Republic of Slovenia: Selected Issues

This Selected Issues paper examines the progress of Slovenia by focusing on four interrelated topics that are critically important to the evolution of the transition process and provides insights into the work that lies ahead. The paper concludes that the voucher-based privatization process has failed to truly transform the ownership structure of socially owned enterprises. The paper also investigates the inflation process in Slovenia through an empirical examination of some commonly used determinants of inflation in transition economies.

Abstract

This Selected Issues paper examines the progress of Slovenia by focusing on four interrelated topics that are critically important to the evolution of the transition process and provides insights into the work that lies ahead. The paper concludes that the voucher-based privatization process has failed to truly transform the ownership structure of socially owned enterprises. The paper also investigates the inflation process in Slovenia through an empirical examination of some commonly used determinants of inflation in transition economies.

IV. The Economic Impact of Accession to EU and Participation in EMU1

A. Introduction and Summary

134. With EMU in the offing, several countries are aspiring to membership in the EU, and eventually EMU. Among them is Slovenia, a small open economy: small in that its output is 0.3 percent of that of the EU; and open in that exports are two-thirds of its GDP. Slovenia has managed to stabilize its economy since reaching independence in 1991, with early structural reforms and tight macroeconomic policies. Inflation has declined to single digits, and economic growth has resumed. These developments have positioned the country well for EU membership. In fact, in July 1997, the European Commission announced that it would propose to the European Council that Slovenia be among the first group of countries with which membership negotiations should be initiated. Acting on this proposal, the Luxembourg European Council in December invited Slovenia and five other countries to begin these negotiations in March 1998.

135. What will be the impact of joining the EU and EMU for Slovenia? This chapter points out that interest rates and the inflation rate will converge to EU levels, most likely involving a substantial drop in rates. Monetary policy will lose its autonomy; therefore, it can no longer be used to counter idiosyncratic shocks. To compensate, fiscal policy will be required to be more flexible, but prudent, given the limits to fiscal deficits under the Stability and Growth Pact. The net impact of accession on the budget is expected to be positive. The composition of output and exports is not expected to change significantly, given the existing similarities in economic structure between Slovenia and the EU. The most important impact will be on economic activity: the growth rate will increase because liberalization of markets and stability-oriented macroeconomic policies will foster efficient use of resources and knowledge spillovers, which in turn will increase productivity and capital accumulation. These will help Slovenia catch up with the EU in terms of its per capita income (Figure 1).

Figure IV-1.
Figure IV-1.

European Union: Gross Domestic Product per Capita, 1996

(In US dollars)

Citation: IMF Staff Country Reports 1998, 020; 10.5089/9781451835670.002.A004

Source: World Economic Outlook, September 1997.

136. These results are conditional on three main factors. First, it is necessary to liberalize Slovenia’s economy by not only lowering its barriers to trade, but also by carrying through many structural reforms, including capital account liberalization, removal of remaining price controls, and de-indexation. A partial opening up without the necessary reforms will jeopardize the EU membership possibility. In addition, it will limit efficient use of factors of production and knowledge diffusion from abroad, therefore inhibiting increases in productivity and growth. Second, it is important to conduct an active and prudent fiscal policy. Too rigid fiscal policies may lead to excessive volatility in output, and too loose policies will entail penalties under the terms of the Stability and Growth Pact. Third, the inevitable real appreciation needs to take place early in the process. A continuing real appreciation that comes about through a nominal appreciation or inflation is inconsistent with the Maastricht criteria of a stable exchange rate and low inflation.

137. In deriving these conclusions, it is assumed that the strategy detailed in the EU Accession Strategy of the Republic of Slovenia will be implemented, and that the current policies and the structure of the EU, which includes the Maastricht convergence criteria, the Stability and Growth Pact, and several financial support funds that are mentioned below, will continue to exist.

138. The rest of this chapter describes how these conclusions are reached. After the brief background section, there are four sections that cover issues in the monetary, fiscal, production and trade, and growth areas.

