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FOREIGN EXCHANGE MARKETS ARE INCREASINGLY INDEPENDENT OF POLITICAL DISTURBANCES

Rusko falls but markets stay put

THE RECALL of Economy Minister Pavol Rusko has not greatly impacted the financial markets. Economists say foreign companies have no reason to worry about investing in Slovakia.

THE RECALL of Economy Minister Pavol Rusko has not greatly impacted the financial markets. Economists say foreign companies have no reason to worry about investing in Slovakia.

The Slovak crown weakened very moderately in response to the economy minister's recall, losing only 20 hallers since the morning of August 24. However, analysts assume that the currency will recover to reach the 39.05 SKK/EUR level in the next couple of days.

The governor of the National Bank of Slovakia, Ivan Šramko, told the press that he is confident the current coalition crisis would not negatively affect the Slovak currency.

"This problem has been around for some time and the crown's rate is stable. It is a positive sign that the foreign exchange markets are becoming more and more independent of such 'political' influences," Šramko said.

Šramko considers the August 24 easing of the crown to be a normal fluctuation, similar to many in the past when there wasn't any crisis.

Analysts say that the crown would drop to no lower than 39.00 SKK/EUR.

Developments with Poland's currency could have a greater impact on Slovakia's currency than domestic political turbulences.

"The recall of the minister is not the only factor influencing the Slovak currency. For example, the results of parliamentary elections in Poland that are scheduled for September could temporarily weaken the Slovak crown," Róbert Prega, an analyst with the Tatra banka, told The Slovak Spectator.

Prega thinks, however, that the political stage will stabilize and that domestic economic factors will keep the currency strong.

"If the [political] developments do not become more dramatic, their influence on the financial markets should remain limited," Prega added.

Štekláčová Lucia from ING Bank told The Slovak Spectator that financial markets "are not panicking over the cabinet crisis" because they waiting to see whether the current cabinet will stay the course and finish up its election term.

According to Štekláčová, foreign investors are less concerned about who is minister in Slovakia and more interested in the business environment, including tax rates.

Prega agrees, saying that personnel changes are not that important to foreign investors if the country's economic policies and business environment remain stable.

In fact, analysts suggest that a minister's recall over alleged conflicts of interest or corruption acrually projects the image of a robust and well functioning democracy.

After Slovak President Ivan Gašparovič recalled Pavol Rusko from his economy ministry position on August 24, he temporarily charged Finance Minister Ivan Mikloš with managing the department.

Pavol Rusko, who is still the leader of the ruling New Citizens Alliance (ANO) party, requested that the PM ask the president to nominate Vladimír Menich as the next economy minister. Menich is currently the Transportation Ministry's state secretary.

Though Mikloš's term as economy minister might be short-lived, he plans to focus on the ongoing privatization process of power utility Slovenské elektrárne. He also wants to set parameters around investment stimuli packages offered to foreign investors. The lack of clearly defined rules regarding stimuli packages has been the source of many recent headaches for Slovakia.

Mikloš said that the KIA investment would also be on his agenda. The finance minister described complications around the land intended for the Korean carmaker's manufacturing facility as "unbearable."

Although analysts do not expect the cabinet to run into major problems after Rusko's recall, passing a state budget could be difficult for the Dzurinda team.

"The only problem the ruling coalition might have is passing the 2006 state budget," Ľuboš Kubín, political analyst from the Slovak Academy of Sciences, told The Slovak Spectator on August 24.


(Magdalena MacLeod
contributed to the report)

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