The National Bank of Slovakia's barricading of the Slovak crown is the reason why the Slovak crown escaped the same fate as the Czech crown (which lost nearly 10 percent of its value after the Czech National Bank withdrew it from its dollar/mark basket after a sustained speculative assault on the currency). That deserves praise. The bank, against many odds, has kept these same raiders on the Czech crown at bay on the Slovak market, thus keeping the Slovak crown from devaluing, and the economy from facing an earthquake at an inopportune time, given the political reverberations still rippling from the government's marring of the referendum.
But this tense three-week conflict can't hide the larger problem confronting the Slovak economy, and the fact that the government's intense desire to micro-manage the economy is going against the grain of what a free-market is about - and the future viability of the Slovak economy as well.
Slovaks should take notice of what befell the Czech Republic in April and May, when the Czechs' economic policy turned out to be rotten to the core. How did it rot? It decayed because of the virtually incestuous relationship between the government and the commercial banking sector, where the Czech government exercised its considerable power to influence who banks would lend to and at what (read: favorable) price. The government never gave up its control of the Czech banking sector, which resulted companies perishing in withering industries being artificially kept alive by state-controlled loans. It all finally blew up with a wave of bad company results, financial scandals and a ballooning trade deficit.
The same is happening here. Trade deficit.
Measures like the Exim bank are a sham, company revitalization has companies coming to the state for bail-out money.
Many Slovak companies may not be propped up but they are the recipients of generous credit lines. Some of them experienced down years in 1996 and others have seen their profit margins cut by as much as 30 percent in the first quarter of 1997.
Financial scandals are harder to pinpoint, but the potential is certainly there, especially with VÚB, whose ties to the ruling coalition party makes it almost a Yes-man bank to the cabinet's whims, and strengthens the coalition's say in how that bank will be privatized.
Will the script reverse itself? From every indication, it looks like it won't. The government shows no desire to release its claws from the bank's credit lines and even has strengthened its say over the only institution that could step in, the National Bank by placing former Deputy Finance Minister Jozef Magula on the bank board and sending Finance Minister Sergej Kozlík over there as an observer
The National Bank can't keep the crown propped up forever. What the government should do is cut its losses and set the free market free. But considering that next year is ostensibly an election year, that's like asking Slovaks to stop throwing their peas on the wall.
