Survey of the Republic of Slovenia (1): The Balkans' lucky ones - Though the country has suffered economically from the disintegration of Yugoslavia and the war in the Balkans, independence has given its 2m inhabitants the opportunity to build an open market economy and democratic institutions
SLOVENES always had at least as much in common with their Alpine neighbours as with their Balkan partners in the former Yugoslavia. Since Slovenia's declaration of independence in June 1991, the gap between the peaceful, ethnically homogeneous new republic of 2m people and the war-impoverished rest of former Yugoslavia has widened inexorably. 'We have been very lucky,' says President Milan Kucan, the wily former communist who led Slovenia's drive for independence from the Serb- dominated federation. But he, like Mr Janez Drnovsek, the prime minister of Slovenia's three-pronged coalition government, makes clear that Slovenia suffers economically from the disintegration of Yugoslavia and would be one of the principal gainers from a resolution of the bloody Balkan imbroglio. 'Slovenia's southern border with Croatia has become the border between peace and war in Europe,' Mr Kucan declares. A glance at the map shows what he means. At its narrowest point, only a 46 km- long strip of Slovenian coast- line separates Italy from the rest of former Yugoslavia. Austria is insulated from the war-torn regions of Croatia and Bosnia-Herzegovina, both once ruled by the Austrian Habs- burgs, thanks to its own 324 km-long border with Slovenia. But Slovenia would hate to be perceived merely as a convenient cordon sanitaire. The new Karavanke road tunnel beneath the Alps, completed just before the 10-day war between Slovenia and the Yugoslav army which immediately followed indep- endence, has underlined Slovenia's traditional importance as a transit route. The railways and the motorway leading south through the capital Ljubljana to the Slovenian port of Koper and its Italian neighbour Trieste carry freight and travellers heading to and from central Europe and the Adriatic sea. The highway is also thick with aid trucks and an ever-decreasing volume of 'normal' cargoes moving south-east towards Croatia. Independence has, above all, brought peace to Slovenia and left it free to implement the kind of rational market reforms and privatisation policies which remain blocked in the republics absorbed and impoverished by war further south. Economists, however, are quick to point out that independence has its costs. Slovenia, with its self- contained infrastructure and proximity to western markets, was always by far the richest republic of the former federation. Its per capita GDP of around Dollars 6,000 was three times higher than that of Serbia and five times that of Kosovo, the poorest region of the former Yugoslavia. Slovenia has always had a strong tourism industry of its own. But it also benefited from the overnight stays of foreign tourists heading further south to Croatia's Dalmatian coast. Now the once-thriving seaside hotels are filled with discons- olate refugees and Croatia's main source of hard currency income has disappeared. So have the transit tourists through Slovenia. Above all, Slovene enterprises were able to build up exports to the rest of Europe, thanks to the volume of sales they were able to make in Yugoslavia which virtually gave them a 22m strong domestic market. The UN embargo on trade with Serbia means both the loss of the largest of the former Yugoslav markets and an end to cheap Serbian raw materials and other inputs. These helped restrain costs and improve competitiveness in more demanding hard currency markets. Now Slovenia has to lower real wages and increase productivity in order to compensate. On the positive side of the balance sheet, however, the end of the federal state means that Slovenia no longer has to contribute over Dollars 1bn a year to finance the bloated Yugoslav army or see its hard currency deposits 'frozen' by the National Bank of Yugoslavia, as happened before independence. Relations with Croatia, Slovenia's southern neighbour, are generally good but they are complicated by three contentious issues. The first of these is the border itself, which is disputed in parts. The second issue contains Croatia's share of the running costs of the Krsko nuclear plant on Slovenian territory. The plant was built and financed jointly to supply electricity to both republics but financially hard-pressed Croatia is now reluctant to pay its share of the running costs. The third outstanding issue concerns compensation for the assets of Ljubljanska Banka in Croatia. There is no nostalgia for the old Yugoslavia, which Slovenes tried without success to trans- form into a looser confederal structure. But a mixture of compassion for the suffering of their fellow southern Slavs and economic loss ensures that the Slovene authorities, while categorically ruling out any possibility of resuming old political ties with former Yugoslavia, pray, without much hope, for a quick and lasting solution to the conflict and the resumption of normal economic ties. The war, with its violent and deliberate displacement of millions of people, has and is taking place in the ethnically mixed border lands of Croatia and Bosnia relatively distant from the Slovene border. Both Mr Kucan and Mr Drnovsek, who headed the old revolving Yugoslav state presidency for a year before negotiating the exodus of the federal army from Slovenia in July 1991, criticise the failure of the west to intervene more forcibly to stop at an early stage what Mr Kucan calls 'the war of aggression waged by Serbia.' The president is particularly scathing against what he calls the west's definition of the war in Bosnia as a civil or ethnic war. 'Of course the people who are dying do not care how it is defined. But for the inter- national community it is essential to define it as a war of aggression against a UN- recognised state and draw the appropriate conclusions. It is a tragedy that Bosnia's elected leader has now been reduced by the international com- munity to merely one of sev- eral ethnic leaders,' he adds. Preventing the war in parts of former Yugoslavia destabilising Slovenia and scaring off tourists remains a top priority for the new republic. The border with Croatia is now in effect sealed against further immigation after 70,000 refugees, equivalent to 3.5 per cent of the local population, were taken in. Refugees are housed and cared for by local authorities around the country, often in former Yugoslav army barracks, at an annual cost of around Dollars 250m. Many are expected to stay even after the war ends. Meanwhile, the coalition government which emerged from last December's elections to the national parliament and parallel presidential elections, is determined to use its four-year mandate to complete the transformation of the country into a fully-fledged, market-orientated, multi-party parliamentary democracy. At the core of the government is an alliance between the Liberal Democrats, headed by Mr Drnovsek, which emerged as the largest single party with 25 per cent of seats in parliament, and the Christian Democrats led by Mr Lojze Peterle, the foreign minister. But the coalition also includes the four party 'associated list', made up principally of reformed communists. This helps to give the coalition a wider parliamentary base. The inclusion of the 'left- wing' parties, with their traditional links to workers and the trade unions showed its value last month when they twice gave their assent to a new wages pact designed to reduce real incomes. Independent economists calculate that average real incomes have to fall around 10 per cent from current levels of around DM650 a month if the Slovenian economy is to compete effectively for new markets in the west and attract foreign investment. Both are needed to reverse the rise in unemployment and build on the structural reforms to the banking system and privatisation which are currently under way. The next four years will be crucial. But much has been achieved in the first 20 months of independence - including the establishment of a parliamentary democracy and a virtually convertible independent currency, the Slovene tolar, backed by strong reserves. The new republic is peaceful, internationally recognised and a member of the most important inter- national institutions. By the end of the century it wants to be eligible for full membership of an enlarged European Community. As elsewhere in the region, privatisation and other structural reforms are seen as laying the basis for the development of a self-confident middle class capable of ensuring that the democratic and economic reforms under way in Slovenia become irreversible.
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