The reintroduction of an economy based on free enterprise has been a difficult process in Slovakia. Because much of the country’s industrialization took place during the Communist era, many Slovakian industries were inefficient and produced goods that were not competitive in the world market. To modernize these industries and retrain workers has required foreign investment, but this has been slow in coming, due in part to perceived political instability in the country. Compounding the problem of outmoded industry was the Czechoslovak government’s decision in the early 1990s to drastically reduce the country’s defense industry. The production of weapons and other military equipment had been based largely in Slovakia and had employed as much as 10 percent of the Slovak workforce in the 1980s. The reduction led to a decline in overall industrial production and a significant rise in unemployment.
Slovakia in 1993 was largely an acknowledgement of economic reality. Slovak political autonomy was a popular idea, but many Slovaks viewed the pursuit of it outside the relative security of a Czechoslovak federation as potentially disastrous. Others argued that the conversion to a market economy in a federated Czechoslovakia would favour the Czech region. Geographic and historical conditions, including the central planning of the communist era, had left Slovakia more rural and less economically diversified than its Czech neighbour, which had roughly twice Slovakia's population. Indeed, the process of privatization undertaken after the fall of the communist regime in 1989 had proceeded much more slowly in Slovakia than in the Czech Republic. Furthermore, since Czechs had long dominated the federal leadership of Czechoslovakia, the Slovak regional leaders lacked experience at the national level. These factors only compounded the burden of Slovak independence.
Slovakia continues the difficult transition from a centrally planned economy to a modern market economy. The economic slowdown in 1999 stemmed from large budget and current account deficits, fast-growing external debt, and persistent corruption. Even though GDP growth reached only 2.2% in 2000, the year was marked by positive developments such as foreign direct investment of $1.5 billion, strong export performance, restructuring and privatization in the banking sector, entry into the OECD, and initial efforts to stem corruption. Strong challenges face the government in 2001, especially the maintenance of fiscal balance, the further privatization of the economy, and the reduction of unemployment.
