Reform's rocky road

President Michal Kovac

More than 60 per cent of Slovaks approve of the current regime and oppose a return to Communist rule. Are you confident that Slovakia is now firmly set on a democratic, free-market path?

The fact that Slovakia is now firmly set on such a path has been confirmed, over the last seven years, by three free parliamentary elections and two rounds of local elections. It has been confirmed by the full functioning of state and local government institutions. The country has a system of pluralistic democracy, with free political parties, a free press and an independent private media. Privatisation has made important strides and the greater part of GDP is today generated by the private sector. Foreign capital in Slovakia is also on the increase.

Nevertheless, our democratic and free market path is not straightforward, nor is it free of problems. This situation has evidently arisen as a result of several decades of a totalitarian Communist regime. Even though only a few people adhere today to Communist ideology, the ways of thinking of that period survive and still influence political life in Slovakia, in particular the style of government of the ruling coalition. This takes the form mainly of inappropriate and illegitimate interference in the activities of such state institutions as the police, the secret intelligence service and the public prosecution service, all of which should function independently and be bound by law only. Public service television, which significantly shapes public opinion, is in fact controlled by supporters of the ruling coalition and this considerably weakens the objectivity of its information. State property is being privatised at a relatively high pace, but the methods employed give rise to doubt and concern because they involve partisan 'clientism' which may lead to real interlacing of the private sector and governmental power. Nevertheless, these problems and more or less immediate threats have not yet gone beyond the limits of our democratic constitution, and all the conflicts marring our political scene can be resolved in a democratic way using democratic methods; this fact also confirms, in my view, the democratic character of our political and social development.

How do you assess Government stability?

Since the last election in 1994, the Government has held a parliamentary majority sufficient to enable it to stay in office for its entire term. Although a governmental crisis has in the past seemed imminent, it was the result of conflicts within the governing coalition of four political parties and, to a certain extent, mirrored the problems and conflicts outlined in my previous answer. The governing coalition seems now to be solid, apparently on the basis of an agreed political compromise. This is why people feel an even greater need for a broader political and social consensus which could serve as a sound basis for the resolution of chronic problems both in political life and in the sphere of privatisation, and thus for the strengthening of our country's international position.

According to the World Bank, foreign direct investment in Slovakia in 1994 was just over US$200 million, compared with US$878 million in the Czech Republic. How do you explain the discrepancy between these two figures?

After the creation of the independent Slovak Republic, potential advisers adopted a cautious approach, apparently influenced by the catastrophic visions of the future economic development of Slovakia that were suggested in many professional circles. Good macroeconomic performance, signs of recovery at the micro level and the progress achieved in the economic transformation of Slovakia since 1994 have not yet provoked a more robust influx of foreign investment; many investors remain prudent.

On the other hand, the volume of foreign investment in the Slovak Republic has also been affected by the government's privatisation strategy and the methods used. The method preferred by the government in the second wave of privatisation is direct sales to domestic buyers and the second wave of voucher privatisation was changed into a bond issue for the Slovak population. Certain large companies which the law defines as strategic companies in areas such as telecommunications have been left out of privatisation for the time being. Compared to other Central European countries, these factors restrict opportunities for the influx of foreign direct investment.

What are the government's plans to boost foreign investment?

Ever since 1993, the government has applied a system promoting business start-ups through tax exemptions. The system provides for preferential treatment of companies and banks in which foreign capital exceeds 30 per cent. This tax exemption system was discontinued in 1996. The government pursues the objective of maintaining macroeconomic stability and securing a stable business environment that can attract foreign and domestic capital investment. But to attain the standard level of market economies, further improvement of legislation, institutions and mechanisms involved in business activities is necessary.

What are the key areas for foreign investment?

The government's objectives include the implementation of capital-intensive projects to develop infrastructure (the motorway network and telecommunications, for example) and the energy sector, and these will require the participation of foreign investors. It is assumed that the forms of foreign capital inflow will be differentiated, with a moderate preference for foreign loans, an area in which Slovakia has been improving. Examples include loans granted for the completion of two units of the Mochovce nuclear power plant and the international syndicated loan of US$150 million extended to the electricity company Slovenské elektrárne.;

The government proceeds on the assumption that the influx of foreign capital necessary for the restructuring of Slovak industry will be secured by the new owners of privatised companies. This means that the volume and the form of foreign capital in the economy will be largely influenced in the immediate future by the decisions of businesses themselves.

How confident are you that Slovakia can win EU membership?

I am confident that we will, because I am convinced that our membership will be to the benefit of the Union, given Slovakia's broad potential and its geographic location. At this point, the question of when this will happen is hypothetical, and the answer depends upon developments in Slovakia and neighbouring Central European countries, and in the EU itself.

What benefits would membership bring?

To my mind, the benefits lie in foreign and domestic policy and the economy. EU membership would establish Slovakia firmly in the community of advanced democratic countries, and this would have a favourable impact upon the international position of the country and on our domestic political development, strengthening democratic political institutions and promoting and developing civil and human rights and freedoms. The integration of Slovakia into the EU's economic area will result in the removal of customs and non-customs barriers, and will create more favourable conditions for the broadening of co-operative ties between Slovak companies and companies in EU countries. It is also expected that it would bring a greater influx of modern technologies and know-how from EU countries, which would be welcome in the process of restructuring and economic modernisation. Also of considerable relevance is support for the necessary structural changes by means of EU structural and regional funds.

To what extent will the political situation in Russia affect Slovakia's future?

It is in Slovakia's interests that Russia develops as a democratic and politically and economically stable country. It is from this perspective that we view the situation there. We do not believe that it has a more immediate impact on us than on any other Central and Eastern European country. In common with every other country, we are interested in developing economic relations with Russia. This is natural because, on the one hand, the country is a huge potential market and, on the other, because our industry processes raw materials brought in from Russia. We shall certainly not be able to compensate, in the short term, for the loss of Russian imports of oil and other raw materials.

What are the biggest obstacles to Slovakian development?

As I said before, I see the greatest problems in our internal political situation, in the relationships between the highest constitutional institutions, but also between the coalition and the opposition, which is resulting in an excessive polarisation of the Slovak population. Other major obstacles include, in my view, the method of privatisation and gaps in economic legislation that discourage foreign investors and, consequently, substantially reduce the influx of foreign capital and know-how which our economy needs ever more urgently.

Nevertheless, are you confident for your country's future?

In spite of all these reservations, I am an optimist as regards the future of my country. My optimism is justified by the existing international situation, by the fact that Slovakia is surrounded by democratic countries, that the current European political trend is a democratic one. It is also justified by the domestic situation, the fact that most of the population - as confirmed by the poll to which you referred in your first question - reject a return to totalitarianism and want to live in a free, democratic world.

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