Реферат: Country Study, Slovenia: Winning the Transitional Economies Race
Winning the Transitional Economies Race
Michael Milton Peter firstname.lastname@example.org
Robert Scott Taylor email@example.com
Dmitri Maslitchenko firstname.lastname@example.org
Government Finance in Transition Economies
Professor John Mikesell
TheWorld Development Report: From Plan to Market (WDR) argues
thatwith consistent and sustained reforms, transition countries can
achievesuccessful long-term economic growth, but also warns that
manychallenges and risks — among them long-term stagnation and
risingpoverty — still lie ahead for some countries.
-WorldBank News, June 27,1996-
Five years ago a small republic of theformer Yugoslavia, started on its path of transition from an eastern blocksocialist government with a planned economy to a democratic government with afree market economy. Fortunately, the rocky road, described by the WorldBank News in the quote above, has not been long for Slovenia. AlthoughSlovenia was the most prosperous Republic before the dissolution ofYugoslavia, after the breakup of Yugoslavia in 1991, Slovenia experienced highlevels of inflation, a drop in the GDP and a tripling of the unemploymentlevels. These problems did not stop Slovenia’s transition toan economic powerhouse in the former Eastern 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 economic status by examining the political and economicbackground, budgetary and monetary conditions, expenditure policies andassignment, tax structure and administration, and social insurance.
Political and Economic Background
Passing through its transition period froma centrally planned economy to a market economy, Slovenia has dealt with somesuccesses and some failures. However, Slovenia’s experiences and economicpolicies could prove to be helpful for other economies in transition. Thereare many reasons why the transition period for Slovenia has been successful.The foundation for its quick transformation to a market economy lies within thepositioning of Slovenia in the history of Yugoslavia before and after itsdissolution.
After the end of World War II,Yugoslavia’s definition of socialism changed. Ownership of the means ofproduction was defined as ‘social’ rather than ‘state’ and firms were managedby workers councils. No central planning existed after 1965 and Slovenia, aswell as the other republics in Yugoslavia, were given a high degree ofautonomy. Also Tito, a former leader of Yugoslavia, had deviated from the‘command economy’ model of the Soviet Institution. As a result, the Yugoslavian government policy had an emphasis on a greater sense ofautonomy, as far the economy was concerned. 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. Slovenia had always been orientedtowards the west, however, due to its northwestern location in Yugoslavia, itseconomic interaction with the western countries led it to become marketoriented faster than other Eastern Europe countries.
While Slovenia was a part of Yugoslavia,it was by far the most successful republic with a per capita income of almostdouble that of the national average. 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% of Yugoslavia’s foreign exchange.” Also, Slovenia accounted for 20% of thecountry’s Gross Domestic Product. As a result of this high degree ofdecentralization and positive net outflows, the aforementioned characteristics provided the economic basis to secession. In May 1990, the people of Sloveniaelected a government whose economic policy, according to Mencinger, " wasset by the premise that prospects of transition to a market economy wereworsening; the economic policy of the federal government mistaken, the existingeconomic system unsuitable, and the Federation facing political turmoil." The referendum on independence passedwith 90 percent support. Since that 1990 vote, Slovenia has come a long wayeconomically.
Slovenia declared its independence on June25, 1991. The first year for Slovenia was quite difficult. “Real GDP fell 15%during 1991-92, while inflation jumped to 247% in 1991 and unemployment topped8% — nearly three times the 1989 level.” The economy continued to plummet until1993 when it flatten and then head into the positive direction. By 1993unemployment was at 11% and many companies had lost almost 30% of their marketsdue to the bitter conflict in Bosnia and the loss of faith in the region byinternational trade partners. However, “[a]t its current rates of economic growth,[slovenia] it could pass EU members Greece and Portugal in four to five years.”
