Wayzata World Factbook 1996

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U.S. DEPARTMENT OF STATE SLOVENIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES BUREAU OF ECONOMIC AND BUSINESS AFFAIRS SLOVENIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/ Income, Production and Employment: Real GDP (1985 prices) N/A N/A N/A Real GDP Growth (pct.) -5.4 1.3 6.0 GDP (at current prices): 12,365 12,672 13,800 By Sector: Agriculture 590 563 570 Energy/Water 289 322 360 Manufacturing 4,095 3,870 3,900 Construction 458 521 510 Rents 1,445 1,421 1,600 Financial Services 409 443 450 Other Services 2,637 2,821 3,400 Government/Health/Education 2,368 2,734 3,000 Net Exports of Goods & Services 92 50 200 Real Per Capita GDP (1985 base) N/A N/A N/A Labor Force (000s) 783 760 748 Unemployment Rate (pct.) 8.3 9.1 9.0 Money and Prices: (annual percentage growth) Money Supply (M2) 2.8 2.5 1.9 Base Interest Rate 3/ 25 18 16 Personal Saving Rate 48 30 24 Retail Inflation 201.3 32.3 20.5 Wholesale Inflation 215.7 21.6 18.5 Concumer Price Index 201 32 21 Exchange Rate (USD/Sit) Official 83 115 125 Parallel 87 117 115 Balance of Payments and Trade: Total Exports (FOB) 6,681 6,083 6,500 Exports to U.S. 195 216 233 Total Imports (CIF) 6,141 6,501 6,696 Imports from U.S. 167 188 197 Aid from U.S. N/A N/A N/A Aid from Other Countries N/A N/A N/A External Public Debt 1,741 1,873 2,000 Debt Service Payments (paid) 388 374 390 Gold and Foreign Exch. Reserves 1,163 1,566 2,800 Trade Balance 791.1 -154.2 -40 Trade Balance with U.S. 28 28 35 N/A--Not available. 1/ 1994 figures are all estimates based on available monthly data in October 1994. 1. General Policy Framework In 1991, Slovenia set out on the path of complete political and economic transformation. In the first phase, after market reforms and a stabilization policy were introduced, the immediate consequences were predominantly lower employment and somewhat lower standards of living. In the second phase, the positive effects at the macroeconomic level have appeared step by step. But Slovenia is still at the beginning with regard to some crucial elements of its economic transformation, above all with regard to efficient affirmation of property rights (privatization, sanctioning of contracts) and the development of a financial market. The main reason for the economic depression in 1991-1992 was a dramatic decrease in aggregate demand (the collapsed trade flows with other regions of former Yugoslavia, a decrease of trade with eastern European markets). Likewise the revival of activity in 1993 was also caused by the increase of demand. The contraction of markets in the former Yugoslavia stopped at a low level, but the growth of exports to other countries was high. A very restrictive monetary policy was loosened up to a more neutral one. The credibility of the Slovene currency and domestic institutions significantly increased. After five years of decline, the GDP increased by one percent in 1993. In the first eight months of 1994, positive growth continued, but under conditions of the declining import of consumer goods and the increasing import of semifinished materials, while the current balance of payment shows a larger surplus again. The actual annual growth rate as of August 1994 was five percent. The public debt of the Republic of Slovenia, including potential obligations stemming from the state succession negotiations was estimated at 33 percent of GDP at the end of 1993. For loan servicing, 0.8 percent of GDP or 1.6 percent of total public receipts was spent in 1993. Comparable figures for 1994 are 1.1 and 2.3 percent, respectively. Slovenia's public debt is still relatively small. The Bank of Slovenia has successfully realized its primary goals, lowering inflation and supplying the required quantity of stable money. Other goals were the decreasing of interest rates, facilitating liquidity conditions in commercial banks, and a fluctuation of the tolar's exchange rate on the foreign exchange market. The most often used instruments were the liquidity loans given on the basis of papers of value as collateral. Both M1 and primary money increased in real terms in 1993, while the real growth of money in 1994 is slowing down. In the structure of primary money, the share of giro accounts and bank reserves is increasing at the expense of currency in circulation. Financial assets of the population in banks are increasing very quickly, both in tolar and foreign exchange deposits. Slovenia signed an accession agreement with the GATT on September 27, 1994. Slovenia has also started negotiations to join the new World Trade Organization. 2. Exchange Rate Policy When creating its currency (launched on October 8, 1991), Slovenia opted for a managed float of the tolar against the Deutsche mark, rather than a straight peg. A peg remains the long term objective. In real effective terms, the tolar has appreciated strongly against the mark throughout 1992, by 3.3 percent in 1993, and by an additional 6.8 percent in the first eight months of 1994. This is due to a surplus in the balance of payment as well as to a high net inflow of foreign exchange in foreign exchange offices in the country. The mentioned data are valid for the exchange rate for business transactions, which grew at a slightly slower pace than the rate of the Bank of Slovenia ("the official rate"). The latter reflects actual movements of different money aggregates in the previous month and is used for administrative purposes only (customs, etc.). 