It’s not every day that a Finance minister or central bank governor can boast of having a beer named in their honour. It’s diffcult, for example, to imagine ordering a Duisenberg pils at the bar, or that a Gordon Brown ale will ever compete with the Newcastle variety. But then, Brigita Schmögnerovà is no ordinary Finance minister. When the Topvar brewery saw Fit to market a beverage bearing her name, it was a mark of the esteem in which she is held.
More conventional evidence was the oVer of a UN economic post earlier this year – an oVer turned down, with the Slovak Republic’s premier Mikulás Dzurinda insisting that Schmögnerovà was still very much required at home.
Educated in Bratislava, with short periods studying in Athens and Denmark, Schmögnerovà has spent most of her life working as an economist. Following the division of Czechoslovakia in 1989, she was appointed an economic adviser to the Fledgling Slovak Republic’s First president. Before taking her present post, she served as a member of parliament in opposition, and she has also spent eight months as deputy prime minister, with specific responsibility for the economy, in a previous temporary administration. This experience has been crucial to the development of the austerity package, pushed through largely thanks to Schmögnerovà’s skill and strength of character, which has Finally put the Slovakian economy on the path to stability.
When the present government came to power in late 1998, Schmögnerovà faced the challenge of turning around an economy in poor shape. The country was running a current account deficit of more than 10% of GDP, with rising unemployment and a high level of foreign debt at 65% of GDP. Although inflation had been falling steadily, from 25% in 1993 to 7% in 1998, and the economy was growing, action had to be taken to put the country’s Finances on a more stable footing. The banking and enterprise sectors needed urgent reform to resolve the problems of insolvency and bad debt that were holding back investment in the economy back. It was important also to attract increased foreign capital.Thanks to the measures put in place by the government, Slovakia looks to be well on the way to achieving these goals.
The main aims of the government in 1999 were to reduce the Fiscal and current account deficits and make the Slovak Republic more attractive to foreign investors. Growth stabilization and unemployment reduction were also priorities. All this had to be achieved while keeping a tight rein on inflation and public spending. In order to do this, Schmögnerovà and the government were required to take strict action. The package of measures she introduced included a public sector wage freeze, welfare reform, cuts in public spending, price liberalization in the energy sector and bank restructuring. The last of these involves privatization of the three state-controlled banks and large injections of government money to write off bad debts.
This programme took courage and conviction to see through. Price liberalization led inevitably to hefty increases in energy and transport costs and, in the short- term, unemployment rose to 20%. This was largely a result of the destruction of jobs in sectors such as agriculture and heavy industry, although cyclical factors beyond the control of the administration also played a part. inflation in 1999 also grew to more than 14%, though it is now on the way down again and is projected to be under 10% by 2001. It was feared that the economy might enter a period of recession but the effcts of the programme were softened by a large increase in exports, particularly to the EU. In addition, a temporary import surcharge of 7%, coupled with weak domestic demand, resulted in falling imports. As things turned out, growth in 1999 was nearly 2%. The government also achieved its main target of reducing the current account deficit. By the end of 1999 the deficit was down to 5.8% of GDP, from more than 10% in 1998.
In the long term, the Slovak Republic sees membership of the Organization for Economic Cooperation and Development (OECD) and the EU as essential to securing prosperity. The strategy put in place by the government to achieve economic stability is vital to this.
The First of these aims looks as if it will soon be achieved. The OECD recently approved the terms of Slovakia’s accession and has invited the republic to join. The Secretary-General of the OECD, Donald J Johnston, says: “The government of the Slovak Republic has undertaken a bold programme of economic reform ... I am convinced these reforms will result in greater opportunities and prosperity for the Slovak people and their neighbours.”
From the Finance minister’s point of view, membership of the OECD is both a boon and a challenge. She is hopeful that membership will act as a catalyst for the much needed foreign investment that the republic requires if it is to continue to grow. Schmögnerovà says that membership is “a challenge to continue with reform and to work more closely with the OECD.” Negotiations are taking place between the republic and the EU on a variety of chapters and agreements. “We are hoping to close the gap on the front runners for EU membership, such as Poland and the Czech Republic,” she says.
It has not all been plain sailing for Schmögnerovà, however. Hard measures are rarely popular, however much they are needed, and the growth of unemployment throughout 1999 and the failure, so far, of foreign investment to achieve the levels expected by the administration have led to some pressure on her.
Last year there were protests aimed at forcing the government to increase wages, lower taxes and create employment. Jonathan Schiffer, lead analyst for Slovakia at Moody’s Sovereign Risk Unit, says of Schmögnerovà: “She is implementing an austerity programme towards which there is passive hostility in the populace and active hostility among members of her own political party. The party’s standing among the populace has declined sharply as a result of her perseverance with relatively tight Fiscal policy.” A recent survey even suggested that a majority of the population felt they were better off under the communists. Schmögnerovà is phlegmatic. “It’s a problem for Finance ministers that we are never the most popular people,” she says.
Only recently, president Rudolf Schuster was presented with a petition demanding that a referendum be held on the subject of an early general election. Schmögnerovà also survived a no-confidence vote in late 1999 and has this year had to endure speculation that she might resign. Such events are, say observers, more examples of the posturing that is often seen in Slovak politics, rather than a true reflection of Schmögnerovà’s performance.
Her removal from office would certainly be damaging to the country’s efforts to attract outside direct and portfolio investment. She played an important role in the recent government sovereign bond issues, her strong personality lending a credibility to the transactions that otherwise have been missing.
Richard Luddington, head of debt capital markets, eastern Europe, at JP Morgan, says she is an excellent spokesperson for her government’s policies. He sees her as a major asset to her country, enforcing those policies effectively and inspiring confidence in potential investors from outside Slovakia.
During the past year, Schmögnerovà has kept a Firm hand on the reform process, “following the path,” as she puts it, to economic prosperity. She is even managing to enjoy the job. “It’s the most exciting job I’ve ever had, though it is a very hard job at the same time” she says.