Q How was the economy when you became finance minister?
A We inherited a situation that was not so rosy. There were a lot of expenditures that were unforeseen in the budget and we had to cover them, and there were a lot of unknowns in December 2004. One was the value added tax because we were just joining the EU and, frankly, none of the experts knew how the system would work. As it turned out, it worked much better than expected: the shortfall that was predicted didn’t materialise. But because we were afraid of the shortfall, it forced us to to take action.
Q What is your strategy for 2006?
A We have managed to achieve something extremely difficult. We have a legal structure that makes our budget extremely inflexible, normally 80% of [expenditures] are determined by law and there is nothing we can do [about them]. We have to be extremely tough on the things where we have some room and we have managed to lower the share of public expenditure in GDP by half of a percentage point.
In the longer term, we have to go into the business of attacking the tightness of the system itself, so we’ll have to go into the issue of social transfers. There are social transfers that are so generous, today, that for some people in Slovenia it makes sense to stay home and wait for the government to send cheques rather than to seek a job. This is the key of the reform. No-one is really questioning the social approach.
Then we have to review the pension system. First of all, we have to recognise that this is a society that has the lowest fertility rate in Europe; it’s a fast ageing society. That’s a tremendous problem for the longer term sustainability of public finances and we have to deal with that.
But another peculiarity of this system is that we call pensions things that are not necessarily pensions, if you go by the basic definition of pension as an income stream that you get on the basis of a contract between an individual and the government, based on a labour relationship.
In the pension system we have all kind of special income streams defined by other laws, such as those for veterans of the socialist wars. If I take away what has not been originated in the labour relationship I can push the financial crisis five or seven years into the future. It’s amazing; everybody has some right – you wrote a couple of books, the president loved you and you got [something]. I cannot, politically, at this time step too much on these rights but there needs to be rationalisation.
Q Economists say that privatisation is too slow and there is too little FDI?
A Definitely yes. Foreign direct investment is very slow because somehow the image of Slovenia… I’ll give you an example. A firm working in logistics was interested in coming to Slovenia and using Maribor, the second biggest urban centre, as an airport hub, and part of its network. There was an international call for bids and they came to see me – I was opposition leader at that time – and told me they were very interested in coming. I said “great, hallelujah, do it”. But they said there was a problem and the UK ambassador was with them. I said, what’s the problem? They replied, look, we cannot close the financial scheme because they won’t tell us the charge for using the landing strip, a basic element. So the [charges] were never specified and they didn’t come. The international call for bids was ineffective because nobody showed any interest and it went to public auction.
It turned out the person offering the biggest amount didn’t have the money. A local firm got it and nothing has happened in the past four years. There was no political will to do it and this administration carries the burden on those things and the same bureaucracy that was trained to do all this is still there. We have to change the attitude and the image abroad of Slovenia. The only investor considering Slovenia at the moment is a casino operator from Las Vegas. It’s the best offer I can get and they want 7% tax as opposed to the 35% that is in place.
Q Despite this the Slovenian economy is successful?
A You find yourself asking: how has Slovenia managed? Because after all, you have an average 4% increase in GDP, what the hell is going on here? It’s a nightmare for me as an economist to explain it to myself. But this is a small and open economy; 60% of our GDP is exported. We are sort of balanced in trade.
So what are we exporting? There are four or five big firms, one is Renault, it’s a very good plant, works very well – so much so that they have now decided to do a new model over here. A new model that will bring something interesting for our economy, the value added will go from 17% to something between 32% and 34%. It tells you that it works and it will work better.
Second, you have two big pharmaceutical plants, Lek, which was bought by Novartis, and Krka, which is still very much in Slovenian hands, and has a lot of operations in Asia. A big home appliances firm called Gorenje is doing very well.
These are the firms that have survived and the rest is a large amount of very small firms, which is the basis of the resilience of the economy and is the formula for our future.
