RESTRICTEDWORLD TRADE
ORGANIZATIONWT/BOP/R/48
18 October 1999
(99-4437)
Committee on Balance-of-Payments Restrictions
REPORT ON THE (1999) CONSULTATIONS WITH THE SLOVAK REPUBLIC
1. The Committee on Balance-of-Payments Restrictions held consultations with the
Slovak Republic on 20 and 21 September 1999.  The consultations were held under the Chairmanship
of Mr. Tomasz Jodko (Poland) in accordance with the terms of reference of Article XII:4(a) of theGATT 1994 and the Understanding on the Balance-of-Payments Provisions of the GATT 1994.  The
International Monetary Fund was invited to participate in the consultations in accordance with
Article XV:2 of GATT 1994.
2. The Committee had before it the following documents:
WT/BOP/S/10 Background Paper prepared by the Secretariat
WT/BOP/G/9 Basic Document Supplied by the Slovak Republic
WT/BOP/N/46 Notification from the Slovak Republic
WT/BOP/N/46/Add.1 Notification from the Slovak Republic
WT/BOP/N/46/Add.2 Notification from the Slovak Republic
IMF Slovak Republic:  Supplementary Background Material for the WTO
29 July 1999 
A. O
PENING STATEMENT OF THE REPRESENTATIVE OF THE SLOVAK REPUBLIC
3. The opening statement is attached as Annex 1.
B. STATEMENT BY THE REPRESENTATIVE OF THE INTERNATIONAL MONETARY FUND
4. The statement by the representative of the International Monetary Fund is attached as
Annex 2.
C. DISCUSSION IN THE COMMITTEE
(i) Balance-of-payments position and prospects; alternative measures to restore equilibrium
5. The Committee recognized that Slovakia's balance-of-payments had deteriorated.  Members
considered that the twin deficits, fiscal and current account, were unsustainable, noting that reserveswere low and the level of external indebtedness had a serious impact on the balance-of-payments.
They congratulated the Slovak Republic on its comprehensive and ambitious stabilization programme
and encouraged a firm commitment to its implementation.  One member considered that the tightened
stance on fiscal policy which would constitute the driving force behind stabilization especially if the
situation worsened.  Members felt that the Slovak experience demonstrated that border measurescannot solve the balance of payments problem but required a range of macroeconomic measures to
tackle weaknesses in the economy.  The Committee commended and encouraged the plans for
structural reform, particularly bank restructuring coupled with enterprise privatization and greater
fiscal discipline for public enterprises.  Members recognized that only the painful process ofWT/BOP/R/48
Page 2
adjustment would ease the pressure on the external accounts and that the reform process must be
implemented, and even accelerated, to underpin any benefits to the balance of payments from the
trade measure.  Members appreciated that the Slovak Republic continued to maintain a relatively open
trade regime;  one Member expressed curiosity as to what policies the Government would pursue in
order to reduce the import-intensity of its export production.
(ii) System, method and effect of the restriction
6. Members considered that the import surcharge, a price-based measure, was transparent,
temporary, and its level not excessive;  one Me mber noted that, although applied for balance-of-
payments purposes, in practice it alleviated fiscal pressure, Members appreciated that Slovakia had
submitted a relatively short phase out schedule, ending on 1 January 2001, and would review the
measure 12 months after its original imposition.  Members agreed that the surcharge was justified
under Article XII of GATT 1994.  One member said his Government could accept the imposition ofthe surcharge as long as the stabilization programme remained on schedule.  Members expressed
some concern about the number of products exempted from the application of the surcharge and
sought clarification as to the rationale for these exemptions as well as to whether it was applied to all
trading partners.
D. R
EPLIES BY THE REPRESENTATIVE OF THE GOVERNMENT OF THE SLOVAK REPUBLIC
7. The representative gave a detailed presentation of the fiscal measures undertaken or planned
for the near future (Annex 3).  He went on to elaborate on some of the elements of the restructuring
programme developed with World Bank experts and changes in legislation that would facilitate the
process (Annex 4).  As to the products exempted from the surcharge, these were goods for basic
consumption needs such as pharmaceuticals and investment equipment, the latter necessary not todiscourage foreign investment.  In response to a question regarding tax compliance and collection, tax
evasion had been made a criminal act in recent revision of tax legislation, although since profits were
frequently non-existent this would not bear fruit immediately.  The surcharge did apply to all partners
both mfn and preferential within the customs union .  Import-intensity of export production would in
the medium term be addressed by existing investment policies.
