Country Study, Slovenia: Winning the Transitional Economies Race

Country Study


Winning the Transitional Economies Race

Submitted by

Michael Milton Peter [email protected]
Robert Scott Taylor [email protected]
Dmitri Maslitchenko [email protected]
Government Finance in Transition Economies

Professor John Mikesell
Fall 1996

The World Development Report: From Plan to Market (WDR) argues
that with consistent and sustained reforms, transition countries can
achieve successful long-term economic growth, but also warns that
many challenges and risks — among them long-term stagnation and
rising poverty — still lie ahead for some countries.

-World Bank News, June 27,1996-


Five years ago a small republic of the former Yugoslavia, started on
its path of transition from an eastern block socialist government with a
planned economy to a democratic government with a free market economy.
Fortunately, the rocky road, described by the World Bank News in the quote
above, has not been long for Slovenia. Although Slovenia was the most
prosperous Republic before the dissolution of Yugoslavia, after the breakup
of Yugoslavia in 1991, Slovenia experienced high levels of inflation, a
drop in the GDP and a tripling of the unemployment levels[1]. These
problems did not stop Slovenia’s transition to an economic powerhouse in
the former Eastern Bloc. However, Slovenia had several advantages over
other Eastern Bloc countries which aided in such a successful transition.
This analysis will present both Slovenia’s historical and current
economic status by examining the political and economic background,
budgetary and monetary conditions, expenditure policies and assignment, tax
structure and administration, and social insurance.