B. Background

139. Slovenia established formal ties with the EU in early 1992, soon after its independence, and formally applied for membership in mid-1996. A Europe Agreement that provides the basis for integration to the EU was signed, and an Interim Agreement entered into force in January 1997, until the ratification of the Europe Agreement by all the EU members. The EU accepted Slovenia as one of the candidates for full membership in December 1997, with negotiations to be started in March 1998. The government envisages 2002 as the year of accession to EU membership and 2005 as the year for EMU participation.2 However, government officials—most recently Prime Minister Drnovšek at the Luxembourg Summit in December 1997—have at times insisted on bringing EMU participation forward to the date of EU membership.

140. The accession requirements were spelled out in the declarations by the European Council in Copenhagen in 1993 and in Madrid in 1995, in a 1995 White Paper by the European Commission, and in the Commissions’s Agenda 2000, published in 1997. According to these documents, for accession the EU requires the implementation of the “four freedoms”: free movement of goods, services, people, and capital. To fulfill these requirements, the Slovenian government agreed on a set of measures and submitted them to parliament in October 1997. Some of these measures are discussed in the following sections.3

141. Regarding EMU, the Slovenian government has never left any doubt that it considers EU membership without participation in EMU as inconceivable. Although prerequisites have not officially been specified by the EU, the Slovenian government has agreed on a sequence of measures to qualify for participation.

C. Monetary Sector

142. There is very little uncertainty about the changes the EU accession and EMU participation will bring to the monetary sector, because most of them are spelled out either as requirements for EU membership or as convergence criteria for EMU participation: full capital account convertibility should be established, inflation and interest rates must come down to EU levels, and the tolar has to remain stable in terms of the euro for two years before EMU qualification. Subsequently, the tolar will be irrevocably fixed vis-à-vis the euro, and eventually will be replaced by it. Even before the euro replaces the tolar, the requirement of exchange rate stability implies that the Bank of Slovenia will lose monetary policy independence.

143. Free capital flows will be allowed, in line with one of the “four freedoms.” Currently there are significant restrictions on capital inflows and outflows, in particular short-term capital.4 A new foreign exchange law envisages an immediate liberalization of foreign direct investment and long-term credit operations; liberalization of portfolio inflows will be extended over four years.

144. Inflation will come down to EU levels, as is mandated by the Maastricht criterion that dictates that inflation should not exceed by more than 1.5 percentage points, at most, the average inflation of the three best-performing EU member states in terms of price stability, currently lower than 2 percent (Figure 2). Inflation was successfully brought down from triple digits in 1991 to single digits by 1995; however, since then it has lingered close to 10 percent. Inflation will be lowered as the authorities conduct responsible monetary policy, abolish indexation, remove controls on certain prices and set the remaining ones close to market levels. One-time shifts can be expected when the relative prices adjust and the VAT is introduced.

Figure IV-2.
Figure IV-2.

Slovenia: EMU Monetary Convergence Criteria, 1992-1997

Citation: IMF Staff Country Reports 1998, 020; 10.5089/9781451835670.002.A004

Sources: Bank of Slovenia and staff calculations.1/ Average of the three member countries with the lowest inflation rates + 1.5 percentage points.2/ Average of the three member countries with the lowest inflation rates + 2.0 percentage points.3/ Slovenia: long-term nominal lending rate.

145. As long as interest rates in core EU1 countries remain close to present levels, the requirement on the long-term interest rate will bring down both the nominal and the real rates (Figure 3). Under the relevant Maastricht criterion, a member’s long-term interest rate may not exceed by more than 2 percentage points, at most, that of the three best-performing member states in terms of price stability. Currently, interest rates are high in Slovenia. This can be explained by tight monetary policy, indexation, and the structure of the banking system. As indexation is abolished and competition is increased in the banking system, real rates will decline. Coupled with lower inflation, nominal rates will converge to EU levels.

Figure IV-3.
Figure IV-3.

