Slovakia Cleans Up

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Global Finance reporter Fiona Haddock goes head to head this month with the finance ministers of Slovakia, Jamaica, and Portugal, while James Brandman meets the head of Italy's stock exchange and the prime minister of Bangladesh

There is a sense of purpose and optimism beyond the usual rhetoric in the Slovakian government's grand plans to stabilize the economy and restructure the banking and corporate sectors.

"Our government inherited a whole lot of economic complications: Erratic growth, a high current account deficit, and high fiscal deficit," says the Republic of Slovakia's finance minister, Brigita Schmognerova. "We intend to speed up structural and institutional reforms. A turnaround is on the way."

You'd hope so.

Last year Slovakia lost its investment-grade rating, and the local currency, the crown, was forced out of its currency band. The country's current account and fiscal deficits have spiraled out of control, and the external debt weighs heavily on the country's coffers. On top of that, Slovakia's banking sector is one of the most fragile in Europe with a plethora of irregular loans.

The new government intends to cut the country's current account deficit by half-from 10% to 5-6% of the annual production of goods and services. It also aims to cut the fiscal deficit to 2.8% of GDP Says Schmognerova:"These are ambitious aims but, I think, realistic." She notes that the current account deficit fell to 5.5% of GDP in the first quarter of this year from 9% in the corresponding period of 1998 and adds: "What we have achieved this year is quite encouraging."

Nevertheless, Slovakia is still beleaguered by a sick local banking sector and a public sector that has been slow to privatize. Fearing foreign control of assets would interfere with its high-handed running of the banks, the previous murky government of Vladimir Meciar was loath to privatize. …