Current Economic Conditions
Gross Domestic Product
In order to appreciate the currenteconomic conditions of the country, it is necessary to examine some of theeconomic indicators in relation to their past figures. Thefirst indicator is Gross Domestic Product. According to the EIU Country Reportfor the 2nd quarter of 1996, the real GDP growth percentage is slowing down. In fact between 1994 and 1995 there was a -1.4% increase in GDP. Even though there was a negative change,the Chamber of Economy in Slovenia states that due to “tremendous growth ofnew companies, particularly small businesses, and the shift of foreign tradewestward,” they project that slovenia is expecting to experience a 5-6 percentincrease in GDP in the period up to the year 2000. In addition, “the GDP per capita ishigher than those of Greece and Portugal, double that of Hungary and the CzechRepublic, and it has a comparatively efficient manufacturing sector.” 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 to depend on manufacturing and machinery production,other industries continue to grow and keep a diverse base for Slovenia’s GDP.(See Appendix I) The country of 2 million people has a GDP of more than $18.5billion. The EIU predicts that the real GDPpercentage change form the previous year will be 3.0 and 4.0 in 1996 and 1997,respectively. (See Appendix II)
Imports and Exports
Other important indicators are foreignimports and exports. In 1995 Slovenia had $20.8 billion in foreign trade,goods and services. Slovenia’s international trade has been geared towardswestern Europe, especially Italy and Germany. (See Appendix III & IV) One advantagethat Slovenia 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. Western Europe has maintained a highdemand for machinery and transport equipment, comprising 27% of Slovenia’sexports. (See Appendix V &VI) This consistent link with the West also isevident in the political philosophy of Slovenia.
In 1991, when the Republic of Sloveniafirst started establishing policy towards a market economy, the inflation ratereached a peak of 247.1%. This was expected, since the economy wasmoving from a highly state subsidized centrally planned economy to a free-market economy. Fortunately, by 1995 the inflation rate had reached 9.5%. One important quality of this transitionwas that Slovenia managed to bring inflation under control without anybalance-of payment problems. Inflation in 1996 thus far is at 10.7% a smallincrease form 1995, however, the Chamber of Economy of Slovenia has a positiveoutlook for the next year. (See Appendix VII)
In 1994, the Slovenian government took itsfirst steps towards privatization. At first the country observed the otherEastern Bloc countries and learned from their failures. The companies orenterprises’ were allowed to choose between five privatization models, whichwere then approved by the Agency for Privatization. Most of the companies were sold off tothe workers and managers.
The citizens were given privatizationcoupons valued at 100,000 — 400,000 Tolars, depending on the age of theindividual. The coupons could be used to buy shares or invest the money intosecurities. Over 45% percent of the coupons were invested into fundsecurities. According to Price Waterhouse, over 400enterprises have been successfully privatized and another 1000 will soon be atthe same status. However, some companies, such as public utilities, nationaltelecom, and two commercial banks have not gone through the process; thegovernment states that these entities will undergo special privatizationprocesses.
On the 25th of June, 1991, Sloveniadeclared the end of its political ties with the former Yugoslavia. Although,the government of the former Yugoslavia did not want the republic to secede,after a mild show of military force, Yugoslavia gave Slovenia up. Since then,the National Assembly has been the main legislative body of the Republic ofSlovenia. This national legislature consists of 90 members that are directlyelected by the people for four year terms. In addition, there is the Councilof State that is elected for five years. This council has 40 members, 22representing local interests, 12 evenly divided between employers, and 6representing non-economic activities.
Slovenia is currently governed by two dominantparties who have formed a government coalition, the Liberal Democracy ofSlovenia (LDS) and the Slovene Christian Democrats (SKD). The LDS stems fromthe youth movement of the former communists while the SKD originates from aChristian tradition dating back before the Second World War. The differences in these groups are themain reasons why there seldom is cooperation in making government decisions. However, there are other parties with greater opposition: the Social DemocratParty of Slovenia(SDSS), the Slovene National Party (SNP) and the SlovenePeople’s Party (SLS).
One aspect that has helped Slovenia remainstable politically is that the ethnic make-up is not extremely diverse. Almost, 91% of the population is Slovene and they are predominantly RomanCatholic. (See Appendix VIII ) This composition hasallowed Slovenia to focus on economic revival rather than religious ethnicconflict, quite unlike their neighbors to the south in Bosnia-Herzogovina.
