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Czech Republic: Government Introduces Measures To Revive Economy

  • Jolyon Naegele

Prague, 17 April 1997 (RFE/RL) - The government of the Czech Republic has announced sweeping measures designed to halt the country's rapidly growing foreign trade deficit and to revive its sagging economy.

The cabinet yesterday approved a document setting out "a very complicated combination of individual measures and... an explicit change of the original goals of the government's policy." It says these should accelerate the ongoing transformation process. But the cabinet at the same time says the document represents continuity of all the center-right coalition government's basic priorities.

The document terms the virtual stagnation of exports as ominous in the face of an 8.5 percent rise in imports, and a budget deficit for the first quarter of this year of some $330 million (10 billion crowns). It says these developments are not sustainable and must be tackled so as to improve the balance of payments and the balance of trade, prevent stagnation of economic growth and maintain relatively low inflation.

The document, which is entitled "Corrections to economic policy and further transformation measures", concedes these goals are largely contradictory and are not entirely achievable by the end of this year.

It also repeats Prime Minister Vaclav Klaus' criticism of the Czech National Bank's anti-inflationary polices last year which allegedly created "institutional barriers and bottlenecks" and "prevented economic institutions from realizing their potential." It notes that while the annual inflation rate was reduced to 6.8 percent by last month, growth in industrial output had slipped to four percent.

The government rules out intervening to strengthen or weaken the currency, the Czech crown. In its words, "any intervention by the state would be counterproductive."

The cabinet paper calls for a five percent budget cut totalling the equivalent of $841 million (25.5 billion crowns). This includes a 7.3 percent limit on nominal wage increases in the state sector and a reduction of social benefits.

The budget reduction does not need parliamentary approval. But Social Democratic (CSSD) opposition leader and Speaker of the lower house of parliament, Milos Zeman, terms the measures a "set of chaotic improvisations."

Long term measures in the package are aimed at crackdown on economic crime. They include speeding up privatization of banks and enterprises while strengthening the state's property rights, and standardizing capital and financial markets and making them transparent. This would be done in part by establishing an independent securities commission. Related measures are the drafting of bills banning investment funds and societies, or their managers, employees or relations, from owning property managed by the funds.

Other measures include establishing a high-level team to combat serious economic and financial crime, and an organ within the state attorney's offices in Prague and Olomouc for uncovering and prosecuting banking crimes. Special courts will be established for trying complicated financial and economic criminal cases. Moreover, with immediate effect, the police, the courts and the state attorneys' offices will be forced to explain why they have stopped or delayed pursuing financial cases.

Perhaps the most significant non-economic measure is a tightening up of the country's slow and inefficient court system. The cabinet has given the Justice Ministry one month to issue instructions on supervising court actvities, and two months to draft a law regulating the responsibility of judges by sharpening penalties for groundless prolongation of court proceedings.

The Justice Ministry has two weeks to draw up draft amendments to the criminal code containing "new" crimes such as distorting business data, avoiding obligations in bankruptcy and compensation cases, threatening the currency market, insurance and loan fraud, and insolvency due to negligence.

Among the measures aimed at reducing the trade deficit are a system requiring importers to make an interest free 180-day deposit at a designated bank prior to importing foodstuffs and consumer goods, which currently make up 30 percent of Czech imports. The government has yet to agree on the sum to be deposited - either equal to 20 or 60 percent of the value of the goods to be imported.

Agriculture Minister Josef Lux who heads the Christian Democrat-People's Party (KDU-CSL) failed to persuade the other two parties in the cabinet to agree to an import duty, which he argued would have been more effective than a refundable interest-free deposit.

Lux and Michael Zantovsky, chairman of the Civic Democratic Alliance which is also in the coalition, said on Czech TV last night the measures will not result in higher prices for imported goods but rather limit their availability on the domestic market.

Lux also pushed for personnel changes in the cabinet but to n-o avail. Senate speaker Petr Pithart, a member of Lux's party, said the measures should have come several years earlier and should have been accompanied by a cabinet reshuffle for a better chance of an economic turnaround.

Interestingly, Foreign Minister Josef Zieleniec, a member of Klaus' own Civic Democratic Party, agrees. He said today the economic measures would be more credible if accompanied by cabinet changes.

Opposition leader Zeman goes further saying "if this government is trying... to make a significant correction to its own economic policy and is unwilling to admit its collective or individual responsibility, this amounts to nothing more than cowardice and hypocrisy".