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Elections flash green light to investors

IN AN IMMEDIATE sign of foreign confidence in Slovakia under its emerging right-wing government, the Slovak crown shot past previous strengths against the euro and US dollar currencies, with market experts predicting that the outcome of September elections would boost the Slovak economy and draw more foreign investment.
After four years under a wide-spectrum coalition which was often blamed for retreating from tough economic reforms, results from the September 20-21 poll suggested that four ideologically similar right-wing parties would form the next government and complete the country's emergence from its pre-1989 command economy.
Although the would-be coalition will enjoy only a two-seat majority in the 150-seat parliament, its programme coherence has raised optimism among investors and foreign Slovakia specialists that the mixed signals of the past will be replaced by an 'open for business' sign.

IN AN IMMEDIATE sign of foreign confidence in Slovakia under its emerging right-wing government, the Slovak crown shot past previous strengths against the euro and US dollar currencies, with market experts predicting that the outcome of September elections would boost the Slovak economy and draw more foreign investment.

After four years under a wide-spectrum coalition which was often blamed for retreating from tough economic reforms, results from the September 20-21 poll suggested that four ideologically similar right-wing parties would form the next government and complete the country's emergence from its pre-1989 command economy.

Although the would-be coalition will enjoy only a two-seat majority in the 150-seat parliament, its programme coherence has raised optimism among investors and foreign Slovakia specialists that the mixed signals of the past will be replaced by an 'open for business' sign.

"I think this is super. For foreign investors, [elections results] may be more than a green light," said Jeff Gable, a London-based emerging markets researcher for Deutsche Bank.

"The notion that Slovakia now enjoys the most ideologically cohesive government in the region, and the only sort of rightist, pro-reform government - it's going to play very well.

"Not only [will the new government attract] people who have been looking at Slovakia for some time, waiting for some of the uncertainty to dissipate, but it will also draw new people who maybe weren't so aware of where Slovakia was or what it is all about. This is very positive," said Gable.

Slovakia before 1998 had attracted less than 25 per cent of the per-capita foreign direct investment (FDI) of Hungary and the Czech Republic. While the 1998-2002 Mikuláš Dzurinda government made up some of the deficit through an aggressive privatisation scheme, analysts remain worried about the low level of greenfield projects.

But Slovak financial markets, which saw marked fluctuation in the value of the Slovak crown over the months leading to elections, responded positively to the September vote, driving the crown past Sk42 against its euro benchmark three days after elections, up from a three-year low of Sk44.9 in July.

"The first signals are very clear," said Istrobanka analyst Marek Senkovič.

"It's apparent in the crown exchange rate. It's apparent in the fall of yields in government long bonds. If somebody wants to invest now, he can invest only at a lower interest rate, which is a sign that investors have a long-term perspective on the country," said Senkovič.

Much of the previous financial uncertainty had come from fears among western investors and diplomats over a possible return of autocratic three-time former PM Vladimír Mečiar to power.

Officials from Nato and the EU said repeatedly prior to elections that Mečiar's participation in any government would lead to Slovakia's being excluded from the two treaty organisations.

Although Mečiar's opposition Movement for a Democratic Slovakia (HZDS) party won the highest support in the elections, his party was given no chance of forming a coalition, even though he was granted almost a week to do so in a reprieve from President Rudolf Schuster.

"Once people see for sure that Mečiar is not going to return to power, that will improve the international profile of Slovakia and probably increase the speed of FDI inflow into the country," said Eva Limanska, a fixed income analyst at Merrill Lynch in London.

With fears of Mečiar snuffed, investors are confident the new coalition government will be able to complete its EU reform package in time to receive an invitation to the union in 2004.

"The present government has already done a lot to improve the image of Slovakia in the world, and the new government will probably continue it," said Alexander Auboeck, the head of the European Bank for Reconstruction and Development for the Slovak and Czech Republics.

"We expect that the new government will accelerate the integration of Slovakia into the European economy. We also expect that the election results will have a positive impact on FDI," he continued.

Ján Jursa, the government's negotiator during the 2000 accession proceedings to the Organisation for Economic Cooperation and Development (OECD), said: "It looks as if a positive long-term outlook on the economic fundamentals of Slovakia will prevail.

"In the future, we can also expect a strengthening of the Slovak crown, which will stem directly from improvements in economic growth and export performance," he said.

While the initial crown boost from elections will wear off in time, said Tatra banka analyst Róbert Prega, the general health of the Slovak economy should improve, allowing it to cope with a stronger currency.

"The crown is now being affected mostly by political-integration aspects, which suggest that the crown will strengthen. However, these impulses will exhaust with time, and the exchange rate will then depend on economic developments," he said.

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