Реферат: Country Study, Slovenia: Winning the Transitional Economies Race

CountryStudy

Slovenia:

Winningthe Transitional Economies Race

Submittedby

MichaelMilton Peter mpeter@indiana.edu

RobertScott Taylor staylor@indiana.edu

DmitriMaslitchenko dmitri@mailroom.com

GovernmentFinance in Transition Economies

ProfessorJohn Mikesell

Fall1996

The World Development Report: FromPlan to Market (WDR) argues

that with consistent and sustainedreforms, transition countries can

achieve successful long-termeconomic growth, but also warns that

many challenges and risks — amongthem long-term stagnation and

rising poverty — still lie aheadfor some countries.

-WorldBank News, June 27,1996-

INTRODUCTION

Five years ago a small republic of the former Yugoslavia, started on its pathof transition from an eastern blocksocialist government with a planned economy to a democratic government with afree market economy. Fortunately, therocky road, described by the World BankNews in the quote above, has not been long for Slovenia. Although Slovenia was the mostprosperous Republic before the dissolution of Yugoslavia, after the breakup ofYugoslavia in 1991, Slovenia experienced high levels of inflation, a dropin the GDP and a tripling of the unemployment levels[1]

. These problemsdid not stop Slovenia’s transition to an economic powerhouse in the formerEastern Bloc. However, Slovenia hadseveral advantages over other Eastern Bloc countries which aided in such asuccessful transition. This analysis will present both Slovenia’s historical and current economicstatus by examining the political and economic background, budgetary andmonetary conditions, expenditure policies and assignment, tax structure andadministration, and social insurance.

Politicaland Economic Background

Passing through its transition period from a centrallyplanned economy to a market economy, Slovenia has dealt with some successes andsome failures. However, Slovenia’s experiences and economic policies could prove to be helpful for other economiesin transition. There are many reasonswhy the transition period for Slovenia has been successful. The foundation forits quick transformation to a market economy lies within the positioning ofSlovenia in the history of Yugoslavia before and after its dissolution.

After the end of World War II, Yugoslavia’s definition ofsocialism changed. Ownership of themeans of production was defined as ‘social’ rather than ‘state’ and firms weremanaged by workers councils. No centralplanning existed after 1965 and Slovenia, as well as the other republics inYugoslavia, were given a high degree of autonomy. Also Tito, a former leader of Yugoslavia, haddeviated from the ‘command economy’ model of the Soviet Institution. As aresult, the Yugoslavian government policy had an emphasis on a greater sense of autonomy, asfar the economy was concerned.[2]

The Republic of Slovenia developed itseconomic base by increasing the level of manufacturing in the republic as wellas establishing stronger ties with the Western European countries.[3] Slovenia had always been oriented towards the west, however, due toits northwestern location in Yugoslavia, its economic interaction with the western countries led it to become market oriented faster thanother Eastern Europe countries.

While Slovenia was a part of Yugoslavia, it was by farthe most successful republic with a per capita income of almost double that ofthe national average.[4]

The Slovene economy could not be solelydependent on the national market and therefore they actively traded with Italy,Austria, Bulgaria and Hungary. In fact,“with only 8% of the population, little Slovenia brought in 25-30% ofYugoslavia’s foreign exchange.”[5] Also, Slovenia accounted for 20% of thecountry’s Gross Domestic Product.[6]As a result ofthis high degree of decentralization andpositive net outflows, the aforementioned characteristics provided the economic basis to secession. In May 1990, the people of Slovenia elected agovernment whose economic policy, according to Mencinger, " was set by thepremise that prospects of transition to a market economy were worsening; theeconomic policy of the federal government mistaken, the existing economicsystem unsuitable, and the Federation facing political turmoil."[7] The referendum on independence passed with 90percent support. Since that 1990 vote,Slovenia has come a long way economically.

