Slovakia Economic Analysis

Slovakia Economic Analysis Country: Slovak Republic Formation of the Slovak Republic The Slovak Republic, or Slovakia, is located in Eastern Europe with a population of 5.

4 million people and borders the countries of Poland, Austria, the Ukraine, and the Czech Republic (The World Bank). As originally part of the former nation of Czechoslovakia, the Slovak Republic has only recently begun to write its own history (Abizadeh, p. 171). During 1989 many revolts took place against eastern European governments under communism, including Czechoslovakia (Slovakia.Org, 20th Century). Both Slovaks and Czechs staged massive protests against communism in Czechoslovakia and ended the communist regime in November 1989 (Slovakia.

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Org, 20th Century).Under the new non-communist system of government, the two republics of Czechoslovakia were established: the Slovak Republic and the Czech Republic (Embassy of the Slovak Republic). In June 1990, with the federal and republic-level governments in place, free elections were held for the first time in the country since 1946 (Slovakia.Org, 20th Century). The main concern of the new government was the transformation of Czechoslovakia from a state-controlled to a free market economy (Embassy of the Slovak Republic). Disputes arose between the two republics about reform process which focused on privatization, the encouragement of foreign investment, policy of macro-economic stabilization, price liberalization, and liberalization of foreign trade (Slovakia.Org, 20th Century).

The Czech Republic was more economically developed than the industrial-based economy of Slovakia (Slovakia.Org, 20th Century). The transition to a market economy left the Slovak Republic to endure greater economic hardships than the Czech Republic (Sovakia.Org, 20th Century). For example, the federal government chose to dramatically cut the countrys defense industry, resulting in a large decrease in industrial production and a large rise in unemployment in Slovakia (Slovakia.Org, Slovak Economy).

This took place because the economy that rose out of the communist era in Slovakia was based on industrial production, particularly on weapons and military equipment (Slovakia.Org, Slovak Economy). There was a great difference of opinions between the Slovaks and Czechs about the nature and pace of economic reform in Czechoslovakia (Slovakia.Org, 20th Century). The disagreements delayed the reform process and also the acceptance of a new constitution (Slovakia.

Org, 20th Century). It became obvious that the current form of government could meet the demands of both republics. As a result, Slovakia declared its sovereignty in July 1992, in other words, its laws took higher priority than those of the federal government (Slovakia.Org, 20th Century).

During November the federal parliament chose to officially break up the country, and on January 1 1993, the Slovak and Czech Republic replaced the Czechoslovakia as two independent countries (Abizadeh, p. 171). Recent Growth levels of the Slovak Economy The economic problems that began in the early 1990s still plagued Slovakia after it claimed independence in 1993 (Abizadeh, p. 172). After its first year of independence Slovakias economy was in poor shape with a negative GDP growth of 3.7%, and inflation rate of 25.

1%, and an increasing unemployment rate of 14.4% (National Bank of Slovakia).Overall, gross domestic product in Slovak Republic decreased a substantial 23.7% during the years 1990 to 1993. Through a slow reform process, however, positive macro-economic results have been accomplished over the recent years (Slovakia.Org, Slovak Economy). GDP growth has been positive since 1993 and recorded an annual growth of 4.4% in 1998 (The World Bank).

Slovakias 1998 GDP per capita of 3,832 USD was very competitive with other central European countries (Embassy of the Slovak Republic). The budget deficit has been brought under control, and at the beginning of 1999, the inflation rate of 5.6% was the lowest among all transition economies (Embassy of the Slovak Republic).The decline in the inflation rate was due to developments in the capital markets and the banking sector, a decrease in food prices, price deregulation, and lower producer prices (Abizadeh, p. 172). Unemployment, on the other hand, is still a major problem in the Slovak republic. Since the end of the communist regime the rate of unemployment has been 10% or higher with no signs of improvement (Slovakia.Org, Slovak Economy).

Unemployment is related to the consistent regional disparities and the inevitable restructuring of large companies (Embassy of the Slovak Republic).The most important part for Slovakia to convert to a market economy is to continue privatization of state-owned businesses and capital formation within the country (Abizadeh, p. 171).

Although the privatization of small firms is complete, this sector still faces challenges such as government policy that favors large enterprises, obtaining financing at affordable interest rates, and an increase in corruption and organized crime (Tradeport). The privatization of large enterprises has also begun. Two major banks have been recently declared available for privatization (Tradeport). A government policy has also been approved that will allow the privatization of up to 25% of Slovak telecommunication (Tradeport).The governments efforts toward privatization have been limited by the amount of capital available in the Slovak economy (Tradeport).

Unlike the past, the government is now encouraging foreign investors to participate in the privatization process to provide the needed capital (Abizadeh, p. 178). However, foreign investors seem to have a wait and see view involving changes in government policy that could open or close doors to industry growth and the return on investments (Tradeport). Structure of the Slovak Economy The three primary sectors of the Slovak economy are services, industry, agriculture, and construction (Embassy of the Slovak Republic). These sectors make up the following percentages of GDP in 1998 of 20.

1 billion USD: Services 58% Industry 27% Agriculture 5% Construction 5% Other 5% (The World Bank) The increase in services over the years is due to Slovakia converting to a market economy (Embassy of the Slovak Republic). Agriculture has remained stable throughout the transition process (Embassy of the Slovak Republic).At the end of 1998, output from the private sector was responsible for 83.1% of GDP compared to 39% in 1993 (Embassy of the Slovak Republic). Key Sectors of the Economy The main service areas include transportation, telecommunications, and banking and insurance services (Abizadeh, p.

172). Because of the increase in domestic demand in 1996, new service areas were developed such as real estate firms, computer engineering, and sports and cultural activities (Abizadeh, p. 172).The Slovak industry that evolved out of the Communist era had become inefficient and produced goods that could not compete in the world market (Slovakia.Org, Slovak Economy). A major part of this industry was heavy industry, which was aimed towards arms production (Abizadeh, p.

172). The demand for arms production decreased after the breakup of the Soviet Union and the development of many eastern European countries (Abizadeh, p. 172).Industry is still an important part, however, in the growth of GDP and employment (Embassy of the Slovak Republic).

Firms with more than a thousand workers, mostly state-owned companies, account for the largest share of the production of goods (Embassy of the Slovak Republic). The small and medium sized firms, which represent the private sector, are not responsible …