Экономические науки / 15.Государственное регулирование экономики

магистр Тищенко Д.С.

Национальный университет «Острожская академия»

Crisis Management of the «Tatra Tiger»

The European economic recession, started in 2008, brought serious difficulties for every country, although not in the same extent and not for the same reasons. After a transition recession, from the middle of the 1990s Slovakia showed a prominent economic growth thanks to the implemented reforms. Nevertheless, this expansion went hand in hand with serious macroeconomic imbalances, such as the continuous deficit in the balance of payments, the low economic activity, and the low level of domestic savings or the FDI-driven growth. The majority of the literature agrees that main roots of these imbalances were structural weaknesses, and these internal problems met the external financial shocks during the current recession, thus worsened the country’s economic situation.

The Object of an article is the Slovak Government actions to overcome the economic crisis 2008-2013. The study is focused on state’s measures to overcome the current economic crisis. Further, it aims to achieve these specific objectives:

· To analyse the causes of the economic crisis in Slovakia. To identify the factors of its vulnerability;

· To retrace the main facts of economic decline in Slovakia;

· To verify the position of the EU and world financial institutions in the Baltic crisis;

· To enumerate the domestic measures of Slovakia.

In spite of the excellent economic results of Slovakia, it is involved in a major economic slowdown caused by recession in the European Union. The Slovak economy as a small and very open economy can hardly avoid the scope of a crisis if it concerns the global economy or its important business partners. As such, it is in a very vulnerable position during a crisis situation, expanding in external development. Strong dependency on export was combined with acceptance of the Euro, which brought advantages as well as risks. Structural conditions also influenced the decline of the Slovak economy to a large extent. A certain delay in the expansion of the crisis was caused by predominant economic relations with EU countries [3, p.196].

Initially, Slovakia was not affected by the global financial crisis, unlike the other Central European economies (Hungary, the Czech Republic, Romania and Poland have reported deep declines in the stock exchange listings and national currency exchange rates). In the period in question, Slovakia managed to avoid the negative consequences of the crisis because it had adopted the convergence criteria and strongly tied the Slovak crown to the euro by keeping it within the ERM2 corridor (the euro depreciated the least during the financial crisis).

However, when the financial crisis triggered global recession in late 2008, it turned out that the Slovak economy was involved in a major slowdown, due to the decreasing demand for Slovakia’s commodities in the country’s main trade partners and the decline in Slovakia’s exports, as confirmed by preliminary partial statistical data according to which Slovakia’s industrial production decreased by 9,2% in the year to November 2008, experiencing the deepest decline in history, while exports decreased by 15.6% [5, p.3].

In the most critical year 2009, the real GDP fell by minus 5 % in the Slovak Republic. It decreased domestic investment, as well as demand of consumers and moreover, it negatively influenced inquiry for export. Advantage of Slovakia was its creditworthiness because of having euro as a currency. But from the export point of view, this can be also unprofitable, if euro is too expensive [6]. And it’s true, that financial crisis in Slovakia didn’t damage financial sector as much as it did in other countries, because of sufficient liquidity of banks, which enabled to avoid problems with refinancing. Banks were cautious and applied conservative business models. Slovak National Bank in order to avoid possible outflow of funds even tighten rules on liquidity.

Since Slovakia is a small, and open, export oriented country (87% of GDP comes from export), the crisis showed itself through decline of product demand. Consequently, production suffered, which was linked with the growth of unemployment. The worst situation occurred in key sectors, such as engineering and automotive industry. On 1 of April 2009 Eurostat notified that the public deficit reached level of 2.3% in 2008 [2].

Nevertheless, according to the newest projections of the European Commission, Slovakia is among those EU (and Central European) economies which are tackling the crisis most effectively. The projected GDP growth in 2010 was 4%. The much lower GDP growth in comparison to the previous years (the 2008 GDP growth will probably be around 7%) was due to the lower dynamics of exports (exports grew by 0.7% in 2009, compared to 13.8% in 2007). This dramatic slump is connected with the crisis affecting the automotive industry, which accounts for as much as 30% of Slovakia’s exports.

The economic slowdown may be even worse, as the analyses presented do not take into account the consequences of the Russian-Ukrainian gas crisis and the interrupted gas supplies in January 2009, when more than one thousand of the largest industrial gas consumers had no gas supplies, as a result of which some of them had to stop production.

In the case of Slovakia, the Slovak government tried to fight against negative economy development through various measures that started to adopt by the end of 2008. Early in 2009, it established the special Board for the Economic Crisis, members of which were representatives of the National Bank of Slovakia, trade unions, employers, governments, banks, and of course ministers representing various sectors. Purpose of the Board was to propose ways to avoid, or at least minimize, the consequences of the economic crisis that was Board then obliged to submit to the Government for approval. In the second half of 2009, the Board was cancelled and the mission was moved to the Economic and Social Council of the Slovak republic. Even the main ministries set up anti-crisis committees, and a pivotal role was played by Committee Monitoring the Impact of the Global Crisis on Entrepreneurs, established by the Ministry of Economy. Representation in it was almost identical with the representation in the government's anti-crisis Board. Some anti-crisis measures were formulated directly by consultation with eg. Automotive Industry Association, the Slovak Banking Association [4].