Slovenia declared its independence on June 25, 1991. The first year for Slovenia was quitedifficult. “Real GDP fell 15% during 1991-92,while inflation jumped to 247% in 1991 and unemployment topped 8% — nearlythree times the 1989 level.”[8]

The economy continued to plummet until 1993when it flatten and then head into the positive direction. By 1993 unemployment was at 11% and manycompanies had lost almost 30% of their markets due to the bitter conflict inBosnia and the loss of faith in the region by international trade partners.[9] However, “[a]t its current rates of economicgrowth, [slovenia] it could pass EU members Greece and Portugal in four to fiveyears.”[10]

Current Economic Conditions

Gross Domestic Product

In order to appreciate the current economic conditions ofthe country, it is necessary to examine some of the economic indicators in relation to their past figures. Thefirst indicator is Gross Domestic Product. According to the EIU Country Report for the 2nd quarter of 1996, thereal GDP growth percentage is slowing down. In fact between 1994 and 1995 there was a -1.4% increase in GDP.[11]

Even though there was a negative change, theChamber of Economy in Slovenia states that due to “tremendous growth of new companies,particularly small businesses, and the shift of foreign trade westward,” theyproject that slovenia is expecting to experience a 5-6 percent increase in GDPin the period up to the year 2000.[12] In addition, “the GDP per capita is higherthan those of Greece and Portugal, double that of Hungary and the CzechRepublic, and it has a comparatively efficient manufacturing sector.”[13] Currently, mining and manufacturing arecontributing the largest percentage to the GDP (figures from 1995 report 31%)with Trade, Hotels and Restaurants and Financial Market Services at 14%each. Although, Slovenia continues todepend on manufacturing and machinery production, other industries continue togrow and keep a diverse base for Slovenia’s GDP. (See Appendix I) The countryof 2 million people has a GDP of more than $18.5 billion.[14] The EIU predicts that the real GDP percentagechange form the previous year will be 3.0 and 4.0 in 1996 and 1997,respectively.[15](See AppendixII)

Imports and Exports

Other important indicators are foreign imports andexports. In 1995 Slovenia had $20.8billion in foreign trade, goods and services. Slovenia’s international trade has been geared towards western Europe,especially Italy and Germany.[16]

(See AppendixIII & IV) One advantage thatSlovenia has had in trading with the Western European countries, is thatWestern Europe does not charge any duty on good entering their countries fromSlovenia, except some agriculture, steel and textile products; in 1995 70% ofall of Slovenia’s foreign trade went to the EU.[17] Western Europe has maintained a high demandfor machinery and transport equipment, comprising 27% of Slovenia’s exports.(See Appendix V &VI) This consistent link with the West also is evident inthe political philosophy of Slovenia.

Inflation

In 1991, when the Republic of Slovenia first startedestablishing policy towards a marketeconomy, the inflation rate reached a peak of 247.1%.[18]

This was expected, since the economy wasmoving from a highly state subsidized centrally planned economy to a free-market economy. Fortunately, by 1995 theinflation rate had reached 9.5%.[19] One important quality of this transition wasthat Slovenia managed to bring inflation under control without any balance-ofpayment problems. Inflation in 1996 thusfar is at 10.7% a small increase form 1995, however, the Chamber of Economy ofSlovenia has a positive outlook for the next year.[20](See AppendixVII)

Privatization

In 1994, the Slovenian government took its first stepstowards privatization. At first thecountry observed the other Eastern Bloc countries and learned from theirfailures. The companies or enterprises’were allowed to choose between five privatization models, which were thenapproved by the Agency for Privatization.[21]

Most of the companies were sold off to theworkers and managers.