In November of 1996, Slovenia had electionsand most of the incumbents were re-elected. The LDS won the most seats (25) andthe Slovenian People’s Party, conservatives, won the second largest at 19. This could cause a conflict because, boththe liberals and the conservatives have gained a significant amount of powerafter this election. In the coming months the coalitions that form with the parties with fewer seats could be significant for the political climate ofSlovenia. The far right conservatives, United List of Social Democrats(ZLSD- formercommunists), do not back Slovenia’s entrance into NATO, claiming neutralityshould be considered an option; the entrance into the EU will be supported bythe ZLSD. However, economists warn that Sloveniashould not rely on its economic successes in the past but instead should focuson increasing privatization and address the slowing industrial production andrising unemployment. The new government needs to continue towork towards improving the economic state of the Republic if they expect tobecome more like a Western European country.
Budgetary and Monetary Conditions
Slovenia began to stabilize its economybefore it had gained its complete independence because inflation was increasingdrastically. Although, Slovenia made a clean break to independence, therewere some costs involved. Slovenia had 33 percent of its exports going toYugoslavia, however, with its independence Slovenia had an instant 6 percentdecrease in its GDP. This economic shock was small incomparison to the 38 percent decrease in industrial production Slovenia facedbecause of its transitional state. Slovenia stabilized its economy by October1992. 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 inthe transition process. In 1995, the financial and market services sectorcomprised 14% of the GDP, the second largest contributor. 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 financialregulation in Slovenia, which produced many problems. Most banks were owned bythe firms to whom they lent. As a result, 30-40 percent of the loans on thebooks were non-performing. This combined with a monopolisticstructure, lead to exorbitant lending rates, preventing many viable enterprisesfrom access to capital. In addition, a healthy banking system requires recapitalizationand investment to improve service. This was not happening right away inSlovenia. As a result, banks were audited in 1991 and in the autumn of thatyear, the Bank Restructuring Agency was founded to deal with these problems andto help restore competition. Now, most banks in Slovenia have been privatizedexcept two which remain state-owned.
Facing expansionary monetary policy,Slovenia needed some financial discipline for the newly created enterprises andgovernment, thus, they created the Bank of Slovenia. The bank was created withthe objectives to stabilize prices and establish a balanced functioning ofdomestic and international payments. The law that mandated the Bank ofSlovenia, allowed the bank to execute monetary policy, free from politicalcontrol. Another characteristic of the Bank of Slovenia that helped itssuccess, was that the bank would only give out short-term loans to thegovernment to cover cash flow problems. This restriction served to be effectivein preventing the accumulation of deficits. 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 sheet items
* 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 adopted with the intent to ensuresafer bank operations that conform to the basic principles of liquidity,solvency and profitability.
In the early years of transition 1991-1992the Bank of Slovenia allowed several new banks to start up. Now, in 1996Slovenia has the highest concentration of banks in their region, with 31 banksand a relatively small population of 2 million. The central bank was facedwith the problem of deterring speculators to avoid any kind of banking crisis. The central bank decided to increase the amount in minimum capital requirementsfor banks to $35 million. This move prevented any future mis-happenings whilealso pushing banks towards consolidation.
In October 1991, the Tolar wasintroduced. As a means of inflation-proofing, the law allowed contracts andwage agreements to be denominated in foreign currency so no exchange wasrequired. The deposits in the banks were converted automatically on aone-to-one basis and 86 billion dinars of personal cash were converted within ashort period of time. The tolar’s introduction came with ease as more than 80percent of household monetary savings were in foreign currency deposits. The Tolar’s exchange rate quicklystabilized due to a highly restrictive monetary policy which was aimed atdecreasing inflation, increasing stability and strengthening the domesticcurrency. Between 1993 and 1995 the Tolar wasdepreciated to reflect a real exchange rate. (See Appendix IX) This monetarypolicy aided in stabilizing the Tolar and making it fully convertible. OnNovember 19, 1996, 1USD was equivalent to 137.69 Tolars. In addition, the stabilization allowedfor foreign investors to conduct business in USD, DM or Tolar.
Slovenia put tight controls on foreigncurrency movements in order to maintain the stability of the tolar. Since the introduction of the Tolar, total savings deposits have increased by over 494billion Tolars. Savings in 1995 accounted for 23.3 percent of GDP.
