THE ELECTION year will lessen the willingness of politicians to adopt unpopular measures such as reducing public spending or increasing taxes, says Juraj Karpiš, an analyst with the Institute of Economic and Social Studies (INESS) think-tank. The Slovak Spectator spoke to Karpiš about his views on Slovakia’s economic prospects, state spending and adoption of the euro.
The Slovak Spectator (TSS): What factors or expected changes will have the most significant impact on economic developments in 2010?
Juraj Karpiš (JK): Of key significance for Slovakia’s economy in 2010 will be whether foreign demand, which dropped considerably during the downturn, will revive. If it turns out that the revival of the economies of western Europe is real and not just an illusion induced by fiscal stimuli, then it will be good news for Slovakia’s economy.
TSS: Which areas of the economy will continue to be most seriously affected by the crisis and which sectors can expect faster recovery?
JK: The most affected have been the financial sector, mostly abroad, and cyclical branches of the economy, for example the automotive industry and construction. Considering the prevailing problems which resulted in the downturn, I expect that these branches will also suffer in 2010, perhaps with the exception of some construction firms working on public highway construction projects.
TSS: In its December analysis INESS asserts that the government has been wasting taxpayers’ money. How did your think tank arrive at this conclusion?
JK: Our analytical project called “Wasting by the State” is an effort to at least approximately quantify the wasting of public funds and cronyism in public procurement. Within this project we monitor Slovak print media and from revealed and published cases of money-wasting and cronyism we put together a database through which we can estimate the amount of wasted public finances for a certain time period.
The numbers for the first three quarters of 2009 show that there is a huge opportunity to improve the effectiveness of the state administration and public procurement. The project has recorded cases in the money-wasting category totalling €333 million.
During the first three quarters of 2009, serious suspicion of cronyism within procurement by the state amounted to €145 million. Thanks to investigative work by journalists and the subsequent media pressure, potential cronyism in the state administration worth €160 million has been prevented.
TSS: Do you expect any change in these trends for 2010?
JK: Considering the fact that under the current government cases pertaining to cronyism and wasting of public funds have been emerging quite frequently without adequate response in the procurement legislation or by holding people responsible, we do not expect that any significant change will emerge until there are in-depth changes in the management of ministries.
TSS: How do you evaluate Slovakia’s first year with the euro?
JK: No significant problems emerged during the process of the adoption itself. However, it is too early to evaluate the whole process of euro adoption. For some groups in society the euro has been a good step while it has been negative for others. While those who had their savings in Slovak crowns can be satisfied, exporters are not that enthusiastic.
TSS: What are the greatest advantages and disadvantages that Slovakia currently experiences as part of the eurozone?
JK: In regards to the economic crisis, the euro has brought both positives and negatives. On one hand, it was possible to protect the purchasing power of Slovaks’ savings since these did
not weaken as they did in neighbouring countries because of currency devaluation.
Membership in the eurozone also resulted in lower expenses for financing Slovakia’s state debt. The other side of the coin is that the strong euro made our products and labour more expensive and less competitive in international comparison. Another negative is that through our membership in the eurozone we are participating in the risks flowing from the unhealthy European banks and there is a possibility that through a loss in value of the euro we will share part of the cost for their recovery.
The crisis has also revealed a question facing the euro – a contradiction between politicians in individual countries and the unified monetary policy. The crisis has only intensified this tension. Many countries of the eurozone have ignored the rules of the Growth and Stability Pact and it is questionable whether and how the eventual costs of saving countries with irresponsible fiscal
policies will be distributed among the other members of the eurozone.
It is possible that this issue will emerge soon considering the large problems of Greece. If the European Central Bank helps this or any other country, then it means that Slovaks will share these costs.
11. Jan 2010 at 0:00 | Beata Balogová