To Keep Jobs, Slovakia Revives Arms Production

SHORT on capital reserves and foreign investors, the Slovak government has been struggling to convert its huge military arms sector to civilian production. Now authorities have come to the paradoxical conclusion that the only way to finance the civilian restructuring is to start selling arms again.

``Our main aim is to utilize our productive potential in certain types of weapons so as to give jobs back to the people,'' says Milos Lelovsky, head of the Economic Ministry's policy department. ``It's not possible to completely stop the armaments industry in a day or a year. We're adopting a step-by-step program to convert to civilian manufacturing over a more realistic six- to 10-year period.''

``Our central aim will be to return production to 30 to 40 percent of its peak 1987-88 level,'' says Deputy Economics Minister Lubomir Gazak, who describes a process of careful, state-controlled downsizing and conversion.

In the 1950s and '60s, the Slovakia region was rapidly industrialized to meet military needs of the Warsaw Pact and emerged as one of the world's most important arms producers. In the 1980s, Czechoslovakia was the world's 10th-largest arms exporter. Two-thirds of Czechoslovakia's military production came from Slovakia's factories, which supplied tanks, armored cars, howitzers, heavy artillery, and ammunition to Warsaw Pact armies.

When Czechoslovakia's Velvet Revolution overthrew the communist regime in 1988, military production represented nearly 60 percent of total industrial production in Slovakia. The sector provided employment to more than 100,000 people in Slovakia, whose population totals only 5 million. It also generated more than one-seventh of Slovakia's exports, according to Peter Stanck of the Institute of Economy in Bratislava, the capital of Slovakia.

``You can imagine the problems that followed when [then Czechoslovak President Vaclav] Havel decided to cease all military production in the country overnight,'' Mr. Lelovsky says. The result was 40,000 jobs lost in 1988-92. Unemployment has reached nearly 25 percent in Martin, Dubnica, and other areas with major military employers. Many observers say Mr. Havel's decision, which hurt far more Slovaks than Czechs, was a major cause of Czechoslovakia's divorce two years ago. Today, Slovak officials question if any good came of the move.

``The situation didn't result in any sort of peace dividend because the Russians, Poles, Germans, and others did their best to fill Slovakia's place in the arms trade,'' says Foreign Affairs Ministry spokesman Roman Buzek. ``It never helped the cause of [world] peace. It simply created serious problems for Slovaks.''

SINCE independence a year ago, efforts to convert Slovakia's massive arms factories to civilian production have come to a standstill. Mr. Stanck estimates that the sector would need a minimum of 16 billion to 18 billion crowns ($485 million to $545 million) to shift production from heavy armaments to nonmilitary goods.

``Unfortunately, our banks are strapped with bad loans given to these firms in the late '80s,'' he says. ``They simply don't have the capital to lend.''

And foreign investment remains sluggish; Slovakia has attracted $500 million of the estimated $11 billion invested in Eastern Europe since 1989.

But there are some doubts about Slovakia's ability to recover even a fraction of its former share in the highly competitive world-arms market. Three-quarters of Czechoslovak arms exports once went to Warsaw Pact allies, most of whom are now slashing military budgets. In other markets, Slovakia is at a disadvantage because it produces heavy battlefield weapons rather than the small arms and specialized explosives in greatest demand in the developing world.

``Unfortunately, there is a shrinking market for these sorts of arms and nobody wants to buy heavy equipment,'' says defense analyst Pal Dunay of Budapest's Eotvos Lorand University. ``Only high-risk countries like Libya, Iraq, and North Korea are willing to invest in this sector.

``Other countries don't have the money or the ability to buy heavy armor.''

And while Slovak arms are usually regarded as being of better quality than their Russian or Chinese counterparts, all of Slovakia's major weapons systems are produced on license from Moscow.

``They may build a better T-72 [heavy tank], but it's difficult for them to compete with newer Russian-made designs like the T-80 or T-90 for which they don't hold a license,'' Dunay says. ``It's a small country and their industry isn't developed enough to produce their own designs.''

Officials in Bratislava are confident their plans will succeed. In December, Armex, a new state holding company, was founded to market Slovak arms abroad. ``There are plenty of countries which are not on the [UN's] restricted lists which are willing to buy arms,'' Lelovsky says.