Policy Interdependence During Economic Transition: The Case of Slovakia 1999-2000

Abstract

This paper sets out a framework to analyse the interdependence of reforms in different policy areas during the transition process. It identifies four broad policy blocks related to liberalisation, stabilisation, exit and entry. The transition process in Slovakia is a case study of the striking interdependence between these different policies. Along these lines, the paper analyses the reform programme that was implemented in the Slovak Republic during 1999-2000, focusing on macroeconomic stabilisation and structural reforms in the banking and enterprise sectors. It appears that success in making up for a period where economic reform had stagnated and even been reversed depends on being able to reform on a broad front. In particular, this means addressing the difficult situation of financial deadlock between all major players in the economy and the large costs associated with restructuring. Fostering deep restructuring in the large enterprise sector is the main structural challenge in the Slovak economy. This must be faced if the economy is to promote sustainable growth that results in the job creation necessary to bring down high levels of unemployment. During the transition, the many pressures from restructuring are likely to converge on the budget, which will become an indicator of strain in the economy.