Political and Economic Background

Passing through its transition period from a centrally planned
economy to a market economy, Slovenia has dealt with some successes and
some failures. However, Slovenia’s experiences and economic policies could
prove to be helpful for other economies in transition. There are many
reasons why the transition period for Slovenia has been successful. The
foundation for its quick transformation to a market economy lies within the
positioning of Slovenia in the history of Yugoslavia before and after
its dissolution.
After the end of World War II, Yugoslavia’s definition of socialism
changed. Ownership of the means of production was defined as ‘social’
rather than ‘state’ and firms were managed by workers councils. No central
planning existed after 1965 and Slovenia, as well as the other republics in
Yugoslavia, were given a high degree of autonomy. Also Tito, a former
leader of Yugoslavia, had deviated from the ‘command economy’ model of the
Soviet Institution. As a result, the Yugoslavian government policy had
an emphasis on a greater sense of autonomy, as far the economy was
concerned.[2] The Republic of Slovenia developed its economic base by
increasing the level of manufacturing in the republic as well as
establishing stronger ties with the Western European countries.[3]
Slovenia had always been oriented towards the west, however, due to its
northwestern location in Yugoslavia, its economic interaction with the
western countries led it to become market oriented faster than other
Eastern Europe countries.
While Slovenia was a part of Yugoslavia, it was by far the most
successful republic with a per capita income of almost double that of the
national average.[4] The Slovene economy could not be solely dependent on
the national market and therefore they actively traded with Italy, Austria,
Bulgaria and Hungary. In fact, “with only 8% of the population, little
Slovenia brought in 25-30% of Yugoslavia’s foreign exchange.”[5] Also,
Slovenia accounted for 20% of the country’s Gross Domestic Product.[6] As a
result of this high degree of decentralization and positive net outflows,
the aforementioned characteristics provided the economic basis to
secession. In May 1990, the people of Slovenia elected a government whose
economic policy, according to Mencinger, » was set by the premise that
prospects of transition to a market economy were worsening; the economic
policy of the federal government mistaken, the existing economic system
unsuitable, and the Federation facing political turmoil.»[7] The
referendum on independence passed with 90 percent support. Since that
1990 vote, Slovenia has come a long way economically.
Slovenia declared its independence on June 25, 1991. The first year
for Slovenia was quite difficult. “Real GDP fell 15% during 1991-92, while
inflation jumped to 247% in 1991 and unemployment topped 8% — nearly three
times the 1989 level.”[8] The economy continued to plummet until 1993 when
it flatten and then head into the positive direction. By 1993 unemployment
was at 11% and many companies had lost almost 30% of their markets due to
the bitter conflict in Bosnia and the loss of faith in the region by
international trade partners.[9] However, “[a]t its current rates of
economic growth, [slovenia] it could pass EU members Greece and Portugal in
four to five years.”[10]
Current Economic Conditions
Gross Domestic Product
In order to appreciate the current economic conditions of the
country, it is necessary to examine some of the economic indicators in
relation to their past figures. The first indicator is Gross Domestic
Product. According to the EIU Country Report for the 2nd quarter of 1996,
the real GDP growth percentage is slowing down. In fact between 1994 and
1995 there was a -1.4% increase in GDP.[11] Even though there was a
negative change, the Chamber of Economy in Slovenia states that due to
“tremendous growth of new companies, particularly small businesses, and the
shift of foreign trade westward,” they project that slovenia is expecting
to experience a 5-6 percent increase in GDP in the period up to the year
2000.[12] In addition, “the GDP per capita is higher than those of Greece
and Portugal, double that of Hungary and the Czech Republic, and it has a
comparatively efficient manufacturing sector.”[13] Currently, mining and
manufacturing are contributing the largest percentage to the GDP (figures
from 1995 report 31%) with Trade, Hotels and Restaurants and Financial
Market Services at 14% each. Although, Slovenia continues to depend on
manufacturing and machinery production, other industries continue to grow
and keep a diverse base for Slovenia’s GDP. (See Appendix I) The country of
2 million people has a GDP of more than $18.5 billion.[14] The EIU
predicts that the real GDP percentage change form the previous year will be
3.0 and 4.0 in 1996 and 1997, respectively.[15] (See Appendix II)
Imports and Exports
Other important indicators are foreign imports and exports. In 1995
Slovenia had $20.8 billion in foreign trade, goods and services.
Slovenia’s international trade has been geared towards western Europe,
especially Italy and Germany.[16] (See Appendix III & IV) One advantage
that Slovenia has had in trading with the Western European countries, is
that Western Europe does not charge any duty on good entering their
countries from Slovenia, except some agriculture, steel and textile
products; in 1995 70% of all of Slovenia’s foreign trade went to the
EU.[17] Western Europe has maintained a high demand for machinery and
transport equipment, comprising 27% of Slovenia’s exports. (See Appendix V
&VI) This consistent link with the West also is evident in the political
philosophy of Slovenia.
In 1991, when the Republic of Slovenia first started establishing
policy towards a market economy, the inflation rate reached a peak of
247.1%.[18] This was expected, since the economy was moving from a highly
state subsidized centrally planned economy to a free- market economy.
Fortunately, by 1995 the inflation rate had reached 9.5%.[19] One
important quality of this transition was that Slovenia managed to bring
inflation under control without any balance-of payment problems. Inflation
in 1996 thus far is at 10.7% a small increase form 1995, however, the
Chamber of Economy of Slovenia has a positive outlook for the next
year.[20] (See Appendix VII)
In 1994, the Slovenian government took its first steps towards