3. Structural Policies Slovenia has made significant progress across a broad spectrum of structural reforms. Slovenia is undertaking a rehabilitation and reform of the financial sector and a privatization of "socially-owned capital" to make the economy more market-oriented. Structural reforms in these two areas are interrelated. New prudential regulations (e.g., provisioning, capital adequacy, large borrower limits) and accounting standards (e.g., nonaccrual of late interest) were put in place along with the establishment of Bank of Slovenia supervision activities. The necessary legal framework was erected with the passage of key implementing legislation for ownership transformation; a bankruptcy law; a company law; a banking law; and a securities market and mutual fund law. With regard to bank rehabilitation, the three most important banks were put under the rehabilitation program. By the end of September 1994, 625 programs for privatization were submitted to the Rehabilitation Agency. These programs cover approximately 850 "socially owned" companies (out of around 2,500). 304 programs were approved (first round of approvals). The programs submitted represent about 55 percent of GDP and an equal percentage of employees. In 1993, changes were introduced in the personal income tax, effective January 1, 1994. With regard to the corporate income tax, tax holidays have been eliminated and the depreciation schedule has been liberalized. The carry-forward period for losses has been extended to five years from the previous regulation that allowed carry-forward for only one year. A new corporate income tax law has been prepared and is expected to become effective in the Fall of 1994 with the rate lowered from 40 percent to 25 percent. Overall payroll tax rates were lowered considerably during 1993, from 50.35 percent to 44.60 percent on average, as of the second quarter of 1994. Prices are mainly market driven. Prices for electricity, gas and telecommunications are the only prices still controlled by the government. 4. Debt Management Policies Public debt of the Republic of Slovenia, including potential obligations stemming from the succession negotiations, is estimated at 33 percent of the GDP at the end of 1993. For loan servicing, 0.8 percent of GDP or 1.6 percent of total public receipts was channeled in 1993. Comparable figures for 1994 are 1.1 and 2.3 percent, respectively. Slovenia's public debt is still relatively small. According to the Monthly Bulletin of the Bank of Slovenia from August 1994, the latest actual data for foreign debt and foreign exchange reserves are $1,985 million and $2,208 million, respectively. The debt servicing ratio was 5.4 percent at the end of 1993. From a total debt of $1,985 million, $1,891 million represents long term debt, $84 million accounts for short-term debt, and $10 million is IMF credit (all data are stipulated according to the World Bank methodology). The debt data apply only to loans used directly by Slovene beneficiaries. The division of federal (old Yugoslav) debt (approximately $2.6 billion - obligations to the IMF already excluded) is the subject of ongoing negotiations on Yugoslav succession. The Republic of Slovenia became a member of the IMF in January 1993. By the decision of the Executive Board of the IMF in December 1992, Slovenia was declared a successor state to a percentage share of assets and liabilities of the former Yugoslavia. At the moment of succession, total liabilities were SDR 51 million dollars, of which disbursed credits amounted to SDR 25.5. A breakdown by creditors of the external long-term debt follows (millions of dollars): 1) multilateral 442 (IBRD 120, EBRD 14, EIB 204, IFC 65, EUROFIMA 39); 2) Paris Club 227; 3) Refinancing: commercial banks 418; 4) Other long-term loans 804. Following the Slovene Government's decision of January 13, 1994, payments related to the following obligations are, until final agreement is concluded, made to a fiduciary account of the Bank of Slovenia in the Dresdner Bank, Luxembourg SA: 16.39 percent of interest due under the "Yugoslav New Financing Agreement" (NFA) from 1988 for the amounts for which the obligor is the National Bank of Yugoslavia; principal and interest due under the NFA, for live credits only, where the beneficiary is a Slovene entity; and amounts on deposit with the Ljubljanska Banka d.d. under the Trade and Deposit Facility Agreement from 1988. The balance of this account as of July 31, 1994 is $68 million. 