without a Deputy Prime Minister for Integration, but local dealers say that investors' eyes, while on European Union accession to a certain extent, are fixed firmly on the government's collective work on entry to the 15-member Union, not on the fate of any one person involved in the process.
"Hamžík hasn't been seen as a key person for EU entry - nobody is. It's a team effort," said Branislav Matušek, a dealer at ING Barings. "And on top of that, the European Union took a positive view of how Slovakia had solved the problem of [possible] corruption in a top-level government institution [Hamžík's office]."
The government is also aware that no single individual plays a decisive role in its EU efforts.
"The EU train has been moving for a long time, and it has more than one carriage," said Švec.
