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EDITORIAL

Message to the state: Quit meddling with the economy

The Slovak economy needs a less hands-on approach by the government. It needs to let the market free itself up. The current government, faced with a shortage of capital and a burgeoning trade deficit, enacted measures (7 percent import surcharge, wage regulation, increased energy prices, company revitalization) in its economic package before seriously contemplating the consequences. The Slovak economy is full of dead wood companies which are eager to grab korunas from the highly political corporate revitalization plan in order to save their fledgling, uncompetitive firms. Less state meddling, not more, is what the economy needs. Meddling has created chaos in the economy.
The government is keen to listen to key allies in the economy - namely pharmaceutical and beer companies - who want to protect the domestic market from imports.

The Slovak economy needs a less hands-on approach by the government. It needs to let the market free itself up. The current government, faced with a shortage of capital and a burgeoning trade deficit, enacted measures (7 percent import surcharge, wage regulation, increased energy prices, company revitalization) in its economic package before seriously contemplating the consequences. The Slovak economy is full of dead wood companies which are eager to grab korunas from the highly political corporate revitalization plan in order to save their fledgling, uncompetitive firms. Less state meddling, not more, is what the economy needs. Meddling has created chaos in the economy.

The government is keen to listen to key allies in the economy - namely pharmaceutical and beer companies - who want to protect the domestic market from imports. However, as the recent rush of visits to the Úrad vladý (Government office) from directors of heavy manufacturing companies (for example Vladimír Soták from Želiziarne Podbrezová, a metal pipe manufacturer) has proven, the import surcharge has upset most companies important to the economy because they are busy upgrading technology which they buy from abroad. A seven percent slap onto that investment eats heavily into profits. These firms then cannot reinvest profits into the company to further ensure quality upgrades, essential to compete in Europe.

The goal to correct the trade deficit with the import surcharge will in the end only chip away at it. How could the Finance Ministry not realize that a majority of Slovak companies that export need imports to manufacture their goods? That the import surcharge would hurt Slovak exports was somehow unforeseen in the grand economic package.

Capital for company revitalization will end up in the hands of friends of the government, further delaying a real diversification of the economy. The act - justified as necessary in the transition from a centrally-planned economy to a market one - reeks of old-style economic management. Apparently, 50 years of a stagnant economy hasn't yet proven that the state cannot effectively solve economic problems.

Unfortunately, only a secure government can risk the short-term pitfalls (unemployment, bankrupt companies, and short-term profit losses) that occur when the market is let free. Still the case for freeing the economy must be made. Unprofitable, stagnant companies would disappear. Foreign investment would enter the country, allowing companies to modernize. Companies able to adapt could face competition both domestically and abroad. More competitive companies would mean a higher standard of living for all.

Many measures not thought through, including ones recently made in the economic package, end up hurting the economy more than fixing it. But the current government, definitely not secure, would rather use its position to help companies, not only state firms but also ones friendly to the coalition, to help it win next year. Only then will they feel secure one way or another. The question is whether the economy can wait that long.

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