privatization. At first the country observed the other Eastern Bloc
countries and learned from their failures. The companies or enterprises’
were allowed to choose between five privatization models, which were then
approved by the Agency for Privatization.[21] Most of the companies were
sold off to the workers and managers.
The citizens were given privatization coupons valued at 100,000 —
400,000 Tolars, depending on the age of the individual. The coupons could
be used to buy shares or invest the money into securities. Over 45%
percent of the coupons were invested into fund securities.[22] According
to Price Waterhouse, over 400 enterprises have been successfully privatized
and another 1000 will soon be at the same status. However, some companies,
such as public utilities, national telecom, and two commercial banks have
not gone through the process; the government states that these entities
will undergo special privatization processes.[23]
Political Situation
On the 25th of June, 1991, Slovenia declared the end of its
political ties with the former Yugoslavia. Although, the government of the
former Yugoslavia did not want the republic to secede, after a mild show of
military force, Yugoslavia gave Slovenia up. Since then, the National
Assembly has been the main legislative body of the Republic of Slovenia.
This national legislature consists of 90 members that are directly elected
by the people for four year terms. In addition, there is the Council of
State that is elected for five years. This council has 40 members, 22
representing local interests, 12 evenly divided between employers, and 6
representing non-economic activities.[24]
Slovenia is currently governed by two dominant parties who have
formed a government coalition, the Liberal Democracy of Slovenia (LDS) and
the Slovene Christian Democrats (SKD). The LDS stems from the youth
movement of the former communists while the SKD originates from a Christian
tradition dating back before the Second World War.[25] The differences in
these groups are the main reasons why there seldom is cooperation in making
government decisions. However, there are other parties with greater
opposition: the Social Democrat Party of Slovenia(SDSS), the Slovene
National Party (SNP) and the Slovene People’s Party (SLS).[26]
One aspect that has helped Slovenia remain stable politically is that
the ethnic make-up is not extremely diverse. Almost, 91% of the population
is Slovene and they are predominantly Roman Catholic.[27] (See Appendix
VIII ) This composition has allowed Slovenia to focus on economic revival
rather than religious ethnic conflict, quite unlike their neighbors to the
south in Bosnia-Herzogovina.
In November of 1996, Slovenia had elections and most of the
incumbents were re-elected. The LDS won the most seats (25) and the
Slovenian People’s Party, conservatives, won the second largest at 19.[28]
This could cause a conflict because, both the liberals and the
conservatives have gained a significant amount of power after this
election. In the coming months the coalitions that form with the parties
with fewer seats could be significant for the political climate of
Slovenia. The far right conservatives, United List of Social
Democrats(ZLSD- former communists), do not back Slovenia’s entrance into
NATO, claiming neutrality should be considered an option; the entrance into
the EU will be supported by the ZLSD.[29] However, economists warn that
Slovenia should not rely on its economic successes in the past but instead
should focus on increasing privatization and address the slowing industrial
production and rising unemployment.[30] The new government needs to
continue to work towards improving the economic state of the Republic if
they expect to become more like a Western European country.
Budgetary and Monetary Conditions
Slovenia began to stabilize its economy before it had gained its
complete independence because inflation was increasing drastically.
Although, Slovenia made a clean break to independence, there were some
costs involved. Slovenia had 33 percent of its exports going to
Yugoslavia, however, with its independence Slovenia had an instant 6
percent decrease in its GDP.[31] This economic shock was small in
comparison to the 38 percent decrease in industrial production Slovenia
faced because of its transitional state. Slovenia stabilized its economy
by October 1992. This was achieved through the introduction of a new
currency, the tolar, and the creation of an independent central bank, the
Bank of Slovenia.
The financial sector plays a key role in the transition process. In
1995, the financial and market services sector comprised 14% of the GDP,
the second largest contributor.[32] In addition, a strong financial sector
is necessary for resource allocation and mobilization, and a prerequisite
for any large-scale privatization scheme.
In 1991, there was a lack of financial regulation in Slovenia, which
produced many problems. Most banks were owned by the firms to whom they
lent. As a result, 30-40 percent of the loans on the books were non-
performing.[33] This combined with a monopolistic structure, lead to
exorbitant lending rates, preventing many viable enterprises from access to
capital. In addition, a healthy banking system requires recapitalization
and investment to improve service. This was not happening right away in
Slovenia. As a result, banks were audited in 1991 and in the autumn of that
year, the Bank Restructuring Agency was founded to deal with these problems
and to help restore competition. Now, most banks in Slovenia have been
privatized except two which remain state-owned.
Monetary Policy
Facing expansionary monetary policy, Slovenia needed some financial
discipline for the newly created enterprises and government, thus, they
created the Bank of Slovenia. The bank was created with the objectives to
stabilize prices and establish a balanced functioning of domestic and
international payments. The law that mandated the Bank of Slovenia,
allowed the bank to execute monetary policy, free from political control.
Another characteristic of the Bank of Slovenia that helped its success, was
that the bank would only give out short-term loans to the government to
cover cash flow problems. This restriction served to be effective in
preventing the accumulation of deficits. In 1994 the Bank of Slovenia
introduced a number of legislative acts which covered the following areas:

* accounting standards and financial statements
* methods of calculation of capital and capital adequacy
* criteria for the classification of balance sheet and off-
balance sheet items
* the levels of provisioning for potential losses
* the level of exposure to a single borrower
* capital investments and fixed assets reducing the capital

This legislation was adopted with the intent to ensure safer bank
operations that conform to the basic principles of liquidity, solvency and
In the early years of transition 1991-1992 the Bank of Slovenia
allowed several new banks to start up. Now, in 1996 Slovenia has the
highest concentration of banks in their region, with 31 banks and a
relatively small population of 2 million. The central bank was faced with
the problem of deterring speculators to avoid any kind of banking crisis.
The central bank decided to increase the amount in minimum capital
requirements for banks to $35 million. This move prevented any future mis-
happenings while also pushing banks towards consolidation.
In October 1991, the Tolar was introduced. As a means of inflation-
proofing, the law allowed contracts and wage agreements to be denominated
in foreign currency so no exchange was required. The deposits in the banks
were converted automatically on a one-to-one basis and 86 billion dinars of
personal cash were converted within a short period of time. The tolar’s
introduction came with ease as more than 80 percent of household monetary
savings were in foreign currency deposits.[35] The Tolar’s exchange rate
quickly stabilized due to a highly restrictive monetary policy which was
aimed at decreasing inflation, increasing stability and strengthening the
domestic currency.[36] Between 1993 and 1995 the Tolar was depreciated to
reflect a real exchange rate. (See Appendix IX) This monetary policy aided
in stabilizing the Tolar and making it fully convertible. On November 19,
1996, 1USD was equivalent to 137.69 Tolars.[37] In addition, the
stabilization allowed for foreign investors to conduct business in USD, DM
or Tolar.
Slovenia put tight controls on foreign currency movements in order to
maintain the stability of the tolar. Since the introduction of the Tolar,
total savings deposits have increased by over 494 billion Tolars. Savings
in 1995 accounted for 23.3 percent of GDP.
Also, Slovenia has a positive balance between the foreign debt and
exchange reserves. By August of 1996, foreign allocated debt had reached
$4.21 Billion and the exchange reserves were at $4.3 Billion. (See Appendix
X) This positive balance shows that the country’s economy continues to
Furthermore, Slovenia has managed to get credit ratings higher than
those of Greece and other countries with longer histories of being
democracies and having market economies.[38] As of May 1996, Slovenia had
the following Country Credit Ratings : [39]
Moody’s Investor’s Service A3
Standard’s & Poor’s A
In addition, according to Institutional Investors, Slovenia ranks 47th
among 135 countries, with regards to potential areas for investment.[40]
Expenditure Policies and Assignments
In October 1995, the Parliament unanimously approved the 1996 draft
budget presented by Slovene Prime Minister Janez Drnovsek. Expenditures
are expected to be about 570 billion Tolars (about $5 Bill.).[41] A
significant portion of the expenditures are allocated for health, education
and infrastructure. Revenues for 1996 were expected to be 582 billion
Tolars, about
46.5% of Slovenia’s GDP.[42] The surplus is allocated to cover the
Pension and Invalidity Insurance Funds, this action preempts the expected
expenditure of 42 billions Tolars in 1997 towards the Pension Fund which is
a 20% increase from 1996.[43] One-third of the budget will be spent on
Civil Servants salaries and contributions, much higher that the 1995, due
to the desire to increase public employees salaries. Nearly 11 billion
Tolars will be spent on subsidies to exporters for social welfare
contributions, technological development, and for maintaining current
levels of employment.[44] Although, there were no current figures available
concerning defense expenditures figures from 1993 show 13.4 billion Tolars
were allocated for the military, about 4.5% of the GDP.[45] Finally about
four million Tolars are allocated for liabilities in international
agreements to members of the Paris Club and commercial banks; this is a new
item in the budget.[46] However, the current expenditures are being met
by disapproval from the Slovenian businessmen, who wanted a budget for 1996
to be equivalent to the 1995 budget. This demand was not possible for
Slovenia, as it tries to battle inflation, unemployment and provide for
its’ citizens welfare.
Tax Structure and Administration
Intergovernmental Financial Relationships
Slovenia has had relative success with the administration and
collection of taxes from its citizens and corporations at all levels of
government.. Article 147 of the Constitution states very generally: » the
state shall levy taxes, custom duties and other charges in accordance with
statute. Local government bodies shall levy taxes and other charges in
such circumstances as are determined by this Constitution and by
statute.»[47] This constant flow of funds has allowed the government to
continue to provide needed services, as well as end several years, since
independence, with budget surpluses. The country has tried to diversify
the tax base, which has also added to the increased stability of the tax
The Slovene government is making extra efforts to insure successful
implementation of tax policy. Slovenian tax administrators are taking
part in the OECD’s multilateral tax network program which provides advice
on taxation practice, policy and systems, with workshops for administrators
in member countries such as Austria, Denmark, Hungary and Turkey. In
addition, this program will evaluate the countries after the year is over,
regarding their effectiveness in implementing tax policy. A key factor
that has aided in the current implementation of the tax system is that the
Slovenian Tolar is internally convertible, and therefore, foreign investors
or business dealing can take place easily in foreign or domestic currency.
In 1997, Slovenia intends to unify the tax administration offices.
Currently, there are two tax collection services, one for the companies and
one for the individuals.[48] In addition, according to OECD, in the next
two years there will be significant changes in the tax policy and
administration in Slovenia.
Currently, the tax year runs from 1 January to 31 December, with tax
returns to be filed by 31 March of the following year (15 April for a
consolidated return).[49] In general, the system depends on self-
assessment, however, if there is falsification of earnings or evasion of
taxes, the government assesses heavy penalties.
The government, although requiring penalties for late payments is
being realistic in the charges it assess for tardiness. A new act was
passed in 1995, which reduced the late payment fees from 25% of amount owed
to 18% on all public aged debt including income tax, sales tax and social
security late payments.[50]
The tax administrators have developed a system which allows for
advance payment of taxes and deadlines that apply to readjustment of taxes.
Balances due on taxes must be paid five days after the annual return has
been filed and if readjustments are made then the company has thirty days
to make the payment.[51]
Corporate Tax and Incentives
As of 1995, the corporate tax rate was at 25%.[52] The republic has
made a large effort to keep the business environment attractive to foreign
investors. However, the rates were increased to 30% by 1996 and now
legislation is trying to reduce the amount to 25% once again; the reduction
in taxable income due to re-investment exemptions could make the effective
rate 20%, if legislation goes through.[53] Slovenia continues to honor
double taxation treaties signed by the former Yugoslavian government. In
addition, a temporary tax exemption regarding capital gains derived from
securities transactions has been extended to January 1, 1997.[54] «As of
January 1, 1994, up to 20% of the amount reinvested in fixed assets(except
for cars used for personal purposes) and long-term intangible assets is
deductible from the investor’s taxable income, provided that the amount
does not exceed the tax base.»[55] The tax structure also provides for 30%
deductions from taxable income for the first year if the corporation
hires an unemployed or disabled worker.
«Taxable income is defined as gross income less expenses incurred in
earning that income.»[56] Some of the deductions include: 1) depreciation
on fixed assets if it does not exceed set rates, with straight line
depreciation being used only;[57] 2) interest if it does not exceed the
average interbank interest rate; 3) sums contributed for future reserves
for investment; 4) up to 70% for entertainment expenses; 5) losses may be
only carried forward for five years.[58]
Furthermore, for corporation inventories are valued using the first-in,
first-out method; last-in, first-out method; or the weighted average
Individual Tax
If one is a resident citizen of Slovenia, taxable income includes
income world-wide, however, for non-residents only income earned within
Slovenia can be taxed. The system does not provide for the taxation of
families, only individuals; therefore, joint tax returns are not filled.
The income tax is paid directly through the employer and is based on
progressive rates for the income earned in the previous month.[59] (See
Appendix XI) In addition, capital gains of real estate are taxable. After
January 1, 1997, gains from sales of securities will also be taxable.[60]
The government has some deductions and relief built into the system.
All individuals may deduct an amount equal to 11% of the annual wage in
Slovenia; in fact if you earn less than this amount you do not have to file
a return. Furthermore, up to 3% of the tax base can be deducted for each
of the following: 1) expenses in purchasing state securities, 2) membership
fees in various parties or organizations, 3) payments for health care, 4)
payments for education.[61]
Withholding Tax
Slovenia levies a withholding tax of 25% for residents and 15% for
non-residents. There is also a withholding tax on royalties of 25% on all
Inheritance and Gift Tax
Beneficiaries of the inheritance or gift must pay taxes unless they
are the spouse or child of the donor. If the beneficiary is a
relative(i.e., brother, sister , nephew or niece) they have to pay only 5
Tolars on receipts with a market value of 1,164,822 Tolars. However, if
the beneficiary is not a relative they may have to pay up to 30% of the
value in taxes.[63]
Property Tax
Once the value of the building is determined by the government, a
progressive rate of no more than 1.5% is applied. Some buildings may be
exempt. Their is also a tax of 2% of the purchase price on immovable
Customs and Excise Duties
Rates for imports vary form 0% to 25% of the value of the goods.
There are also some excise taxes which apply to fuel, tobacco, and
Value-Added Tax
The VAT, which was introduced to Slovenia at the beginning of 1996,
will provide important revenue to the Slovenian government. Before the VAT
was introduced, sales tax was assessed on the sale of retail goods and
services and on imports. However, several rates applied depending on the
type of good. The tax was ultimately paid by the consumer. The VAT has
already been introduced in 5 other transitional economies and it seems to
be effective. In addition according to OECD, the VAT continues to be a key
in the tax reform process in the transition countries.
As the previous discussion shows, Slovenia has developed a highly
specific, and involved tax structure. The country is making an attempt to
have a sophisticated tax administration and structure that is effective,
efficient, equitable and has a yield that will allow for enough revenue for
the government to function. In addition, the country has a highly
diversified tax base, which also strengthens the income from tax revenue.
Social Insurance
Slovenia’s current social safety nets and income transfers are
obstructing free market labor productivity, postponing structural
adjustment and are harboring high levels of unemployment. Before entry
into the EU, Slovenia must alter its social programs. There is a strong
belief among EU members that the assistance for employment fostering
policies leading to the future improvement in the quality of labor in
Slovenia is more efficient and desirable than the future income transfers
covering unemployment benefits and social safety that would otherwise have
to be provided.[66]