Slovenia: EMU Fiscal Convergence Criteria, 1992-97

Citation: IMF Staff Country Reports 1998, 020; 10.5089/9781451835670.002.A004

Sources: Bank of Slovenia, and Ministry of Finance.1/ The 1997 figure is official projection.2/ The 1997 figure is staff projection.

146. Prior to EMU participation, the exchange rate has to remain stable for two years.5 However, Halpern and Wyplosz (1996) point out a stylized fact of the transition process that an early exchange rate depreciation is followed by continuing real appreciation. Their results suggest that appreciation stems from a combination of a return to equilibrium levels and equilibrium appreciation.6 This is also expected for Slovenia. If the real appreciation is achieved through higher inflation, Slovenia will probably violate the Maastricht criterion on inflation; if there is a nominal appreciation, the requirement of a stable exchange rate will be violated. Although—as in the case of Ireland—an appreciation may be looked upon more leniently than a depreciation, these imbalances could jeopardize Slovenia’s acceptance to EMU. A real appreciation that takes place in advance of convergence to Maastricht criteria will avoid the conflict.

147. Once in EMU, Slovenia can no longer expect monetary policy to be geared to serve primarily the interest of Slovenia. In case of an external shock, the European Central Bank will react only to the extent that the shock is common to the union. Idiosyncratic shocks will not be compensated by monetary policy. This change will put particular demands on the adaptability of fiscal and incomes policies and on labor market flexibility.

D. Public Sector

Budget

148. Accession to the EU is expected to have a positive net effect on Slovenia’s government budget. Positive net transfers from the EU budget and larger taxes stemming from higher output (see section F) will improve government revenue. On the other side, customs duties will decline and administrative costs are bound to increase. The net effect, however, is expected to be positive if the net transfers do not fall to the lower end of the range of possible outcomes.

149. Net transfers from the EU budget are likely to be substantial. Transfers from the EU budget will be within the framework of the Common Agricultural Policy (CAP), the European Structural Fund (ESF), and the Cohesion Fund (CF). The application of the CAP to Slovenia will allow Slovenia to receive transfers for farm income support from the EU budget. Similarly, Slovenia will qualify to receive transfers from the ESF and the CF. The CF was set up to help countries with low income to achieve the criteria set in Maastricht. The ESF was set up to distribute income to achieve more even development across the EU. The most important criterion to qualify for the transfers is a low income relative to the EU average. Under current rates, Slovenia will satisfy all the criteria and obtain a considerable amount of transfers from the EU. The amounts of transfers to be received are not certain; calculations of inflows range between 4 and 5¼ percent of GDP. Transfers to the EU budget will be proportional to the share of Slovenia’s GDP in the EU, which is 0.3 percent, and should translate into an outflow of around 1 percent of Slovenia’s GDP. The net flow estimates thus range between 3 and 4 percent of GDP.7 If a policy change occurs in favor of the new members once they enter the union, net transfers may even exceed the upper range of the estimates.

150. These figures are consistent with previous EU accession experiences. In 1995, net flows to Greece, Portugal, and Spain were 4½ percent, 3¼ percent and 1½ percent of their respective GDPs, respectively.

151. There are several uncertainties surrounding the amount of net transfers. First, the CAP is very complex and precise data on farms and agricultural production are lacking. Second, the CAP may be reformed before the accession. Third, the absorption capacity of the economy may be limited for such large transfers. Fourth, most of these transfers require matching national contributions, which may not be available given the Maastricht criterion on the fiscal deficit. This is reflected in the actual use of such funds by eligible recipients: actual expenditure for structural projects accounted for only 70 percent of the amount approved in 1995.

152. In addition to transfers, higher output will boost government revenue as EU and EMU membership is expected to increase the growth rate of output. As a result, under the assumption of no change in tax rates, revenue from income taxes and VAT will rise.

153. On the other side, revenue from customs duties, which has already declined by some 1 percent of GDP, will decline even more substantially to comply with the requirements of the single market and the common external tariff. In the long run, total revenue from customs duties is expected to be insignificant, because of, in addition to EU, certain bilateral agreements and CEFTA.

