Transcript | 4. lecture: The era of Vladimír Mečiar (Ivan Mikloš) - University for modern Slovakia

In last week’s lecture we talked about the reason why Czechoslovakia was split. Different results of elections in the Czech and the Slovak part of the federation were the definite cause of the CSFR’s split. The dissimilarity lied in a point of view of relationships to necessary economic reforms. Another matter of dissimilarity was an area of opinions on the common state’s functioning.

Last months of 1992 were full of intensive preparations for the state’s split. Formally there still was the federal government and the federal parliament, but everything necessary was taking place at republic levels.

The split of the commonly functioning state, which had functioned for decades, was not simple and it is necessary to say that it was the Czech part which was the leader of preparations concerning the split and all its necessary rules. It was determined by a higher level of experience, as Prague was the centre of a majority of federal offices, and thus Prague officers’ authorities and experience were better than those of Bratislava’s ones. At first sight a difference in a preparation and a professional background of elected representatives of a Czech and a Slovak representation was apparent. Again it was a Slovak disadvantage. In the Slovak part it was not only about a lack of preparation, but about considerable naivety too. A good example is a dispute over the flag. The Slovak part insisted that no succession state would use the common Czechoslovak flag containing a blue isosceles triangle and a blue and a red strip. The Czech side accepted, but this pledge was not fixed in a way that it could be later enforced by the Slovak side. After the split the Czech side “forgot” that pledge and the former common flag still has been used by them.

The establishment of the Slovak state itself was thus accompanied by a relatively high degree of uncertainty and nervousness, especially in connection with a question how Slovakia would manage its own independence and what cost would have to be paid for it. This uncertainty and nervousness had grown bigger due to an elections result (1992) when the coalition of the populist Mečiar’s HZDS (MFDS) and the right-wing extremist national SNS (SNP – Slovak National Party) took charge of the government.

The fear and uncertainty were found in the Czech side too. To dispel this fear on both sides, politicians emphasized that people would not notice the split and nothing fundamental would not happen and change. But there was another thorny problem regarding future of the single currency – the Czechoslovak crown. Politicians from both sides again tried to solve the matter in a calm way and they claimed that despite the federation’s split into two independent states the single currency would survive and thus there would be still the Czechoslovak monetary union.

Regarding this matter I have a very interesting personal experience with the then Czech Prime Minister and deputy chairman of ODS (CDP – the Civil Democratic Party) Václav Klaus.

It was the autumn of 1992, when Václav Klaus and Vladimír Mečiar were calming the public claiming that the single currency would hold on also after Czechoslovakia’s split which was set to 1 January 1993. During a press conference of our, in that time already, extra-parliamentary party ODÚ-VPN (CDU-PaV), I, as a vice-chairman of this party, claimed that it was impossible, and the single currency would not hang on. Early in November, I, as a guest and deputy of our party, visited an ODS (CDP) congress in Prague. We were partnership centre-right and reformist parties. When I was coming into a congress hall, where the congress was taking place, I met Václav Klaus who was walking into the hall accompanied by bodyguards. We were acquainted from common taking part in governments in 1991-1992. We always had very similar political opinions and I really respected Klaus as an educated economist. Immediately after shaking our hands he asked me why our party and personally I said that the single currency would not hold on. I answered we were persuaded of that and we knew that just as well as he had to know it. He denied and again asked me why it would not hold on. I answered that due to differences in our economies but especially due to differences in notified economic policies and reformed aims of the Czech and the Slovak government. Then he asked me why and what Mečiar’s government did worse, except from the privatization, than our government under Čarnogurský.

I was really surprised by his reaction. I understand, of course, why he needed to calm the public saying that the single currency would hold on. But I didn’t understand why he persuaded me about that when we were alone. I was sure he had to know that the single currency had no chance to hold on. It didn’t hold on finally. Six weeks after the federation’s split the single currency lapsed and the Czech and the Slovak crown was created. Rates of those two currencies were separated too and the Slovak one gradually lost about one fifth even on fourth of its value.

Mečiar ruled in Slovakia with a half-year break in 1994 (Jozef Moravčík’s government) from the summer 1992 up to the autumn 1998. During this period all necessary institutions of an independent state were established. An economy policy was realized which, on one the one hand, carried on with reforms started in the federation’s times 1990-1991, on the other hand, it diverted from this strategy in some important areas.