Housing Policy is yet another area of concern for the government. In
October of 1991, the government of Slovenia passed the Housing Act.
Creating a state housing policy was necessary for the private ownership of
land and building. In addition, the government created the National
Housing Fund which was anticipated to be a «social cushion’ and was
supposed to create national housing policy.[67] This did not happen!
The Housing Act ended up back firing. The Act was created to allow
for equal ownership for all citizens. Unfortunately, some people were able
to purchase greater amounts of property and effectively bought out the
property rights of their neighbors.[68] This situation has caused many
tenant-owner conflicts. Another problem created by the Housing Act was the
inequity in the amount of housing sold in each region. There was a great
amount of disparity which may cause problems for future housing reforms.
Slovenia experienced high levels of unemployment in its first stage
of transition as the number of individuals seeking early retirement
increased substantially. In addition, many enterprises that had entire
branches, equipment, factories in the other Yugoslavian republics went
bankrupt or lost a large sector of their business.[69] Therefore,
unemployment was a huge social problem for the new Republic of Slovenia. In
1992, 140,000 people were unemployed.[70] The transition of the economy
brought about increased need for social insurance. The residents
considered retirement income systems(RIC) the most important part of the
social safety net since the RIC alleviated the economic hardships faced
by the retired elderly. The government of Slovenia knew how these problems
used to be solved and they knew how the EU wanted them to deal with it.
The dilemma was deciding what was in the country’s best interest.
There was a complex relationship between spending priorities on
social safety and on human capital development. The trade-off in the short-
run balanced the government and the private sector expenditures on welfare
and investment in human capital against high unemployment, increasing
poverty, and a high share of retired persons in the total population
absorbing funds that could otherwise be allocated on labor training
programs. However, investment in human capital had the possibility of
increasing productivity and labor force competitiveness in the long-run.
Without sufficient qualifications, Slovenia’s workers experienced high
unemployment and created a demand for compensatory benefits that would have
to be financed either by limited domestic sources or by external
Pensions and Disability
In 1995, the managers of the Pension and Disability Insurance Fund
(ZPIZ) finished the business year with a deficit of 12 billion Tolars.[72]
However, the ZPIZ has made it a priority to insure that all pensioners
received their pensions. Additional support for the ZPIZ and their policy
came from the Slovenian Parliament, which passed an increase of 42 billion
Tolars for the funding of the ZPIZ.[73] Furthermore, Slovenia is one of
the few countries in transition that has tried to keep monthly old-age
pensions as a relatively constant percentage rate of the average monthly
gross wages. (See Appendix XII ) This has helped elderly citizens provide
for their own needs through their pensions.
Slovenia also has a National Unemployment Office (RZZ). This office
reported in February 1996, 123,689 people remained unemployed which is 1.9%
more than February 1995.[74] This further supports that the economy of
Slovenia may be experiencing a slow down. As of July of 1996, the RZZ
reported that unemployment was 13.7% but according to the ILO definition of
unemployment, the figure was much lower at 7.3%.[75] However, with the
change in government, hopes are that these issues will be discussed and
policies implemented to reduce the level of unemployment. Currently, the
country is providing unemployment insurance for the people without jobs who
register with the RZZ.