E. C
ONCLUSIONS OF THE COMMITTEE
8. Members recognized that the Slovak Republic faced serious economic difficulties and a
fragile balance-of-payments situation.  Fiscal and current account deficits were unsustainable, external
debt had nearly doubled in the last three years and foreign exchange reserves, at less than three
months of import coverage, remained at uncomfortably low levels.  Members considered that the
import surcharge, as a price-based measure accompanied by a phase-out schedule, was consistent with
the provisions of GATT 1994.  Several Members noted the number of exemptions, designed topromote investment and meet basic needs;  some members expressed doubts about the effectiveness
of the measure to solve the present economic difficulties.
9. The Committee welcomed the fact that the trade measure was part of a larger package aimed
at financial stabilization and accompanied by a concerted effort to undertake macroeconomic and
structural reform, which Members recognized as painful and courageous but necessary and longoverdue.  Members encouraged the Slovak Republic to ensure that the reform process be implemented
as planned and even accelerated, if possible.  Such a fundamental reform was vital to bringing about
lasting stability and would allow the surcharge to be  eliminated in line with the proposed timetable, if
not ahead of schedule.WT/BOP/R/48
Page 3
ANNEX 1
Opening statement of the representative of the Slovak Republic
It is my honor to have an opportunity to take part in consultations within the Committee on
Balance-of-Payments Restrictions on behalf of Government of the Slovak Republic.  I really regret,
that the economic situation developed unfavorably in such a way that the Slovak Republic has
resorted to introduce an import surcharge in compliance with Article XII of GATT 1994 and
Understanding of Balance-of-Payments Provisions of GATT 1994.
At the outset, I would like to thank to the WTO Secretariat and the IMF Representative for
presenting the respective documents and for their highly constructive co-operation in the preparatory
process.
1. Allow me to turn to the substance of our consultations.  Detailed information on
macroeconomic developments of the Slovak Republic, on current account of balance-of-payments,foreign exchange reserves and other aggregates is in the relevant documents before you.  I would like
to inform you briefly about some basic development tendencies of the Slovak economy and to devote
more attention to the measures which the Slovak government has already adopted and will adopt in
medium-term period to reach stabilization and turning point in economic development of my country.
2. High level of openness of the Slovak economy, when a foreign trade turnover of goods and
services exceeded a value of GDP by 38,5 per cent in year 1998, whereby  share of imports of goods
and services on GDP reached 75 per cent, means also a high vulnerability of economy in the area of
foreign exchange liquidity and sensitivity of fore ign exchange reserves to unexpected changes in
external equilibrium.
3. In years 1996-1998, development of trade balance and current account of balance-of-
payments of the Slovak Republic was affected by growing disproportion between domestic demand
and supply, what led to annual deepening of negative trade balance and current account deficit.  Ratio
indicators of trade balance deficit and current account deficit to GDP reached high values, exceeding
a level of 10 per cent.
4. Deterioration of external imbalance in the area of trade balance was caused by cumulation of
consequences of more factors in exports as well as in imports.  Among the most significant factors,
there was a high tendency to imports, which turned out during economic growth, development ofwages outstripping a growth of labor productiv ity, slowdown of economic growth on the main
consumers markets, insufficient dynamics of recove ry of industry, and last, but not least Asian and
Russian crisis as well as consequences of Kosovo’s war.
5. Insufficient motivations for foreign investors resulted in low inflow of FDI´s and prevailing
of high imbalance of current account led to rising of coverage of current account deficit by debtsources, which caused deteriorating position of the Slovak economy toward external crisis.  Total
external debt on GDP exceeded 60 per cent, as to 31 December 1998.
6. Aiming these sources at energy sector and at infrastructure projects together with a low
inflow of FDI´s have not influenced recovery of economy, significantly.
