For Slovaks, Cost of Split With Czechs Will Be High

Slovakia's heavy industrial base exacts political and economic toll

IN the short term, a divorce between the Czechs and Slovaks will hurt both parties.

But in the long run, say observers of the region, the Czechs are likely to adjust successfully and attract Western investment with economic reforms and by priming their light industries.

The Slovaks, on the other hand, could face a long, impoverished transition, as they seek to adapt their inefficient, heavy industrial base.

The regional parliaments of the Czech and Slovak Republics have been instructed to work out the method of deciding a new constitutional arrangement between the two peoples by Sept. 30.

Should the parliaments decide to split, as they are expected to, it would cost both republics time and energy they could otherwise invest in further reform. Not only would the republics have to figure out how to divide their own assets, but they would have to reexamine international commitments as well.

Every international treaty and agreement would be affected. The question of the successor state - who, for instance, would inherit the United Nations seat or retain membership in the International Monetary Fund - would have to be settled. The highly prized, new status of Czechoslovakia as an associate of the European Community would likely have to be renegotiated.

Economically, much depends on the degree of cooperation laid out in any new arrangement between the republics. Realizing that their economies are entwined, Vaclav Klaus, the leading politician in the Czech Republic, and Vladimir Meciar, his counterpart in Slovakia, highlighted economic cooperation in their weekend agreement on the makeup of the Czechoslovak government.

"I do not foresee, if there is a breakup, that there will be a trade war [between the Czechs and Slovaks]. I still see a very interconnected economy," says Ulrich Hewer, economist at the World Bank in Washington, D.C.

Under the Communists, Slovakia was transformed from a mostly agrarian society into a producer of semi-finished products, such as metals, chemicals, and textiles. These goods were then transported to the Czech lands of Bohemia and Moravia where they were turned into finished products, such as refrigerators, stoves, and clothing.

The Czechs would be initially squeezed by higher prices charged by the Slovaks, especially for oil. Eighty percent of Czech oil comes from the Druzhba pipeline, which runs from Russia to Slovakia. A Czech project to build a pipeline carrying oil from Italy through Ingoldstat in Germany is far from completion.

But despite such problems, "no one really worries a whole lot about the Czechs in the long term," says a Western diplomat in Prague.

The Czechs could turn to a very competitively priced world market to find raw materials. They have an entrepreneurial tradition which Communism did not kill.

They are keen on rapid economic reform, and will be able to achieve this faster once they no longer have to subsidize Slovakia. Meanwhile, Czech lands attracted 80 percent of foreign investment last year. Most of it flowed from Germany, and the German connection is expected to strengthen.

The Slovaks, however, are much less likely to recover quickly from a split. While a split would give Slovakia the freedom to create its own incentives for foreign investors, an independent Slovakia would be saddled with inefficient heavy-industry behemoths, less attractive to investors and costly to transform.

"I am nervous that Slovaks are not realizing how difficult the [reform] process will be," says Mr. Hewer. "We've all learned that it takes a long time to convert industries. You can't easily transform tanks into bikes."

It is precisely for this reason that the Slovaks want to go slowly with economic reform. They favor state intervention and subsidies to help industry through the transition.

But this costs money, and who will finance tiny Slovakia, especially if it is perceived as trying to go a third, i.e. socialist, way? The Western diplomat worries that the need for cash will force Slovakia to crank up its heavy arms industry.

An East European specialist at one of the leading world finance organizations says the West will not desert Slovakia if the Slovaks pursue market-oriented economic reforms geared toward low inflation.

"Like in any other case, the international agencies will want to see prudent economic policy. The Slovaks can do it, it will just mean a longer adjustment" and belt-tightening at home, the specialist says.

Although most economists assume cooperation between independent Czech and Slovak Republics, Jan Mladek, deputy economics minister for Czechoslovakia, warns that the reality may be different. Already, he says, Czech firms are refusing to deliver products to Slovakia unless they get advance payment, and Slovaks are transferring their money to Czech bank accounts. "There is the risk of creating some kind of new iron curtain," he says.

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