After the federation’s split the Slovak government, thank God, continued in those principles which the post-communist transformation strategy was built on – liberalization of prices and the foreign trade, economical monetary and fiscal policy and privatization. As we mentioned during last week’s lecture, 1991 was a year of price and unemployment growth and a fall of the living standard. Consumer prices were increased in 1991 about more than 60% and real wages in Slovakia fell about almost 30% in that single year. While the fall of the real wages was in 1991 similar in the Czech and the Slovak part of the federation, in 1993 after the split it was different. While in the Czech part after 1991, the real wages were rising, in Slovakia after a temporary growth in 1992 (16,3%), there was a repeated fall in 1993 (-9,4%). It was conditioned by a high level of inflation around 25%, but also by more serious and negative consequences of the split to the Slovak part of the former federation.

Before the federation’s split in last years of the common state’s functioning, heated debates took place about who suffered due to the other and in what extent. Logical conclusions saying about a positive transfer balance in favour of the weaker Slovak part were doubted in Slovakia by a part of economists and politicians. The year 1993 showed that in spite of doubts it was so. A budget income of the Slovak republic was in 1993 roughly about 13 billion Slovak crowns lower than the sum of Slovak incomes and incomes of Slovakia from a federal budget used in Slovakia in 1992. Those 13 billion crowns made 8,6% of overall incomes, thus it was not only an insignificant outage.

Basically we may claim that in first years after the split a pessimistic neither an optimistic prediction was fulfilled. It was a gradually retrogressive mix of necessary and rational measures (an economical monetary, and in the beginnings a fiscal, policy too, continuation in liberalization of prices and the foreign trade, construction of institutions) and growing problems too (corruption, clientelism, isolation, non-systematic interventions).

After Vladimír Mečiar’s repeated return to power in November 1994 an irresponsible and populist policy full of clientelism, corruption, a non-respect of rules of the liberal democracy, and &n irresponsible economic policy fully took place. In a politic area it was a typical example of something that was later called by Fareed Zakaria an illiberal democracy. It was thus a policy when leaders elected in democratic conditions legitimately do not respect some basic principles of the liberal democracy and they try to keep power and gain unlimited power at the price of infringing game rules and disrespecting such principles as the liberty of the press, the liberty of speech, the protection of minorities, the independence of mass media, the independence of judges, police and the office of Public Prosecutor, interventions into property rights etc. Mečiar was in that time placed to typical representatives of this political stream together with politicians as Slobodan Miloševič in Yugoslavia or Alexander Lukašenko in Belarus.

As a result of such a policy there was of course an international isolation, excluding Slovakia from the first wave of NATO’s extending, not inviting Slovakia into OECD together with the Czech Republic, Poland, Hungary and also not opening negotiations about entrance to the EU together with those countries of V4. The person who gave a true picture of the situation was Madelaine Allbright. She called Slovakia “the black hole of Europe”.

There were bigger and bigger reformations in an economic area too. Although the Slovak economy achieved a good tempo of an economic growth during Mečiar’s time, the problem was that it was done in an unsustainable way at the price of a growing disequilibrium. Under the auspices of searching for a specific Slovak transforming way, the economy was isolated from foreign investments and the privatization was carried out in a very non-transparent and clientelist way, especially through so-called direct selling, when people close to governing parties got lucrative businesses for a token fee. They were mostly managers of privatised businesses. As an illustration serves a privatization of one of the most profitable businesses, refinery Slovnaft, which was bought at one tenth of a market price by a management. Furthermore, instalments were paid from a net profit of the privatised company.

A preferential treatment of domestic subjects in privatization and a de facto complete exclusion of foreign persons interested is well illustrated by a fact that only 2 (!) of 268 privatising decisions during 1996 were in favour of a foreign person interested and 266 in favour of home persons interested.

A large extent of corruption and rent seeking behaviour was present in the biggest state-owned banks and in big natural monopolies such as the gas company, power plants, distribution companies, telecommunications etc.

A fast tempo of growth was artificially kept by stimulating the domestic demand by an expansive fiscal policy and indebtedness. A restrictive monetary policy of the central bank lead then to an enormous interest growth, and in last years of Mečiar’s era the government was financed for more than 20, even 25% interest and they stopped paying for their obligations. Low law enforcement, non-functional judiciary and non-existing institutes of a bankruptcy, tender and balancing lead to the large first and also second insolvency and the economic system got stuck. A business environment restructuring didn’t take place and the unemployment rate was kept by an artificial holding also of ineffective and non-competitive businesses. Non-systematic interventions of a law for revitalization of businesses, and a law of strategic businesses, which actually meant a soft budget restriction for politically chosen business, were helpful for them.

In that state the country was taken over by the first government of Mikuláš Dzurinda in 1998.

We will deal with Dzurinda’s era next week.