7. On the other hand, the cumulation of withdrawal of credits in previous years caused higher
debt service intensity in 1999, when a volume of installments of corporate credits realized in the first
half of 1999 doubled in comparison with the same period of last year.  This will have an impact onWT/BOP/R/48
Page 4
balance-of-payments also in year 2000 and create further pressure on foreign exchange reserves of the
Central Bank.
8. In years 1996-1998, a deficit of current account of balance-of-payments and very low inflow
of FDI led to a situation, that the National Bank of Slovakia (NBS) maintained the level of foreign
exchange reserves only by credit sources of commercial sector.  In 1998, they were increased byexternal sources from emission of Eurobonds of the Slovak authorities at the external markets.  NBS
disposed of the foreign exchange reserves amounted to USD 3 770 million USD at the end of
July 1998, which was sufficient to cover 3 months of average imports of goods and services.
9. Non-solving of economic difficulties by the former Government, as well as complicated
political situation backed by oncoming parliamentar y elections, led to growing vulnerability of the
Slovak economy in providing foreign exchange liq uidity in the course of following months.
10. In addition to unceasingly growing average imports of goods and services the devaluation
expectations of domestic enterprises and public increased since August 1998.  It led to conversion of
savings in SKK into foreign exchange savings and caused a pressure to the exchange rate of Slovak
koruna.  During August and September 1998, in order to stabilize currency, the foreign exchange
interventions of NBS reached USD 1,0 billion, which caused a further decrease of its foreign
exchange reserves.  At the end of December 1998 the foreign exchange reserves of NBS amounted toUSD 2 923,2 million and were sufficient to cover 2,3 average months of imports of goods and
services.  In 1998, net external debt rose by USD 2,3 billion and for the first time capital and financial
accounts could not fully cover the current account deficit and it was accompanied by decrease in
foreign exchange reserves of the NBS.  In this situation, the Slovak authorities reduced an import
surcharge as from 1 April 1998 from 5 per cent to 3 per cent and as from 1 October 1998 it wasabolished in compliance with decision of the Committee on Balance-of-Payments Restrictions.
11. Abolishing of koruna´s fixing to the currency basket and introduction of floating exchange
rate regime caused, that in 1999 the level of foreign exchange reserves of NBS was influenced
particularly by debt service of government and NBS, which has a growing tendency.  In May 1999,
there was another breakpoint in development of the foreign exchange reserves.  Exchange rate of theSlovak koruna significantly depreciated.  Primary pressure on the exchange rate was caused by
cumulation of installments of foreign exchange loans by enterprises and by following efforts of
commercial banks to compensate for short foreig n exchange positions.  Due to such development,
NBS intervened on inter-bank foreign exchange ma rket to strengthen koruna – consequently the
foreign exchange reserves declined by more than USD 100 million to the level which provided only
2,3 months of coverage of imports of goods and services.  Increase of foreign exchange reserves
recorded in June 1999 was generated by further emission of Eurobonds at the external markets.Additional borrowings of the Government in amount of USD 466 million enabled a growth of
coverage of imports to 2,8 months.  However, this ratio is still under generally acknowledged secure
level of foreign exchange reserves of 3 months of imports of goods and services.  Without the
mentioned sources, the foreign exchange reserves would further cover only 2,3 months of imports.
This situation has a negative impact on inflow of FDI and create negative signal for the potentialcreditors.  Roll-over ratio for private sector is strongly declining.  Changes of strategy of the foreign
investors toward the countries with developing market economy influenced also chances to gain
external sources for the Slovak subjects. In the second half of 1998, withdrawal of corporate credits
from abroad declined by 22 per cent compared to first half of 1998.  Even more complicated situation
occurred in the first half of 1999, when the withdr awal declined to 21 per cent compared to second
half of 1998 and on year-on-year basis even to 42 per cent.  Financing of existing growth of GDP was
carried out by these sources.
12. Continuing of BOP’s problems thus could crea te additional pressures to exchange rate
development.  Together with high level of unemployment rate this could support potential difficulties,WT/BOP/R/48
Page 5
which can have possible negative economic, social and political consequences.  Introduction of import
surcharge is just a supporting element of the strategic program, which was taken by Slovak
Government.  By our opinion, also for our trade partners is better cooperate with stabilized economy
(despite of the fact of reintroducing of import surcharge) then with other one.
