Slovakia

Slovakia retained a tradition of macroeconomic prudence, low inflation, and modest debt after the break-up of Czechoslovakia. But it also inherited a legacy of weak banks, a large and inefficient system of social welfare, and an industrial system that did not use the concept of comparative advantage. Consequently, real incomes have plunged 24 percent since 1990. This study focuses on the nation's macroeconomic and structural reform issues during its transition to a market economy, reviewing the financial sector, private sector development, employment growth and labor markets, and social benefits. The report's recommendations fall into two broad categories: (1) facilitating resource reallocation through further privatization, increasing job mobility, and eliminating regulatory impediments to free enterprise; and (2) redefining the economic role of the government by reducing the fiscal deficit that discourages private activity, redirecting subsidies away from enterprises and toward public capital formation that fosters private investment, and providing more generous social benefits to the truly needy.