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Slovakia approaches OECD membership

Slovakia leaped another hurdle on its quest to join the Organisation for Economic Co-operation and Development (OECD) this year when the OECD's Trade Committee gave the country positive marks on February 22 and 23 in Paris. Slovakia still has to present its case in front of influential OECD bodies later in March and April before the Slovak government's hopes of gaining full acceptance by September can be realised.
Membership in the international organisation would increase foreign direct investment into the country as well as raise the country's credit rating, creating a better environment for Slovak firms or the state to borrow money abroad.

Slovakia leaped another hurdle on its quest to join the Organisation for Economic Co-operation and Development (OECD) this year when the OECD's Trade Committee gave the country positive marks on February 22 and 23 in Paris. Slovakia still has to present its case in front of influential OECD bodies later in March and April before the Slovak government's hopes of gaining full acceptance by September can be realised.

Membership in the international organisation would increase foreign direct investment into the country as well as raise the country's credit rating, creating a better environment for Slovak firms or the state to borrow money abroad.

Slovakia has been knocking on the OECD's door since 1996, when neighbouring countries Hungary and Poland became full members preceded by the Czech Republic in 1995. OECD officials said then and during the following years that Slovakia's economy was not transparent or open enough for membership during the 1994 to 1998 reign of Vladimír Mečiar. But with the 1998 election of the government of Mikuláš Dzurinda, Slovakia has made great strides in recovering lost ground, and according to the latest OECD reaction will probably secure membership this year.

"The latest positive results in Paris only confirmed what we all [Slovak government officials] expected from it," said Ján Jursa, the government's plenipotentiary for negotiations on entering the OECD.

The OECD requires that each of its 29 members have standard legislation, particularly in the economic area. Jursa said that Slovakia had already had to pass amendments to its Foreign Exchange Law, Collective Investment Law, Bond Law and Insurance Law; a law on auditing was the only change that remained to be made.

Gaining OECD membership, however, is a matter of more than passing sensible laws. Ján Tóth, a senior analyst with the Dutch investment bank ING Barings, said that an applicant country's macroeconomic stability was at least as important. "The OECD looks closely at fiscal deficit, current account deficit and the situation in the banking and corporate sectors. Basically, what they are looking for is a standard, stable economic environment," Tóth said.

According to Eric Burgeat, director of the Paris-based Centre for Co-operation with OECD Non-Members, in the case of Slovakia the organisation looked specifically at two important areas - the protection of foreign investment and the liberalisation of financial flows. "We have seen a strong commitment by the new government to meet the stated requirements and an open intention to do what is needed over the last 15 months," said Burgeat. "Basically, we can say that the process of Slovakia's entry into the OECD is now proceeding at a normal pace."

According to Burgeat, the OECD had been waiting for positive signals from Slovakia since 1996 and 1997, but until now had not seen what it was looking for.

"Despite the fact that there was economic growth in Slovakia in 1996 and 1997, it wasn't sustainable," agreed Jursa. "The level of liberalisation and legislation which Slovakia had at that time wasn't sufficient."

According to Jursa, this was why Slovakia failed in its presentations to the OECD in July 1996 and 1997. The committee which rejected the country's bid then was the same one which gave Slovakia the thumbs up this February.

For Tóth, the OECD saga in 1996 and 1997 was a sad story. "This should be considered as a memento of the missed train," he said referring to Slovakia's being passed over for EU talks and NATO membership during the same period. "If Slovakia had jumped on, its citizens would have been doing better by now," Tóth said.

How can the OECD help?

According to Burgeat, membership in the OECD would further integrate Slovakia with the major actors on the world economic stage.

Both Jursa and Tóth elaborated on this point, saying that OECD membership would increase foreign direct investment and win the country a good risk rating abroad.

"We [the Slovak government] are expecting a significant increase in FDI after Slovakia becomes an OECD member," Jursa said.

According to Tóth, OECD membership will also make it easier for Slovakia to take a loan from abroad because foreign banks will consider the country less risky for investment. "Banks and investors will create less protection reserves when they invest in Slovakia," he said. "On the other hand, Slovakia's membership in the OECD will lower the presence of speculative capital in the country, which is good news." Above all, according to Tóth, the OECD will help to steer the Slovak government in the right direction and keep reforms on track.

However, there is a small fly in the ointment. Many observers have said that after disastrous experiences in Mexico and the far east during economic crises in the 1990's, the older OECD member countries have decided to make Slovakia the last country to be accepted for a long time, and to differentiate between the OECD benefits awarded to OECD stalwarts and recent members like the Czech Republic, Hungary, Poland and possibly Slovakia.

One way in which such differentiation might work is with the guarantees - called 'zero risk weighting' - that the OECD gives to investors who put money into its member countries. The guarantees obviate the need for investors to do their own risk analyses, and have particularly helped weaker OECD nations by facilitating FDI.

Now, Tóth explained, newer OECD members might be given a higher risk weighting than older members - still much better than being left out of the OECD altogether, but not the boon a zero weighting once was. "This means that recently accepted countries will not have such advantages as those which were accepted in 1961 and 1964," said Tóth. "Newer members might for example have a 50 risk weighting, instead of the current zero. But it still will be a big plus for these countries."

The recent Paris presentation is only the first of three presentations at various OECD committees (such as Capital Movements and Invisible Transactions) that Slovakia must make to be accepted by the OECD Council as a full member. Slovak government officials expect that Slovakia will be confirmed as an OECD member in May or June, and then formally inducted some time in September.

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