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Man of the Year 1999: Deputy PM Ivan Mikloš




He's a sports fanatic who recently got back into windsurfing. He shares a love of Guinness beer with his wife. He used to listen to Czech hard rock, but now finds himself increasingly drawn to classical music. He's an agnostic who thinks Pope John Paul II has been the most important figure of the 20th century. He goes camping with his family every year at Italy's Laggo di Garda. He dislikes stupidity combined with ambition and unscrupulousness, and respects broad-minded, decisive and generous people.

He's Deputy Prime Minister for Economy Ivan Mikloš.


It is rare that the successes notched by a government can be ascribed to one person. The Slovak cabinet's 1999 economic achievements, however, are an exception.

In a little under 12 months, the country's fiscal and trade deficits have been cut by approximately half, while the interest rates on government bonds have fallen from a maximum of over 30% under the Mečiar government in 1998 to around 13% today. Bank restructuring has been launched, austerity measures have been approved, and the macro-economy is well on the way towards stabilization.

These results are little short of amazing from a government composed of former communists and free market proponents, and in which the largest coalition party is on the verge of disintegration. The turnaround, and the unity of the government on economic transformation, is in large part due to the work of Deputy Prime Minister for Economy Ivan Mikloš - The Slovak Spectator's Man of the Year for 1999.


PERSONAL HISTORY

The Slovak Spectator [TSS]: How did a boy from the eastern Slovak town of Svidník become the Deputy Prime Minister for Economy?

Ivan Mikloš [IM]: I was born in Svidník, but later on I lived in various eastern Slovak towns. My father was a judge, so any time he got a new job, the family moved with him. After 1968, when he was kicked out of the Communist Party, we didn't move any more because he couldn't work as a judge. My parents lived in Vranov nad Topľou until this year, when both of them died.

I always wanted to be a lawyer, maybe to carry on the family tradition. But the principal of my high school couldn't give me good references for university because of my father, so I came to study economy in Bratislava. I didn't plan to stay in the city after graduating, but I was offered a job at the faculty doing macro-economic analyses.

Then by chance I got a job at the Office of the Government. After the 1990 elections, Deputy Prime Minister for Economy Jozef Kučerák asked the head of my department whether she didn't know some young economist who wanted to work as his advisor. She recommended me, and 10 minutes after I met Kučerák, I realised we had similar opinions; I got the job. Then I became director of the Government Office Economic and Social Policy Section, and when Mečiar was defeated [in 1991], I was offered a job as the Minister of Privatisation. They gave me one night to decide. I might never have accepted the offer if I hadn't attended cabinet sessions and seen for myself what kind of person could be a minister (laughs).

I was Privatization Minister until [Meciar's return in] 1992, when we founded the economic think tank MESA 10, where we focused on macro-economic analyses and support for reforms.


TSS: Why did you decide to return to government in 1998?

IM: I honestly didn't think I would be here [in the cabinet], because in September 1998 I won a job search for the position of first senior vice-president of the East-West Institute, an American think tank. I was to have been responsible for the economic programme of the entire institute and for Europe, and was to have been based in Prague. My contract was already signed, and I was on the verge of leaving when I got an offer from Prime Minister Mikuláš Dzurinda two days before the current government was put together. He, too, gave me only one night to decide.


TSS: What made up your mind? Wouldn't the Prague job have paid better?

IM: Before I accepted the offer I had spent 10 years trying to push economic reforms and transformation forward. The offer from the East-West Institute was very lucrative, many times more so than this [post as Deputy Prime Minister], but at the same time I was being offered a chance to begin something I had been trying to do for 10 years. Offers like the East-West Institute may come again in the future.




POLITICS

TSS: What did you do in November 1989? Did you join the street protests?

IM: November '89 freed me from the inside. I had been teaching at the Economic University since 1984, and had come to the conclusion that the reasons we were falling behind economically lay in our lack of a market and competition, as well as in the political situation. I was never either a dissident or a communist. I can openly say that I was afraid to sign Charter '77, and I had no contacts with dissident circles. As a university teacher I had to respect certain rules. On the other hand, although my boss was a strong communist, he was also very liberal and didn't care what I taught. So I gave seminars on Cornai, then one of the world's most respected economists.

In the first days of November I immediately joined the students. I remember giving a speech during a departmental meeting on November 22, challenging my colleagues to support the students. I was surprised that even my younger colleagues didn't react to it. There was absolute silence in the room, and minutes later they said I had made an anti-socialist announcement. However, when the Central Committee of the Communist Party resigned two days later, this remark was removed from the minutes.


