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OECD RELEASES THE LATEST PRAISE OF SLOVAKIA'S PAINFUL REFORMS

Economic elite gives premium mark

A CLUB of the economic elite praised the ambitious reforms that its youngest member, Slovakia, has undertaken.
In its annual report, the Organisation for Economic Cooperation and Development (OECD) said it was impressed by the country's macroeconomic policies but also urged the Slovak government to further rationalise public spending.

A CLUB of the economic elite praised the ambitious reforms that its youngest member, Slovakia, has undertaken.

In its annual report, the Organisation for Economic Cooperation and Development (OECD) said it was impressed by the country's macroeconomic policies but also urged the Slovak government to further rationalise public spending.

"This is one of the most positive OECD assessments of any member country in at least the past decade," Finance Minister Ivan Mikloš, who is considered the prime mover of the economic reforms introduced by PM Mikuláš Dzurinda's centre-right cabinet, told the news wire SITA.

According to the OECD report, the Slovak economy is on the rise, driven by foreign direct investment. Real GDP is growing at around 4 percent annually, exports are expanding steadily, and private domestic demand is robust.

"It is striking that, with labour costs remaining the second lowest in the OECD, Slovakia is set to become the top OECD manufacturer of cars per capita next year," reads the assessment.

The Dzurinda cabinet, which has been under permanent pressure by the trade unions and leftist parties for what they call socially unjust policies, has derived immense satisfaction from the report.

Mikloš said the assessment shows that Slovakia is on the right track and that the painful reforms will eventually raise the Slovak living standard.

Though wages are rising in line with productivity and inflationary pressures, and core inflation continues to decline, the OECD says, the Slovak economy continues to suffer one of the lowest employment rates in the OECD area.

According to OECD indicators, the standardised jobless rate in Slovakia in December 2003 was 16.6 percent.

The organisation could not overlook imperfections in the country's judicial system and the need to trim down state administration costs. It also challenged Slovakia to implement more transparent and effective business regulation.

Last October, the International Monetary Fund released a similarly optimistic look at this post-communist country.

The majority of Slovak citizens, however, are weary of the impact of economic changes.

The international praise of progressive reforms had little effect on those 600,000 who signed the petition for a referendum on early elections, initiated by the trade unions and backed by opposition parties Smer and the Slovak Communist Party, who claim that citizens can no longer bear the economic burden. The country will hold the referendum on April 3, the day of presidential elections.

Though almost all the recommendations from the previous OECD report two years ago have been fulfilled, Slovakia continues to face three main challenges. First is the aim of joining the eurozone as soon as the nominal convergence criteria are met on a sustainable basis. The target requires a demanding macroeconomic agenda, including a significant reduction in fiscal deficit. Second, raising the employment rate through radical changes in the incentives for both the supply of and demand for labour, and the third challenge is to create a smaller and more effective public administration.

The report also lists three scenarios for the country's economic development to 2009.

The first scenario assumes that the Slovak government will be able to complete the reforms with the option of revising and postponing some of the steps. The OECD predicts a 3.5 percent growth of productivity and 4.2 percent rise in GDP in 2004 and then a 5.1 percent rise until 2009.

According to the financial daily Hospodárske noviny, the second scenario distrusts the cabinet's ability to complete the reforms and assumes climbing taxes, interest rates, and labour costs, which would drive many firms away from the market. The third and rosiest scenario assumes that the cabinet fully completes all the reforms and meets all the OECD recommendations, the daily wrote.

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