BRATISLAVA– The Slovak crown rebounded last Thursday after the government avoided collapse but economic risks and continued political infighting before this year‘s election will keep a lid on the unit. The crown firmed after opposition deputies led by autocratic ex-Premier Vladimir Meciar failed to oust Deputy Prime Minister for Economy Ivan Miklos in an early morning no-confidence vote.
Premier Mikulas Dzurinda had vowed to quit if Miklos was ousted, which would have brought down the government, halted a key privatisation, and hurt Slovakia‘s EU entry hopes. Miklos‘ survival was in doubt because leftists in government were threatening to rebel and vote against him. They eventually stuck with their coalition partners, fearful an early election would see them obliterated from the political scene. But more feuding is likely in the fragile government as unpopular parties try to win back voter support lost to painful reforms ahead of elections due by October. But the government‘s survival and a shift in focus to the sale of gas monopoly SPP had helped the crown.
Friction has been high since the ex-communist SDL angered Dzurinda last month by forcing out its own appointee as finance minister, reformist Brigita Schmognerova, and launched a campaign to halt the billion dollar sale of natural gas company SPP. Economists said the squabbles could stall legal reforms needed for Slovakia to finish EU accession talks by end-December and enter the bloc in 2004 along with its neighbours.
The key factor supporting the crown in the near term will be the running tender to sell SPP. The funds will be important to pay off state debt and finance reform of a troubled pension system. Attempts by SDL to scale back the deal sparked worries the sale could be scrapped. But other coalition parties rejected any change last week, helping the currency. The crown is unlikely to show a robust rise versus the euro, however. Last week, Fitch ratings agency said Slovakia could join the EU in the first accession wave, and its external and internal imbalances should gradually subside. But it added: „There is a signifcant risk that macroeconomic imbalances combined with political shocks could deflect Slovakia from that benign path.“ The largest hazard is the possibility that Meciar, whose undemocratic behaviour led Slovakia into isolation last decade, could return to power after the elections and ruin Slovakia‘s EU and NATO entry chances, a fact investors are not ignoring.
Reuters