13. In 1998, fiscal deficit reached 6 per cent of GDP and compared to the last year it increased by
0,8 points.  Efforts to solve accumulated problems led the Slovak authorities to adopt corrective
measures in January 1999, which were reflected in the state budget for 1999.  Insufficient effect of
adopted measures conducted authorities in May to adoption of set of measures  - "Strategy for
Accelerating Reforms – Program for Recovery" containing also an introduction of import surcharge.
These measures are aimed at slowing down of growth of domestic demand which has been fulfilled
by imports.  A consistent application of these measures together with the other ones, which will be
adopted along with the state budget for year 2000, provides good conditions to mitigate externalimbalance in year 2000, especially in the second half of year 2000.
14. On 25 August 1999, the Slovak Government  adopted a "Medium-term Framework of
Economic and Social Development".  The whole reform process is based on extensive transformation
of banking and corporate sector.  The first stage is focused on stabilization of economy, which will
lead to slow down of its growth and there are also expectations of further increase of unemployment,
which until now June 1999 rose to 15,6 per cent.
15. The Slovak authorities expect that the impact of the measures adopted in year 1999 will
continue to be felt during the year 2000 supported by adoption of further political and economical
measures.  Fiscal deficit should not exceed 3 per cent on GDP and the trade balance should advance
comparably with expectations for this year.  Shorter extent of deregulation should lead to moderatedevelopment of inflation.  Slovak authorities assume, that announced legislative and structural
changes will help to restart revitalization of real economy in year 2000.  Stage of economic growth
should follow in year 2001.
16. And now, let me characterize briefly the sets of measures adopted by the Slovak Government
in January and in May 1999, as a response to the previously mentioned negative development andeconomic imbalances.  In this respect, I would like to stress that the set of measures from May of this
year is package of very restrictive measures with the most extensive social impact, adopted until now
by the Slovak authorities since the Slovak Republic has been established.
17. These sets of measures contain measures of a fiscal nature leading to reduction of public
finances, measures aimed at restructuring the Slov ak industry and at promotion of inflow of FDI´s,
measures aimed at recovery of banking sector, as well as improvement of respective economic
legislation.  There is a policy mix consisting of short-term stabilization measures, medium- and long-term measures to install the economic growth.
18. As I have already stated, introduction of 7 per cent import surcharge, as a short-term measure
of corrective nature, is a part of set of measures of May.  Application of the import surcharge entered
into force as from 1 June 1999.  Information on introduction of this measure, as well as respective
changes, was circulated in Document No. WT/BOP/N /46 and in its supplements.  As it was notified,
this measure applies on non-discriminatory manner.  At the present time, coverage of products
represents 74,1 per cent of the total imports to the Slovak Republic.  Excepted from the application of
the import surcharge are the basic raw materials (representing 18,5 per cent), pharmaceuticals
(representing 0,8 per cent) and investment technologies (representing 6,6 per cent).
19. The Slovak authorities made two essential changes in scope of coverage of products.  The
first change was carried out due to the crisis in the Slovak health system.  Slovak Republic is a
country fully depending on imports of vast majority of pharmaceuticals and remedies.  ThereforeWT/BOP/R/48
Page 6
these items, listed in the Annex 2 of Document No. WT/BOP/N/46/Add. 2, were excepted from the
application of the import surcharge.  The second change closely relates to support of the Slovak
authorities to entrance of foreign investors and it concerns an exception of investment technologies
(machines, machinery equipment and tools) due to create equal conditions for the both, foreign
investors and domestic producers.
20. The Slovak Government understands introduction of the import surcharge as a short-term and
corrective measure, which is not a substitute for on-going structural adjustments, but on contrary, it is
their supplement.  At the same time, this measure should not be regarded by the WTO Members as a
deviation from open and traditionally liberal trade policy of the Slovak Republic.
