The automotive industry is leading the way among those looking to Slovakia as an investment target. Early this year, South Korean Hyundai will decide between Poland and Slovakia for the location of its new car plant. If the carmaker choses Slovakia, it will be an addition to the existing EUR 700 million PSA Peugeot Citroën plant. A Volkswagen factory is already located outside the capital, Bratislava. Clinching the Hyundai deal would be another feather in Slovakia's cap – the country already boasts the highest car production per capita region-wide.

Slovak PM Mikulás Dzurinda (center) at opening of PSA Peugeot Citroën plant

Analysts are also confident that the country's economic growth will remain fervent in 2004, after significantly outperforming its neighbors in 2002 and 2003. Slovakia’s GDP for the first nine months of 2003 totaled SK 879.9 billion (EUR 21.4 billion), representing an annual growth of 4 percent (compared to 3.9 percent for the same period last year.)

International observers are also noticing Slovakia and eyeing the country’s reforms as examples for the region.

During a visit to Bratislava last year, media mogul and two-time US presidential candidate Steve Forbes praised Slovakia’s planned introduction of a flat income tax rate, saying the move could turn the country into a regional tiger. Similar praise has come from top regional business leaders.

Flat tax rate
According to changes in the tax system, which take effect this month, the incomes of individuals and corporate entities in Slovakia will be taxed at a flat rate of 19 percent. Though the International Monetary Fund (IMF) is also rosy about the recent economic developments in Slovakia, the majority of Slovaks are weary of the impact of economic changes.

Low income, social injustice and poverty were on the top of a list of worries among Slovaks, according to a recent survey by the Institute for Public Issues. In his regular report on the state of the Republic, even Slovak President Rudolf Schuster, in December 2003, lashed out at Prime Minister Mikulás Dzurinda’s cabinet, for what he called “uncoordinated reforms that will negatively impact the socially weak.” He warned that Slovakia had only reached 48.6 percent of the EU's average GDP.

The father of the country's tax reforms, Finance Minister Ivan Miklos, dismissed criticism posed by Schuster – who, prior to 1989, was a high-ranking communist – claiming that the problems faced by the socially weak are a result of the aftermath of communism.

" Between 1918 and 1948, Slovakia had a higher economic growth rate than the current EU countries had,” Miklos said in an interview with Bratislava-based weekly The Slovak Spectator. “Between 1948 and 1989, our growth was incomparably lower than that of the EU countries, while between 1990 and 2003, Slovakia posted a higher growth rate than the EU countries did. Last year, this growth hit 4.4 percent; in the EU the growth was 1 percent”

Blanket reforms
The country's opposition has joined trade unions in calling for a referendum on early elections, in response to what they claim are bad social policies of the current cabinet. The public has also been weary about a series of health care reforms, which introduced pay-per-use charges for some health procedures in hopes of reducing the sector’s astronomical debts. As of June 2003, people started paying SK 20 (EUR 0.5) per visit to the doctor, for either a drug prescription or any other form of medical care.

In another unpopular move, the government also introduced a measure to gradually increase the retirement age to 62 for both sexes. The current retirement age for women is 55, while for men the age is 60.

Reforms have also hit the education sector, with students now mandated to pay between 5-30 percent of the costs of their tuition. Though Education Minister Martin Fronc has promised that the fees will be compensated by state loans - available for all students for at least 10 years with an affordable interest rate - the opposition has expressed fear that those on the lower end of the pecking order will be locked out from academia.

Outlining the risky nature of the recently introduced reforms, one recent public opinion poll named Prime Minister Dzurinda one of the least trusted Slovaks.

Dzurinda, who ousted strongman Vladimír Meciar – a leader who was blamed for the country's international isolation in the mid 1990s – came to power in 1998 and was reelected in a surprise vote in 2002. Dzurinda formed a government with the conservative Christian Democrats (KDH), the New Citizen's Alliance (ANO) and the Hungarian Coalition Party (SMK).

A weakened leader
Dzurinda's Slovak Democratic Christian Union (SDKÚ), the strongest ruling coalition party, is, however, losing its popularity and would unlikely make it to parliament were a vote held today.

Though relationships within the ruling coalition have never been ideal, the most important crisis occurred last August, when Dzurinda told the public that he had learned from Slovak intelligence of a "group" of businessmen and public figures whose aims were to destabilize the country, the intelligence service and his own political party.

His announcement resulted in the recall of the head of the country's vetting authority, the National Security Office. Dzurinda also sacked his closest ally, Ivan Simko, who was Minister of Defense, after he refused to follow the party line.

Simko has since formed a party of his own, the Free Forum (SF), which has been a thorn in the prime minister’s side. SF deputies left the SDKÚ deputy faction and deprived the ruling coalition of its majority in parliament. This may prove a long-term problem for Dzurinda, who has to continue to satisfy the claims of his ruling coalition partners in order to stick to the program of his cabinet. Moreover, the public seems to be weary of continuing political conflicts within the ruling coalition.

The ultimate test
Dzurinda did manage to get one monkey off his back recently when his team passed the 2004 state budget in parliament, believed to be the ultimate test of the coalition's resilience.

Late last year, Economy Minister Pavol Rusko told public service Slovak Television (STV) that these were the last of the austerity measures, and that citizens will gradually see the fruits of trying times. Optimists can already see the first signs of the anticipated improvement.

Registered unemployment in Slovakia dipped under 14 percent for the first time in almost six years last September.

Continuing economic growth, narrowing macroeconomic imbalances, declining unemployment and low core inflation continue to please international observers, including the IMF, which conducted a mission to Slovakia in the third quarter of last year.

Despite weak economic growth in Europe, the volume of Slovak exports grew by 37 percent in the first half of 2003, and in May, June and August the country saw a trade surplus for the first time in three years. The external current account deficit fell from 8.6 percent of GDP in the 12 months leading up to June 2002 to lower than 5 percent of GDP in the 12 months prior to June 2003.

Government officials say that Slovaks tend to be overly pessimistic. When responding to the claim that the Dzurinda team excels in the international arena but has done wrong at home, Finance Minister Miklo? said: "If that were true … we would hardly be able to excel abroad and achieve international success, like entering the OECD, NATO and the EU."