Economy of Slovenia


Economy of Slovenia

Slovenia today is a developed country that enjoys prosperity and stability, as well as a GDP per capita substantially higher than that of the other transitioning economies of Central Europe.

History

Although it comprised only about one-thirteenth of Yugoslavia's total population, it was the most productive of the Yugoslav republics, accounting for one-fifth of its GDP and one-third of its exports. It thus gained independence in 1991 with an already relatively prosperous economy and strong market ties to the West.

Since that time, it has pursued diversification of its trade with the West and integration into Western and transatlantic institutions vigorously. Slovenia is a founding member of the World Trade Organization, joined CEFTA in 1996, and joined the European Union on 1 May 2004. In June 2004 it joined the European Exchange Rate Mechanism. The euro was introduced at the beginning of 2007 and circulated alongside the tolar until 14 January 2007. Slovenia also participates in SECI (Southeast European Cooperation Initiative), as well as in the Central European Initiative, the Royaumont Process, and the Black Sea Economic Council.

Current situation

Today, Slovenia is the most prosperous country of transition Europe and is well-poised to join the mainstream of modern industrial economies. It has advanced to the ranks of developed countries. It benefits from a well-educated and productive work force, and its political and economic institutions are vigorous and effective. Its per capita income is now 93% of the European Union average. Although Slovenia has taken a cautious, deliberate approach to economic management and reform, with heavy emphasis on achieving consensus before proceeding, its overall record is one of success.

The current account deficit began in 1998 (-US$147.2 million), deepened in 1999 to -$782.6 million, and improved slightly in 2000 on stronger exports to -$594.2 million. In 2006, Slovenia's economic growth reached 5.7%, annual inflation stood at 2.8% in 2005, and the debt to GDP ratio was well within Maastricht parameters. Due to its macroeconomic stability, favourable foreign debt position, and obvious interest in EU membership, Slovenia consistently receives the highest credit rating of all transition economies.

Trade

Slovenia's trade is oriented towards other EU countries, mainly Germany, Austria, Italy, and France. This is the result of a wholesale reorientation of trade toward the West and the growing markets of central and eastern Europe in the face of the collapse of its Yugoslav markets. Slovenia's economy is highly dependent on foreign trade. Trade equals about 120 % of GDP (exports and imports combined). About two-thirds of Slovenia's trade is with EU members, a primary motivation for seeking EU membership.

This high level of openness makes it extremely sensitive to economic conditions in its main trading partners and changes in its international price competitiveness. However, despite the economic slowdown in Europe in 2001-03, Slovenia maintained 3% GDP growth. Keeping labour costs in line with productivity is thus a key challenge for Slovenia's economic well-being, and Slovenian firms have responded by specializing in mid- to high-tech manufacturing. Industry and construction comprise over one-third of GDP. As in most industrial economies, services make up an increasing share of output (57.1%), notably in financial services.

Economic performance

Agriculture, forestry, and fishing is a comparatively low 2% of GDP and engages only 6% of the population. The average farm is only 5.5 hectares. Part of Slovenia lies in the Alpe-Adria bioregion, which is currently involved in a major initiative in organic farming. Between 1998 and 2003, the organic sector grew from less than 0.1% of Slovenian agriculture to roughly the European Union average of 3.3%. [ [http://www.foodfirst.org/pubs/backgrdrs/2004/s04v10n3.html Food First/Institute for Food and Development Policy | For Land, Liberty, Jobs and Justice ] ]

Public finances have recently shown modest deficits on the order of 1.2% of GDP through 1999. Slovenia has an increasing current account deficit, declining from a balance in 1997 to -$594.2 million in 2000. While the authorities have been successful in stabilizing the Slovenian tolar and bringing inflation down from more than 200% in 1992 to an estimated 2.8% in 2005, inflation edged up from 1999 with the introduction of a value-added tax.

Slovenia's traditional anti-inflation policy relied heavily on capital inflow restrictions. Its privatization process favoured insider purchasers and prescribed long lag time on share trading, complicated by a cultural wariness of being "bought up" by foreigners. As such, Slovenia has had a number of impediments to foreign participation in its economy. Slovenia has garnered some notable foreign investments, including United States investments of $125 million by Goodyear in 1997.

Euro

On 1 January 2007, Slovenia officially joined the Eurozone and adopted the euro as its new official currency. At the same time, Slovenian euro coins, which were available as a "starter kit" from December 15, became legal tender everywhere in the Eurozone.

A period of dual circulation, when both the former currency, the tolar and the euro were accepted, lasted only until 14 January 2007. All banks exchanged tolars into euros at the official rate of 239.64 SIT per 1 EUR at no commission until 1 March 2007. After that date it is possible to exchange tolar banknotes (unlimited) and coins (until 2016) only at the Bank of Slovenia.

Most ATMs dispense euro banknotes on the first business day of 2007, and the rest followed within a few days after that. Commercial banks automatically converted all tolar accounts into euros, and online banking systems were accessible to their users on 3 January 2007. Even though January 1 and 2 were non-working days in Slovenia, many banks were opened from 10:00 to 13:00 on both days, available only for one service: exchanging tolars to euros and larger euro banknotes into smaller units.

ee also

*Bank of Slovenia
*List of banks in Slovenia

References

*citation
url=http://www.cnn.com/2007/WORLD/europe/01/02/slovenia.eurozone.reut/
title=Ex-communist Slovenia adopts euro
author=
pub=Reuters via CNN.com
date=January 2, 2007

*citation
url=http://news.bbc.co.uk/1/hi/world/europe/6222115.stm
title=Ex-communist Slovenia joins euro
author=
pub=BBC News
date=January 1, 2007

*citation
url=http://www.businessweek.com/ap/financialnews/D8MCF2684.htm
title=Slovenia adopts euro as new currency
author=Ali H. Zerdin
pub=Business Week
date=January 1, 2007

External links

* [http://www.bsi.si/en/ Bank of Slovenia]
* [http://www.evro.si/en/ Official site of the conversion]


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