Bloomberg News

Slovak Ex-Premier Fico to Win Vote as Budget Pressure Mounts

March 09, 2012

Slovak former Premier Robert Fico is poised to win elections after almost two years in opposition amid pressure to cut the budget deficit to distance the country from its ailing euro-area peers and avoid a rating downgrade.

Smer, the party led by Fico who as premier from 2006 to 2010 oversaw Slovakia’s 2009 euro entry, will take the most votes in balloting tomorrow, according to opinion surveys. Voting stations open at 7 a.m. in Bratislava and close at 10 p.m., when exit polls will be released. Official results will be published through the night.

Former Premier Iveta Radicova’s government collapsed in October when a junior coalition member refused to back the euro area’s rescue mechanism, causing the administration to lose a confidence vote in parliament. The row has slowed efforts to cut the budget deficit and worsening fiscal prospects, aggravated by the country’s dependence on exports to the euro region, led Moody’s Investors Service to cut Slovakia’s credit rating by one level to A1 and impose a negative outlook.

“The task for the new government will be to apply measures ensuring that fiscal consolidation remains on the designed path,” Jaromir Sindel, Citigroup Inc. chief economist for Czech Republic and Slovakia, said by phone on March 5. “If the trend continues, it may spark a reprimand from the European Commission as Slovakia probably won’t be on track to have a deficit of less than 3 percent of gross domestic product next year.”

Smer would receive 39.7 percent in the March 10 vote, giving it 75 seats in the 150-seat assembly, according to a poll conducted Feb. 21-27 by Focus, a private company. The four parties in the outgoing Cabinet would get a combined 27.6 percent.

State Influence

Fico is an advocate of more state influence in the economy. He has criticized the current administration for ignoring the poor, pointing to data such as a 1.6 percent decline in real wages last year.

His party plans to dismantle the flat-tax system with a 19 percent rate that Finance Minister Ivan Miklos said had helped attract foreign investment projects in the past decade, including the PSA Peugeot Citroen (UG) factory.

It proposes raising the personal tax rate to 25 percent for income exceeding 33,000 euros ($43,794) a year, installing a corporate tax rate of 22 percent for companies with taxable revenue of more than 30 million euros, and restoring a dividend tax, according to the election program.

“Ladies and gentlemen in luxury offices, I’m telling you, you have record profits so you will pay record taxes!” Fico told a rally of his supporters in Bratislava yesterday.

‘No Doubt’

The extra yield investors demanded to hold a 10-year Slovak government bond over German debt was 210 basis points, or 2.1 percentage points, at 4:22 p.m. in Bratislava, almost a four- month low, according to generic bond indexes compiled by Bloomberg. The spread on debt issues by Poland, the biggest post-communist economy in the European Union, was 356 basis points.

The next government will have to focus on consolidating public finances and preventing state debt increasing, Blanka Kolenikova, a country analyst at IHS Global Insight, wrote in a report yesterday saying there’s “no doubt” Smer will win.

“Despite significant improvements in 2011, when the deficit dropped to a preliminary 4.6 percent of GDP from 7.7 percent in 2010, the next government will have to take more steps toward reform, especially as GDP growth will be quite weak in 2012,” she wrote. “The fact that the goal of cutting the deficit to 3 percent by 2013 now seems unreachable was a key justification for the recent downgrading by Moody’s and Standard & Poor’s, and we expect further downgrades if the next government fails to take action.

Corruption Allegations

Smer’s popularity has also been helped by the leak of a suspected secret-service file, which suggested corruption ties between businessmen and government officials during the 2002-2006 rule of Mikulas Dzurinda, now a foreign minister. Support for his SDKU party is hovering near the 5 percent threshold to get into parliament and the number of undecided has risen, polls show.

Public discontent over corruption may elevate new parties to the assembly. Ordinary People and 99 Percent, both established last year, would muster 6.7 percent and 5.2 percent, respectively, according to the poll conducted on a sample of 1,036 respondents. No margin of error was given.

Frozen Out

A survey conducted by MVK, a Bratislava-based pollster, on March. 3-5 on a sample of 1,036 showed Smer may get 73 deputies, leaving open the possibility that a group of parties including those from the previous governing coalition may be able to keep Fico from taking power, just as they did in the last vote in June 2010 when Smer won the most seats, 62, but couldn’t find any partners to govern with. The MVK poll didn’t give a margin of error.

The stability of such multi party government would be a risk because of a need to include ‘‘unpredictable” new parties, said Grigori Meseznikov, the head of the Institute for Public Affairs in Bratislava.

“The most likely outcome may be Smer in a coalition with one of the current ruling parties, probably the Christian Democrats,” he said.

To contact the reporters on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net; Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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