Also, Slovenia has a positive balancebetween the foreign debt and exchange reserves. By August of 1996, foreignallocated debt had reached $4.21 Billion and the exchange reserves were at $4.3Billion. (See Appendix X) This positive balance shows that the country’seconomy continues to stabilize.
Furthermore, Slovenia has managed to getcredit ratings higher than those of Greece and other countries with longerhistories of being democracies and having market economies. As of May 1996, Slovenia had thefollowing Country Credit Ratings: 
Moody’s Investor’sService A3
Standard’s &Poor’s A
In addition, according to Institutional Investors,Slovenia ranks 47th among 135 countries, with regards to potential areas forinvestment.
Expenditure Policies and Assignments
In October 1995, the Parliamentunanimously approved the 1996 draft budget presented by Slovene Prime MinisterJanez Drnovsek. Expenditures are expected to be about 570 billion Tolars(about $5 Bill.). A significant portion of the expendituresare allocated for health, education and infrastructure. Revenues for 1996 wereexpected to be 582 billion Tolars, about
46.5% of Slovenia’s GDP. 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. One-third of the budget will be spenton Civil Servants salaries and contributions, much higher that the 1995, due tothe desire to increase public employees salaries. Nearly 11 billion Tolarswill be spent on subsidies to exporters for social welfare contributions,technological development, and for maintaining current levels of employment. Although, there were no current figuresavailable concerning defense expenditures figures from 1993 show 13.4 billionTolars were allocated for the military, about 4.5% of the GDP. Finally about four million Tolars areallocated for liabilities in international agreements to members of the ParisClub and commercial banks; this is a new item in the budget. However, the current expenditures arebeing met by disapproval from the Slovenian businessmen, who wanted a budgetfor 1996 to be equivalent to the 1995 budget. This demand was not possible forSlovenia, as it tries to battle inflation, unemployment and provide for its’citizens welfare.
Tax Structure and Administration
Intergovernmental Financial Relationships
Slovenia has had relative success with theadministration and collection of taxes from its citizens and corporations atall levels of government.. Article 147 of the Constitution states verygenerally: " the state shall levy taxes, custom duties and other chargesin accordance with statute. Local government bodies shall levy taxesand other charges in such circumstances as are determined by this Constitutionand by statute." This constant flow of funds has allowedthe government to continue to provide needed services, as well as end severalyears, since independence, with budget surpluses. The country has tried todiversify the tax base, which has also added to the increased stability of thetax base.
The Slovene government is making extraefforts to insure successful implementation of tax policy. Slovenian taxadministrators are taking part in the OECD’s multilateral tax network programwhich provides advice on taxation practice, policy and systems, with workshopsfor administrators in member countries such as Austria, Denmark, Hungary andTurkey. In addition, this program will evaluate the countries after the yearis over, regarding their effectiveness in implementing tax policy. A keyfactor that has aided in the current implementation of the tax system is thatthe Slovenian Tolar is internally convertible, and therefore, foreign investorsor business dealing can take place easily in foreign or domestic currency.
In 1997, Slovenia intends to unify thetax administration offices. Currently, there are two tax collection services,one for the companies and one for the individuals. In addition, according to OECD, in thenext two years there will be significant changes in the tax policy andadministration in Slovenia.
Currently, the tax year runs from 1January to 31 December, with tax returns to be filed by 31 March of thefollowing year (15 April for a consolidated return). In general, the system depends onself-assessment, however, if there is falsification of earnings or evasion oftaxes, the government assesses heavy penalties.
The government, although requiringpenalties for late payments is being realistic in the charges it assess fortardiness. A new act was passed in 1995, which reduced the late payment feesfrom 25% of amount owed to 18% on all public aged debt including income tax,sales tax and social security late payments.
The tax administrators have developed asystem which allows for advance payment of taxes and deadlines that apply toreadjustment of taxes. Balances due on taxes must be paid five days after theannual return has been filed and if readjustments are made then the company hasthirty days to make the payment.
