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Cabinet finds rare unity over reform

After eight months of political foot-dragging over economic reforms, the government needed only two weeks to announce and then approve its latest package of harsh austerity measures. But although the cabinet made a great display of unity over the package after its May 31 session, few were fooled - compromise on reform, analysts agreed, had both diluted the measures themselves and tested the unity of the government.
At the end of May, the cabinet approved an increase in the basic VAT tax bracket, a 7% import surcharge and hikes in the regulated prices for heating, housing, electricity, natural gas and travel.


Prime Minister Mikuláš Dzurinda (left), Deputy PM for Economy Ivan Mikloš (centre) and Economy Minister Ľudovít Černák take a break from coalition negotiations on May 31.
photo: TASR

After eight months of political foot-dragging over economic reforms, the government needed only two weeks to announce and then approve its latest package of harsh austerity measures. But although the cabinet made a great display of unity over the package after its May 31 session, few were fooled - compromise on reform, analysts agreed, had both diluted the measures themselves and tested the unity of the government.

At the end of May, the cabinet approved an increase in the basic VAT tax bracket, a 7% import surcharge and hikes in the regulated prices for heating, housing, electricity, natural gas and travel.

The contents of the long-awaited package had been hotly disputed by two main groups within the coalition - the ministers of the former communist SDĽ party and those who carried the right-wing banner within the coalition, principally Deputy Prime Minister for Economy Ivan Mikloš and his colleagues in the free-market Democratic Party.

The SDĽ, with its social democratic orientation, had long preferred an import surcharge to raising the VAT, since it did not have as harsh an impact on ordinary Slovaks. Mikloš, on the other hand, had championed a VAT hike and price deregulation, arguing that an import surcharge was a protectionist measure that did not address the country's underlying problems.

Cabinet ministers were tight-lipped when asked how the impasse had been overcome. "It's perhaps the cost of having a wide-spectrum coalition government that negotiations take so long," Mikloš told The Slovak Spectator after the cabinet session.

Pavol Hamžík, Deputy Prime Minister for European Integration, told The Slovak Spectator on June 1 that the coalition had had a "long and vivid discussion, which was, however, inevitable if an agreement was to be reached." He revealed that cabinet had argued mostly over the measures that would affect citizens, such as the VAT tax and price hikes.

But the daily newspaper Sme reported on June 1 that agreement had been struck when the SDĽ faction withdrew a proposal that basic food products and newspapers be excluded from the VAT hike, in return for lower-than-intended increases to regulated prices.

Martin Barto, head of the strategy department at Slovakia's largest bank, the state-run Slovenská Sporiteľňa, said that political compromise had watered down the austerity package. "We'll see if we have to pay for this compromise in the near future with another package of austerity measures," said Barto. He explained that the cuts made to the social welfare system and other state expenditures were lower than the ministers had earlier announced, due to political bargains struck between the coalition parties.

But while economic analysts and government insiders regretted that the austerity package was not as harsh as it might have been, political observers said the government was to be praised for having achieved any agreement at all.

"The economic reform package is obviously late, but if the government had failed to approve the measures now, the unity of the coalition would have been endangered," said Grigorij Mesežnikov, president of the Institute for Public Affairs, a Bratislava-based think tank. "If some parties in the coalition had not been willing to bear responsibility for the reforms, Slovakia's economic situation would have worsened and the coalition would have succumbed to social pressure. That would have been its end."

Time to recover

Perhaps aware of how close the government had been to another stalemate, Prime Minister Mikuláš Dzurinda proposed at his June 1 meeting with new Slovak president Rudolf Schuster that all of the nation's political parties, as well as its important state and independent institutions, sign a 'stability pact' to quell the social and political unrest that would result from the reforms.

As the first step towards implementing his plan, Dzurinda will initiate a round table discussion with the representatives of all political parties, trade unions, churches and non-governmental organizations.

The pact, Dzurinda said, would commit signatories to supporting the reforms for 12 months, the period of time the government feels will elapse before the first benefits of the measures are felt. Dzurinda said that the pact would give the government a chance to stabilize the country's troubled economy free from political bickering.

Both Schuster and Parliamentary Speaker Jozef Migaš supported the initiative, Dzurinda added. Members of the opposition have not yet formally responded to the invitation.

"It's a smart step from a propaganda point of view," observed Mesežnikov. He explained that citizens would appreciate such an initiative from the government "especially at a time of economic recession when people have to reach deeper into their pockets."

Mesežnikov warned, however, that the stability pact would not work if the ruling coalition parties continued to push their political interests ahead of the goals of the government.

"If the ruling coalition proposes a stability pact, then internal coalition squabbling must cease," Mesežnikov said. "Cabinet discussions must take a new, more effective format."

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