Slovenia - Overview of economy

Slovenia had been a part of Austria for many centuries before joining the former Yugoslavia as its most prosperous part in 1918. After the breakup of Yugoslavia in 1991, newly independent Slovenia was the richest (al-though the smallest) country in central-eastern Europe; it is also considered one of the easiest to be absorbed in the enlarged European Union (EU), made up of, as of early 2001, 15 European countries joining together to form a more competitive economic and political force in the region and the world. Slovenia's foreign policy since independence has focused on strengthening relations with

western Europe while weakening its ties with the rest of the former Yugoslavia, which, through much of the 1990s, suffered from the devastation brought by war.

Slovenia's economic record is among the best in Eastern Europe; the budget is under control, the currency is stable, and the economy has been growing for 10 years. In 1989 (the last year in which Slovenia was part of communist Yugoslavia), its gross domestic product (GDP) per capita was US$11,510, putting it considerably ahead of smaller EU members such as Portugal and Greece, and in 1999, after a good performance in the 1990s, it had risen to US$13,283, which came just under 60 percent of the EU average. In 1999, real GDP rose by 4.9 percent, making Slovenia the fastest growing country in central-eastern Europe. In the second half of the 1990s, however, its average growth rate was 4.2 percent, leaving it behind Poland, Slovakia, and Croatia during the same period, largely because Slovenia, unlike its neighbors, experienced only a limited decline at the beginning of the decade and had a somewhat slow approach to privatization .

The real output level in Slovenia in 1999 was 9.3 percent above 1989, while most countries in Eastern Europe are still far below their 1989 level, and only Poland's 1999 output of 21.8 percent was higher than Slovenia's. Slovenia's openness to trade, with total trade equivalent to about 115 percent of GDP, has been instrumental in sustaining economic growth, and maintaining export competitiveness has consistently been the focus of government attention. Slovenia's dependence on Eastern European markets before 1989 was also small compared to that of most of its neighbors.

Slovenia competes with Hungary for 1st place in the line of formerly communist countries wanting to join the EU, which will make it a more attractive venue for foreign investment than most other ex-Yugoslav republics. Although the government was criticized in the mid-1990s for slow structural reforms and a comparatively rigid economy, it has fulfilled the EU entry criteria of developing a functioning market economy and is getting closer to meeting the second requirement of being capable to withstand competitive pressure in the single European market.

Yet the EU complains that large banks and utilities are still in state hands, which means that Slovenia has one of the lowest shares of private-sector activity in GDP among the EU applicant countries. Moreover, the EU believes that the Slovenian economy in general, and labor markets in particular, are over regulated and leave little ground for new investment and innovation. Consequently, much work remains yet to be done in the areas of privatization and capital market reform. Privatization is expected in banking, telecommunications, and public utility sectors. Government and corporate restrictions on foreign investment are slowly being discarded, and direct investment is expected to increase in the 21st century.

Although Slovenia's external debt rose from $4 billion in 1996 to $6.1 billion in 2000 (estimate), the increase is considered proportionate to the GDP; a trade deficit has contributed to its accumulation as imports steadily outgrow exports. The strong banking sector and the steady growth of GDP, however, are generally offsetting any possible negative effects on the economy and living standards.