Slovak PM riding high on popular measures

this says it all really...

By Alan Crosby and Peter Laca

BRATISLAVA (Reuters) - Many Slovaks began the year with a little extra cash in their pockets thanks to a new leftist government which has brought few of the dire consequences economic analysts warned of six months ago.

Prime Minister Robert Fico, at 42 the country's youngest leader, rose to power after a June election that saw citizens turn their backs on a reformist government that took them from political outcasts to EU members during its eight-year rule.

He promised to reverse many of that government's reforms that were widely praised by foreign investors and analysts but hit ordinary Slovaks in this mainly rural country hard.

The charismatic former human rights lawyer promised to scrap a flat tax system, give pensioners Christmas bonuses, eradicate health service user fees and fight to reduce the large profits made by banks and utility companies.

Analysts said the moves would scare off foreign investors and hit the very open economy and possibly derail plans to adopt the euro in 2009. But six months into governing Fico has toned down his rhetoric and turned from populist to pragmatist.

"When he came to power, he huffed and he puffed," said one EU diplomat based in the capital Bratislava, "but he hasn't blown the house down. Not even close. He's shown a pragmatic side while still giving his core electorate something as well."

To be sure, Fico has managed to unnerve foreign investors, raise eyebrows in the EU and even anger his own coalition partners.

He canceled the $357 million sale -- agreed by the previous government of centre-right Prime Minister Mikulas Dzurinda -- of the country's largest airport to a consortium led by Vienna airport operator Flughafen Wien.

He pushed the energy regulator to approve lower than requested hikes in gas and electricity prices, and then adopted legislation strengthening the regulator for future decisions.


And as pensioners found out, he also approved their Christmas bonuses, a wildly popular move made thanks to the tax revenue windfall inherited from the strong economy brought about by the previous cabinet.

"I did not like the previous government, we did not understand Dzurinda, and he did not understand us. This one is much more attentive to how common people live," said 56-year-old pensioner Magdalena Moravova.

The Dzurinda government was the darling of foreign investors, who poured billions into the economy which is now growing at close to double digits.

The hectic privatization schedule angered Fico, who felt the country was being sold to outsiders on the cheap and to the benefit of a few.

Fico has targeted foreign firms that had bought up Slovak assets -- especially in the banking sector and utilities -- saying they were making a windfall profit on the back of ordinary citizens.

He told the Italian utility Enel, which owns dominant electricity producer Slovenske Elektrarne, that if it did not like changes he wanted to make to a previously signed $2.7 billion privatization contract, it was welcome to leave.

But he later backed down in that fight, and has also left in place the flat tax system that attracted many foreign firms.

Instead, he tweaked other parts of tax laws to help generate funds needed to offset increased social spending and still keep the public sector deficit in line with "Maastricht criteria" needed for Slovakia to adopt the euro in 2009 as planned.

The result, said Samuel Abraham, editor of a Bratislava political quarterly magazine, is that Fico has used the benefits of the booming economy built up by the previous government to make pointed statements to his electorate while maintaining an environment friendly for foreign investors.

And according to opinion polls, Fico's Smer remains by far the single most popular party.

"The government has taken steps that may look small, but they were all visible and brought a message to the people," he said. "This is a very populist government, and it must do things that resonate with people."

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