Annual Review of Slovenian Business and Economy

Ljubljana, 11 December - The new Slovenian government entered into a marriage of convenience with several liberal-minded economists this year as it went about coming up with structural reforms. The first results of the relationship came late in the year as the government confirmed a reform blueprint. The main aim of the proposed measures is to make Slovenia's economy more competitive and thereby accelerate economic growth from this year's 3.9% to a rate that would allow Slovenia to exceed average EU development in 10 years' time. Debates surrounding the reform proposals showed a general conviction that Slovenia needs to make changes in order to compete in an increasingly cutthroat world, however there is significant opposition to the proposals put forward by the government reform team.
        The effects of globalisation were increasingly evident over the past year, as labour-intensive sectors continued to struggle to keep afloat. Despite mass layoffs in several sectors, including textile and furniture, the unions are unwilling to accept the government's reform proposals because of fears that the measures would only increase the gap between the rich and the poor. The most unacceptable parts of the reform proposal for the unions are the flat tax and changes to social security payments, while they are also angry with the government's seeming unwillingness to listen to their views. In a show of strength against government reform efforts, the unions held one of the biggest rallies in Slovenian history in late November.
        In line with reform plans, key measures in taxation and social security would enter into force in 2007, after Slovenia adopts the euro. Judging by the most recent developments, Slovenia is well on track to enter the eurozone on the target date of 1 January 2007. Despite being hit by higher fuel costs, the country managed to continue bringing down inflation and the most recent figures (an annual rate of 2.5%) see Slovenia fall only marginally short of the eurozone-compatible inflation criterion.
        Reforms were not the only topic for which the government made headlines this year, as its involvement in the economy raised quite a few eyebrows. Having made the election promise of withdrawing from the economy, the new government got down to making plans for the privatisation of a number of state-owned sacred cows, including telco Telekom Slovenije. However, analysts were concerned by a lack of urgency in the process and repeating signs that the government was very involved in asserting its stake in state-owned companies.
        Even its first attempt at pulling out from a company failed to win many supporters: the sale of 30% of grocer Mercator held by the state-run Restitution Fund and Pension Fund Management prompted a storm of claims about a lack of transparency. The situation only got worse after popular Mercator chairman Zoran Jankovic was fired by the new owners, the latest in a string of replacements of top-level business officials in the country this year. The government rejected all claims of political wheeling and dealing in business and wrapped the year up by establishing six privatisation working groups.
        In other business headlines this year, a heated debate began about the future of obligatory membership of the Chamber of Commerce and Industry (GZS). The government wants to overhaul the system to make membership of such business associations voluntary, while the GZS spent the year defending its position and said that Slovenian companies would be hit hard if the current system was changed. Meanwhile, a late surge by drug maker Krka was the only reason for joy for investors on the Ljubljana Stock Exchange in an otherwise lethargic year.