* Slovakia rating not affected by fixing of euro/crown rate
* Government fiscal policy key to any rating change
By Carolyn Cohn
LONDON, July 9 (Reuters) - Slovakia's debt rating will not
be affected by the fixing of the crown's conversion rate to the
euro, but prudent fiscal policy will be key to any ratings
upgrade, a Standard & Poor's analyst said on Wednesday.
European Union finance ministers on Tuesday set the rate at
which the single currency will replace the Slovak crown on Jan
1, 2009.
The fixing prompted ratings agency Fitch to upgrade
Slovakia's rating to A+ from AA-. Fitch said in a statement that
"as a member of the euro area, Slovakia will be sheltered from
monetary shocks".
Ratings agency Standard & Poor's rates Slovakia at A, and
revised its outlook to positive on March 3.
But S&P analyst Eileen Zhang told Reuters in a telephone
interview that the currency fixing would have no impact on the
rating.
"It was just a confirmation of what we have been expecting
all along -- we had taken into account that Slovakia will be
joining the euro zone," she said.
"Our rating approach is focused on fiscal and economic
policy."
Zhang said the policies of Prime Minister Robert Fico were
not transparent enough to pave the way for an imminent ratings
upgrade.
"There is uncertainty regarding this government...in terms
of the long-term policy path. The policy direction needs to be
more clear."
Slovakia's ruling coalition parties agreed last week to
boost welfare spending through a package of measures next year,
although Fico said the plan should not endanger fiscal deficit
reduction.
Fico's main agenda is to take better care of the poor, a
policy which helped him beat a centre-right coalition by a large
margin in the 2006 election.
Ahead of 2010 elections, Fico has promised to take more
welfare measures and spend more on the poor.
Fico has also managed to cut the fiscal deficit to qualify
for euro adoption, largely due to faster-than-expected economic
growth boosting budget revenues.
But Zhang said there was a danger that Slovakia's adoption
of the euro could encourage looser fiscal policy.
"Once Slovakia has joined the euro zone, there are no
external constraints on what Fico wants to do," she said.
"If you look at the election mandate, it's very populist and
involves lots of spending. We are not sure if this lack of
external constraint will leave Fico free to spend as much as he
likes."
The government has approved a plan to boost welfare spending
by 7 billion crowns ($363.4 million) in 2009, around 0.3 percent
of projected gross domestic product for next year.
At the same time, Fico said the cabinet would stick to its
plan to cut the fiscal gap to 1.7 percent of GDP in 2009, from 2
percent seen in 2008.
(Additional reporting by Peter Laca in Bratislava; Editing
by Ruth Pitchford and Victoria Main)
