Slovakia's economic performance in 1996 was as bold and muscular as in the previous two years. However, while throughout 1994 and 1995 its limbs had been beefed up by a natural workout, in the Olympic year Slovakia's results indicate that the country benefited from a dose of economic steroids.
According to several independent expert groups, all but one macroeconomic indicator in 1996 hovered roughly at the same level from the year before - GDP growth of 5.5-6.7 percent, inflation rate of 5.2-6.1 percent and unemployment around 12 percent.
The one indicator that hasn't been maintained is the country's balance of trade and payments. While in 1995 Slovakia recorded a trade surplus of $100 million, experts estimate that 1996's balance will be deep into the red at $1.21 billion.
Yet the huge trade deficit hasn't negatively impacted the Slovak currency's stability. "It [the trade deficit] hasn't been reflected by a decline in hard currency reserves, because the deficit has been balanced by an inflow of foreign capital, especially through institutional and direct bank loans," said Juraj Renčko, an economic analyst at the Slovak Academy of Sciences' Forecasting Department.
But Renčko pointed out that foreign capital inflows, expected to maintain the stability of the koruna for years to come, is far from ideal. "It's not a problem anymore to acquire a loan for the National Bank of Slovakia, be it directly or through a bond issue," Renčko said. "It's not a problem for big companies like VSŽ or Slovnaft, either. But these are still only loans, not direct investments to the economy. And [the latter] is still not coming in. It's impossible through privatization and the capital market because any long-term portfolio investor would have to be a fool to enter our capital market."
All this suggests that Slovakia's economic steroid is its future debt. Renčko believes that macroeconomic stability in 1996 was maintained by putting off payment of the burgeoning trade debt. "[The present policy] increases our indebtedness," he said. Although Slovakia's per capita public debt is floating around $1,000, a thin slice compared to other regional countries, Renčko sees the development as a clear signal of more fundamental ills. "The situation is not alarming yet," he said, "but it indicates that Slovakia's economy suffers from certain structural problems."
Those structural problems were hinted at by the Minister of the Economy Karol Česnek in his New Year's speech on the ministry's tasks in 1997. "In industrial production, 1996 brought continuous growth in production output," Česnek told his employees. "However, in the industry's sectoral structure we haven't recorded significant changes. The heavy industry, inherited from the past, continues to dominate."
Freezing exports, fiery imports
Renčko added that slowing growth at the markets of destination, to which Slovakia's export structure is very sensitive, was the main reason why the country's exports froze. Throughout 1996, slower growth in European Union (EU) countries jacked up competition, affecting Slovakia's exports to the extent that the country wasn't able to place on EU markets even the quotas agreed upon in the Association Agreement between Slovakia and the EU.
The other side to the 1996 trade balance story was Slovakia's steep growth of imports. This was long time coming, as the koruna's exchange rate had appreciated for the last six years, pumping up Slovaks' purchasing power. In addition, for the past two years, real incomes also had been growing, making Slovaks more willing to spend.
"Slovakia's economy is very import-demanding," Renčko said. "We see it in car sales for instance. A car for one million crowns was something unimaginable back in 1990. Today it's a common thing, even for small businesspeople." Renčko continued that due to Slovakia's size it is inevitable that it will have a relatively high level of imports. But he said that exports are lagging. "It seems that Slovakia's export capacity is not in line with its import demands," he said. "Our economy is not importing more than it needs, but it is exporting less than it would need to cover the imports."
Česnek realizes this as well. In his speech he stated: "The most important task of the [Economic Ministry's] trade cooperation department in 1997...will be to create a pro-export environment for Slovak businesses, which should be eased by the newly-established Fund for Foreign Trade Support and the EXIM Bank."
Renčko said that it better be done soon. "At present, our income is transferred abroad through imports and are not sparking the domestic economy," he said. "That means if we don't retool our export structure, economic growth in 1997-1998 will drop."
