Slovakia - Overview of economy

The nation that is now known as Slovakia was part of the Hungarian portion of the Austro-Hungarian Empire until the end of World War I in 1918. It then became a part of the new nation of Czechoslovakia. During the 1930s, Czechoslovakia was an industrial powerhouse in Europe. After World War II, Czechoslovakia fell under the political and economic influence of the Soviet Union, and Czechoslovak economic performance began to stagnate under communist rule, which mandated state ownership of enterprises, state-led central planning of economic activities, and artificial price controls . In 1968, after some Czechoslovak leaders attempted to introduce some political, cultural, and economic liberalization , the country was invaded by the Warsaw Pact troops of neighboring

communist countries under the direction of the Soviet Union. This intervention put a stop to liberalization and introduced a period of "normalization" in which the government attempted to increase production of consumer goods in exchange for political compliance by the people. In spite of these efforts, the economy continued to decline, culminating in an economic crisis by the late 1980s that sparked more popular protests.

By late 1989, the more liberal policies of the Soviet Union toward Eastern Europe, as well as the weakening of communist governments in neighboring East Germany, Hungary, and Poland, made it harder for the Czechoslovak communists to retain power. In November and December of 1989, the communist government stepped down. Free elections for parliament were held in 1990, and Václav Havel was elected president. The government quickly embarked on a series of economic reforms aimed to reorient the economy towards free market principles. These reforms included economic restructuring and the elimination of government price controls. In addition, the government began the process of privatization .

From 1990 to 1992, these reforms were more popular in what is now the Czech Republic, which had a larger industrial base, than in what is now Slovakia, where several factories that had produced arms during the Cold War had been shut down. Under the country's federal structure, which gave each republic a measure of independent powers, the 1992 elections resulted in a governmental deadlock, and the newly-elected prime ministers of the Czech and Slovak republics began to negotiate the separation of Czechoslovakia into 2 independent states. The Czech Republic and the Slovak Republic became separate sovereign states on January 1, 1993.

Compared to the pre-1993 economic reforms in Czechoslovakia, the economic reforms that took place in Slovakia between 1993 and 1998 occurred at a slower pace. While the country registered continued growth in GDP during this time, international investment did not reach desired levels. In 1998, a more reformist government was elected and began to accelerate the pace of economic reforms. For example, as part of the privatization process, property was now being sold to qualified individuals at regular prices, putting a halt to the previous government's attempts to sell off property to unqualified friends of government officials at artificially low prices. Reforms also improved conditions for foreign investment in Slovakia, paving the way for increased employment and for future accession to the European Union.

Slovakia's strongest economic sectors are industry and services. Its primary industrial products include iron and steel, machinery and equipment, motor vehicles, manufactured goods, plastics, chemicals, and armaments. The country's primary agricultural products are wheat, potatoes, barley, sugar beets, and grapes for wine-making. The Slovak Republic's primary mineral products include copper, iron, lead, lignite, manganese, and zinc. The vast majority of the country's energy is imported from outside sources, although there is some hydroelectric and nuclear power.

The Slovak Republic has applied for membership in the North Atlantic Treaty Organization (NATO) and is a prospective member of the European Union (EU). Its largest trading partners are the EU and the Czech Republic. It has received some aid, in the form of grants and loans, from international organizations such as the European Investment Bank, the European Bank for Reconstruction and Development, the International Monetary Fund (IMF), and the World Bank. Slovakia's external debt for 1999 was US$10.6 billion. Organized crime has been a negative factor in the development of the economy, as occasional violence between organized crime factions, such as car bombings, have deterred potential foreign investors. These gangs, composed of Slovaks and immigrants from the former Soviet Union, have in some cases also extorted payments from some small business owners.

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