21. This trade policy is characterized by successful implementation of the WTO commitments,
low level of tariff protection, virtual absence of non-tariff barriers, extensive participation in regional
trading arrangements, liberal export policy, as well as participation in various sectoral initiationswithin the WTO, including ITA, Pharma I, Pharma II, trade liberalization in Basic Telecom and
Financial Services.
22. The Slovak Government repeatedly stressed, that it is committed to its international
obligations and is ready to active co-operatio n with all WTO Members.  However, negative
developments of balance-of-payments, of foreign exchange reserves and of trade balance led theSlovak Government to adoption of measures, which should can change turn this negative economic
development.  The Slovak Government is convinced, that revoking of the Article XII of GATT 1994,
in respect of protection of its external position and deteriorated situation in balance-of-payments, is a
legitimate step.  While taking up this step the Slovak Government undertook all efforts to respect
provisions of the Article XII of GATT 1994 and wishes to assure its partners within the WTO, and Iwould like to stress this point, Mr. Chairman, that it will reduce the import surcharge in a transparent
way according to the timetable, contained in the Basic Document of the SR and the Slovak
Government will review conditions of its further application after one year since its introduction.
23. The Government of the Slovak Republic is fully aware of the serious negative impacts of this
package, particularly on social sphere, however it is committed to undertake this step in order toachieve future expected effects of above mentioned economic reform.
The Slovak delegation is ready to consult with the WTO Members in good will and to
response to their questions.WT/BOP/R/48
Page 7
ANNEX 2
Statement by the representative of the International Monetary Fund
1. The Slovak Republic has made important progress in its economic management and
performance since independence in 1993.  Real GDP growth (year-average basis) resumed in 1994,
averaged 6½-7 per cent in 1995-97, and equaled 4½ per cent in 1998.  Inflation declined from more
than 20 per cent in 1993 to about 6 per cent in 1998.  However, a large external current account deficit
of about 10 per cent of GDP emerged in 1996 and remained at that level in 1997 and 1998.  Despite
the large external imbalance, fiscal policy eased further in 1998 and fell short of stated objectives.
With an insufficiently tight fiscal stance, the macroeconomic policy mix placed a heavy burden onmonetary policy.  At the same time, however, strains in the banking and enterprise sectors, which
reflected delays in structural reforms and high real domestic interest rates, limited the National Bank
of Slovakia’s (NBS) ability to tighten.  The gove rnment announced a package of fiscal adjustment
measures in mid-1999.  This package should contribute to a substantial narrowing of the external
current account deficit and help establish the preconditions for a sustained reduction in domesticinterest rates.
(a) Economic developments in 1998 and 1999
2. The slowdown in real GDP growth in 1998 refl ected a drop in domestic demand growth to 4.1
per cent from 5.6 per cent in 1997, with net exports virtually unchanged from the previous year. The
growth of fixed capital formation in real terms remained strong at 11 per cent (compared with 14 percent in 1997), but slowed markedly toward the end of the year.  Real private consumption increased
by 4.9 per cent (compared with 6.3 per cent growth in 1997) in the face of  a slowdown in economy-
wide real wage growth to 2.7 per cent.  Real exports of goods and services (national accounts basis)
rose by about 11 per cent in 1998; real imports of goods and services also recorded a high growth rate
of about 10 per cent.
3. Notwithstanding the large external imbalance, macroeconomic policy was expansionary in
1998.  The deficit of the general government reached 6 per cent of GDP in that year, compared with
the official target of 2 per cent of GDP and a deficit of 5.2 per cent of GDP in 1997.  The main
reasons for overshooting the official target were an  expansion of investment in the pre-election period,
costs overruns in the public health sector, and a deterioration in tax compliance.  Meanwhile,
monetary policy was gradually relaxed in the first half of 1998, as evidenced by declining short-term
interest rates and some recovery in private sector credit growth, and overall was less restrictive in1998 than in 1997, which did little to encourage external current account adjustment for 1998 as a
whole.
4. With only modest foreign direct investment, the persistence of large external current account
imbalances resulted in an exceptionally rapid increase in Slovakia’s external indebtedness.  This debt
rose from 33 per cent of GDP at end-1995 to about 60 per cent of GDP (US$11.9 billion) at end-1998.About 40 per cent of the end-1998 debt was short-term.
