Slovenia - Future trends

Slovenia's economic policy after 2000 will be mostly determined by government negotiations for full EU membership. Slovenia will be included in the first wave of the EU enlargement, along with Hungary, Poland, the Czech Republic, and Estonia. But the government will have to speed up structural reforms in order to maintain the momentum of its drive for accession. It will probably focus initially on the long-delayed privatization of the banking sector. The 2 largest state-owned banks, Nova Ljubljanska Banka and Nova Kreditna Banka Maribor, may be sold in the second half of 2001. The government may also come under pressure from the EU to deregulate more actively. However, the principal immediate challenge facing the new government will be to take control of the budget, following some excesses in spending in 2000. The Bank of Slovenia will have no serious problems in maintaining its tight monetary policy in order to oppose concerns fueled by the rise of inflation in 2000 and the risk of a possible wage hike.

The relative strength of the global economy and particularly of the EU will boost Slovenia's growth prospects over the next several years. Its trade deficit may remain large but will imply a decrease relative to GDP, reflecting a gradual improvement in the terms of trade, as fuel prices fall and the euro recovers. The current-account deficit may still rise because of the gradual deterioration in the services balance as Slovene businesses become more dependent on foreign services, as well as in the income balance in response to its rising debt-service costs. This will pose no serious threats to Slovenia's economic stability and living standards.

Although Slovenia's foreign policy since independence has focused on building up relations with Western Europe, the country stands to benefit if, as seems possible, Vojislav Kostunica's victory in the Yugoslav presidential election of 2000 leads to peace in the Balkans. Slovenia's political risks will certainly decrease as the probability of a resumption of fighting in Bosnia and Herzegovina will be further reduced. Kostunica's victory also increases the chances of a final agreement being reached on the issue of Yugoslav succession. But Slovenia's main benefits are likely to come through increased trade and equity investments in the rest of former Yugoslavia. Many local companies, ranging from retailer Mercator to brewery Pivovarna Lasko, have invested primarily in Bosnia and Herzegovina, Croatia, and, to a much lesser extent, in Macedonia. Some Slovene companies, such as SKB Banka, have negotiated to go into Montenegro as well. Most of the deals have so far been relatively small, but, with the larger reconstruction efforts in the framework of the regional Stability Pact, new investment opportunities may occur.