Corporate Tax and Incentives
As of 1995, the corporate tax rate was at25%. The republic has made a large effort tokeep the business environment attractive to foreign investors. However, therates were increased to 30% by 1996 and now legislation is trying to reduce theamount to 25% once again; the reduction in taxable income due to re-investmentexemptions could make the effective rate 20%, if legislation goes through. Slovenia continues to honor doubletaxation treaties signed by the former Yugoslavian government. In addition, atemporary tax exemption regarding capital gains derived from securitiestransactions has been extended to January 1, 1997. «As of January 1, 1994, up to 20% ofthe amount reinvested in fixed assets(except for cars used for personalpurposes) and long-term intangible assets is deductible from the investor’staxable income, provided that the amount does not exceed the tax base.» The tax structure also provides for 30%deductions from taxable income for the first year if the corporation hires anunemployed or disabled worker.
«Taxable income is defined as grossincome less expenses incurred in earning that income.» Some of the deductions include: 1)depreciation on fixed assets if it does not exceed set rates, with straightline depreciation being used only; 2) interest if it does not exceed theaverage interbank interest rate; 3) sums contributed for future reserves forinvestment; 4) up to 70% for entertainment expenses; 5) losses may be onlycarried forward for five years.
Furthermore, for corporation inventories are valuedusing the first-in, first-out method; last-in, first-out method; or theweighted average method.
If one is a resident citizen of Slovenia,taxable income includes income world-wide, however, for non-residents onlyincome earned within Slovenia can be taxed. The system does not provide for thetaxation of families, only individuals; therefore, joint tax returns are notfilled. The income tax is paid directly through the employer and is based onprogressive rates for the income earned in the previous month. (See Appendix XI) In addition, capitalgains of real estate are taxable. After January 1, 1997, gains from sales ofsecurities will also be taxable.
The government has some deductions andrelief built into the system. All individuals may deduct an amount equal to 11%of the annual wage in Slovenia; in fact if you earn less than this amount youdo not have to file a return. Furthermore, up to 3% of the tax base can bededucted for each of the following: 1) expenses in purchasing state securities,2) membership fees in various parties or organizations, 3) payments for healthcare, 4) payments for education.
Slovenia levies a withholding tax of 25%for residents and 15% for non-residents. There is also a withholding tax onroyalties of 25% on all individuals.
Inheritance and Gift Tax
Beneficiaries of the inheritance or giftmust pay taxes unless they are the spouse or child of the donor. If thebeneficiary is a relative(i.e., brother, sister, nephew or niece) they have topay only 5 Tolars on receipts with a market value of 1,164,822 Tolars. However, if the beneficiary is not a relative they may have to pay up to 30% ofthe value in taxes.
Once the value of the building isdetermined by the government, a progressive rate of no more than 1.5% isapplied. Some buildings may be exempt. Their is also a tax of 2% of thepurchase price on immovable property.
Customs and Excise Duties
Rates for imports vary form 0% to 25% ofthe value of the goods. There are also some excise taxes which apply tofuel, tobacco, and alcohol.
The VAT, which was introduced to Sloveniaat the beginning of 1996, will provide important revenue to the Sloveniangovernment. Before the VAT was introduced, sales tax was assessed on the saleof retail goods and services and on imports. However, several rates applieddepending 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 addition according to OECD, the VAT continues to bea key in the tax reform process in the transition countries.
As the previous discussion shows, Sloveniahas developed a highly specific, and involved tax structure. The country ismaking an attempt to have a sophisticated tax administration and structure thatis effective, efficient, equitable and has a yield that will allow for enoughrevenue for the government to function. In addition, the country has a highlydiversified tax base, which also strengthens the income from tax revenue.
Slovenia’s current social safety nets andincome transfers are obstructing free market labor productivity, postponingstructural adjustment and are harboring high levels of unemployment. Beforeentry into the EU, Slovenia must alter its 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.
Housing Policy is yet another area ofconcern for the government. In October of 1991, the government of Sloveniapassed the Housing Act. Creating a state housing policy was necessary for theprivate ownership of land and building. In addition, the government createdthe National Housing Fund which was anticipated to be a «social cushion’and was supposed to create national housing policy. This did not happen!