5. Slovakia’s overall balance of payments position had been relatively stable through mid-1998,
in part because of large foreign borrowing by both the public enterprises and the government, but the
currency came under strong pressure beginning in August 1998 as capital inflows started to dry up.
Reluctant to substantially raise interest rates or let the currency depreciate before the parliamentaryelections in September 1998, the NBS lost about US$0.7 billion (about one-fifth) of its international
reserves in August and September, reducing them to an uncomfortably low level of 2½ months of
imports of goods and services, 49 per cent of short-term external debt, and 23 per cent of broad
money.  As the situation did not improve immediat ely after the elections, the NBS floated the korunaWT/BOP/R/48
Page 8
on October 1.  There were renewed bouts of downward pressure on the exchange rate in February and
May 1999, in particular, which reflected, inter alia , unfavorable reviews by international credit
agencies and uncertainty in the run-up to the Presidential elections in May 1999.  In the year to the
end of that month, the koruna depreciated by 17 per cent against the deutsche mark, and by
20½ per cent against the U.S. dollar.
6. The authorities put together a new fiscal package, which they announced on May 31, 1999.
The measures contained in the package should be sufficient to realize a target deficit of the general
government of Sk 23½ billion or less (equivalent to 3 per cent of GDP using the projection of the
Fund staff of real growth of 0.7 per cent in 1999, compared with the official projection of 2 per cent
growth on a year-average basis).  Such a fiscal adjustment in 1999 from a fiscal deficit of 6 per cent of
GDP in the previous year should, in the view of Fund staff, be instrumental in bringing about a
halving of the external current account deficit to 5 per cent of GDP in 1999, as targeted.  On therevenue side, the package calls for an increase in the lower VAT rate from 6 to 10 per cent, a motor
vehicle tax, and increases in administrative fees.  In addition, reflecting their balance of payments
concerns, the authorities decided to include in the package an import surcharge of 7 per cent, to be
reduced over time and phased out by the end of 2000.  Expenditure measures included a strengthening
of eligibility requirements for social assistance, cuts in unemployment and sickness benefits, andfurther measures to rationalize social expenditure.  Wages in the budgetary sector were already frozen
under the original budget for 1999.  While the import surcharge can only be tolerated as a transient
measure, Fund staff welcomes the contribution of the remaining elements of the fiscal package to a
lasting fiscal consolidation and looks forward to the parliamentary approval of the few measures of
the package that have not so far been passed.  Finally, there was a substantial increase inadministrative prices, which took effect on July 1 as part of the fiscal package.  These price increases
are expected to take pressure off government subsidies as well as government expenditure to service
the government-guaranteed debt of public enterprises.
7. The government’s new fiscal package has contributed to favorable developments in financial
markets.  The koruna, which had declined to a low of Sk 47.3 per euro in mid-May, subsequentlystrengthened to equal about Sk 45 per euro toward the end of July.  Since end-May 1999, the National
Bank of Slovakia (NBS) has not intervened in the foreign exchange market to support the currency,
while one-month interbank interest rates eased significantly.  On June 9, Slovakia successfully placed
a five-year Eurobond for ε350 million at a spread of 420 basis points above comparable German
securities.  The issue was subsequently augmented and spreads in the secondary market havedeclined.  The resulting foreign exchange inflows ha ve helped the NBS to replenish its international
reserves:  these reserves rose from US$2.5 billion at end-May to US$2.9 billion in late July,
equivalent to 2.3 months of imports of goods and se rvices, 79 per cent of short-term external debt, and
26 per cent of broad money.
8. While lost external competitiveness had been a cause for concern, the exchange rate
depreciation to date—particularly after the nominal depreciation in the period from August 1998 to
May 1999—is judged to be broadly consistent with maintaining an adequate degree of external
competitiveness.  The recent productivity growth recorded in the manufacturing sector and the
slowdown in wage growth also se rve to support this assessment.
