MINISTER OF ECONOMY, WHAT MINISTER OF ECONOMY?

C O N F I D E N T I A L BRATISLAVA 000692

SIPDIS


E.O. 12958: DECL: 08/26/2015
TAGS: PGOV ECON ETRD PINR KDEM LO
SUBJECT: MINISTER OF ECONOMY, WHAT MINISTER OF ECONOMY?

REF: A. BRATISLAVA 682

B. BRATISLAVA 677

C. BRATISLAVA 663

D. BRATISLAVA 626

E. BRATISLAVA 618

Classified By: Ambassador Rodolphe M. Vallee for Reasons 1.4(B) and (D)
.


1. (U) Summary. The firing of Pavol Rusko as the Minister
of Economy (reftels) will not likely have a major impact on
the Slovak economy. Though a long-term replacement remains
uncertain, the temporary substitute, Finance Minister Ivan
Miklos, has promised to enact measures which will verify all
ministry transactions, implement transparent rules for state
support of foreign investments, and ensure the completion of
ongoing privatizations. As a result, continued economic
growth should progress unaffected by the political turmoil.
End Summary.

MARKET OUTLOOK
--------------


2. (SBU) Although the Slovak crown depreciated slightly
following Rusko's departure, analysts stress that the drop is
more related to the fate of the Polish zloty than that of the
former Minister. Traders warned, however, that early
elections or other disruptions such as failure to pass the
state budget for 2006 could alter that outlook. Budget
problems could also affect Slovakia's planned 2006 entrance
into the euro waiting room (ERM-II) and further devaluate the
crown. (Note: The budget is supposed to be approved in
December 2005. Prime Minister Dzurinda told the Ambassador
on August 24 that this is a key consideration in his
political calculations of next steps in the Rusko affair.)
Nevertheless, most analysts expect the coalition to survive
in "one form or another;" they remain bullish on the crown
and expect further appreciation (daily ups and downs aside)
during the next 12 months.

CHECKING THE BOOKS
--------------


3. (C) As interim Minister of Economy, Miklos' top priority
is reportedly to scour through paperwork to check all of
Rusko's dealings in the Ministry. Coalition members have
disclosed that they expect to discover additional
improprieties including dubious transactions and overpayments
of state subsidies that personally benefited Rusko. The
government believes that decisive action will shift the focus
away from the turbulence of Rusko's removal and have a
positive affect on the economy as transparency increases and
corruption is punished.

FOREIGN DIRECT INVESTMENT
--------------


4. (C) Although Rusko has taken credit for attracting
foreign direct investment to Slovakia, FDI is not expected to
diminish after Rusko's departure. In fact, Miklos has
already stated that he will implement specific rules for FDI
and end Rusko's secretive negotiations and oral contracts.
One contact close to Foreign Minister Kukan contended that
the country will still attract investments but will not have
to pay the overly generous incentive packages typically
promised by Rusko. Such transparency is welcomed by the
business community, as many have expressed that FDI was
increasing in spite of Rusko, and not because of him. In a
recent visit of potential German investors to U.S. Steel
Kosice, Rusko, though uninvited, burst in "late, behaved
strangely, and looked like Mickey Mouse." The businessmen
commented after that, "In Germany, we have to buy tickets to
see such a circus performance".

PRIVATIZATIONS
--------------


5. (SBU) The lead opposition party announced August 24 that
it would attempt to stop the privatization of the Slovak
power company and railroad cargo rights because an unstable
minority ruling coalition should not be permitted to
undertake such important economic actions for Slovakia.
Miklos, however, has promised that the privatizations will
proceed as planned before elections in 2006.
VALLEE


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