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Slovakia: Economic Reforms Necessary For EU Membership Talks

Prague, 4 June 1999 (RFE/RL) -- European Union officials say the Slovak presidential election last month has improved the country's chances of joining talks on EU membership.

But the latest reports out of Brussels suggest that Bratislava has more work to do on economic reforms in order to join membership talks already underway with the Czech Republic, Estonia, Hungary, Poland and Slovenia.

Slovak Prime Minister Mikulas Dzurinda's government is pushing reform and budgetary legislation forward with the aim of earning his country a favorable review in the next European Commission report on accession progress. A positive report this autumn could win Slovakia an invitation to membership negotiations as early as December, when EU leaders meet for a summit in Helsinki.

Jan Kuderjavy, general director of the Slovak foreign ministry's EU integration division, has told RFE/RL that talks with European Commission delegates earlier this week have given him confidence progress is being made.

"I would hope that the European Commission will take all our economic reform efforts into consideration. Really, the government is taking drastic steps to improve macroeconomic figures and especially the negative [deficit] trends. [I hope the Commission] will give us an assessment in their [next] regular report based on which we shall be able to qualify for the beginning of [EU membership] negotiations."

The EU's latest accession report on Slovakia, published last October, warned that drastic reform was needed in the banking sector. It said a high percentage of non-performing loans could threaten the broader economy.

The Commission also prescribed "more transparent and market-based policies" to help Slovakia cope with competitive pressure and market forces within the EU. In particular, the Commission drew attention to non-market mechanisms for setting prices, along with shadowy privatization deals and "political involvement" in the appointment of state firm managers. Many observers have argued that all these conditions were the legacy of former Prime Minister Vladimir Meciar's government, which fell after national elections last September.

Dzurinda's current reform program calls for faster management restructuring at state firms and banks, together with a reduction of the budget deficit and an increase in regulated prices for commodities like energy and rents.

The government has taken steps to control political cronyism within the upper management levels of large state firms by revoking the so-called "Revitalization Act." That law, also one of Meciar's legacies, had allowed loss-making state firms to stay afloat through cash infusions from the state budget.

Meciar argued that certain state firms could not be allowed to go bankrupt because of the social impact caused by lost jobs. But in practice, critics argue that the law enriched political allies of Meciar who still retain senior management positions in state firms --all at the expense of the firms and, inevitably, the national budget.

The European Bank for Reconstruction and Development said in an April report that "removing personnel associated with the Meciar government," and adopting more open policies are seen as essential to restoring Slovakias credibility on reforms. The World Bank says restructuring ultimately should aim to make firms productive and profitable so that government subsidies are not needed to pay workers' wages. In this way, restructuring eases the burden that money-losing state firms place on the national budget.

Indeed, austerity measures are at the center of Dzurinda's recently announced program to stabilize the Slovak economy. The governing coalition's main economic priorities are to reduce the fiscal deficit from more than five percent of Gross Domestic Product (GDP) to about two percent by the end of this year. It also hopes to cut in half the current account deficit from more than 10 percent of GDP.

Dzurinda has been urging labor leaders this week not to press for wage increases so that the spending targets can be met.

Kuderjavy says the price liberalizations demanded by Brussels will admittedly make life more difficult for the Slovak people for at least the next 18 months. He said the cost of electricity will increase by 35 percent, heating bills will rise by 40 percent, gas by 50 percent and rents by 70 percent. But he said social programs are being created to address the needs of the poorest Slovaks and pensioners on fixed incomes.

"Without these measures, we couldn't effectively continue to run our economy. Our population in Slovakia can understand that these are really measures that had to be taken. Our government had to take such decisions because the deficits of both the current accounts and the state budget are so huge. We cannot continue like that. These are the consequences of the policies of [Meciar's] government. Now is perhaps the last moment to do something about it."

In the European Commission's report of last October, the strongest criticisms about Slovakia were related to developments in the political sphere. The Commission noted a lack of stability in the institutions guaranteeing democracy and the rule of law.

It cited the inability of the Slovak parliament to elect a president as an example of institutional paralysis. It also condemned Meciar's controversial use of transferred presidential powers and his disregard for Constitutional Court rulings. Brussels also considered the treatment of minorities by Meciar's regime to be a problem.

Dzurinda's cabinet, which came to power through last September's elections, already has resolved most of the EU's political concerns about Slovakia. At the Visegrad Four summit in Bratislava last month, Hungarian Prime Minister Viktor Orban praised Dzurinda's treatment of the ethnic Hungarian minority in Slovakia.

And Rudolf Schuster's election in nationwide elections late last month brought an end to a 15-month period in which Slovakia did not have a head of state. That means that the only remaining political reform demanded by Brussels is the adoption of legislation on minority languages. Kuderjavy says the government also is busy on that issue and could resolve the matter in the coming days.