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Trade deficit widens in first quarter

The Slovak Statistical Office (ŠÚSR) said on April 29 that Slovakia's foreign trade deficit in the first quarter (1Q) of 1998 rose to 16.6 billion Sk ($482 million) from 15.4 billion in the same period last year. While government officials declared themselves satisfied, economic analysts said that the figures seriously jeopardize government's 1998 trade deficit target of 45 billion Sk ($1.3 billion).
Economic analysts said the figures reveal the ongoing dependence of Slovak industry on imports for production input, as well as its inability to turn production output into attractive exports.

The Slovak Statistical Office (ŠÚSR) said on April 29 that Slovakia's foreign trade deficit in the first quarter (1Q) of 1998 rose to 16.6 billion Sk ($482 million) from 15.4 billion in the same period last year. While government officials declared themselves satisfied, economic analysts said that the figures seriously jeopardize government's 1998 trade deficit target of 45 billion Sk ($1.3 billion).

Economic analysts said the figures reveal the ongoing dependence of Slovak industry on imports for production input, as well as its inability to turn production output into attractive exports.

Alarming figures

Exports for 1Q98 increased to 86.25 billion Sk ($2.53 billion) from 69.97 billion Sk during 1Q97. This 23.3% jump narrowly outpaced a 20.6% growth in imports over the same period, from 85.349 billion Sk ($2.5 billion) in 1Q97 to 102.897 billion Sk in 1Q98.

"The absolute deficit figure for the trade balance in some ways disappoints us," said Štefan Burda, director of the Economy Ministry's Foreign Trade Policy section, "but judging from the [export] growth dynamics, I think we will see a [better] trade balance result than last year."

But Brigita Schmögnerová, an economic expert with the former communist SDĽ party, was far from sharing that optimism. "If I were a member of the government, I would be embarrassed and very much concerned by these results," she said. "There has been a considerable improvement over 1996 in the trade and current account deficits, and the expectation was that there should be a further decrease in 1998. But these latest results are a step in the wrong direction."

For independent analysts, the steady growth in imports despite a 5% import surcharge was a bad sign. Martin Barto, an analyst with ING Barings, said that the scheduled phasing out of the surcharge, introduced last July and set to be abolished on October 1, would leave the government without a means of combating the rising tide of imports. "We are again on the track towards a higher deficit," he said, "[and] I don't see any effective tool with which the government could reduce imports, because they couldn't reintroduce the surcharge without having problems with the World Trade Organization."

All tools exhausted

Other standard weapons against imports are exhausted as well, Barto continued. "They have already implemented laws regarding certification and introduced some quotas," he said, "so any further barriers to trade would create problems with CEFTA (Central European Free Trade Agreement) and other international organizations. Overall, then, I don't think there is a chance to control imports with administrative tools."

But Burda explained that the ministry's policy for 1998 had shifted from restricting imports to boosting the export capacities of Slovak firms. "We want to improve the balance basically through increasing the dynamics of our exports," he said. "Measures like surcharges are not effective. They don't have a fundamental effect on the overall development of the current account."

The key to the puzzle, other ministry officials said, was encouraging large Slovak enterprises in the iron and steel, oil refining and lumber industries to use their enormous production capacities to exploit foreign markets.

"Many factories could add a second and third shift," said Anna Joštiaková, Director of the Ministry's Tourism and Domestic Trade section. "But many of our managers are afraid to take on more people because they worry that if sales fell off, they would have to fire these extra employees and pay them expensive severance packages."

Joštiaková added that, if employed, the enormous unharnessed capacities of Slovak industry could radically improve the trade balance. But Burda said the ministry could no longer use administrative tools to affect exports. "This is a relationship that can no longer be directed by the government or the ministry - it's now up to businesses themselves," he said. "We have to convince them that this kind of activity is advantageous."

Deficit vs. GDP

At a government meeting on May 12, Burda said, the ministry had submitted a prognosis on what the trade balance should look like for the next several years. According to the official document, the deficit is to decline from 49.5 billion Sk ($1.45 billion) to 45 billion Sk this year, 43.4 billion in 1999 and 39 billion in the year 2000. "We are expecting slight improvements in the trade balance, but we don't have such big eyes that we would imagine it was possible to make big steps," Burda confessed.

In the light of the government's commitment to continued strong GDP growth, the trade shortfall will prove especially hard to eliminate.

"We are expecting continued strong GDP growth this year, as a result of which we simply need imports," Burda said. "Such a GDP growth means employment for the people, it means consumption."

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