Macroeconomic illusion and microeconomic facts - the Slovak case

Undue emphasis on short-term macroeconomic goals in transition countries im pedes structural change, often resulting in a deterioration of achieved mac roeconomic outcomes. Repeated attempts at stabilization are then required a nd structural reforms become more urgent, and more costly. Many of those wh o benefit from partial reforms often oppose the full completion of reforms. Social costs are thus raised as governments have to finance explicit and i mplicit state guarantees while budget income shrinks. Slovakia serves as very good example of how partial reform yields short-ter m benefits yet long-term costs. The authors here (i) describe the Slovak ma croeconomic success of 1994-1995 and analyze the microeconomic forces behin d its temporality, (ii) analyze the consequent loss of economic equilibrium , and (iii) discuss current issues facing Slovak economic recovery. The main conclusion reached by the authors is that when macroeconomic insta bility is entrenched, a strict adherence to macroeconomic policy tools is n ot enough to remedy the situation and is costly in the intermediate perspec tive. The solution is to be found, rather, in complete legal and institutio nal reform, which is a necessary prerequisite to the restructuring of enter prises.