New Slovene Government Faces Demand to Push Ahead With Reforms

MANY who banked on Slovenia to be eastern Europe's boldest economic reformer have suspended judgment since Sunday, when Slovenes sized up their government and "voted for the smallest risk."

That's the way reelected president Milan Kucan described the first elections since this tiny Alpine country declared independence in June 1991, a vote that produced no clear winner.

The top vote-getter, the left-center Liberal Democrats, received only 24 percent of Parliament's seats; the rest were split among six factions. But while pundits scour the electoral mosaic for a message, Joze Menczinger is not surprised by the result.

"The advantage of Slovenians is that we've had no glorious history, which is the problem of the rest of Yugoslavians," says the Ljubljana University economist and former Slovenian vice president for economic affairs. "Slovenians are rather suspicious people. They don't like strong leaders."

That, economists say, is a problem for Slovenia. Since the country veered away early from its neighbors' ethnic war, eastern Europe's most Western-oriented economy has spent its first 17 months of independence at a capitalist crossroads - the economic engine of privatization sputtering before the nation's mammoth state sector.

"There is a perception among people that the Central European countries - Hungary, Poland, and Czechoslovakia - have moved ahead with privatization while we've lost ground," says Boris Pleskovic, who was chief economic adviser to former Slovenian Prime Minister Lojze Peterle's center-right government.

Until recently Slovenia was a tiny dynamo. Its 2 million people - just 8 percent of the former Yugoslavia - accounted for 20 percent of the federation's gross domestic product and 29 percent of exports, according to Pleskoic and Harvard economist Jeffery Sachs.

But lack of public-sector reform, loss of the Yugoslav market, and a brief but costly civil war and have taken a toll. Unemployment that was nil under communism stood at 12.1 percent last month. Meanwhile gross domestic product is projected to have fallen more than 30 percent since 1990. Loss of public enterprises, which employed 84 percent of the work force, cost 8.7 percent of GDP in subsidies last year.

Still for "social reasons," Menczinger says, the government keeps alive some state factories that anchor the steel towns of Jesenica, Store, and Ravne.

While not the sole culprit, the delay in privatizing public-sector companies has been harmful, says David Lipton, an economist at the Woodrow Wilson Institute in Washington, who advised the Peterle government on monetary reform last year. Though a privatization law was passed Nov. 11, the legislative void preceding it left the question of who owned what obscured, deterring investors.

"There was no real owner," says Martin Hutchinson, whose consulting company was trying to sell Ljubljana's posh Hotel Union but ran into problems. "It needed to be privatized first, because you can't buy $25 million worth of real estate without proper title."

One potential buyer gave up in July as did another investor facing a similar situation over the possible purchase of the Brest Furniture Company. The handful of successful privatizations, which include a tobacco company sold to German cigarette maker Rentsma last year and two paper mills sold to Italian investors this fall, are considered arduously executed exceptions. "They took forever," Pleskovic says.

Passage of the privatization law raises hopes for an end to such problems and to Slovenia's economic slump. Yet even in the doldrums the economy has shown stability and spryness.

Last year's annual 240 percent inflation has fallen to 2.8 percent. The loss of the Yugoslav market, which once accounted for 25 percent of all Slovenian exports, was partly responsible for an overall 6.3 percent drop in exports 1990-1991. In the same period, however, Slovene textiles and furniture jumped to 80 percent of total exports.

"Slovenia has certainly turned its back on the Yugo mess," Hutchinson says, though he and others say much hangs on the new government's will to face the shocks of privatization.

But Pleskovic is cautiously optimistic. "The [privatization] rules are clear," he says. It remains for the new government to let foreigners "see if they like the country or not."

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