The Housing Act ended up back firing. TheAct was created to allow for equal ownership for all citizens. Unfortunately,some people were able to purchase greater amounts of property and effectivelybought out the property rights of their neighbors. This situation has caused many tenant-ownerconflicts. Another problem created by the Housing Act was the inequity in theamount of housing sold in each region. There was a great amount of disparitywhich may cause problems for future housing reforms.
Slovenia experienced high levels ofunemployment in its first stage of transition as the number of individualsseeking early retirement increased substantially. In addition, manyenterprises that had entire branches, equipment, factories in the otherYugoslavian republics went bankrupt or lost a large sector of their business. Therefore, unemployment was a huge socialproblem for the new Republic of Slovenia. In 1992, 140,000 people wereunemployed. The transition of the economy broughtabout increased need for social insurance. The residents considered retirement income systems(RIC) the most important part of the social safety netsince the RIC alleviated the economic hardships faced by the retiredelderly. The government of Slovenia knew how these problems used to be solvedand they knew how the EU wanted them to deal with it. The dilemma was decidingwhat was in the country’s best interest.
There was a complex relationship betweenspending priorities on social safety and on human capital development. Thetrade-off in the short-run balanced the government and the private sectorexpenditures on welfare and investment in human capital against highunemployment, increasing poverty, and a high share of retired persons in thetotal population absorbing funds that could otherwise be allocated on labortraining programs. However, investment in human capital had the possibilityof increasing productivity and labor force competitiveness in the long-run. Without sufficient qualifications, Slovenia’s workers experienced highunemployment and created a demand for compensatory benefits that would have tobe financed either by limited domestic sources or by external savings.
Pensions and Disability
In 1995, the managers of the Pension andDisability Insurance Fund (ZPIZ) finished the business year with a deficit of12 billion Tolars. However, the ZPIZ has made it a priorityto insure that all pensioners received their pensions. Additional support forthe ZPIZ and their policy came from the Slovenian Parliament, which passed anincrease of 42 billion Tolars for the funding of the ZPIZ. 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.
Slovenia also has a National UnemploymentOffice (RZZ). This office reported in February 1996, 123,689 people remainedunemployed which is 1.9% more than February 1995. 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 lower at 7.3%. However, with the change in government,hopes are that these issues will be discussed and policies implemented toreduce the level of unemployment. Currently, the country is providingunemployment insurance for the people without jobs who register with the RZZ.
Slovenia remains a powerhouse incomparison to some of the other former Eastern Bloc countries. It has proceedwith some caution, realizing the changes that are necessary for a stable freemarket economy. Now, with new leaders, the country has to decide whether itwill continue the course set forth by the originators of the country or whetherit will go back, taking more conservative steps. From Slovenia’s currentactions, it would seem that the next step is either Associate Membership orFull Membership in the European Union.
Janez Drnovsek when presenting the 1996budget to parliament informed the legislative body that „Slovenia metthree of the five Maastricht criteria for introducing a single European currency:‘Our public debt is well below the European average and the budget is balanced,which is significantly better than the European Union average. We also meetthe third criterion on the convertibility of the national currency. Twocriteria remain: both our average interest rate and our inflation is too high,but we are planning to cut inflation down to about 6.5%.’“ Currently, Slovenia seems to be ahead ofsome of the current members of the EU in satisfying the Maastricht Treaty’srequirements. In addition, the question remains, whether Slovenia will joinNATO. The new parliament may have a well defined opposition to thisprospect.
Additionally, Slovenia is flourishing asan economic center of commerce in the East. Slovenia needs to strengthen itsties with other eastern countries, such as Russia, in order to develop itstrade partners. The transitioning countries can serve as a new market for theWest as well as Slovenia. Furthermore, additional trade partners exist in thefar east, which are currently not being considered.
Many challenges face the transitioncountries as the century comes to a close. It will be important to watch theseeconomies as they begin to rise above the already established economies of theWest. It will be important that Slovenia manage it’s inflation rate, keepinterest rates at a stable level and insure that the Tolar remain at acontrolled level. All these factors will play a large role in determiningsuccessful public financial and monetary policy in the Republic of Slovenia.