Slovenia remains a powerhouse in comparison to some of the other
former Eastern Bloc countries. It has proceed with some caution, realizing
the changes that are necessary for a stable free market economy. Now, with
new leaders, the country has to decide whether it will continue the course
set forth by the originators of the country or whether it will go back,
taking more conservative steps. From Slovenia’s current actions, it would
seem that the next step is either Associate Membership or Full Membership
in the European Union.
Janez Drnovsek when presenting the 1996 budget to parliament informed
the legislative body that «Slovenia met three of the five Maastricht
criteria for introducing a single European currency: ‘Our public debt is
well below the European average and the budget is balanced, which is
significantly better than the European Union average. We also meet the
third criterion on the convertibility of the national currency. Two
criteria remain: both our average interest rate and our inflation is too
high, but we are planning to cut inflation down to about 6.5%.’»[76]
Currently, Slovenia seems to be ahead of some of the current members of the
EU in satisfying the Maastricht Treaty’s requirements. In addition, the
question remains, whether Slovenia will join NATO. The new parliament may
have a well defined opposition to this prospect.
Additionally, Slovenia is flourishing as an economic center of
commerce in the East. Slovenia needs to strengthen its ties with other
eastern countries, such as Russia, in order to develop its trade partners.
The transitioning countries can serve as a new market for the West as well
as Slovenia. Furthermore, additional trade partners exist in the far east,
which are currently not being considered.
Many challenges face the transition countries as the century comes to
a close. It will be important to watch these economies as they begin to
rise above the already established economies of the West. It will be
important that Slovenia manage it’s inflation rate, keep interest rates at
a stable level and insure that the Tolar remain at a controlled level. All
these factors will play a large role in determining successful public
financial and monetary policy in the Republic of Slovenia.