9. Overall, even with the external current acc ount deficit targeted to be reduced to about
5 per cent of GDP in 1999, staff expects the international reserves of the NBS to remain at an
uncomfortably low level.  This takes into account government borrowing of US$500 million, but also
assumes that access to foreign funds by Slovak enterprises and banks continues to be much lower in
1999 than in the previous year.WT/BOP/R/48
Page 9
(b) The Exchange and Trade System
10. The Slovak Republic accepted the obligations of Article VIII, Sections 2, 3 and 4 on
October 1, 1995 and maintains an exchange system that is free of restrictions on the making of
payments and transfers for current international transactions.  Slovak trade policies are characterized
by the virtual absence of non-tariff barriers, low to moderate most favored nation tariffs, liberal exportpolicies, and extensive participation in regional trading arrangements. Overall, the trade regime is
relatively liberal, being classified as "2" on the Fund’s 1 to 10 point scale of trade restrictiveness.  In
fact, the Slovak regime was classified as "1" on the index prior to the adoption of the surcharge on
June 1, 1999.
11. In its consultations with Slovakia, the Fund has indicated its regret over the imposition of the
import surcharge—preferring additional fiscal expenditure cuts instead—and continues to urge the
authorities to phase out the import surcharge quickly.  Staff has stressed that while an importsurcharge is an instrument that countries have on occasion resorted to when they faced balance of
payments and fiscal problems, its introduction distorts international trade and undermines efficiency
and longer-run adjustment.  Thus, if the authorities insisted on introducing a surcharge, staff urged
them, consistent with Fund advice to other member countries, to keep the surcharge low (2-4 per cent)
and to eliminate it quickly (within 6-9 months of its introduction) according to a pre-determinedphaseout schedule, with the time being used to strengthen expenditure consolidation.  In concluding
the Article IV Consultation with the Slovak Republic on July 21, 1999, Executive Directors of the
Fund also expressed regret over the imposition of the surcharge, and urged that it be phased out
quickly.WT/BOP/R/48
Page 10
ANNEX 3
Measures adopted by the Slovak authorities
1. Fiscal measures contain:
(a) on the expenditure side of public budget:
/g167 reduction of public administration
/g167 savings in social sphere (lowering and shortening of the unemployment benefits and lowering of
the basis for social allowances)
/g167 savings in the area of public consumption
These adjustments have already been implemented in prepared state budget for year 2000.
(b) on the revenue side of public budget:
/g167 adjustment in the level of the lower rate of VAT from 6 per cent to 10 per cent
/g167 adjustment of the level of hydrocarbon fuel tax as from 1 July 1999 by SKK 2000 per tone
/g167 introduction of  property tax on vehicles as from 1 January 2000
/g167 adjustment in administration fees as from 15 September 1999
/g167 introduction of road tax for natural persons – not entrepreneurs - as from 1 January 2000
/g167 adjustment in the rate of excise duty on tobacco and tobacco products as from 1 July 1999.
2. As from 1 July 1999, further adjustments in regulated prices aimed at correction of price
deformations, entered into force and resulted in increase of:
/g167 Electricity for entities by 5 per cent and for households by 35 per cent
/g167 Natural gas by 50 per cent
/g167 Heating by 40 per cent
/g167 Drinking  water by 3,7 per cent
/g167 Telecom charges by 21 per cent
/g167 Railway charges by 15 per cent
/g167 Rent  by 70 per cent as from 1 October 1999WT/BOP/R/48
Page 11
3. Medium- and long-term measures having the systemic nature, aimed at recovery,
restructuring and privatization of banking and corporate sector, contain:
/g167 promotion of inflow of FDI, including "tax holi days" for investors, improvement of transparency
of operations with shares, improvement of minority shareholders protection, liberalization
measures to allow establishment of branches of foreign dealers in Slovakia, zero import duties forselected investment technologies
/g167 "Program of restructuring of selected banks and restructuring of corporate sector", focused on
recovery and privatization of 4 state owned banks (VÚB, SLSP, IRB, Banka Slovakia)
/g167 establishment of transparent capital market, which is worked out in the "Framework of
development of capital market in the Slovak Republic"
/g167 Amendment of Foreign Exchange Act, focused on further liberalization of capital account and of
balance-of-payments
/g167 Amendment of Act on Transformation of State Property to the Other Persons – "Great
Privatization Act"
/g167 Amendment of Banking Act
/g167 Amendment of Criminal Act, aimed to fight against economic crimes
/g167 establishment of independent Office for Financial Market SupervisionWT/BOP/R/48
Page 12
ANNEX 4
1. "Program of restructuring of selected banks and restructuring of corporate sector"
The Program is focused on recovery and privatization of 4 state owned banks (VÚB, SLSP,
IRB, Banka Slovakia).