TSS: As a 31 year-old Privatisation Minister from 1991-1992, you won little popular respect. Why?

IM: Sociologists say that Slovaks still don't trust young people very much, and don't believe they can accomplish significant things. That was one of the reasons. Another was that I wasn't sufficiently prepared, and the third reason is that public acceptance depends on whether or not you are accepted by opinion-creating organs such as the media.

In Slovakia back then, we had perhaps one or two economic journalists who understood what communism was, what deformations we inherited from it, what reform meant, why we had to launch it and why it was inevitable that transformation would cause a recession. In Slovakia, journalists wrote articles according to the following pattern: prices are rising, unemployment is growing, production is falling - therefore reform is wrong.


TSS: You seem to have little more popular respect now as a reformist Deputy PM. When will public opinion finally be on your side?

IM: Reform governments are usually not very popular. We have bills from 40 years of communism, from the mistakes made in the transformation process, and from the 1994-1998 Mečiar period. These bills have to be paid.

Perhaps the silver lining is that the Mečiar government discredited itself to such an extent that the current government doesn't have any alternative. This gives the Dzurinda government time to make corrections.


TSS: Opinion polls say that Mečiar's Movement for a Democratic Slovakia [HZDS] party still has the biggest share of public support, at around 25%. If Mečiar returns to the political scene in 2002 in some form, responsible politicians and reformers will have to decide what to do about him: co-operate, and risk giving Mečiar another chance to rule, or refuse to work with him, and risk being politically irrelevant. Are there any conditions under which you would consider working with Mečiar?

IM: I think that Mečiar and his movement are now in a position similar to where the Italian Communist Party found itself in the 50's, 60's and 70's. Despite the fact that they formed the strongest party in Italy, the communists never governed the country because all the other parties considered it a threat, and always united to govern the country to keep the Communist Party out. We will be in this situation here as long as Mečiar is the head of the HZDS.

They [the HZDS] are now in a dead end situation because they cannot win any election without Mečiar, but at the same time cannot form any government with him as HZDS Chairman. I am quite sure that they themselves don't know what to do with him. On one hand they realise that with Mečiar they are absolutely isolated, both internationally and domestically, but on the other hand they know that without Mečiar they would be nothing.

From my point of view, co-operation with the HZDS is conditional on its not being an obstacle to Slovakia's integration into NATO, the EU and the OECD. Frankly, anti-western values have become so connected with Mečiar that it is difficult to imagine that any government in which he is a member could fulfil Slovakia's important ambitions and aspirations.


TSS: Could you take our readers inside the cabinet for a second to see how it works? As the Deputy Prime Minister, you don't have a ministry behind you, and many domestic analysts say 'Ivan Mikloš doesn't have real power in his hands'. At the same time, people see you as one of the most powerful members of the cabinet. How exactly do you manage to push forward reforms if you have no power?

IM: That's a real problem. The deputy prime minister posts [Slovakia has four], which don't have ministries attached to them, are very strange, and I think more negative than positive. The positive thing is that the people holding these positions are not overloaded with the day-to-day problems of a ministry, and have more time to focus on more conceptual tasks. On the other hand, deputy prime ministers don't have anybody to help prepare these tasks.

The real influence I have in cabinet is a matter of whether I am able to persuade my colleagues through debate and the arguments I use. Fortunately, many of the arguments I have used have been almost identical to the opinions of the international institutions that Slovakia wants to join. This is in fact the strongest tool I have to help push reforms forward. For example, macro-economic stabilisation is an unpopular and a delicate process which nobody really wants to start. However, it helps me a great deal that the OECD, the IMF and the World Bank all support this process in unison.


TSS: Is Finance Minister Brigita Schmögnerová the main brake on your reform efforts?

IM: No. I can openly say that in the first months of this year we were unable to reach mutual agreement and had very different opinions. However, since May, when we reached an agreement [on the second economic austerity package], our co-operation has been very good. Despite the fact that we still have different opinions on some things, like the rate of corporate income tax, it doesn't hurt our co-operation.


TSS: Many foreign business professionals have said that 'If Ivan Mikloš weren't where he is, the credit of the current Slovak government would be far lower'. Do you think you are really this important to the cabinet?