[2] Golnik, Richard. “Calm & Safe Slovenia.” Emerging Nations -Slovenia,
June 1995.

[3] Slovenia was at one point a part of the Austro-Hungarian Empire and
thus always had felt a strong historical and economic ties to the Western
European countries.

[4]Ibid, p.4.

[5]Danforth, Kenneth. “Slovenia: Open markets in an open society.” Europe.
May 1996, no.356, p.22(3).

[6]Golnik, 1995, p.1.

[7]Mencinger, Joze. (1989) The Yugoslav economy: Systemic changes, 1945-
1986. Pittsburgh, PA.: University of Pittsburgh Center for Russian and
East European Studies. The Serbian/Bosnian/Croatian conflict was getting
worse and the country was starting to fall apart.

[8] Http://`finsol/emregions/e-europe/slovenia.htm, p.4.

[9]Schneider, Jens. “Slovenia searches for Europe.” World Press Review,
Jan. 1993 Vol.40, No.1, p.42(1).

[10]Danforth, 1996, p.2. and “Unimaginable only a few years ago, one of
the six republics that once composed Yugoslavia is being praised in most
Western capitals as the model for any ex-communist state aspiring to
membership in NATO and the European Union.”

[11]EIU Country Report- 2nd Quarter. Slovenia. The Economist Intelligence
Unit Limited, 1996.

[12]Http:// and 5.HTM,
Chamber of Economy of Slovenia 1996.

[13]Golnik, 1995, p.1.

[14]Chamber of Economy of Slovenia. “Slovenia’s Economic Trends.” 1996.

[15]EIU Country Report, 1996.

[16]Gow, James. (1994). «Slovenia: Stabilization or stagnation?» RFE-RL
Research Report, Jan. 7th, vol. 3, No. 1.

[17]Golnik, 1995, p.2.

[18]Http://, p.3.

[19]Ibid., p.3.