Following the conclusions of the EU and Recovery Plan, Slovak Government approved in November 2008 so called 'rescue package' for helping country to overcome the impact of the Global financial and economic crisis. It contained twenty six broadly defined reforms. Since it was too general, it was improved and extended by Government Resolution No. 969/2008 form 17 December 2008. Original package was supplied by twelve new measures related to fiscal, tax, labour policy and business environment. Evident is close link to The Lisbon Strategy. Slovak Government authorized the third set of anti-crisis instruments by its Resolution No.125/2009 on 9 February 2009. Total number of reforms was increased to sixty two. In addition to this three rescue packages, Government adopted by its Resolution no. 100/2009 on 2 February 2009 seven measures relating solely to the employment [1]. Government was according to its own words focusing mainly on four areas:

· To stimulate demand (scrapping schemes, thermal insulation of buildings, construction of highways);

· To maintain employment (benefits for employees, social enterprises, measures of active labor market policy);

· To protect the financial sector (recapitalization and guarantee scheme);

· To improve the business climate for SMEs (reduction of administrative burdens, new concept for incubator care for innovative SMEs).

In 2009, total costs expended for anti-crisis measures in Slovakia reached €1,462 million (2.3% of GDP of SR) and in 2010 Slovak Government spent € 579 million (0.9% of GDP of SR). Since these measures couldn’t be adopted without change of legislation, hence the National Council amended eight acts to enable government’s decision.

The change of the government in 2010 meant the end of the anti–crisis measures, and the focus is on consolidation of public finances. Political representation took the crisis either as an unpleasant event requiring economic, social or budgetary solution, or as a good opportunity to enforce (or speed up or increase) already planned measures. Effectiveness of rescue measures was not proved and therefore majority of them was cencelled or their validity expired without renewal [4, p.26].

When the new Slovak government came into power in July 2010, it presented a Government Manifesto that emphasises the consolidation of public finances, creating new jobs and enhancing the long-term growth potential of the economy. In particular, the government set a goal of lowering the budget deficit to below 3% of GDP by 2013. The government also expected that gross debt will rise to 47.5% of GDP in 2012 and then stabilised around 45%.

In order to fulfil the intention of the Government Manifesto of a sharp deficit reduction, the government established the 2011 budget aiming at a deficit below 5% of GDP in 2011. To achieve this goal, the budget includes austerity measures amounting to EUR 1.75 billion or 2.5% of GDP. Some welfare and education expenditures, however, have been shielded from cuts in the consolidation plan. A roughly equal mix of expenditure reductions and revenue enhancement were contributed to consolidation efforts.

On the expenditure side, the government is reducing wage costs and operating costs by 10%, amounting to 0.4% of GDP. Another substantial measure is to reduce public investment expenditures by 0.3% of GDP. The government is also strengthening revenues by increasing the VAT rate (0.27% of GDP) and non-tax revenues (0.3% of GDP). The base of social security contributions is broadened to bring extra revenues equal to 0.2% of GDP.

References:

1. Analysis of the anti-crisis measures 2008 [Electronic resource] Government of the Slovak Republic – Access mode: https://lt.justice.gov.sk/Attachment/vlastn%C3%BD%20materi%C3%A1l_doc.pdf?instEID=1&attEID=14687&docEID=78332&matEID=1926&langEID=1&tStamp=20090911133642280

2. Annual financial report for year 2009 [Electronic resource] Ministry of Finance of the Slovak Republic – Access mode: http://www.finance.gov.sk/Default.aspx?CatID=3411

3. Buček, J. The Financial and Economic Crisis in Slovakia – Its Spatial aspects and Policy Responses [Electronic resource] – Access mode: http://www.humannageografia.sk/clanky/Bucek%20crisis%20SK%20in%20Adaptability%20and%20change%202012.pdf

4. Bulachova, L. The Impact of the Global Financial Crisis on Rules of State Aid in the EU with Speacial Focus on the Slovak Republic [Electronic resource] – Access mode: www.etd.ceu.hu/2012/baluchova_lydia.pdf

5. Dąborowski, T. Slovakia’s economic success and the global crisis // Centre for European Studies, Issue 19, 02.02.2009 [Electronic resource] – Access mode: http://www.osw.waw.pl/sites/default/files/commentary_19.pdf

6. Terazi, E., Senel, S. The Effects of the Global Financial Crisis on the Central and Eastern European Union Countries // International Journal of Business & Social Science 2, no. 17 (2011): 186–192