154. Administrative costs will also rise. The new procedures, and the necessity of formulating and designing further reforms, have already put strains on the government administration. This pressure will intensify since Slovenia is now officially accepted as a candidate for admission.

155. There will be other changes in the budget stemming from EU accession. Currently Slovenia has a sales tax, which must be replaced with a value added tax (VAT) to bring the revenue system more in line with that of the EU. Excise taxes will also be altered to comply with the EU provisions on the holding and movement of goods. Several other taxes will be harmonized with those of the EU. These changes are expected to lower the distortions inherent in the tax system, and increase transparency and comparability with other countries’ systems. The impact of these changes on total revenue will be minimal, because the VAT and excise tax rates will be determined to ensure revenue levels no less than the current levels.

Other effects

156. Until now, the Maastricht criteria on the public sector deficit and debt have not been binding for Slovenia. The general government accounts have been close to balance, deviating from zero by no more than ¼ percent of GDP until 1997. Moreover, the general government debt has been low relative to levels observed in the EU, fluctuating around 20 percent of GDP. These values are far from the deficit and debt ceilings in the Maastricht criteria, which are 3 percent and 60 percent of GDP, respectively.

157. It is uncertain if this will continue. Based on the recently approved budget, the general government accounts show a deficit of 1½ percent of GDP in 1997. Once the accounts are standardized with the EU, the deficit may be even higher, depending on the treatment in the budget of the privatization revenue and the expenditure of extrabudgetary funds. Without measures, the deficit is projected to increase to more than 3 percent in 1998. More important, these fiscal slippages are occurring during a period when output is growing by 3-4 percent, well above the EU average. Even if Slovenia may satisfy the deficit criterion, once in EMU, it will be bound by the Growth and Stability Pact that penalizes a country for excessive deficits. This means that, to safeguard the path to EMU membership and to avoid penalties under the Growth and Stability Pact, a savings package is required.

158. Another pressure point is the pension fund, which is projected to have an increasing deficit for the coming 50 years. This will also put considerable stress on the budget, and will be yet another factor increasing the deficit. Reforming the pension system will help both the sustainability of the pension fund, and the fulfillment of the Maastricht criterion on the public deficit.

159. In addition to being prudent, fiscal policy has to be more responsive to idiosyncratic shocks to the economy. Up to 1997 the fiscal balance has changed minimally, in spite of strong fluctuations in the macroeconomic variables.8 However, participation in EMU will eliminate Slovenia’s autonomous monetary policy. The buffer role of the monetary policy needs to be taken over by fiscal policy. This way, negative idiosyncratic shocks will be countered by fiscal policy measures and their adverse effects on economic activity will be limited. To this end, it will be beneficial to increase the relative size of the discretionary part in the central government budget, which currently stands at only 30 percent. If such flexibility is not brought to fiscal policy, if wage determination continues to be rigid, and if the size and frequency of idiosyncratic shocks do not diminish, then the volatility of output has to increase.

E. Production and Trade

160. Trade liberalization will reduce tariff protection, in line with one of the “four freedoms.” The average nominal tariff rate was 5.7 percent in 1996. This figure would be somewhat higher if additional protection for intermediary goods is taken into account. The rate is expected to come down by a few percentage points by 2001, and become insignificant in the long run as more bilateral free-trade agreements are adopted. The common tariff structure for the EU will raise some tariffs, but the increases are not expected to be substantial.

161. While the decline in tariff protection is in the right direction, the impetus to further freedom of markets and resources will come from many micro-level adjustments in different production sectors. These measures are detailed in the “EU Accession Strategy of the Republic of Slovenia,” and a summary list is in Annex I. Their main objective is to increase efficiency through better governance, price liberalization, and stronger incentives for knowledge diffusion.

