Independence Poses Tests for Czechs, Slovaks Preventing Economic Decline Central to Determining States's Future

Article excerpt

JOZEF PROKES likens Jan. 1 independence for Slovakia to moving into an apartment but having no furniture. It's a new start, says this Slovak nationalist, now vice-president of the Slovak Parliament.

After their 70-year marriage, Jan. 1 indeed marks a new beginning for the Czech and Slovak divorcees. But independence may not be as easy as going to the store and buying furniture.

"The jury is out" on how successfully the two republics will manage their new statehood, says a United States official in Prague. He adds, however, that the peaceful and businesslike handling of the split by both sides is encouraging.

"Our hope is that we will be able to look back and say this is a model that is not perfect, but better than what's happened in {former} Yugoslavia or the former Soviet Union," the US official says.

Whether this hope is fulfilled depends to a great extent on the economic futures of these two Central European republics. While the Czechs have followed textbook economic reforms so far, Slovakia is of great concern.

Slovakia is poorer and has an industrial base less suited to a market economy. Of Slovakia's 5 million inhabitants, 10.3 percent are unemployed, compared with 2.5 percent in the Czech Republic.

Foreign investors, at least for now, have given up on Slovakia. In 1992, according to Oldrich Dedek, deputy director of the State Bank of Czechoslovakia's Institute of Economics, 92 percent of direct investment is going to the Czech lands (Bohemia and Moravia).

The rest of the world might not be so concerned about the small Slovak economy were it not for the ripple effect that its downfall could cause.

Western diplomats in Prague paint a worst-case scenario that sees a quick and severe economic downturn in Slovakia that could result in political instability, the surge of extremist parties, the large Hungarian minority in Slovakia targeted as scapegoats, and Slovak economic refugees moving into the Czech lands. This would add to the instability already spreading in Central and Eastern Europe.

Actually, though, the split will spell economic trouble for the Czech Republic as well, at least in the near-term, Mr. Dedek explains.

After Jan. 1, he says, Prague will no longer have to subsidize Bratislava to the tune of 15 to 20 billion crowns ($540 million to $720 million) a year. But there is a flip side. Without the subsidy, Slovaks will have less to spend on Czech goods. And once Slovakia has its own currency, Dedek adds, it could be devalued as much as 30 percent, making Czech goods 30 percent more expensive in Slovakia. "The Czechs will have to look for new markets," he says.

As it stands now, the Czechs and Slovaks are each other's main export markets. Because of this tight economic connection, the two republics have agreed to free movement of goods and labor across their common border. …