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Slovakia to join OECD 'club'

It may have taken hectic last-minute negotiations and late night phone calls to Paris, but the Slovak government last month finally secured an invitation to join the 'club of rich nations' - the Organisation for Economic Cooperation and Development (OECD).
After a special session July 28, OECD members issued the long-awaited invitation to Slovakia, drawing to a close two years of negotiations between Bratislava and Paris. The Slovak government is expected to join the organisation officially in September, after the summer break, and to have its entry ratified in its own parliament in October.
Slovakia is the 30th country to become a member of the OECD, a body which claims to promote free-market business and economic practices. While the group does not have any tangible economic power, membership is seen as a feather in the cap of transitional states such as Slovakia.


Prime Minister Mikuláš Dzurinda and Deputy PM for Economy Ivan Mikloš celebrate the OECD invite.
photo. TASR

It may have taken hectic last-minute negotiations and late night phone calls to Paris, but the Slovak government last month finally secured an invitation to join the 'club of rich nations' - the Organisation for Economic Cooperation and Development (OECD).

After a special session July 28, OECD members issued the long-awaited invitation to Slovakia, drawing to a close two years of negotiations between Bratislava and Paris. The Slovak government is expected to join the organisation officially in September, after the summer break, and to have its entry ratified in its own parliament in October.

Slovakia is the 30th country to become a member of the OECD, a body which claims to promote free-market business and economic practices. While the group does not have any tangible economic power, membership is seen as a feather in the cap of transitional states such as Slovakia.

Indeed, cabinet seized on the membership as an opportunity to play up its own performance, saying that the OECD offer was a reward for the government's own hard-hitting economic reforms, and that it would open an investment floodgate that would bring huge economic benefits to the country.

"The developed world now has trust in our economic reforms," Prime Minister Mikuláš Dzurinda said at a press conference August 1. The prime minister's own SDKÚ party said straight after the OECD announcement that the invitation had been a success for the coalition cabinet. "We made significant achievements with practical consequences for our economy and it improved our position on the international scene," the party said in a statement.

Other politicians hailed the OECD decision as one putting Slovakia back on track with its regional neighbours, all of whom joined the group in the mid-1990's. "It is a great step, bringing us almost to the other side of the transformation river, to the same place where Poland, Hungary and the Czech Republic have already crossed," said Deputy Premier for Integration Pavol Hamžík. "The decision shows that we are close to a fully-functioning economy, and nearer to NATO and the EU" he added (see related story, above).

Praise also came from Paris, with OECD Secretary General Donald Johnston doffing his cap to the Slovak government for carrying out "a brave set of economic reforms. I believe that these will bring prosperity for Slovakia's citizens."

Real benefits

The most immediate effect of OECD membership is expected to be increased confidence among investors and financial markets that Slovakia has become a safe place to put their money. Prime Minister Dzurinda said he expected that not only would Slovakia's investment ratings be upgraded by international agencies, but that foreign credit would now be much easier to obtain - something analysts have said is vital for the Slovak economy.

Finance Minister Brigita Schmögnerová, for her part, said that she now expected a boost not just to foreign credit for Slovakia, but also credit extended to its corporate sector. "Slovakia has got rid of one of its handicaps - not being an OECD member."

Economic analysts were only marginally less sanguine. "The government will certainly have a boost for foreign credit, but I don't think the ratings agencies will act on the OECD membership," said Matthew Vogel, Emerging Markets Senior Economist at Merrill Lynch in London. He added that while the OECD invitation was a notable achievement, Slovakia's ratings would likely remain below investment level until next year.

"The ratings are still really all about a country and its macroeconomic performance and, especially with Slovakia, its reforms in the banking sector. But obviously the OECD feels that there has been significant progress made in these areas," he added.

The government's long-term sovereign debt ratings stand at BB+ with Standard & Poors and Ba1 with Moody's.

Vogel added that while the investor outlook had been improved with the July 28 invitation, the government's chances for more significant FDI had already been boosted with recent legislative reforms and incentive packages.

Amid the general jubilation, however, opposition MPs warned that massive unemployment was a sign the government's boasts of having turned in an outstanding economic performance were hollow.

Opposition Slovak National Party (SNS) deputy Jaroslav Paška said that the country's current 20% unemployment rate was unacceptable. "This is the first time the OECD has given an invitation to a country with the highest unemployment rate in the whole of Europe. Even though we consider this invitation a success, the economic policy of the government should change and it must do more to create new jobs," he said.

Long path to membership

Slovakia's invitation came after last-minute decisions and discussions characteristic of the ups and downs the country has faced in negotiating its way into the group.

It had been initially expected to join in 1996, but what the OECD at the time said was a huge lag in commitments on economic and social reforms from Vladimír Mečiar's Movement for a Democratic Slovakia (HZDS) government of the time saw Slovakia left behind its central European neighbours.

After coming to power in October 1998, the Dzurinda administration pushed forward with integration efforts and hoped that OECD entry would swiftly follow. However, in the first weeks of June this year, just ahead of Slovakia's expected entry on July 1, the US administration said that it would not be supporting Slovakia's membership. The US said it was still concerned with the pace of economic reform, especially in banking sector restructuring, and that it doubted Slovakia's readiness to join the organisation.

Another round of negotiations followed, and after a trip to Washington Deputy Premier Mikloš sealed the vital support of the US. However, at the end of June it emerged that Slovakia's entry was blocked by a dispute between France and the US over audio-visual legislation. As the dispute raged on at the OECD session on July 27, the last before the group's summer break, there were fears that Slovakia would have to wait until October before any invitation was extended. But following an eleventh-hour agreement between France and the US, the extra session saw Slovakia gain the much-coveted membership.

"We were scared that there might be a further delay and that we would have to wait again until September. There was a great sense of relief when we found out [that we were invited]," said Vladimír Tvaroška, an advisor to Mikloš.

"It was Friday before we found out for sure about the final decision. There were some faxes sent late at night by Mr. Mikloš, and he had a night-time phone call to Paris at the end as well," he added.

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