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6. lecture:The First Fico’s government, 2006 – 2010 (Ivan Mikloš)

Lecturer: UPMS | Thursday, 14. 6. 2012

After eight years, Dzurinda’s governments were replaced by a government of Fico’s Direction – Social Democracy, Mečiar’s MFDS and Slota’s SNP (the Slovak National Party).

The Direction-SD had a dominant position in that government, as 11 of overall 16 places and the position of the PM were taken by them.

By creating a government there was big uncertainty what economic policy would be realized, especially considering sustainability of reforms begun during Dzurinda’s governments, particularly the second one. Fico’s Direction was an irreconcilable critic of those reforms. He also promised in his election programme a huge change to be done about that. As MFDS and SNP never belonged to defenders of those reforms, it seemed the reforms are endangered. The reality was finally different, although we cannot say nothing was changed or at least deformed. But there was no fundamental revision.

A first serious trial came after government’s instalment. The fresh Prime Minister Fico said that the prepared and started by the Dzurinda’s government, entry to the eurozone was not definite and we would see whether it would be advantageous for Slovakia.

Immediately after that saying, a reaction of markets came and the Slovak crown started falling. The markets reacted logically, because they evaluated that the most effective insurance against the irresponsible and populist policy of the Fico’s government, which they were afraid of, was the continuation of the entry to the eurozone with a necessity to fulfil strict criteria, especially the budget ones. Scared by markets’ reaction and after consultations in NBS, Fico quickly revised his stand and proclaimed that his government would continue in the entry to the eurozone.

It was very interesting how markets enforced a government to make necessary and wise steps for the second time in a relatively short period of time. If you remember, I described, in last lecture, how crown’s fall shortly before presidential elections in 1999 enforced the Party of the Democratic Left to agree with necessary stabilizations measures and allowed realizing necessary, although unpopular measures by the Dzurinda’s government.

The Róbert Fico’s government began its governing in a very comfort environment. Thanks to so sharply criticised reforms, the Slovak economy achieved record-breaking growths and these growths brought a record-breaking increase of incomes of the public budget. The economy grew, the unemployment rate fell and the treasury was filled beyond the most optimistic expectations. In 2007 the economic growth got at a record-breaking level 10,4%, and in the last quarter at even more than 15%.

The year 2008 was still a good year, although not as successful as 2007. In autumn 2008 the world crisis became fully evident. The crisis affected the Slovak economy already in the end of the year by a relatively fall of an economic activity and the economic growth. It had most significant economic impact in 2009, when the world crisis was changed into the world economic crisis and the Slovak economy fell about more than 5%, especially in consequence of a lower demand from abroad.

The unemployment rate was increased from 9,6% in 2008 to 12,1% in 2009 and the deficit of public finances grew from 2,1% to 8% of GDP.

In 2010 the economy was relatively stabilised; the deficit and the debt enormously arose during years of the crisis. The Róbert Fico’s government regardless of a significant failure of incomes, which was caused by the economic downturn, didn’t reduce public expenditures. The growth of public expenditures was the highest in Slovakia from all countries in the EU27 during the years of the crisis. It was so in spite of the fact that Slovakia, on the contrary of many other countries, didn’t have to contribute to saving and a consolidation of banks at all.

Fico had thus during his first government so many sources to disposition as nobody else before him and most probably after him. First two and a half years the source of this income was a record-breaking economic growth launched by reforms, and the last one and a half year it was record-breaking growing encumbrance. The public debt arose from 28% of GDP in 2008 to 41% of GDP in 2010. As a result, the Fico’s government had in public expenditures, in comparison to the second Dzurinda’s government, extra resources in the amount of 750 billion Slovak crowns, it meant about 25 billion euro. Extra resources! To confront, an average growth of public expenditures was around 18% in the EU for this period. In Slovakia the public expenditures increased during the Fico’s government about 35%. Thus there was a double source increase compared with the EU average.

A comfortable environment of sufficiency of sources was maybe the main cause of relatively careless ruling and inaction. If we look at reforms of fundamental changes or systematic solutions and measures, which were realized during Róbert Fico’s government, we find out there were none.

Although during this government there was a completion of two significant integrating processes. Both of them were launched during the second Mikuláš Dzurinda’s government and during the Fico’s one were just successfully completed – entry into the Schengen Area and to the eurozone.

The advantage of the inactivity was that basically there was no cancelled reform made by the previous government. The tax reform stayed almost untouched. Changes were only symbolic – introduction of a reduced rate of GDP for medicines and books and a gradual reduction of a deductible item with the income increase.

There was no significant change in the social reform too. From a point of view of flexibility of the labour market, the Labour Code was worsened, but it was not a dramatic change. The government repeatedly tried to weaken the second pillar of the pension reform, opened it and made a campaign in favour of leaving it. They were not very successful. The measures, which the government made, decreased the evaluation of people’s savings in the second pillar and then the government argued by a low profitability.  

Most serious changes and deformations affected the reform of the health service. The government cancelled doctor’s fees for a prescription and markedly restricted a competition between two health insurance companies. They didn’t continue in a transformation of hospitals. The corruption, wrong ruling, wastage and encumbrance expanded in the sector.

