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Out of Touch

October 1997
Slovakia's government has kept the country out of the EU and NATO by scorning democracy. Now the economy could go up the spout as well. Slovakia's government lives in a world of its own. Discreet messages from multilateral organizations are scrunched up and hurled in the diplomatic waste basket. Public expressions of concern over Slovak democracy from the EU are routinely condemned by Prime Minister Vladimir Mečiar and his men as unjustified meddling in Slovak internal affairs.
In the latest display of Slovak statecraft, Mr.Mečiar suggested, to the astonishment of his Hungarian counterpart, Gyula Horn, that their countries exchange ethnic minorities. A fortnight later, Slovak officials were entertaining the xenophobic Jean-Marie Le Pen, boss of France's extreme right National Front. "The problem with Slovakia," says an EU country diplomat, "is that there is no-one in the government with a clue about international affairs."

October 1997

Slovakia's government has kept the country out of the EU and NATO by scorning democracy. Now the economy could go up the spout as well. Slovakia's government lives in a world of its own. Discreet messages from multilateral organizations are scrunched up and hurled in the diplomatic waste basket. Public expressions of concern over Slovak democracy from the EU are routinely condemned by Prime Minister Vladimir Mečiar and his men as unjustified meddling in Slovak internal affairs.

In the latest display of Slovak statecraft, Mr.Mečiar suggested, to the astonishment of his Hungarian counterpart, Gyula Horn, that their countries exchange ethnic minorities. A fortnight later, Slovak officials were entertaining the xenophobic Jean-Marie Le Pen, boss of France's extreme right National Front. "The problem with Slovakia," says an EU country diplomat, "is that there is no-one in the government with a clue about international affairs."

The country's economic masters seem to be just as clueless. This year's budget deficit may hit 5.7 percent of GDP, says ING Barings. And a growing trade deficit will push the current account deficit as high as 12 percent of GDP this year. In an effort to plug these gaps, the government has raised the VAT, slapped a further 7 percent tariff on the bulk of imports and is planning to raise taxes on portfolio investment. These measures, together with recent utility price hikes, may up inflation by more than a quarter to 8.5 percent by Christmas.

To try and keep the lid on the economy, new laws to control wages and "revitalize" companies have been introduced. And the government is driving Slovakia into the red. Gross foreign debt may reach $10bn this year. The cost of servicing this debt could easily absorb up to a third of budget spending next year. The central bank, meanwhile, has raised banks' reserve requirements and interest rates. This will squeeze corporate profits, thus hampering state revenue collection, and exerting more pressure on the budget.

That could push Slovakia to devalue its koruna - but it is unlikely. Both government and central bank are dead against devaluation, in part because it would increase the cost of foreign debt repayments. Besides, Slovakia is, for the moment at least, somewhat cocooned from currency speculators because relatively small amounts of Slovak koruna are held by foreigners. Rather, the Slovak koruna will probably depreciate gradually by some 5 percent between now and the end of the year.

Recent polls suggest that the recently formed Slovak Democratic Coalition (SDK) can count on a third of voters - more than Mr.Mečiar's current support - plus the backing of Slovak Hungarian politicians. But Mr. Mečiar is no push-over.

The important thing to remember about his Movement for a Democratic Slovakia (HZDS) is that it adheres to no political ideology other than the maintenance of power. To that end, Mr.Mečiar's team has time and again ignored constitutional court rulings and steam-rollered parliamentary procedure. With the support of its two junior coalition partners, the HZDS has also moved aggressively to centralize power, placing its marionettes throughout the state administration. And now, in a bid to scuttle both opposition and the president, it is planning to bring forward parliamentary and presidential elections, and to change electoral law.

First, the presidency. Michal Kováč's term expires next March (although Mr. Mečiar says he will bring the election forward to December). Under the constitution, parliament needs a 3/5 majority to elect a new president. Given parliament's current make-up, it will be nigh on impossible to do this, no matter what candidates come forward. Attempts by the opposition to introduce direct presidential elections were foiled by the government's unconstitutional destruction of a planned national referendum on the issue. So Slovakia could find itself without a president. That would inevitably lead to Mr. Mečiar's coalition transferring presidential powers to government.

As far as parliamentary elections are concerned, Mr.Mečiar wants them brought forward to June. This would disadvantage the opposition, says Brigitta Schmögnerová of the ex-communist Party of the Democratic Left, because by then the full effects of government economic policy may not have filtered down to the man on the street. The government is also planning to move the electoral system away from proportional representation to help ensure re-election. And the HZDS wants to change vote counting procedures by transferring powers from the current cross-party electoral committee to a "state-body" - one run by the HZDS. This, says Mrs. Schmögnerová, could lead to the "manipulation of results."

Even if Mr.Mečiar fails to push these changes through, his party looks set to profit from the opposition's fragile unity. True, the SKD is polling strongly. But it include Social-Democrats, Conservatives and Greens, as well as the two parliamentary opposition parties - hardly a recipe for consistent policies. Besides, the coalition lacks a strong, charismatic leader able to galvanize popular support. And its tacit backing from the Slovak Hungarian parties may backfire - Mr. Mečiar will use such an alliance to arouse nationalist sentiment. As for the ex-communists, they have distanced themselves from the SDK.

In the meantime, the economy will run into deep, deep trouble. If current policies continue, an exchange rate adjustment will occur, says ING Barings, an investment bank, leading to higher inflation and a decline in economic growth. So whatever government wins the next election, it will have a tough job on its hands. And if Mr. Mečiar is returned, Slovakia could find itself dangerously close to being governed by an elective dictatorship. In which case, the country's international isolation will increase.

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