Slovak Arms Conversion Falters

NESTLED in the Fatra mountains of Slovakia, the town of Martin is experiencing all the ills that face Eastern Europe - rising nationalism, environmental degradation, and the tough adjustments required to convert defense into civilian production.

The company that keeps this town breathing is ZTS Martin, a shareholding company made up of 44 factories and research units located throughout Czechoslovakia, which employ some 80,000 workers. Just a few years ago, the company was churning out tanks for an eager Soviet market. Now ZTS Martin is collapsing - and in the process, disrupting the region's fragile economic base.

Once a pillar of Slovakia's defense industry, the factory in Martin now produces only 10 percent of the armaments it did in 1988. The collapse of the Soviet Union, which provided almost 90 percent of the market for Czechoslovak arms, had a profound impact. But many Slovaks blame the sharp drop in production on the policies of the Czechoslovak state based in Prague.

While President Vaclav Havel retreated from his initial promise made in 1989 to halt all arms exports, the Czechoslovak government created a state defense council to regulate arms exports, especially with the other major consumer of Czechoslovak weapons - the Middle East.

While this move addressed the foreign policy side of the problem, it does not consider the economic struggles that factories like the one in Martin face. International financial institutions such as the World Bank have treated arms conversion in Eastern Europe like any other kind of industrial restructuring. Yet political analysts argue that defense production requires special attention, lest arms be sold to politically volatile regions such as the Middle East and the Balkans.

"It is a political problem with economic consequences. If we stop the production of one tank then we will have to produce 86 tractors to break even," explains Stefan Petras, deputy minister of economy in Slovakia.

"Politicians haven't given us a very good reputation," argues Tomas Franek, chief engineer at ZTS Martin. "Military production is sensitive, but we have inherited our role from the state."

ZTS Martin is in the process of completing a controversial contract with Syria for 250 T-72 tanks signed last September. Under previous legislation, such a deal was barred. ZTS Martin tried on two separate occasions to ship the tanks illegally on Danish and German ships. Eventually Prague bowed to political pressure and allowed the deal to go through.

The company's most recent guest was a Sudanese delegation, which came to negotiate the purchase of the Soviet-designed tanks. Since Sudan is the midst of a bloody civil war, ZTS Martin will need to get special permission from the Czechoslovak State Defense Council which recently drew up a list of countries to which arms exports are barred, restricted, or allowed. Sudan is considered "risky" and therefore requires the Council's approval.

Concerns over the regional impact of such restrictions fueled Slovakia's nationalist movement. Slovak nationalist Vladimir Meciar and his Movement for a Democratic Slovakia won June 6 elections here on a ticket that promised a looser confederation with the Czech Republic and a slower pace of economic reform. Central to his election campaign was a call to continue tank production and stem rising unemployment in central Slovakia where the defense industry is concentrated.

On the eve of elections, the state was also considering a policy designed to fund only those factories that have stopped all defense production.

Comments by Czechoslovak Economics Minister Vladimir Dlouhy published just before the elections further antagonized Slovaks. "If you want to produce arms, please do so and here is a full list of countries where this is not in contradiction to our interests," explained Mr. Dlouhy in an interview. "Good. Produce and sell, but you won't receive one crown of support for conversion.... I don't want to see the case where a tank producer continues to receive state subsidies only because he simultaneously produc es Italian diesel engines."

Critics of Dlouhy's policy say it essentially leaves the arms conversion process to unfavorable market conditions and could result in higher levels of unemployment and further illegal arms shipments. Conversion subsidy

Last year Czechoslovakia allocated 1.5 billion crowns ($50 million) for converting from military to civilian production. Most of the money went to Slovakia, where defense production is concentrated. Yet unemployment in this region is at an all time high of 13 percent compared to 4 percent in the Czech lands.

In the West, too, arms conversion has been accompanied by noticeable unemployment. But in Eastern Europe, where full employment was the norm for 40 years, this unemployment is contributing to political instability.

"The worst thing is that it is unemployment with no hope for the future," explained Ivan Guran, head of conversion at ZTS. The factory in Martin has eliminated an entire shift and one of the divisions is closing, laying off close to 1,000 workers. Many of those laid off were women who staffed one part of the factory, only to be replaced by men from other divisions.

Yet not all these problems stem from arms-conversion policies. Civilian production is also facing a crisis. Overall industrial production has declined by 20-30 percent. At its peak, defense accounted for more than half of production in ZTS Martin; the factory also produces tractors and forestry and construction equipment. Trade union pressure

"We are fighting to continue defense production in order to earn money for civilian production," explained Michal Rudolf, head of the trade unions in the tank-producing division. The trade unions have applied intense pressure on the central authorities to continue tank production to prevent further layoffs.

The collapse of the Soviet market, the recession in the West, and the protectionist character of the European Community have made arms conversion all the more difficult. ZTS Martin has been successful in securing some contracts with Italian and German firms and in developing alternative production programs, but the lack of markets has created immense obstacles.

"We could handle conversion if we had markets. Our main problem is not to produce to store, but to sell," says Mr. Petras.

At the factory in Martin, there are entire warehouses filled with finished tractors and engines collecting dust amid huge old signs left over from the communists, one of which reads ironically: "Tomorrow is born of the deeds of today."

Without government support of arms conversion, many Czechs and Slovaks fear that all the technological talents invested in the defense industry will be lost.

"Our qualified technical workforce is not too enthusiastic about conversion because they are skilled for more qualified jobs," says Mr. Posposil of the Policka ammunition factory south of Prague. Unemployed, technically skilled workers are a concern since they could sell their defense know-how to volatile regions such as the Middle East and the Balkans.

The rise of new localized conflicts such as those in the former Yugoslavia and the former Soviet Republics has created a new market for weapons and a new challenge to arms conversion. There is considerable resentment that Western governments haven't done more to help.

"There have been more than 30 meetings and conferences on conversion; sometimes I ask myself if this money wouldn't be better spent on conversion itself. We simply don't need so many advisers," argues Petras.

The new Czech prime minister may be more sympathetic to these concerns. As finance minister, Vaclav Klaus told citizens of Martin in April: "I am opposed to cheap gestures. We should not be the most peaceful country in the world that won't sell a single bullet or a single gun to anyone. It's beautiful to say that, but such ideas are enforced upon us by countries which export arms to the whole world."