A huge increase of public sources was not purposefully used during the first Fico’s government and the means were wasted to a significant extent in non-functional and non-reformed systems. The health service is a good example. There was an enormous growth of public sources (about cca 50% for 4 years, nevertheless it did not become evident in better heal service functioning. Retrogressive patient’s and health worker’s satisfaction and indicators of states of inhabitants’ health are nice proofs).

During the first Fico’s government there was an increase at the level of corruption. The government did not only fight against the corruption, but they became its producers. A huge amount of overpriced procurements gave an evidence of the corruption. The most popular cases were a notice board tender, a highway toll or emissions. In these cases of the corruption, the state lost hundreds million euro. To illustrate the degree of wastage, let’s compare prices of construction work, for which 4 same stages of the highway D1 in the east, between Levoča and Prešov, were won in competitions. Under the Fico’s government it was 1,4 billion euro. This competition was cancelled during the Radičová’s government and a new tender brought a half the price, cca 700 million euro. What a difference for the same thing!

Reforms thus, on the one hand, were not destroyed and disrupted, although some of them were deformed. A lot of time and money was lost because there was huge wastage; the corruption grew; necessary changes and reforms were not enforced. As a result, Slovakia’s competitiveness gradually worsened, a business environment worsened and there also was a gradual lag in all areas necessary for a growth of country’s competitiveness.

The deficit in 2009 and 2010 was increased to 8% in each of those years; the public debt had been increased from 28% of GDP to 41% during 2 years.

In that state a centre-right coalition took charge of the government. The head was Iveta Radičová.

During the next lecture we will talk about the results of this government.


5 comment(s). Display all comments.

Vladimír Vráb

Ďakujem za ekonomický a politický prehľad uplynulej epochy. V prednáške sa píše, že “Nezamestnanosť vzrástla z 9,6% v roku 2008 na 12,1% v roku 2009 ...”
V teste je k tomu otázka s 3-ma nesprávnymi odpoveďami. Správne má byť buď 26% alebo 2,5 “percentuálneho bodu”.

18.03.2013 | 17:30:41
Tomáš Janík

A druhy pilier je uplna kastrofa. Ved pocitaj, tvoje peniaze sa zhodnocuju 1%. Lenze inflacia za poslednych 20 rokov dosiahla 300% a za posledne roky sa pohybuje v priemere 4%. To znamena, ze tvoj dochodok sa kazdym rokom zmensuje o -3% a to este sa musis modlit, aby, najblizsich 30 rokov nedoslo k hyperinflacii, ku ktorej dochadza napriklad pri nejakych vacsich negativnych udalostiach. Ale pozor ti, co su v prvom pilieri, tak ti dostavaju dochodok priamo z vyplat pracujucich. No a to znamena, ze priemerne kazdym rokom sa mzdy zvysuju o 3% a tak aj rast dochodkov v prvom pilieri je 3% rocne. Takze ten v prvom pilieri bude mat o 20 rokov 1,8 krat vacsi dochodok, ale ten v druhom pilieri bude mat o 1,8 krat mensi dochodok ako su peniaze, ktore sa odvedu z vyplat do dochodkoveho systemu. Inak problem starnutia je absolutna hlupost, pretoze nasa zivotna uroven nezavisi od toho, kolko penazi sa nechadza na Slovensku, ale od toho kolko vyrobkov sa vyrobi na Slovensku. Takze tak.

21.07.2012 | 00:24:23
Tomáš Janík

ja sa v sucasnosti usilujem, aby som mohol moje nazory sirit verejne, pretoze takto to vysvetlovat len na UPMS nema velky vyznam pre cely stat, ale som rad, ze sa pytas. Dnes proste zijeme dobu, ked nikto nedoveruje statu a to je velmi smutne. Tu sa vytvara iluzia, ze sa tu strasne kradne (najme pravica z tohto argumentu zije), ale v skutocnosti aj to najvacsie kradnutie lavicou su len male omrvinky a na nasu zivotnu uroven to nema skoro ziadny vplyv. Len si zober, ze ked sa rocne ukradne 20mld sk, co je uz poriadna zlodejina, tak to je 0,6mld eur. No ale celkove statne financie tvoria 27mld eur. Konkretne 6mld eur ide na dochodky, 4mld ide na zdravotnictvo, 2 skolstvo a 2 infrastrukturu. No ale pravica neustale rozprava len o tych ukradnutych 0,6 mld eur. Takze statu treba doverovat a to dokonca aj ked je pri moci Fico, Meciar.

21.07.2012 | 00:23:41

No to je presne ono, že on nastavený dobre nie je…. a vždy je lepšie sporiť si na svoj učet ako na štatny nie???

17.07.2012 | 10:32:55
Tomáš Janík

To, ze pan Fico robi zlu politiku, este predsa neznamena, ze pan Miklos robi dobru nie? Ja tvrdim, ze jednotna dan a druhy pilier ublizuje Slovensku daleko viac ako Ficovo kradnutie, pretoze tieto dve veci nas okradaju o peniaze a blahobyt kazdy den neustale, zatial co Ficovo kradnutie bolo iba jednorazovym. Podla mna, ak by bol system dani a dochodkov dobre nastaveny, tak nam zivotna uroven bude rychlo rast bez ohladu na to, aka vlada je pri moci.

21.06.2012 | 13:57:41