[20]Bank of Slovenia. (1996). «General information on Slovenia.» Monthly
Bulletin: April.

[21]Golnik, 1995.

[22]Price Waterhouse. (1996). «Privatization in Slovenia.» Price
Waterhouse. January 22.

[23]Ibid., 1996.

[24]EIU Country Report, 1996.

[25]EIU Country Report, 1996.

[26]EIU Country Report, 1996.

[27]Golnik, 1995, p.3.

[28]Markotich, Stan.(1996) «Slovenian Election Final.» Open Media Research

[29]Markotich, Stan.(1996) «Slovenia’s former Communists say ‘No’ to NATO.»
Open Media Research Institute.

[30] The Economist. “Much to do: Slovenia.” Nov. 2, 1996 vol.341 no.7990

[31]Shortall, Fergal. Slovenia: Birth of an Adriatic Tiger.

[32]Chamber of the Economy of Slovenia, 1996.

[33]Shortall, 1996.

[34]Ibid., 1996.

[35]Ibid., 1996.

[36] Chamber of Economy of Slovenia. (1996) Exchange Rate and Monetary
Policy. Http://

[37]Exchange Rates for Companies. Banka Slovenia. 1996.

[38]The Economist. (1996) «Creditable: Eastern European Finance.» July 13,
Vol.340, No. 7974, p.72.

[39]General Information on Slovenia. Banka Slovenia. May 1996

[40]Institutional Investor, March 1996.

[41]Markotich, Stan.(1996) «Slovenian Parliament Approves Draft Budget.»
Open Media Research Institute.

[42]Petrov, Sabina. (1995). «Parliamentary election accelerates the
enactment of the Slovenian Budget.» [email protected].

[43]Ibid., p.1.

[44]Ibid., p.1.

[45]Http://, p.7.

[46]Ibid., p.1.

[47] Slovenian National Constitution. Section- Public Finance. Adopted

[48] Adair, Robin. (1996). «Slovenia introduces Value-Added Tax as part of
system reform.» Transition Brief. No. 2 Winter.

[49]Deloitte & Touche LLP. (1996). «Slovenia.» Taxation in Eastern Europe.

[50]Price Waterhouse. (1995). » Taxation- Introduction and Developments.»
Business Monitor. 4 September, p.2.


[52]Ibid., p.1.

[53]Deloitte & Touche, LLP, p.3.

[54]Ibid., p.2.

[55]Deloitte & Touche, LLP, 1996.

[56]Ibid. p.4.

[57]Ibid. p.4- Rates include 5% to 10% for building and other structures,
33.3% for most machinery and equipment( including vehicles), 50% for
computer equipment, and 20% for goodwill.

[58]Ibid., 1996.

[59]Ibid., 1996. Income tax is paid on personal income, income form
agriculture, income from various activities, investment income, and income
form property and property rights. Personal income consists of salary
income, pension income, or any other gross receipts of an employee,
including fringe-benefits, value of gifts, accommodations or used cars for
personal purposes. Income from property and property rights includes rental
income, income from profit participation, interest income, and royalty

[60]Ibid., 1996.

[61]Ibid., 1996.

[62]Ibid., 1996.

[63]Ibid., 1996.

[64]Ibid., 1996.

[65]Ibid., 1996.

[66]Shortall, 1996.

[67]Tanovnik, Tine. (1994). «The sale of the social housing stock in
Slovenia: what happened and why.» Urban Studies. Nov. Vol. 31, No. 9,

[68]Sendi, Richard. (1995). «Housing reform and housing conflict: the
privatization and denationalization of public housing in the Republic of
Slovenia in practice.» International Journal of Urban and Regional
Research. Sept. Vol.19, No. 3 p. 435 (12).

[69]Golnik, 1995, p.1.

[70]Golnik, 1995, p.1.

[71]Orlowski, Lucjan T. (1995) «Social Safety Nets in Central Europe».
Comparative Economic Studies. Vol. 37, No. 2 Pg. 29-48; Summer, p.40.

[72]Business Report on Slovenia. (1996).

[73]Petrov, 1995. P.1.

[74]Business Report on Slovenia. (1996).

[75]Chamber of Economy of Slovenia. (1996). Demand and Employment.

[76]Petrov, 1995. p.1.

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