The citizens were given privatization coupons valued at100,000 — 400,000 Tolars, depending on the age of the individual. The coupons could be used to buy shares orinvest the money into securities. Over45% percent of the coupons were invested into fund securities.[22]

According to Price Waterhouse, over 400enterprises have been successfully privatized and another 1000 will soon be atthe same status. However, somecompanies, such as public utilities, national telecom, and two commercial bankshave not gone through the process; the government states that these entitieswill undergo special privatization processes.[23]

Political Situation

On the 25th of June, 1991, Slovenia declared the end of its political ties with the formerYugoslavia. Although, the government of the former Yugoslavia did not want therepublic to secede, after a mild show of military force, Yugoslavia gaveSlovenia up. Since then, the NationalAssembly has been the main legislative body of the Republic of Slovenia. This national legislature consists of 90members that are directly elected by the people for four year terms. In addition, there is the Council of Statethat is elected for five years. Thiscouncil has 40 members, 22 representing local interests, 12 evenly dividedbetween employers, and 6 representing non-economic activities.[24]

Slovenia is currently governed by two dominant partieswho have formed a government coalition, the Liberal Democracy of Slovenia (LDS)and the Slovene Christian Democrats (SKD). The LDS stems from the youth movement of the former communists while theSKD originates from a Christian tradition dating back before the Second WorldWar.[25]

The differencesin these groups are the main reasons why there seldom is cooperation in makinggovernment decisions. However, there areother parties with greater opposition: the Social Democrat Party of Slovenia(SDSS),the Slovene National Party (SNP) and the Slovene People’s Party (SLS).[26]

One aspect that has helped Slovenia remain stablepolitically is that the ethnic make-up is not extremely diverse. Almost, 91% of the population is Slovene andthey are predominantly Roman Catholic.[27]

(See AppendixVIII ) This composition has allowed Slovenia to focus on economic revivalrather than religious ethnic conflict, quite unlike their neighbors to thesouth in Bosnia-Herzogovina.

In November of 1996, Slovenia had elections and most ofthe incumbents were re-elected. The LDS won the most seats (25) and theSlovenian People’s Party, conservatives, won the second largest at 19.[28]

This could cause a conflict because, both theliberals and the conservatives have gained a significant amount of power afterthis election. In the coming months thecoalitions that form with the partieswith fewer seats could be significant for the political climate of Slovenia. The far right conservatives, United List ofSocial Democrats(ZLSD- former communists), do not back Slovenia’s entrance intoNATO, claiming neutrality should be considered an option; the entrance into theEU will be supported by the ZLSD.[29] However, economists warn that Slovenia shouldnot rely on its economic successes in the past but instead should focus onincreasing privatization and address the slowing industrial production andrising unemployment.[30] The new government needs to continue to worktowards improving the economic state of the Republic if they expect to becomemore like a Western European country.

Budgetaryand Monetary Conditions

Slovenia began tostabilize its economy before it had gained its complete independence becauseinflation was increasing drastically. Although, Slovenia made a cleanbreak to independence, there were some costs involved. Slovenia had 33 percent of its exports goingto Yugoslavia, however, with its independence Slovenia had an instant 6 percentdecrease in its GDP.[31]

This economic shock was small in comparisonto the 38 percent decrease in industrial production Slovenia faced because ofits transitional state. Sloveniastabilized its economy by October 1992. This was achieved through the introduction of a new currency, the tolar,and the creation of an independent central bank, the Bank of Slovenia.

The financial sector plays a key role in the transitionprocess. In 1995, the financial andmarket services sector comprised 14% of the GDP, the second largestcontributor.[32]

In addition, a strong financial sector isnecessary for resource allocation and mobilization, and a prerequisite for anylarge-scale privatization scheme.

In 1991, there was a lack of financial regulation in Slovenia, which produced manyproblems. Most banks were owned by thefirms to whom they lent. As a result,30-40 percent of the loans on the books were non-performing.[33]

This combined with a monopolistic structure,lead to exorbitant lending rates, preventing many viable enterprises fromaccess to capital. In addition, ahealthy banking system requires recapitalization and investment to improveservice. This was not happening rightaway in Slovenia. As a result, banks were audited in 1991 and in the autumn ofthat year, the Bank Restructuring Agency was founded to deal with theseproblems and to help restore competition. Now, most banks in Slovenia have been privatized except two which remainstate-owned.