Approved by Slovak Government in August 1999.  The main goal is to recover and privatize
selected banks.
Recapitalization of banks shall be made during the pre-privatization process of restructuring.
A part of classified loans shall be turned from VUB (General Credit Bank) and SLSP (Slovak SavingBank) to the Consolidation Bank, in the first stag e and to the Agency for governing the classified
loans, in the second stage.
This process shall be financially covered by NBS, by emission of state bonds and by credit
from the World Bank and it will be finished by the end of year 2000.
2. Establishment of transparent capital market, which is worked out in the "Framework of
development of capital market in the Slovak Republic"
Approved by Government in August 1999. Sets up a legislation framework for development
of the capital market in the SR, focused on:
- recodification of Securities Act, aimed at:
- new rules for investment services and capital adequacy of traders with 
securities
- adjustment of conditions for issuing of securities, particularly based on 
tenders
- solving of "insider trading"
- adjustment of lending of securities
- extension of minority shareholders protection
- draft of Act on Collective Investment (now subject to adoption by Government)
- Draft of Act on Office for financial market (Gov. 9/99)
- in the first stage – supervision of insurance sector and capital market
- amendment of Act on Stock Exchange (Gov. 12/99)
- market with financial derivatives
- requirements for listing
- amendment of Act on Bonds (G ov. IIIQ/1999)
- liberalization of the process of issuing of bonds due to the OECD 
Liberalization Codes
- recodification of Act on Direct Tax (Gov. 1/2002)
- motivation for investors to long-term depositing of their free sources at the 
capital market, especially by the collective investmentWT/BOP/R/48
Page 13
3. Amendment of Foreign Exchange Act
Approved by Slovak Government in September 1999.  This amendment enables to liberalize
further the capital account of balance-of-payments.  It extends a group of foreign legal persons, which
can realize acquisition of immovable property within  the SR.  Beside banks, also the insurance
companies, investment companies and funds can realize acquisition of these owner rights.  The
amendment also extends the group of securities of foreign emitents, being tradable at the domestic
public, as well as non-public capital markets.  Emitent does not need to come only from the OECD
Member countries.
4. Amendment of Bankruptcy Act and Amendment of Execution Order
Being now a subject of adoption by Parliament.  Within the social measures of the Slovak
authorities amendment of Bankruptcy Act establishes that debts of National Labor Office of the SR
should be filled preferentially in the bankruptcy procedure.  More extensive amendment of this
legislation is under preparation and should be submitted to the Government by the end of this year.
Amendment of Execution Order introduces an adjustment of execution of movable property
of the entrepreneur.  The property which is necessary for entrepreneurial activity will be a subject of
execution at the last.
5. Amendment of Act on Transformation of State Property to the Other Persons – "Large
Privatization Act"
Approved by the Slovak Parliament in September 1999 (last week).  The State retained its
majority share (of 51 per cent) in Slovak Gas Enterprise (SPP), Transpetrol and Slovak Energy
Enterprise (SE).  Slovak Post, the forests, the railways and water resource remain in the State
ownership.  The State will retain certain share, which will be determined by the Slovak Government,
in the Slovak Telecom and Slovak Saving Bank.  This act abolished the Act on Strategic Enterprises.
6. Amendment of Banking Act
Being now a subject of adoption by Parliament.  This amendment is aimed at strengthening of
decision making process of the NBS to early solve difficulties of the banks causing injury to the
clients and depositors.  It extends the rights of NBS to withdraw the bank's license.  The amendment
specifies provisions on restriction of performing the banking activities by non-banking subjects. It
also enables branches of the foreign banks to perform the mortgage activities.
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