Petőcz Kálmán (szerk.): National Populism and Slovak - Hungarian Relations in Slovakia 2006-2009 (Somorja, 2009)

Zsolt Gál: Argentina on the Danube - Populist Economic Policy as the Biggest Enemy of Sustainable Economic Growth

Zsolt Gál

government and public institutions that had to be disencumbered later on (e.g. various health service establishments).

There were three principal sources of implicit indebtedness: first, grandiose investment projects financed from loans with government guarantees such as construction of highways, the Gabčíkovo hydroelectric power plant or the Mochovce nuclear power plant; second, soft budgetary restrictions applied by government and quasi-government institutions as well as by state-run and privatized banks; last but not least, one must not forget about poor law enforceability and flawed bankruptcy legislation. Table 3 shows a rapid growth in the volume of classified (i.e. overdue) claims that occurred as the result of soft budgetary restrictions and poor rule of law institutions.

Table 3

Implicit form of fiscal expansion: growth in total volume of overdue claims in Slovakia between 1995 and 1999 (billion SKK)

1995

1996

1997

1998

1999 *

Social Insurance Company

5.8

8.6

20.6

34.7

43.0

National Labour Bureau

0.0

0.0

5.6

7.0

8.7

Health insurance companies

1.3

2.8

6.8

13.0

15.0

Tax offices

16.7

19.8

25.8

34.6

52.0

Customs administration

3.4

2.9

3.7

4.1

4.5

State and quasi-state organizations

27.2

34.1

62.5

93.4

96.0

Non-financial subiects (enterprises)109.4

112.6

117.7

139.4

145.2

Classified loans of banks

125.5

112.0

120.1

145.1

170.7

Total

289.3

292.8

362.8

471.3

534.4

Year-on-year growth (%)

15.7%1

.2%23.9%

29.9%

13.9%

Note: * As of September 30, 1999.

Source: “Pohľadávky po lehote splatnosti v SR” [‘Overdue Claims in the Slovak Republic], Trend No. 15/2000, April 12, 2000, 4A.

Classified loans accumulated by Slovak banks turned out to be the greatest source of debt. During subsequent consolidation of the country’s banking sector, a substantial part of this debt was converted into public debt; the costs of consolidation (1999-2000) exceeded 200 billion crowns ( 6.64 billion) and were five times higher than revenues generated by privatization of banks.“ These costs did not inflate public finance deficits and public debt until 1999-2001; but although this indicator of expansive fiscal policy was manifested belatedly, it was a direct consequence of implicit deficits produced by the previous Vladimír Mečiar administration that ruled between 1994 and 1998. The second indicator of populist policies indicated the economic growth’s unsustainable nature from the very outset. “The deficit of the current account in the period of 1996-1998 averaged 10% of GDP and due to minimum foreign direct investments it led to a substantial growth in

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