Monetary Policy

Facing expansionary monetary policy, Slovenia needed somefinancial discipline for the newly created enterprises and government, thus,they created the Bank of Slovenia. Thebank was created with the objectives to stabilize prices and establish abalanced functioning of domestic and international payments. The law that mandated the Bank of Slovenia,allowed the bank to execute monetarypolicy, free from political control. Another characteristic of the Bank of Slovenia that helped its success,was that the bank would only give outshort-term loans to the government to cover cash flow problems. Thisrestriction served to be effective in preventing the accumulation ofdeficits. In 1994 the Bank of Sloveniaintroduced a number of legislative acts which covered the following areas:

* accounting standards and financial statements

* methods of calculation of capital and capital adequacy

* criteria for the classification of balance sheet and off-balance sheetitems

* the levels of provisioning for potential losses

* the level of exposure to a single borrower

* capital investments and fixed assets reducing the capital

This legislation was adoptedwith the intent to ensure safer bank operations that conform to the basicprinciples of liquidity, solvency and profitability.[34]

In the early years of transition 1991-1992 the Bank ofSlovenia allowed several new banks to start up. Now, in 1996 Slovenia has the highest concentration of banks in theirregion, with 31 banks and a relatively small population of 2 million. Thecentral bank was faced with the problem of deterring speculators to avoid anykind of banking crisis. The central bankdecided to increase the amount in minimum capital requirements for banks to $35million. This move prevented any futuremis-happenings while also pushing banks towards consolidation.

Currency

In October 1991, the Tolar was introduced. As a means of inflation-proofing, the lawallowed contracts and wage agreements to be denominated in foreign currency sono exchange was required. The depositsin the banks were converted automatically on a one-to-one basis and 86 billiondinars of personal cash were converted within a short period of time. The tolar’s introduction came with ease asmore than 80 percent of household monetary savings were in foreign currencydeposits.[35]

The Tolar’s exchange rate quickly stabilizeddue to a highly restrictive monetary policy which was aimed at decreasinginflation, increasing stability and strengthening the domestic currency.[36] Between 1993 and 1995 the Tolar wasdepreciated to reflect a real exchange rate. (See Appendix IX) This monetary policy aided in stabilizing theTolar and making it fully convertible. On November 19, 1996, 1USD was equivalent to 137.69 Tolars.[37] In addition, the stabilization allowed forforeign investors to conduct business in USD, DM or Tolar.

Slovenia put tight controls on foreign currency movementsin order to maintain the stability of the tolar. Since the introduction of the Tolar, total savings deposits have increased by over494 billion Tolars. Savings in 1995accounted for 23.3 percent of GDP.

Also, Slovenia has a positive balance between the foreigndebt and exchange reserves. By August of 1996, foreign allocated debt hadreached $4.21 Billion and the exchange reserves were at $4.3 Billion. (SeeAppendix X) This positive balance shows that the country’s economy continues tostabilize.

Furthermore, Slovenia has managed to get credit ratingshigher than those of Greece and other countries with longer histories of beingdemocracies and having market economies.[38]

As of May 1996, Slovenia had the followingCountry Credit Ratings: [39]

Moody’s Investor’s Service A3

Standard’s & Poor’s A

IBCA A-

In addition, according toInstitutional Investors, Slovenia ranks 47th among 135 countries, with regardsto potential areas for investment.[40]

ExpenditurePolicies and Assignments

In October 1995, the Parliament unanimously approved the 1996 draft budget presented bySlovene Prime Minister Janez Drnovsek. Expenditures are expected to be about 570 billion Tolars (about $5Bill.).[41]

A significant portion of the expenditures areallocated for health, education and infrastructure. Revenues for 1996 were expected to be 582billion Tolars, about

46.5% of Slovenia’s GDP.[42]