IM: It's difficult to judge, because I am an interested party here (laughs). Such praise flatters me, of course. But the Finance Minister and I are very often considered a reform tandem. It's good that the Finance Minister is a member of the [former communist] SDĽ party. I think that if a member of any other party occupied that post, it would create many more problems [because the leftist SDĽ would not support reforms unless they were advocated by one of their own officials].




ECONOMY

TSS: You were the only opposition member on the supervisory board of the FNM state privatization agency from 1996 to 1998. How much did you know about what was happening in the privatization process during those years?

IM: I knew more than I had known before, but I didn't know everything. I couldn't visit the FNM archives, FNM officials locked themselves in their offices because they didn't want to talk to me, and my letters went unanswered. I was quite simply ignored. However, from the files that I was allowed to see at the supervisory board, it was clear to me that the situation was worse than I had thought, and that almost everything stank.


TSS: Some of the crimes committed in privatization are now beginning to be investigated. But Slovakia also has just over 130 billion crowns ($3.1 billion) in bad loans in its banking sector; restructuring and privatising the three biggest state banks will cost some 90 billion crowns. Are we going see any investigations of lending procedures in the last decade? Will charges be laid against people who lent public money to their friends without securing adequate collateral?

IM: I don't think that everything can be investigated, although it's important to investigate at least the biggest cases. As far as those bad loans are concerned, figures have been published that are not always understood correctly. For example, the 90 billion crowns in fiscal expenditures that will go towards restructuring those three banks are not net expenditures. Ninety billion crowns is the value of the bad loans not covered by collateral. But the net fiscal expenditures will be lower because at least 20 or 30% of those debts are likely to be paid. Secondly, when [the 90 billion crowns in bad debts are transferred to another financial house and the] restructured banks are sold, there will be some profit, although it won't cover all the losses. Maybe 50 or 60% of those 90 billion crowns will be recovered, and maybe 50% will be net, real and final expenditures.


TSS: If you had a legislative 'wish list' for next year, what reforms would be at the top of it?

IM: This year wasn't easy, and next year certainly won't be any easier. We have had good results in macro-economic stabilization, and we have to continue taking even tougher measures than we passed this year. But these measures won't be tough for citizens, and that's the positive news.

We have controlled the fiscal deficit by raising the income of the state budget, but there is no more room for increasing taxes. At the same time, if we don't continue in reforms, we won't maintain our progress. So the only way we can go is to make cuts in expenditures, which are also more acceptable than tax increases from the citizens' point of view.

The public sector is ineffective, and social benefits are soft and being abused. Co-operation between ministries is entirely insufficient in this field because there is a lack of will to do things. To push reforms forward here is not a technical problem of identifying the waste but a practical problem of implementing our ideas.

The second large area is micro-economic restructuring, mainly the bankruptcy law and laws connected with it, which are already prepared and should be before the government by the end of December or early January. Then there is bank restructuring, which is more a legislative than a political issue - some minority shareholders, who share responsibility for the tough situation at the banks, are also trying to hold up the process.


TSS: If you were to write the draft budget for 2000 by yourself, what parts of the current budget draft would you change?

IM: Again, the budget isn't so much a technical problem as a political one. Basically, I would cut expenditures on the state bureaucracy and cut public service jobs. I can't give you any exact numbers, but I will say that the ministries have too many employees.

I would also make changes in the social benefits sphere. Our social programmes are soft, do not address specific needs and are often abused. It is estimated, for example, that between 25 and 40% of those who receive unemployment benefits are working on the side.

The problem [with over-generous social benefits] is not just the fiscal deficit, that we do not have enough money. It also affects the flexibility of the job market. There are cases when an employer cannot find workers for his firm in areas with 30% unemployment. And the explanation given is that the employer [can't find workers because he isn't offering] the same wages that he would offer for the same work in Bratislava. But living expenses in Bratislava are the highest in the country. I am convinced that one of the reasons why Bratislava has the lowest unemployment rate, apart from the fact that it has the most employment opportunities, is that living expenses are dramatically higher than in the countryside. Meanwhile, welfare and unemployment benefits are the same wherever you live, meaning that in villages you can live relatively easily on state handouts, but in Bratislava it's impossible. Making social benefits rules more strict, therefore, would be an effective way of lowering unemployment and creating better conditions on the Slovak job market.

Yes, I can imagine a different, much better budget from the technical point of view. But if we consider what was in the realm of the possible, what we could have passed, the budget is not so bad.

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