Central Europe Review

Aiming West
Slovakia enters the OECD with further goals in its sights
Michael J Kopanic Jr

Since the government of Mikuláš Dzurinda took office in the fall of 1998, it has placed a priority on the integration of Slovakia into the mainstream of Western economic and political organizations, particularly the European Union (EU) and NATO. On 28 July 2000, Slovakia moved one more step toward these ultimate goals: Slovakia was offered admission into the OECD, the Organization for Economic Cooperation and Development. Formal induction will take place in September 2000. The acceptance is largely viewed as a necessary step before reaching the loftier targets of NATO and EU membership.

The move represents yet another foreign policy triumph for Dzurinda. His first great triumph came in December 1999, when the EU decided to allow Slovakia's participation in entry talks the following year. The OECD invitation signifies that the developed nations of the world are recognizing the real and substantial political and economic reforms Slovakia is undertaking.

In some ways, membership of the OECD is more symbolic than substantive. The multinational organization aims to promote free trade and open markets worldwide. Membership does not offer any concrete benefits for Slovakia, apart from the welcome status of being counted among the most developed states of the world, but it signals recognition of progress in the right direction. Prime Minister Dzurinda stated at a 1 August press conference, "The developed world now has trust in our economic reforms." Membership amounts to a vote of confidence in the character and pace of reforms.

OECD admission does raise the possibility of further foreign investment in Slovakia, but it will not immediately open any floodgates of capital to the country in the near future. Ratings agencies such as Moody's will signal when Slovakia's credit ratings improve, and this in turn could lead to more favorable interest rates for borrowing and help balance the budget.

A hard struggle

Many reforms are still underway and the political situation, while stable at present, leaves cause for some investors to be wary. But the recent decision of US Steel to go ahead with its purchase of VSŽ (Eastern Slovak Iron Works) shows that more international firms are taking notice of Slovakia's new friendlier environment for foreign capital, and they are increasingly more willing to make long-term investment commitments.

Joining the OECD marks the completion of the program "Partners in Transition" that the OECD initiated in 1991. The OECD aimed to assist Hungary, Poland, the Czech Republic and Slovakia as they transformed their economies into market-based systems. According to the Slovak Embassy in Washington, OECD admission in 2000 is all the sweeter because "criteria have been made much tougher" since the other three Visegrád neighbors joined the club in 1996.

Even before the OECD announcement, the International Monetary Fund (IMF) praised Slovakia for making "significant progress in stabilizing its economy and in accelerating structural reform." The IMF report predicted that continued reforms in Slovakia "should lead to further economic improvement and pave the way for the country's future membership in the European Union." With exports rising and domestic demand softening, the IMF expects Slovakia to experience strong export growth and a more favorable trade balance (Reuters, 28 July 2000). Continued signs of positive trends make the case for a promising future. In July, the foreign trade deficit amounted to SKK [Slovak koruna] 1.13 billion (USD 23.6 million), 38 percent lower than that of 1999 (Reuters, 22 August 2000).

At the same time, the IMF cited progress and issued a note of caution. It warned that Slovakia should maintain a budget deficit target of no higher than three percent of GDP in 2000, and follow through with continuing reductions in the future. The IMF advised that money raised from the privatization under way should be used to reduce foreign debts and not for increased spending (Reuters, 28 July 2000).

Even OECD acceptance did not prove as easy as planned. In 1995, the prime minister, Vladimír Mečiar, had thought he could join the club just by signaling that he favored membership. Instead, Slovakia was denied membership not just to NATO and the OECD, but also received no invitation to the first round of EU entry talks. The defeat of Mečiar's Movement for a Democratic Slovakia (HZDS) in 1998 allowed the Dzurinda-led coalition government to chart a new course that reflected international criteria for free-market reforms.

Growing pains

The OECD ticket also points to a diplomatic triumph for Dzurinda's government. In less than two years, since the fall 1998 elections, Slovakia has maneuvered to change its worldwide image from that of a corrupt and authoritarian political machine that was snuggling up with the Russian bear. It is now viewed as a young democracy dedicated to the free-market economy but undergoing the growing pains of transformation from former Communist habits.

The perception is one of a shift in direction, of heading down the right path to international acceptance among the developed democracies. The challenge is to continue on this path and not reverse course or delay moving towards the final goals by getting lost on tricky turns and misleading side paths.

Originally, the Slovak government had thought that it would take little more than a year to join the club. In fact it took nearly twice as long. Many member states of the OECD and other international bodies do not always relish new entrants, and it can take powerful participants such as the United States to nudge them along.

For instance, after a constructive meeting with Slovak Finance Minister Brigita Schmoegnerová in December 1999, OECD Secretary General Donald Johnston indicated that he would support Slovakia's rapid admission to the organization. While offering no specific target date, he pledged to use his authority to harness the support of members and noted it would take less than a year (CTK, 18 December 1999). In actuality, acceptance took nearly eight months longer than anticipated.

In practical terms, gaining acceptance required a flurry of Slovak diplomatic maneuvers to achieve membership. The US had to be convinced to make an about-face after publicly questioning whether Slovakia was ready for the OECD. Slovakia's diplomats deserve credit for convincing American officials to reword the US position from skepticism to outright support. Even with US backing, Slovak diplomats had to overcome a French veto to a resolution offering Slovakia an OECD invitation. The objection occurred over a technicality in regard to OECD-EU rules on the 50 percent required number of European radio and television programs. Thus fulfilling this statute delayed the invitation by another month. The tough battle to enter OECD made the achievement seem all the sweeter.