The surplus is allocated to cover thePension and Invalidity Insurance Funds, this action preempts the expectedexpenditure of 42 billions Tolars in 1997 towards the Pension Fund which is a20% increase from 1996.[43] One-third of the budget will be spent onCivil Servants salaries and contributions, much higher that the 1995, due tothe desire to increase public employees salaries. Nearly 11 billion Tolars will be spent onsubsidies to exporters for social welfare contributions, technologicaldevelopment, and for maintaining current levels of employment.[44]Although, therewere no current figures available concerning defense expenditures figures from1993 show 13.4 billion Tolars were allocated for the military, about 4.5% ofthe GDP.[45]Finally aboutfour million Tolars are allocated for liabilities in international agreementsto members of the Paris Club and commercial banks; this is a new item in thebudget.[46] However, the current expenditures are beingmet by disapproval from the Slovenian businessmen, who wanted a budget for 1996to be equivalent to the 1995 budget. This demand was not possible for Slovenia, as it tries to battleinflation, unemployment and provide for its’ citizens welfare.

TaxStructure and Administration

Intergovernmental Financial Relationships

Slovenia has had relative success with the administrationand collection of taxes from its citizens and corporations at all levels ofgovernment.. Article 147 of theConstitution states very generally: " the state shall levy taxes, customduties and other charges in accordance with statute. Localgovernment bodies shall levy taxes and other charges in such circumstancesas are determined by this Constitution and by statute."[47]

This constant flow of funds has allowed thegovernment to continue to provide needed services, as well as end severalyears, since independence, with budget surpluses. The country has tried to diversify the taxbase, which has also added to the increased stability of the tax base.

Administration

The Slovene government is making extra efforts to insuresuccessful implementation of taxpolicy. Slovenian tax administrators aretaking part in the OECD’s multilateral tax network program which providesadvice on taxation practice, policy and systems, with workshops foradministrators in member countries such as Austria, Denmark, Hungary andTurkey. In addition, this program willevaluate the countries after the year is over, regarding their effectiveness in implementing taxpolicy. A key factor that has aided inthe current implementation of the tax system is that the Slovenian Tolar isinternally convertible, and therefore, foreign investors or business dealingcan take place easily in foreign or domestic currency.

In 1997, Sloveniaintends to unify the tax administration offices. Currently, there are two tax collectionservices, one for the companies and one for the individuals.[48]

In addition, according to OECD, in the nexttwo years there will be significant changes in the tax policy andadministration in Slovenia.

Currently, the tax year runs from 1 January to 31December, with tax returns to be filed by 31 March of the following year (15April for a consolidated return).[49]

In general, thesystem depends on self-assessment, however, if there is falsification ofearnings or evasion of taxes, the government assesses heavy penalties.

The government, although requiring penalties for latepayments is being realistic in the charges it assess for tardiness. A new act was passed in 1995, which reducedthe late payment fees from 25% of amount owed to 18% on all public aged debtincluding income tax, sales tax and social security late payments.[50]

The tax administrators have developed a system whichallows for advance payment of taxes and deadlines that apply to readjustment oftaxes. Balances due on taxes must be paid five days after the annual return hasbeen filed and if readjustments are made then the company has thirty days tomake the payment.[51]

Corporate Tax and Incentives

As of 1995, the corporate tax rate was at 25%.[52]

The republic has made a large effort to keepthe business environment attractive to foreign investors. However, the rates were increased to 30% by1996 and now legislation is trying to reduce the amount to 25% once again; thereduction in taxable income due to re-investment exemptions could make theeffective rate 20%, if legislation goes through.[53] Slovenia continues to honor double taxationtreaties signed by the former Yugoslavian government. In addition, a temporary tax exemptionregarding capital gains derived from securities transactions has been extendedto January 1, 1997.[54] «As of January 1, 1994, up to 20% of theamount reinvested in fixed assets(except for cars used for personal purposes)and long-term intangible assets is deductible from the investor’s taxableincome, provided that the amount does not exceed the tax base.»[55]The tax structurealso provides for 30% deductions from taxable income for the first year if the corporation hires an unemployed or disabled worker.

