Independence Poses Tests for Czechs, Slovaks

Preventing economic decline central to determining states's future

JOZEF PROKES likens Jan. 1 independence for Slovakia to moving into an apartment but having no furniture. It's a new start, says this Slovak nationalist, now vice-president of the Slovak Parliament.

After their 70-year marriage, Jan. 1 indeed marks a new beginning for the Czech and Slovak divorcees. But independence may not be as easy as going to the store and buying furniture.

"The jury is out" on how successfully the two republics will manage their new statehood, says a United States official in Prague. He adds, however, that the peaceful and businesslike handling of the split by both sides is encouraging.

"Our hope is that we will be able to look back and say this is a model that is not perfect, but better than what's happened in [former] Yugoslavia or the former Soviet Union," the US official says.

Whether this hope is fulfilled depends to a great extent on the economic futures of these two Central European republics. While the Czechs have followed textbook economic reforms so far, Slovakia is of great concern.

Slovakia is poorer and has an industrial base less suited to a market economy. Of Slovakia's 5 million inhabitants, 10.3 percent are unemployed, compared with 2.5 percent in the Czech Republic.

Foreign investors, at least for now, have given up on Slovakia. In 1992, according to Oldrich Dedek, deputy director of the State Bank of Czechoslovakia's Institute of Economics, 92 percent of direct investment is going to the Czech lands (Bohemia and Moravia).

The rest of the world might not be so concerned about the small Slovak economy were it not for the ripple effect that its downfall could cause.

Western diplomats in Prague paint a worst-case scenario that sees a quick and severe economic downturn in Slovakia that could result in political instability, the surge of extremist parties, the large Hungarian minority in Slovakia targeted as scapegoats, and Slovak economic refugees moving into the Czech lands. This would add to the instability already spreading in Central and Eastern Europe.

Actually, though, the split will spell economic trouble for the Czech Republic as well, at least in the near-term, Mr. Dedek explains.

After Jan. 1, he says, Prague will no longer have to subsidize Bratislava to the tune of 15 to 20 billion crowns ($540 million to $720 million) a year. But there is a flip side. Without the subsidy, Slovaks will have less to spend on Czech goods. And once Slovakia has its own currency, Dedek adds, it could be devalued as much as 30 percent, making Czech goods 30 percent more expensive in Slovakia. "The Czechs will have to look for new markets," he says.

As it stands now, the Czechs and Slovaks are each other's main export markets. Because of this tight economic connection, the two republics have agreed to free movement of goods and labor across their common border. They have also agreed to a conditional six-month currency union.

"It's in our interest to help the Slovak economy," says Jiri Schneider, spokesman for Czech Prime Minister Vaclav Klaus. "We don't want to cut all relations and bring Slovakia into economic trouble."

Some economists, however, doubt the conditions for monetary union will be met and predict the union will fall apart within months or weeks - a disadvantage for Slovakia, which needs the six months to set up its own central bank. And Slovakia will have trouble keeping its deficit below 10 percent of its income, one of the conditions of the currency union.

Unlike Prague, Bratislava had no federal characteristics and it must incur major expenses at the outset to set up a central bank, an army, and embassies. At the same time its budget income will drop, because of the elimination of the Prague subsidy. Heavy deficit spending, meanwhile, would heat up inflation.

SLOVAK politicians insist they will practise fiscal discipline and uphold monetary union, partly because they want to qualify for international assistance.

"No really serious government wants to create a situation which will cause grave inflation," says Augustin Huska, also a vice president of the Slovak Parliament and a member of Prime Minister Meciar's party, Movement for a Democratic Slovakia. Some observers see statements like Mr. Huska's as evidence that Bratislava is becoming more fiscally responsible.

Both Czechs and Slovaks expect economic decline to be more rapid in Slovakia than in the Czech lands and suggest that the two republics will set different foreign policy priorities.

The Czechs are fixed on the West, single-mindedly pursuing European Community and NATO membership. The Slovaks, on the other hand, hesitate about NATO, and seem in less of a rush to join the EC, although they clearly want EC membership. Because they border Ukraine, the Slovaks consider themselves a "bridge" between East and West.

One European diplomat in Prague cautions that the Czechs have too high expectations for their quick entry into the EC. He also worries that the Czechs, in their determination to enter the Western European fold, will leave the Slovaks behind.

Already, Czech politicians can be heard saying that Slovak problems, such as tensions with the Hungarian minority there or the disagreement with Hungary over the Gabcikovo Dam diverting the Danube, are thankfully not Prague's problems anymore.

This attitude, the diplomat says, is dangerous. Neither Czechs nor west Europeans would be advised to minimize or distance Slovakia. "When problems develop in Slovakia, they will affect the Czech lands, too," and by extension, Western Europe, he says.

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