This alerts Slovakia's diplomats to the fact that they need to continue to play a very active role in pushing their agenda. They must convince member states and their constituent governments that Slovakia's accelerated admission into these bodies is in their own long-term interests as is entry into the NATO alliance and the EU. NATO's bombing raids on Serbia in 1999 vividly demonstrated the strategic importance of Slovakia's cooperation. Slovak Defense Minister Pavol Kanis's recent trip to Washington intended to capitalize on the positive momentum when meeting with US Defense Department officials.

Likewise, an EU which included the first round entrants of the Czech Republic, Poland, and Hungary but excluded Slovakia, would severely disrupt important economic relationships in Central Europe and wreak economic havoc in the region. This point must be nailed down. Slovakia is currently in the second wave of EU aspirants. It hopes to leapfrog the bunch and join the first group which is aiming for EU membership at the start of 2004, even though EU officials say 2005 is a more likely date (Reuters, 23 August 2000). If Slovakia stays on its current course, it has an excellent chance of joining the EU at the same time as its neighbors.

The home front

While finding favor in foreign countries, Dzurinda's government continues to stumble at home. His government too often appears more in touch with other countries than with Slovakia's own population and the political climate. His unsteady coalition of diverse parties continues to totter. Earlier in 2000, Dzurinda broke away from the Christian Democrats (KDH) and founded his own new party, the Slovak Democratic Christian Union (SDKU). His partner parties continually threaten to leave the government, most recently the Hungarian Coalition Party (SMK). The SMK is pressing for an ethnic Hungarian majority administrative Komárno district in southern Slovakia (RFE/RL Newsline, 21 August 2000).

In addition to problems with his governing allies, the parliamentary opposition has challenged the government. Public opinion polls by the Institute for Public Opinion Research (UVVM) show that if elections were held in the summer of 2000, the current regime could not form a government. Dzurinda's SDKU garnered only 13.3 percent of the votes in the poll. Mečiar's HZDS led the pack with a 26.1 percent vote. The rising Direction (Smer) party, led by the young populist Robert Fico, secured a 20.8 percent tally. If the two parties could come to an agreement, the 8.5 percent secured by the right-wing Slovak National Party (SNS) would count for enough votes to form a new government (CTK, 16 August 2000).

Sensing that the time was ripe for a challenge, the opposition launched a petition drive for a referendum on early elections. The opposition claimed it brought in over 700,000 signatures, and submitted the paper to President Rudolf Schuster, who had just returned from surgery in Austria. With a 50 percent rate of participation, the referendum's results would be valid and force early elections. Even though opinion polls show that only 29 percent of voters would take part in a referendum (16 percent were undecided), the opposition pressed on with its challenge to take advantage of the favorable conditions.

On 5 September, President Schuster decided that in accordance with the law a referendum on whether early parliamentary elections should be held will take place on 11 November 2000. The Dzurinda government is simply urging people to boycott the vote, since a 50 percent quorum is required for it to have any validity.

The thorn which continues to scrape away at the government's popularity is the condition of the economy and, more specifically, the job situation. A severe drought during planting season will force Slovakia to import nearly 900,000 tons of grain (Reuters, 18 August 2000). While interest rates have fallen and the currency has stabilized, real wages fell 3.1 percent in 1999 and another 6.1 percent in the first quarter of 2000. Even though a new anti-corruption program is being devised, lack of transparency still exists in business dealings and unethical practice continues to plague the public service sector and government offices (Slovak Spectator, 21-27 August 2000).

Arguably, unemployment continues to be one of the most persistent problems in 19th- and 20th-century Slovak history. Today is no exception. Over the past year, unemployment has hovered between 19 and 20 percent (19.41 percent in July 2000), giving Slovakia the distinction of having the highest percentage of unemployed in all of Europe. Most economists believe unemployment has reached rock bottom, but that is little solace to those out of work. Besides such conditions do not garner enthusiasm for Slovakia's early admission to the EU, adding tension to the political process. No doubt, some EU members fear waves of jobless Slovaks flocking to Western Europe in search of high-paying work.

In an interview with the Slovak Spectator, Dzurinda indicated that he does not believe the referendum will succeed, and he is not worried about the next scheduled parliamentary elections in 2002. He is confident that the economy would turn around in 2000. He cited the fact that nearly all the macro-economic trends have improved and economic indicators have stabilized. It is just a matter of time before that translates into real improvements in the average person's life (Slovak Spectator, 21-27 August 2000).

If Dzurinda's economic predictions come true, his political fortunes could change. If there is not substantial improvement by 2002, his chances of forming another coalition seem unlikely. His gamble may pay off in uplifting Slovakia in the long run, but foreigners do not vote in Slovak elections. As former President George Bush found out, it is difficult to win an election coming out of an economic downturn. And if a new government takes the reigns of power in 2002 or earlier, would it continue Dzurinda's trek to the West? The stakes are indeed high.

Michael J Kopanic Jr, 11 September 2000

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