«Taxable income is defined as gross income lessexpenses incurred in earning that income.»[56]

Some of the deductions include: 1) depreciation on fixed assets if it does notexceed set rates, with straight line depreciation being used only;[57]2) interest ifit does not exceed the average interbank interest rate; 3) sums contributed forfuture reserves for investment; 4) up to 70% for entertainment expenses; 5)losses may be only carried forward for five years.[58]

Furthermore, for corporationinventories are valued using the first-in, first-out method; last-in, first-outmethod; or the weighted average method.

Individual Tax

If one is a resident citizen of Slovenia, taxable incomeincludes income world-wide, however, for non-residents only income earnedwithin Slovenia can be taxed. The system does not provide for the taxation offamilies, only individuals; therefore, joint tax returns are not filled. The income tax is paid directly through theemployer and is based on progressive rates for the income earned in theprevious month.[59]

(See AppendixXI) In addition, capital gains of realestate are taxable. After January 1, 1997, gains from sales of securities willalso be taxable.[60]

The government has some deductions and relief built intothe system. All individuals may deduct an amount equal to 11% of the annualwage in Slovenia; in fact if you earn less than this amount you do not have tofile a return. Furthermore, up to 3% ofthe tax base can be deducted for each of the following: 1) expenses inpurchasing state securities, 2) membership fees in various parties ororganizations, 3) payments for health care, 4) payments for education.[61]

Withholding Tax

Slovenia levies a withholding tax of 25% for residentsand 15% for non-residents. There is alsoa withholding tax on royalties of 25% on all individuals.[62]

Inheritance and Gift Tax

Beneficiaries of the inheritance or gift must pay taxesunless they are the spouse or child of the donor. If the beneficiary is arelative(i.e., brother, sister, nephew or niece) they have to pay only 5Tolars on receipts with a market value of 1,164,822 Tolars. However, if the beneficiary is not a relativethey may have to pay up to 30% of the value in taxes.[63]

Property Tax

Once the value of the building is determined by thegovernment, a progressive rate of no more than 1.5% is applied. Some buildings may be exempt. Their is also a tax of 2% of the purchaseprice on immovable property.[64]

Customs and Excise Duties

Rates for imports vary form 0% to 25% of the value of thegoods. There are also some excisetaxes which apply to fuel, tobacco, and alcohol.[65]

Value-Added Tax

The VAT, which was introduced to Slovenia at thebeginning of 1996, will provide important revenue to the Slovenian government.Before the VAT was introduced, sales tax was assessed on the sale of retailgoods and services and on imports. However, several rates applied depending on the type of good. The tax was ultimately paid by the consumer.The VAT has already been introduced in 5 other transitional economies and itseems to be effective. In additionaccording to OECD, the VAT continues to be a key in the tax reform process inthe transition countries.

As the previous discussion shows, Slovenia has developeda highly specific, and involved tax structure. The country is making an attempt to have a sophisticated taxadministration and structure that is effective, efficient, equitable and has ayield that will allow for enough revenue for the government to function. In addition, the country has a highlydiversified tax base, which also strengthens the income from tax revenue.

SocialInsurance

Slovenia’s current social safety nets and incometransfers are obstructing free market labor productivity, postponing structuraladjustment and are harboring high levels of unemployment. Before entry into the EU, Slovenia must alterits social programs. There is a strongbelief among EU members that the assistance for employment fostering policiesleading to the future improvement in the quality of labor in Slovenia is moreefficient and desirable than the future income transfers covering unemploymentbenefits and social safety that would otherwise have to be provided.[66]

Housing

Housing Policy is yet another area of concern for thegovernment. In October of 1991, thegovernment of Slovenia passed the Housing Act. Creating a state housing policy was necessary for the private ownershipof land and building. In addition, thegovernment created the National HousingFund which was anticipated to be a «social cushion’ and was supposed tocreate national housing policy.[67]

This did not happen!

