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POLITICAL CRISIS IS BLIP ON RADAR SCREEN

Crown dips against euro, but barely

THE GOVERNMENT needs to find a prompt solution to the current political crisis before it takes a toll on Slovakia's credit.
The Slovak crown has already eased against its referential currency, the euro, due to the ruling coalition's inability to get a quorum in parliament and the rising probability of an early election.
The crown opened September 13 at 38.25/38.17 SKK/EUR and closed at 38.44/38.48 SKK/EUR. Against the US dollar, the crown eased as well.

THE GOVERNMENT needs to find a prompt solution to the current political crisis before it takes a toll on Slovakia's credit.

The Slovak crown has already eased against its referential currency, the euro, due to the ruling coalition's inability to get a quorum in parliament and the rising probability of an early election.

The crown opened September 13 at 38.25/38.17 SKK/EUR and closed at 38.44/38.48 SKK/EUR. Against the US dollar, the crown eased as well.

However, analysts say financial markets are much less vulnerable to political turbulences as they were just a couple of years ago.

Soňa Szomolányi, a political analyst with Bratislava's Comenius University, told The Slovak Spectator that even if early elections were held, it would not cause any major problems to the country's image or national economy.

"Early elections would not be a catastrophe. Fifteen years after the fall of Communism, the country's economy is up and running. It has been stabilized and can work more or less by itself regardless of the recent political developments. We are seeing this in the neighbouring Czech Republic, where politics has little impact on the national economy and business sector," Szomolányi said.

The governor of the Slovak National Bank (NBS), Ivan Šramko, does not expect the current political situation or early elections to have any grave impacts on the country's economy.

"Unless non-standard methods are used to solve this political crisis, no considerable negative impact should appear," Šramko told the press.

Commenting on the temporary weakening of the Slovak crown, Šramko said a quick solution is necessary.

"If the Slovak crown deviates in a way that its development threatens our basic goals of pushing down inflation, for example, the NBS will use tools to correct this development," Šramko added.

So far, the NBS is not concerned about the temporary weakening of the crown.

Zdenko Štefanides, chief analyst with the VÚB bank, is not overly concerned either.

"We do not really expect the current political impasse to have a lasting impact on the crown, even if it results in early elections (which we do not expect anyway)," Štefanides told The Slovak Spectator.

"Slovakia in recent years made significant steps to secure its macroeconomic and financial stability as well as to significantly improve its business environment via bold structural reforms, privatization and liberalization. We have gone farther in this regard than in many western European countries. Such measures make Slovakia, its economy and the currency much less vulnerable to political tensions than used to be the case five or 10 years ago," Štefanides said.

Viliam Pätoprstý, an analyst with UniBanka, said that further depreciation of the crown could be expected.

"The depreciation risk is higher at the moment, as the risk of early elections is, in our opinion, not yet fully priced in the rate. Therefore we may expect further depreciation, particularly if the prime minister does not succeed in finding a way out [of early elections] by at least the June term," Pätoprstý told The Slovak Spectator.

Pätoprstý added that Slovaks could expect short-term negative effects in the perception of political stability by foreign investors but probably not in the business sector. "As the latter is the crucial issue, we do not expect a worsening of our image," he said.

Miroslav Šmál, an analyst with Poštová banka, does not think the weakening of the Slovak crown should be taken too seriously, since it is simply the "swift response of the money market to a political situation that has not lasted too long".

Šmál does not expect a deepening crisis, even if the political stage opts for early elections.

"Be it early or regular elections, I think the Slovak crown will stagnate or perhaps moderately weaken towards the euro as it will be a period of certain political uncertainty," Šmál told The Slovak Spectator.

"It is hard to guess on post-election developments, but generally the trend of the Slovak crown towards the euro will not dramatically change," he said.

Šmál said it is enough to look at the rapidly growing GDP, which ranks Slovakia as one of the fastest growing economies of the region. "The real and minimum wages have been growing as well, and inflation is at minimal levels. These are all positive factors," he said.

If the cabinet fails to push through a 2006 state budget in parliament in 2005, Slovakia will have to function in 2006 based on this year's budget.

That would mean less money flowing into health care and education, since the 2005 budget was designed with the assumption that the 2006 budget would pour more money into these sectors.

Coalition representatives met with Ľubomír Lintner and his splinter ANO platform on September 13 to discuss eventual solutions to the problem.

The ruling coalition has been unable to get a quorum (76 votes) to convene for discussions since September 12. Since then, it has been struggling to secure the votes of independent MPs and some of opposition members to keep parliament going.

The Hungarian Coalition Party (SMK) said it would opt for early elections if the situation does not change.

Prime Minister Mikuláš Dzurinda's party, the Slovak Democratic and Christian Union (SDKÚ), wants to avoid the possibility of early elections.

The country's president, Ivan Gašparovič, is also in favour of early elections.

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