162. Will liberalization lead to a change in the production structure? This depends on how different Slovenia’s current production and trade patterns are from those of the EU, and whether integration will lead to more product concentration. The structures of output by type of activity and exports in Slovenia and in the EU are very similar (Figures 4 and 5). In both Slovenia and the EU, manufacturing, especially machinery, has the largest share in output, while agriculture and mining have the smallest. In exports, again the manufacturing sector has the largest share in both Slovenia and the EU. The strength of the linkage between the economies can also be seen from the fact that close to 70 percent of Slovene exports goes to the EU. However, there are still certain divergences. First, the share of Slovene financial institutions in total output is significantly lower than that in the EU. Second, the share of social services (most of “other” category), including education and health, is significantly higher. Third, the ratio of basic manufacturing goods to total exports is almost twice as large as that of the EU.

Figure IV-4.
Figure IV-4.

Slovenia: Composition of Output

Citation: IMF Staff Country Reports 1998, 020; 10.5089/9781451835670.002.A004

Sources: OECD, National Accounts and national authorities.
Figure IV-5.
Figure IV-5.

Slovenia: Export by SITC

Citation: IMF Staff Country Reports 1998, 020; 10.5089/9781451835670.002.A004

Sources: UNCTAD, Trade Analysis Reporting System and national authorities.

163. Theoretically, opening up an economy to international trade can have two opposing effects on the production structure. On the one hand, it creates the opportunity to produce closer to the final market, thereby encouraging diversification. On the other hand, it allows further use of economies of scale, and leads to concentration of production in specific regions that are determined by comparative advantage. As Krugman (1991) points out, the automobile industry is an example of higher production concentration with further integration. This can be seen by comparing production in the United States and Europe. In the United States, where there are fewer barriers to trade relative to Europe, automobile production is much more concentrated in a few regions.

164. Frankel and Rose (1996) claim that trade liberalization increases intra-industry trade. They use a panel of 30 years of data from 20 industrialized countries and investigate the link between trade intensity and business cycle activity. If liberalization leads to production concentration, then the business cycles should become less correlated. Finding that there is a strong positive relationship between trade intensity and business cycles, they conclude that greater integration leads to more diversification.

165. The strong similarities between Slovenia and the EU in production and export structure, coupled with empirical results, indicate that EU accession will not lead to substantial changes in the Slovenian production structure. The remaining differences should diminish with liberalization. Liberalization will certainly introduce more competition to the banking sector in Slovenia, and improve the financial services, as barriers to capital movements and indexation are abolished. This is consistent also with the necessary development of the capital markets. Liberalization will also bring more know-how to the industrial sector, increasing the share of non-basic manufacturing. With the government’s commitment to a smaller government sector and pension reform, the share of the social services within output is expected to shrink.

166. It should be noted that the analysis at the aggregate level misses certain important dynamics at the micro level. For example, while the relative size of a sector in Slovenia and the EU may be the same, the quality of output can be very different. Through learning-by-doing, or other ways of knowledge diffusion (section F), these differences can be eliminated. Such changes may improve the prices in that sector and Slovenia’s terms-of-trade.

167. One way of predicting changes at the sectoral level is to simulate changes using a computational general equilibrium model (CGE), as done by Potočnik (1997). His simulations indicate that textiles, wood and paper products, minerals, basic metal and metal products, and machinery and equipment sectors stand to lose the most, whereas coke, refined petroleum products, and transport equipment will benefit from European integration. These results should be interpreted with caution because of the necessary abstraction for simulation.

F. Growth Rate

168. Perhaps the most important potential impact of EU accession for Slovenia is on the growth rate of output. A one-time level shift in output, while welcome, may not be substantial. But an increase in the growth rate of output, no matter how small, will have an important impact in the long run. An improvement that will keep the output growth rate above that of the EU will be instrumental in Slovenia’s quest to catch up with per capita output levels in core EU countries.

Theoretical considerations

169. There is a growing consensus that opening up the economy to international markets, together with a set of policies directed toward a stable macroeconomic environment, does lead to a higher growth rate of output. The emphasis on trade in promoting growth, which dates back to Adam Smith, has led to outward-oriented policies, away from the inward-oriented import substitution growth policies of 1960s and 1970s. In this context, trade liberalization is considered to be the flagship of a set of reforms that include price liberalization, privatization, deregulation, and the installation of a social safety net.