The Housing Act ended up back firing. The Act was created to allow for equal ownership for all citizens.Unfortunately, some people were able to purchase greater amounts of propertyand effectively bought out the property rights of their neighbors.[68]

This situation has caused many tenant-ownerconflicts. Another problem created bythe Housing Act was the inequity in the amount of housing sold in each region.There was a great amount of disparity which may cause problems for futurehousing reforms.

Unemployment

Slovenia experienced high levels of unemployment in itsfirst stage of transition as the number of individuals seeking early retirementincreased substantially. In addition,many enterprises that had entire branches, equipment, factories in the otherYugoslavian republics went bankrupt or lost a large sector of their business.[69]

Therefore, unemployment was a huge socialproblem for the new Republic of Slovenia. In 1992, 140,000 people were unemployed.[70] The transition of the economy brought aboutincreased need for social insurance. Theresidents considered retirement incomesystems(RIC) the most important part of the social safety net since the RIC alleviated the economic hardshipsfaced by the retired elderly. Thegovernment of Slovenia knew how these problems used to be solved and they knewhow the EU wanted them to deal with it. The dilemma was deciding what was in the country’s best interest.

There was a complex relationship between spendingpriorities on social safety and on human capital development. The trade-off in the short-run balanced thegovernment and the private sector expenditures on welfare and investment inhuman capital against high unemployment, increasing poverty, and a high shareof retired persons in the total population absorbing funds that could otherwisebe allocated on labor training programs. However, investment in human capital had the possibility of increasing productivity and labor forcecompetitiveness in the long-run. Withoutsufficient qualifications, Slovenia’s workers experienced high unemployment and created a demand for compensatorybenefits that would have to be financed either by limited domestic sources orby external savings.[71]

Pensions and Disability

In 1995, the managers of the Pension and DisabilityInsurance Fund (ZPIZ) finished the business year with a deficit of 12 billionTolars.[72]

However, the ZPIZ has made it a priority toinsure that all pensioners received their pensions. Additional support for the ZPIZ and theirpolicy came from the Slovenian Parliament, which passed an increase of 42billion Tolars for the funding of the ZPIZ.[73] Furthermore, Slovenia is one of the fewcountries in transition that has tried to keep monthly old-age pensions as arelatively constant percentage rate of the average monthly gross wages. (SeeAppendix XII ) This has helped elderly citizens provide for their own needsthrough their pensions.

Unemployment

Slovenia also has a National Unemployment Office (RZZ).This office reported in February 1996, 123,689 people remained unemployed whichis 1.9% more than February 1995.[74]

This further supports that the economy ofSlovenia may be experiencing a slow down. As of July of 1996, the RZZ reportedthat unemployment was 13.7% but according to the ILO definition ofunemployment, the figure was much lowerat 7.3%.[75]However, withthe change in government, hopes are that these issues will be discussedand policies implemented to reduce the level of unemployment. Currently, the country is providingunemployment insurance for the people without jobs who register with the RZZ.

Conclusion

Slovenia remains a powerhouse in comparison to some ofthe other former Eastern Bloc countries. It has proceed with some caution, realizing the changes that arenecessary for a stable free market economy. Now, with new leaders, the country has to decide whether it willcontinue the course set forth by the originators of the country or whether itwill go back, taking more conservative steps. From Slovenia’s current actions, it would seem that the next step iseither Associate Membership or Full Membership in the European Union.

Janez Drnovsek when presenting the 1996 budget toparliament informed the legislative body that «Slovenia met three of thefive Maastricht criteria for introducing a single European currency: ‘Ourpublic debt is well below the European average and the budget is balanced,which is significantly better than the European Union average. We also meet the third criterion on theconvertibility of the national currency. Two criteria remain: both our average interest rate and our inflation istoo high, but we are planning to cut inflation down to about 6.5%.’»[76]

Currently, Slovenia seems to be ahead ofsome of the current members of the EU in satisfying the Maastricht Treaty’srequirements. In addition, the questionremains, whether Slovenia will join NATO. The new parliament may have a well defined

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