Former Prime Minister Vladimír Mečiar for many investors embodies the 'political risk' attached to putting money into Slovakia. Having led in the polls since winning elections in 1998 but being unable to form a government, Mečiar is likely to play a significant role after 2002 elections as well.
He told The Slovak Spectator October 3 that investors need not fear his return.
The Slovak Spectator (TSS): Much foreign investment has come to Slovakia since 1998, a lot of it under attractive conditions such as tax breaks and employment subsidies. If the HZDS came to power following 2002 elections, would the party review any of these deals with a view to cutting some of these incentives?
Vladimír Mečiar (VM): We are in favour of any kind of development of Slovakia. The basic element of such improvement is economic development, where again the basic prerequisite is foreign investment. If we were to continue at the current rate, Slovakia would need another 50 years to match the European Union. So whatever government was formed after 2002 - and one involving us especially - it would have to come up with an investment programme that would make Slovakia an interesting investment destination, and would attract the kind of investment that created jobs in industries involving more sophisticated work and greater added value.
We would not only respect and honour agreements signed to date, but we would be interested in signing more such deals, in creating guarantees of political stability, so that foreign investors would never again have to wonder if business conditions would remain stable during political change.
The only new thing, besides improving conditions for foreign investors, would be giving domestic investors equal rights. We welcome the foreign investment that has come in since 1998, but these investments have been largely connected with privatisation, in other words passive investment. To date we have no investment capital which might create new jobs or develop various industrial sectors.
Furthermore, we need to change the dominance of imports over exports - we now have the worst trade deficit in our history. We have to alter the structure of domestic production. That will be the job of the next government - to be positive and welcoming, to respect existing agreements, and to find new cooperation wherever possible.
TSS: That's quite a change from 1996, when you were criticised by the European Bank for Reconstruction and Development for favouring domestic owners over foreigners, especially in privatisation.
VM: Until 1998, every important foreign entity which came to Slovakia did so with my support and participation. My stance towards foreign capital is positive. But the years from 1994 to 1998 were a little bit different. Doubt about whether we would be able to stabilise economic relations or the Slovak crown grew in 1996 and 1997. We started out with $40 million in forex reserves, which is about the concert takings of a single rock group.
We also have to remember that the privatisation method used during coupon privatisation was not good. It created neither real investors nor investment funds which could have administered the market. Interest was thus somewhat reduced among foreign investors, but privatisation as a process had to be continued. So we chose a middle ground - denationalising firms to private owners in the understanding that key [foreign] firms which wanted to enter the market needed a [Slovak] partner, and those didn't exist.
TSS: But why has the current government been able to sell so much more than your government if you were so intent on attracting foreign investors?
VM: The decision to privatise banks was taken a long time ago, and one of the main internal struggles in my government arose from my attempt to finish the privatisation of banks. But the problem lay somewhere else than with the will to privatise. Even during socialism these banks had amassed large debts. We didn't have the capacity to solve these bad debts. Then we had the so-called 'small privatisation' process, which was not sufficiently covered by property, and a second group of bad debts arose.
We approve of the current privatisation process from the point of view of making the banks healthy, but it's problematic in the prices received.
TSS: Many critics of your government have said you helped to create these bad debts by having the banks give out loans at advantageous conditions to your political friends.
VM: That's not true and never was true. My discussions with the banks were always to the point. Of course, in every state there were and are lobby groups. It interests me that people spoke about lobbyists in my government, while the same people are around in the Dzurinda government. They've just changed their social pecking order, meaning that he who used to be second is now first and so on.
TSS: Deputy Prime Minister Ivan Mikloš has said he believes that the next government's freedom to manoeuvre will be very narrow, by which he means irresponsible behaviour by any leader will be punished harshly by voters and financial markets. Do you agree?
VM: Yes, the evaluation of leaders will be very strict. The years 2002 to 2006 will form a period of consolidation, and we'll have plenty of problems - including people who are economically dissatisfied, and the fact that the next government will have to do more with less money.
Slovakia has a public sector deficit and a trade deficit. We have experienced a 40% devaluation in the Slovak crown, and our currency still isn't stabilised. The structural reforms which were supposed to take place in the economy and the tax system were not launched properly.
The next government will not only have to cover its operating deficits but also make up for the work left undone by this government. This will hurt, because it will require cutting public spending. And while now it may still be possible to cover these differences from privatisation proceeds, after 2002 this chance will be minimal or non-existent.
22. Oct 2001 at 0:00 | Tom Nicholson