Slovakia's trade deficit is hurting but the government is not indicating what its remedy will be. When the Slovak Statistical Office released its latest report on Slovakia's trade balance on July 23, it showed the trade balance swung another 1.34 billion Sk in the red in June; the half-year total now stands at negative 27 billion Sk ($900 million - see chart on paage 5).
The news sounded alarms in the government as officials grappled with how to stop the hemorrhaging in the one leg they've been able to stand strongly on for the last year and a half. Obviously aware of the news before it became public, Prime Minister Vladimír Mečiar launched a preemptive strike, giving his analysis on the country's economic situation on July 14.
"Negative [economic] trends are seen in two areas - wage growth exceeds productivity growth, and foreign trade is running a deficit," Mečiar pronounced. "In a short period of time, the government will have to adopt vigorous measures to improve this year's economic results."
Slovakia's worsening economic indicators present the government with its biggest current challenge. "The government is facing a situation it has never been confronted with before," signalled a commentary in the daily Pravda. "One and a half years [after Mečiar became prime minister], it really is high time to do more rational things than liquidating coupon privatization and investment funds. Can the government do it?"
If the answer is yes, just when is anyone's guess. A week after Mečiar's proclamation, government spokeswoman Ľudmila Buláková still couldn't give a timetable. "Right now there is nothing to talk about," she said. "It's just something that [Mečiar] mentioned, and it actually hasn't been discussed yet." Buláková did say the Cabinet is expected to start discussions on an economic revival plan when it reconvenes on August 13.
NBS's prescription
While the government procrastinated, the more or less independent National Bank of Slovakia (NBS) scribbled its prescription to nurse the ailing economy to health. At a press conference on July 17, NBS Governor Vladimír Masár outlined that the Central Bank "decided to reevaluate the effectiveness of its current monetary tools with the intention of maintaining the internal and external stability of the Slovak crown and to support healthy economic growth."
To that end, Masar said NBS upped commercial banks' obligatory minimum reserves to 9 percent of primary deposits as of August 1. It also raised the Lombard lending rate from 13 to 15 percent, effective July 17, and widened the Sk fluctuation band from plus/minus 3 to plus/minus 5 percent.
The Sk widening raised some eyebrows because some officials saw it as a "counter-measure" to keep the crown from being devalued or revalued. One government official close to developments called it a "reasonable compromise" between politicians already looking toward the next elections and advice from international monetary organizations not to expand the band so much as to jeopardize the Sk's eventual linkage with a single European currency.
Some observers viewed the NBS's medicine as bitter now but healthy for the long-term. A Pravda commentary from July 18 predicted the measures "will have a slightly attenuating effect on the economy in the short-term" because it will cause 12 billion Sk to be yanked from circulation , thus short-circuiting the Cabinet's expected GDP growth. However, the commentary added, the steps "are necessary in the fight against the increasing danger of rising inflation, which threatens long-term economic development."
NBS can't do it alone
But Masar warned his institution can't do it alone. "I would like to stress that these measures [by NBS] will be effective only if other subjects responsible for the development of the economy will match what we're doing," Masar said. "These measures are not a panacea. If the other subjects do not take any steps to follow us, then our measures will lose their effect. So I hope that based on discussions with Premier Mečiar that these steps will follow."
Asked what specific steps he would like taken, Masar said, "NBS expects other bodies responsible for economic policy to pass legal measures to enhance bankruptcies, introduce pro-export policies, and support the restructuring of the three largest Slovak banks."
Nobody home
Ask those government ministries how they've responded to Mečiar's mandate and Masar's message, and the silence on the other end of the line is deafening. A spokesman at the Justice Ministry said no one was able to answer questions on bankruptcy legislation because the entire department was on vacation. Furthermore, an interview scheduled on export policy with the head of the Economic Ministry's foreign trade department, -- Burda, never occurred because Burda went on vacation the day of the interview without informing anyone.
Trade deficit differences
While officials agreed that the trade deficit is the key element in Slovakia's economic sluggishness and its possible reawakening, there are differences of opinion on the philosophy behind the country's trade policy. Mečiar sees the deficit as a result of Slovak companies' purchases of modern technology. "We started investment development this year and at such a pace unlike any other country," the premier said. "We are almost afraid that we overheated the economy."
But Masar discounts the value of the imported technologies. "Very often, we import equipment that does not guarantee future exports," he said at the press conference. Just as disturbing, Masar added, Slovak exports are becoming more costly. While at the beginning of 1996, imports made up 60 hellers for every 1 Sk exported, that figure had risen to 66 hellers/1 Sk exported at 1996's halfway point.
"If the import structure were suitable and if we were certain that import structure would in 1 to 2 years lead to a restructuralized economy...it would be no problem to give $1 billion to cover the deficit," Masar said. "But the import structure does not show what we would like to see."
