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Czech Republic: Flood's Economic Impact Still To Be Determined

  • Jolyon Naegele

Olomouc, Czech Republic, 18 July 1997 (RFE/RL) - This month's massive floods in the eastern third of the Czech Republic have left a trail of death and destruction.

The death toll from the flood is known -- 46 people were killed, including eight from flood-related heart attacks. But it will be months, maybe years, before anyone knows the full cost -- in ruined businesses, delayed public works projects, reduced investments and low or no economic growth.

Clean-up already is under way with waste removal, particularly of spoiled food and drowned farm animals, having been given the highest priority. But for the thousands of people, particularly the elderly, left homeless by the flood, recovery is likely to be difficult, despite generous offers of assistance and loans. Six hundred families have no home to return to in Ostrava. Many much smaller towns and villages report similarly high figures of homeless.

Government ministers this week offered preliminary estimates of the cost of the flood damage at between $1.5 and 3 billion. This includes damage to roads and railways of over $180 million and losses of $400 million in agriculture and water supply. Flood waters destroyed crops on 50,000 hectares of land.

Water levels remain high in some areas and more heavy rain and possible further flooding is expected this weekend.

The Czech government and parliament responded last week with record speed to the challenge of finding alternative sources of funding so far totaling the equivalent of some $330 million for flood-stricken areas in loans and assistance.

The flooded lowlands of northern and eastern Moravia are the Czech Republic's economic backbone. They lie strategically between Poland and Austria, Bohemia and Slovakia. They hold a dense network of roads and railways, which traditionally made the region for light industries. A large share of the country's output of construction materials, rubber, petrochemicals, foodstuffs, textiles and wood products, comes from here.

Numerous industries in low-lying areas suffered heavy damage. Many, particularly smaller- and medium-sized enterprises, carry inadequate insurance. One economic fall-out is likely to be a sharp rise in unemployment. Numerous smaller firms are likely to close. Some insurance companies and their banks face financial stresses.

A commentary in the Czech business daily "Hospodarske Noviny" this week by a professor of banking and finance at the Prague School of Economics (VSE), says the greatest damage to the economy from the floods will be the aftermath -- production losses, failures to fill domestic and foreign orders, state revenue losses from the breakdown in supplies, and further worsening of the trade deficit.

The economist, Miroslav Tucek, says companies and entrepreneurs already in debt before the flood will now have no way of paying off their debts and will have to file for bankruptcy. He says banks will have to raise increase their reserves by the equivalent of hundreds of millions of dollars to cover endangered loans.

Tucek predicts that in the aftermath of the flood, bank deposits will decline, further contributing to reduced ability of banks to grant new loans. This at a time when they are needed by individuals and companies wanting to rebuild. Tucek says the government could help substantially by offering to back loans destined for post-disaster reconstruction.

He says it is no longer a question of whether some village has been wiped off the map by the floodwaters but rather whether well- known firms across the eastern third of the Czech Republic can survive, whether the banking system can avoid collapse, and what effect the floods will have on inflation.

The chairman of the board of Barum tires in Otrokovice told RFE/RL this week his firm alone estimates its flood-related losses will total over $30 million and he says the country's economy will not grow for the next three to four years. He says those companies, such as his, that were bought out by Western partners are likely to recover more easily than those that were privatized through voucher privatization and are now in the hands of banks and insurance companies.

Numerous specialists have said over the last week that four decades of Communist irrigation policy changed the character of the land throughout the Czech Republic making it incapable of absorbing heavy rainfalls.

Further, heavy rains are predicted this weekend and officials say the soil in many areas still emerging from the latest floods can't absorb any more water. Civil defense officials are saying they hope that if flooding does recur people will take official warnings and directives more seriously this time and leave their homes for safer ground when asked to do so and not wait until it is too late.