Mikloš fires back at cabinet's economic critics

DEPUTY Prime Minister for Economy Ivan Mikloš has fought back against critics of the government's economic policy, rejecting claims that the economy in the fourth year of the Dzurinda government's tenure resembles the crisis-wracked economy it inherited in 1998.
In a lengthy piece printed in the Sme daily on May 23, Mikloš traced the improvements the Dzurinda government had encouraged in the financial sector, the energy industry, the business environment and privatisation.
Regarding Slovakia's serious trade and fiscal deficits, which he said "form the basis of most analyses that conclude that the economy is in a similar state to that in 1998", Mikloš identified differences in both the structure and context of the current and former deficits.

DEPUTY Prime Minister for Economy Ivan Mikloš has fought back against critics of the government's economic policy, rejecting claims that the economy in the fourth year of the Dzurinda government's tenure resembles the crisis-wracked economy it inherited in 1998.

In a lengthy piece printed in the Sme daily on May 23, Mikloš traced the improvements the Dzurinda government had encouraged in the financial sector, the energy industry, the business environment and privatisation.

Regarding Slovakia's serious trade and fiscal deficits, which he said "form the basis of most analyses that conclude that the economy is in a similar state to that in 1998", Mikloš identified differences in both the structure and context of the current and former deficits.

"It's true that the deficits today have reach levels last seen in 1997 and 1998," he wrote. "But today, Slovakia stands on the threshold of Nato and EU entry, corporate sector profits have risen sharply, and conditions have been created for dynamic economic growth.

"In 1998 Slovakia was internationally isolated with gradually worsening health in the corporate and financial sectors."

Mikloš was responding to earlier statements from economic analysts that the economy was in serious trouble, warnings that he called "unqualified", as well as to a more recent article in the Sme daily titled "After four years we face a return to the beginning".

Jeff Gable, an emerging markets analyst with Deutsche Bank in London, said he sympathised with the critics.

"The point the press might be making, that now looks a lot like 1998, is probably well taken," he said. "If you look at the numbers it's difficult for the government to point to fiscal consolidation or more sustainable growth insofar as you have a big fiscal deficit and big current account deficit. It looks an awful lot like before, doesn't it?"

Gable agreed, however, that there had been "big structural improvements" in the economy.

"Most people agree that the potential growth in the economy is now much higher."

Mikloš blamed an expected overshoot of the 2002 fiscal deficit to 4.5 per cent of GDP rather than the planned 3.5 per cent on poor methodology used in the calculation of the deficit, rather than on "significant increases over planned expenditures."

According to methodology used by the International Monetary Fund, the government had wrongly included some one-off income from state asset sales among state budget income when scripting the budget last year.

Gable agreed that more transparent budgets tended to raise deficit figures, adding that "if you looked at the 1998 fiscal deficit using the current methodology, the numbers then would have been much worse.

"But that still doesn't mean the current numbers aren't very bad," the analyst cautioned.

The Deputy PM wrote that while he agreed the fiscal deficit was still too high, the government had been unable to achieve more because of its failure to reform costly and inefficient sectors such as health care, social security, education and the state railways system.

In defence of his assertion that the economy was still far better off than during the 1994-1998 Vladimír Mečiar government, Mikloš noted that spreads on state bonds had fallen from over five per cent in 1998 to less than 0.7 per cent today, a sign that investors felt far more confident in the Slovak economy.

"The market has given a clear answer to the question of whether the economy has changed significantly since October 1998," he concluded.

"Mikloš needs to be a bit careful in suggesting it's a sunny day. Things are clearly very poor," responded Gable. "The economy is still in the midst of fairly violent restructuring, and it still hasn't reached the end."

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