PROMISES AND REALITY Slovak Economy 1995–1998 Authors: Juraj Borgula Martin Bútora Zora Bútorová Alena Císarová Vladimír Dvořáček Michal Horváth Marek Jakoby Eugen Jurzyca Inez Krautmannová Grigorij Mesežnikov Viktor Nižňanský Peter Pažitný Emília Sičáková Alena Smržová Jaroslava Zapletalová Daniela Zemanovičová Eduard Žitňanský Project Co-ordinators: Marek Jakoby Viktor Nižňanský M.E.S.A. 10 – Center for Economic and Social Analyses Bratislava 1998 -2- M.E.S.A. 10 – Center for Economic and Social Analyses is an economic think tank created in 1992 with the main objective of supporting economic and social transformation to make the Slovak Republic a modern and prosperous society. M.E.S.A. 10 develops analyses, does monitoring, prepare studies, comments on current economic policy, organizes lectures, discussion clubs, conferences and seminars on macro- economy, social issues, privatization, fiscal decentralization issues. Board of Directors Ivan Mikloš, Jana Červenáková, Pavol Kinčeš, František Kurej, Viktor Nižňanský, Gabriel Palacka, Vladimír Rajčák, Juraj Stern, František Šebej Executive Director Viktor Nižňanský M.E.S.A. 10 Hviezdoslavovo námestie 17, 811 02 Bratislava Phone: (421 – 7) 54435328 Fax: (421 – 7) 54432189 E-mail: mesa10&internet.sk Home page: http://www.mesa10.sk This publication was issued due to a kind support of the Open Society Foundation. M.E.S.A. 10 thanks Ivan Miklos for his initiative in creating this publication and for the possibility to use his analyses in this publication. M.E.S.A. 10 thanks to the Institute for Public Affairs and to Creative Department for co-operation and assistance in issuing this publication. © M.E.S.A. 10 - Center for Economic and Social Analyses, Bratislava 1998 -3- TABLE OF CONTENTS FOREWORD ............................................................................................................................. 5 SOCIAL AND POLITICAL BACKGROUND Martin Bútora; Grigorij Mesežnikov; Zora Bútorová Diagnosis that will not let you go............................................................................................... 8 MISSION STATEMENT M.E.S.A.10 Comprehensive Analysis of the Economic Part of the Government Declaration (Mission Statement) of V. Mečiar´s Government ................................................................................... 22 RESULTS ACHIEVED OR AN ECONOMIC MIRACLE? Peter Pažitný; Marek Jakoby Economic environment ............................................................................................................ 31 Eugen Jurzyca; Emília Syčáková Transparency in Economy of the Slovak Republic and Protection of Competition ................ 35 M.E.S.A.10 Privatization ............................................................................................................................. 46 Vladimír Dvořáček The National Property Fund of the Slovak Republic ............................................................... 63 Eugen Jurzyca Natural Monopolies – Family Silver of Silver of Some Families?......................................... 70 Viktor Nižňanský Public Administration .............................................................................................................. 76 Alena Smržová Rating of the Economy of the Slovak Republic....................................................................... 82 Marek Jakoby Economic Growth .................................................................................................................... 87 Marek Jakoby Efficiency and Competitiveness of Industry ............................................................................ 90 Juraj Borgula Engineering Industry................................................................................................................ 98 Marek Jakoby; Inez Krautmannová Foreign trade .......................................................................................................................... 107 -4- Peter Pažitný Foreign Investment................................................................................................................. 116 Daniela Zemanovičová; Emília Sičáková Small and Medium Size Businesses....................................................................................... 126 Peter Pažitný; Alena Cisárová Unemployment ....................................................................................................................... 133 Marek Jakoby Inflation .................................................................................................................................. 139 Eduard Žitňanský Banking sector........................................................................................................................ 141 Michal Horváth Capital market ........................................................................................................................ 147 Viktor Nižňanský Public Sector Debt.................................................................................................................. 152 Marek Jakoby Foreign Debt........................................................................................................................... 157 Jaroslava Zapletalová Housing Policy ....................................................................................................................... 160 Peter Pažitný Standard of Living.................................................................................................................. 170 CONCLUSION M.E.S.A.10 Recovery Program Starting Points and Outline ..................................................................... 181 Register of figures .................................................................................................................. 189 Register of graphs................................................................................................................... 191 Authors ................................................................................................................................... 192 -5- FOREWORD This publication is intended for those who wish to look into the mirror of economic miracle that was promised by Mečiar’s third government at the time of its coming into power, in 1994. The publication presents the views of the independent M.E.S.A. 10 staff and its part-time associates, on the development of the individual sectors of the Slovak economy in the past four years. At the time of coming into power, in 1994, the government committed itself to numerous positive plans and objectives. However, practical steps that followed oftentimes contradicted the original statements. Even worse was the fact that the steps were at variance with the valid laws and the principles of the State of law, and the fundamentals of fairness and ethics. The outcome of the four years in question have been grave problems practically in all the economic sectors, concealed under the tinsel of positive macroeconomic indicators. It is the HZDS-ZRS-SNS trefoil (i.e. the Movement for a Democratic Slovakia, the Association of the Workers of Slovakia, and the Slovak National Party) that has impeded the process of Slovakia approaching the advanced democratic countries and prompted the establishment of an autocratic regime with a command model of the management of public matters. The objective of this publication is not only to pinpoint the instances when the law was broken, mistakes made, and the development of the Slovak economy distorted in the years 1994-1998. The authors have endeavoured, in addition to the analysis of the development and its consequences, to also provide an outline of the measures of the recovery process for the nearest future, from both the short and medium-term perspectives. The Slovak economy, after four years of V. Mečiar’s government, is faced with a particularly difficult situation, whereby the early analyses of M. Dzurinda’s Cabinet conducted across the individual sectors indicate that the condition of our economy is even more alarming than originally assumed at the time of the pre-election campaign. Fully exposed is not only the actual condition of the public but also the private sector, and it has become apparent how the percolating political and economic power played tricks on the citizens – electorate, tax payers, and employees, and how this power has been living at the expense of the generations to come. Slovakia, as an independent State, has been indebted and deprived of its assets. The growth of the regional differences in economy has been appalling over the past four years, which, in turn, has negatively impacted the citizens’ standard of living. The dangerous model of conduct, supportive of corruption, the percolation of political and economic power, and criminality in economy, got its way. If these trends are not halted and the consequences of the hitherto development are not gradually rectified, it is obvious that ultimately, the Slovak economy will lose its competitiveness in the globalizing and liberalizing world economy, which would bring about all the adverse economic and social consequences. The hitherto approach is no longer sustainable, and the situation calls for addressing the problems that have piled up and for “settling the debt” generated by the activity of V. Mečiar’s government. The rehabilitation process will inevitably entail unpopular measures, such as price deregulation, austerity programs and cutting down public expenditure, and even the devalutation of Slovak crown, if need be.