170. The literature on international trade and growth finds a strong positive link between free trade and economic growth.9 Two classical explanations are economies of scale and comparative advantage. Sectors with increasing economies of scale benefit from free trade because additional markets lead to more production with lower costs, promoting growth. Similarly, firms will be able to produce their goods where they have a comparative advantage, making more efficient use of the resources and enhancing growth.

171. Recently, the importance of knowledge dissemination on growth has been emphasized. According to this strand of literature, growth depends on the accumulation of knowledge by a country, which depends on the stock of knowledge. The larger a free trade area is, the more knowledge spillover there is. Trade between countries acts as a “conduit” for the dissemination of knowledge. For example, Marin (1995) finds supporting evidence that Austria’s growth was relatively fast during the postwar period because of the “knowledge spillovers from its trading partners,” particularly Germany. A similar point is made for a number of countries by Ben-David and Loewy (1995).

172. Recent empirical studies verify these theoretical conclusions. Edwards (1993) finds that higher trade barriers reduce factor productivity and growth. However, his study does not include non-tariff barriers. Bosworth, Collins and Chen (1995) look at 70 countries and obtain direct indicators of tariff and non-tariff barriers. They find that lower average tariff rates and non-tariff barriers are associated with faster growth. They find also that trade liberalization works through both channels: faster capital accumulation and larger productivity gains. The possible short-term negative impact of trade liberalization is downplayed by Papageorgeiou et al. (1991), based on the study of a number of liberalization episodes.

173. A stable macroeconomic environment is also shown to be important for economic growth. Barro and Lee (1994) show that there is a strong correlation between a stable environment and economic growth. Bosworth, Collins, and Chen (1995) empirically find that higher real exchange rate volatility and higher average budget deficits lead to lower growth rates in their panel study with a 32-year sample. The budget balance is shown to affect capital accumulation, whereas the variance in the real exchange rate affects the productivity growth.

174. These results are reinforced by other results that show convergence of per capita income between certain countries. Sachs and Warner (1995) reach a strong conclusion that all economies that are open tend to converge to the same level of per capita income in the long run, and that closed economies do not.

Implications for Slovenia

175. The theoretical and empirical literature advocates two broad conditions for stronger growth: open, freely functioning markets, which allow the efficient use of capital and labor, and a stable macroeconomic environment. But these are precisely the requirements to join the EU and EMU. Therefore, Slovenia’s growth should pick up once it joins the EU and EMU.

176. Specifically, Slovenia will take steps to lower barriers to the free movement of goods, services, and factors of production. These measures will help boost the accumulation of both physical and human capital, and increase knowledge spillovers from abroad. Further measures in research and development can be taken to benefit from such spillovers. In turn, productivity will grow.

177. Steps will also be taken to ensure macroeconomic stability. In this regard, there are two opposing forces. On the one hand, EMU will constrain Slovenia’s ability to use monetary policy to react to country-specific shocks.10 For example, a negative demand shock to Slovenian exports could not be softened by a depreciation of the exchange rate. If wages do not adjust quickly, output will decline, until real wages decline in the long run. Even a temporary change in the terms of trade may lower output. This case can be aggravated if Slovenian industries become more concentrated, thereby becoming more vulnerable to idiosyncratic shocks. On the other hand, an active fiscal policy will compensate for the monetary rigidities; at the same time, the Stability and Growth Pact will ensure its prudence. Moreover, historical volatility that stems from inappropriate policies will diminish, if not vanish. The volatility of the exchange rate will decline and, eventually, the rate will be fixed vis-à-vis the euro. A fixed exchange rate will also lead to a less volatile real rate, as is shown in Flood and Rose (1995). Of course, a more flexible wage setting environment, if it materializes, will also ease the pressures. Finally, the similar production structure and the well diversified nature of the Slovenian economy (a remarkable feature, given its smallness) would seem to limit the likely incidence of idiosyncratic economic shocks. Idiosyncratic shocks should diminish further as the Slovenian economy gets integrated to the EU. The net effect should be more macroeconomic stability.