5. Significant Barriers to U.S. Exports Traditionally, Slovenia had a relatively market oriented economic system with liberalized prices and a high degree of openness to foreign trade. With the beginning of its transition to a market oriented economy, Slovenia gradually loosened the remaining obstacles in its foreign trade regime. However, some statutory barriers to foreign investment remain. In October 1994, Slovenia became a member of the GATT. Slovenia has started negotiations to join the new World Trade Organization. Slovenia had prepared all the necessary measures to comply with GATT by the first half of 1994. Foreign Investment: Two major barriers to U.S. investment exist. First, any company incorporated in Slovenia must have a managing director of Slovene nationality, or the majority of the board of directors must be Slovene. Second, a foreign registered company or individuals of foreign nationality are not allowed to buy (own) land in Slovenia. However, any company incorporated in Slovenia, regardless of the origin of its founding capital, may buy real estate in Slovenia. Slovenia's exchange system is free of restrictions on the making of payments and transfers for current international transactions, following the removal of a restriction limitating transferability of tolar balances held by certain nonresidents. 6. Export Subsidies Policies Slovenia has no special export subsidies policy. The Slovene economy has always been export oriented. It is driven by the exchange rate of domestic currency only. As a fledgling nation, Slovenia lacks different tools to stimulate exports. Slovenia adopted new legislation in 1994 on tax exemptions on imported inputs. This helps domestic companies compete with foreign competition on a more equitable basis. 7. Protection of U.S. Intellectual Property Intellectual property is well protected in Slovenia, and the governments's commitment to such protection is high. Two bills were submitted to the Parliament in 1994. The bills are the Act on Protection of Topography of Semiconductors Circuits (which is harmonized with the American Patent Office) and the Copyright and Related Rights Act. Slovenia is a member of all major relevant conventions such as the Bern, Paris, WIPO, Madrid Arrangement of Internationally Registered Marks, PCT, and two classification arrangements: Locarno, and Nice. By the end of 1995 Slovenia will fulfill all obligations from the Uruguay Round's Trade Related Aspects of Intellectual Propertry Rights agreement (TRIPs), including Trade in Counterfeit Goods. Some years ago, computer software and video piracy was present in the country. However, several successful court cases in the late eighties helped remedy the situation. The first and best known case involved the U.S. company Autodesk. Today Slovenia's position is comparable to that of the West. 8. Worker Rights a. The Right of Association The Slovene constitution provides that trade unions, their operation, and their membership shall be free. Workers, except for some in the public sector, enjoy the right to strike. Virtually all workers, except for the police and military, are eligible to form and join labor organizations of their own choosing. The former Yugoslav government-sponsored and controlled unions disappeared with Slovenia's independence in 1991. Slovenia now has two main labor groupings, with constituent branches throughout the country. There is a third, much smaller, regional labor union on the Adriatic coast. Unions are independent of government and the political parties. The constitution provides that the state shall be responsible for "the creation of opportunities for employment and for work." There are no restrictions on affiliating with like-minded international union organizations. b. The Right to Organize and Bargain Collectively Slovenia's economy is in transition from the command economy of the communist system, which included some private ownership of enterprises along with state and "social" ownership. In the transition to a fully market based economy, the collective bargaining process is changing. Formerly, the Yugoslav government had a dominant role in setting the minimum wage and conditions of work. The Slovene government still exercises this role to an extent, although private businesses, growing steadily in number, set pay scales directly with their employees' unions or employee representatives. The U.SS Embassy has received no reports of anti-union discrimination. c. Prohibition of Forced or Compulsory Labor There is no forced labor in Slovenia. d. Minimum Age for Employment of Children The minimum age for employment is 16 years. Children must remain in school until age 15. During the harvest on the farms younger children do work. In general, urban employers respect the age limits. The constitution specifically prohibits exploitation of children. e. Acceptable Conditions of Work Slovenia has a minimum wage of $240 (gross wage) per month, with a 40 hour work week. Slovenia has an active concern for occupational safety. In general, Slovene enterprises provide acceptable conditions of work equal to standards in force in other European countries. f. Rights in Sectors with U.S. Investment The information given above on the five areas of concern for worker rights, applies equally in all sectors of the economy. Extent of U.S. Investment in Selected Industries.--U.S. Direct Investment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category Amount Petroleum 0 Total Manufacturing -4 Food & Kindred Products 0 Chemicals and Allied Products -4 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0 Wholesale Trade 0 Banking 0 Finance/Insurance/Real Estate 0 Services 0 Other Industries 0 TOTAL ALL INDUSTRIES -4 Source: U.S. Department of Commerce, Bureau of Economic Analysis (###)