178. The experience of Spain is germane in this context. Spain became a full member of the EU in 1986. The fundamental macroeconomic imbalances were eliminated and market mechanisms were put in place. The progressive opening up, coupled with structural reforms, had led to freer movement of goods and capital. In the following five years, Spain’s GDP grew at an average annual rate of 4.3 percent, 1.5 percentage points faster than GDP in its main trading partners and close to 3 percentage points faster than the previous five years, and reduced its per capita income gap with the core EU economies.

ANNEX I: A Partial List of Measures to be Taken for the EU Accession

Monetary and foreign exchange

- Elimination of the inter-bank agreement on maximum deposit rates.

- Interest rate de-indexation.

- Abolishing the BOS restrictions on commercial and financial credits.

- Liberalization of all short- and long-term capital flows, and harmonization with the EU.

Fiscal

- Pension reform.

- Introduction of VAT.

- Reform of the tax administration.

- Adoption of the Public Servants Act.

- Revision of the excise tax in accordance with the EU standards.

Price and competition liberalization

- Implementing a programme of administered prices liberalization.

- Introduction of amendments to Protection of Competition Act.

- Restrict state aid to research and development, environmental issues, and regional cohesion.

Enterprise sector reform

- Variety of measures, including education and subsidies, to stimulate development of small and medium-sized companies, research, and foreign direct investment.

- Promotion of Environmental Approach to Business

- Harmonization of Technical Regulations

- Consolidation of ownership and establishing of corporate governance in newly privatized enterprises.

- Efficient implementation of the Takeover Act.

Financial sector reform

- Adoption of the new Banking Act.

- Adoption of the Bank Privatization Act.

- Privatization of NLB and NKBM

- Adoption of the Ownership Transformation of Insurance Companies Act.

- Improvements on the existing Insurance Companies Act.

- Adoption of the new Securities Market Act.

- Adoption of the new Investment Funds Act.

Labor market

- Removing discrimination against workers from the EU.

- Reducing barriers for employment of Slovenians in other countries.

- Adoption of the new Unemployment Act.

- Adoption of the Labor Relations Act.

- Adoption of a new Disabled Persons Employment Act.

Transport

- Investments on highways.

- Harmonization of existing legislation on transportation with the EU.

- Adoption of a new EU compatible legislation on maritime, upgrading existing one.

- Adoption of a new EU compatible legislation in air traffic.

Telecommunications

- Increased investment for modernization.

- Gradual deregulation, and liberalization.

Energy

- Increasing the energy prices to EU levels.

- Gradual elimination of tariff subsidies.

- Adoption of the Energy Act for more competition.

Agriculture

- Harmonization with the CAP and CEFTA protections.

- Adaptation of programs that will support investment, modernization, integration, etc.

Regional and spatial development

- Adoption of the new Regional Development Promotion Act and the Strategy of Regional Development.

- Adoption of the new Spatial Planning Act.

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1

Prepared by Tarhan Feyzioğlu.

2

See “EU Accession Strategy of the Republic of Slovenia” by IMAD.

3

For a complete list, see Annex I and “EU Accession Strategy of the Republic of Slovenia.”

4

See the accompanying report on Recent Economic Developments, Section IV and IMF, Exchange Arrangements and Exchange Restrictions, Annual Report 1997.

5

Most likely Slovenia will joint ERMII by pegging to the euro, with possible maximum fluctuation bands around the central rate of plus or minus 15 percent.

6

Halpern and Wyplosz’s stylized fact of an appreciating real equilibrium exchange rate in transition economies is briefly summarized in the preceding chapter of the present selected issues paper.

8

See the accompanying report on Recent Economic Developments, Section III.

10

See, for example, Corben (1994) and De Grauwe (1994).

Republic of Slovenia: Selected Issues
Author: International Monetary Fund