RESHUFFLE CONSIDERED TO STRENGTHEN CHUBAIS.
RFE/RL's Moscow bureau interprets the latest government
changes as strengthening First Deputy Prime Minister Anatolii
Chubais's influence. Former presidential economic adviser
Sergei Ignatev was appointed first deputy finance minister
yesterday. Ignatev, who is part of Chubais's so-called St.
Petersburg group, joined the presidential administration last
year, when Chubais was Yeltsin's chief of staff. Meanwhile,
confusion surrounds the recent resignations of State Tax
Service chief Vitalii Artyukhov and Fuel and Energy Minister
Petr Rodionov, who are close to Prime Minister Viktor
Chernomyrdin. Chernomyrdin has not accepted Artyukhov's
resignation and is to meet with him today. In addition,
Rodionov told reporters this morning that no final decision on
his resignation has been taken. First Deputy Prime Minister
Boris Nemtsov has pledged to reform the monopolies in the
energy sector, a policy Rodionov and Chernomyrdin are
reported to oppose.
GOVERNMENT SEEKS TO HALT SOME BUDGET
Deputy Finance Minister Sergei Shatalov says the
government will propose reviewing the 1997 budget this month
because of the low level of tax collection. He told RFE/RL's
Moscow bureau yesterday that the government will ask the
State Duma to halt some non-essential budget spending.
Shatalov also said a new tax code to be submitted to the Duma
in April will make the overall system more "stable and
balanced" by abolishing many tax breaks. However, Aleksandr
Pochinok, who chairs the Duma's subcommittee on taxes,
estimated that it would take the parliament at least a year to
adopt a new tax code, AFP reported. Deputy Prime Minister
Alfred Kokh recently announced that tax revenues for the first
quarter of 1997 reached only 58% of the budgeted figure.
GOVERNMENT TO PURSUE DEBTORS TO PENSION FUND.
Deputy Prime Minister Oleg Sysuev says the government will
impose sanctions on debtors to the Pension Fund, which is
owed a total of 65-67 trillion rubles (some $12 billion). He
singled out the monopolies Gazprom, Unified Energy System,
and the Railways Ministry, as well as several oil companies.
Pension Fund Chairman Vasilii Barchuk told ITAR-TASS
yesterday that 29 of Russia's 89 regions are paying pensions
on time. Twenty-three regions are only a month behind on
payments, but nine have a backlog of three months. Kemerovo
Oblast has not paid its pensioners since December, he added.
Earlier this week, a court in Kostroma Oblast gave the local
branch of the Pension Fund 10 days to pay four pensioners
who had sued the fund.
SELEZNEV DECRIES "INFORMATION WAR" AGAINST
UNION WITH BELARUS.
Duma Speaker Gennadii Seleznev
has called on Russian radio and TV companies to end what he
described as an "information war" against Russian-Belarusian
union. In an interview with Interfax yesterday, Seleznev
accused the private network NTV in particular of "falsifying
reports" and airing misleading footage from Minsk. Seleznev
and others in the Communist Party have long objected to
"slanted" news coverage on leading TV networks. Seleznev's
comments follow a lengthy commentary broadcast by NTV on 6
April in which anchor Yevgenii Kiselev reproached Yeltsin for
not banning the Communist Party and drew parallels between
Russian Communists and the Belarusian authorities, which
have used force against protesters in Minsk.
PROCURATOR-GENERAL CLOSES CASE AGAINST YELTSIN
The Procurator-General's Office has
announced it has closed the case against two Yeltsin campaign
workers who were detained in June 1996 carrying more than
$500,000 out of government headquarters. Officials said
investigators found no proof that Sergei Lisovskii and Arkadii
Yevstafev were carrying state funds. Hard-currency operations
are no longer prohibited under the new Criminal Code, which
took effect in January. The scandal forced a showdown
between Anatolii Chubais and Presidential Security Service
chief Aleksandr Korzhakov, whose men detained and
interrogated Lisovskii and Yevstafev. Russian TV networks
close to Chubais ran overnight bulletins portraying the
unfolding scandal as a coup attempt by Korzhakov's men. The
following morning, Yeltsin sacked Korzhakov, along with First
Deputy Prime Minister Oleg Soskovets and Federal Security
Service Director Mikhail Barsukov.
LUKOIL OFFICIALS CRITICIZE IZVESTIYA.
president of the oil giant LUKoil, has said the company may
sell its 20% stake in Izvestiya, ITAR-TASS and Interfax
reported. He criticized the paper's decision to reprint a Le
Monde article alleging that Chernomyrdin has accumulated a
fortune during his tenure as prime minister (see RFE/RL
Newsline, 3 April 1997). LUKoil Vice President Leonid Fedun
claimed that the Izvestiya publication was aimed primarily at
weakening the gas monopoly Gazprom, which Chernomyrdin
headed from 1989 to 1992. Alekperov said LUKoil is not trying
to influence Izvestiya's editorial policy but is merely looking for
a better investment. Meanwhile, Interfax reported yesterday
that it will be LUKoil's official consultant for "publishing timely
information for investors."
MINERS BLOCKADE CITY ADMINISTRATION IN
Angry coal miners blockaded the city
administration building in Kiselevsk, Kemerovo Oblast, for
three hours yesterday. An RFE/RL correspondent in Kemerovo
reports that the miners have not received wages for up to
seven months. Last week, about 100 teachers refused to
release a local education official during negotiations in the city
of Prokopevsk. The teachers, who had not been paid since last
summer, released the official after 37 hours, when
Prokopevsk's deputy mayor issued an order suspending
classes until wage arrears were paid. The oblast has
frequently seen labor unrest, particularly from Kuzbass
miners. A gubernatorial election scheduled for last autumn
has been postponed indefinitely, and Governor Mikhail
Kislyuk, an unpopular Yeltsin appointee, remains in office.
DUMA PASSES LAW ON SUBSISTENCE MINIMUM.
Duma has passed a draft law gradually raising the minimum
wage and pension to the level of the subsistence minimum
within five years, ITAR-TASS reported on 4 April. Under the
bill, the level of the subsistence minimum would be adjusted
quarterly and the composition of the consumer basket (which
is used to calculate the subsistence minimum) would be
reviewed at least every five years. Yeltsin may veto the law if it
is approved by the Federation Council, as the government has
pledged to keep a tight rein on spending in order to meet its
NO PROGRESS, BUT NEW IMPETUS IN KARABAKH TALKS.
The Minsk Group talks in Moscow last week on a settlement of
the Karabakh conflict made no progress toward agreement on
any key points, Interfax reported yesterday. But the Nagorno-
Karabakh delegation did agree "in principle" to the repatriation
of Azerbaijanis who fled during the fighting. A Western
diplomat involved in the talks told RFE/RL that although
Armenia and Azerbaijan continue to occupy "maximalist"
positions, the meeting gave new impetus to the talks, which
had been deadlocked since November 1996. The talks were
attended by co-chairmen from Russia, the U.S., and France
and delegations from Armenia, Azerbaijan, and Nagorno-
Karabakh. The three co-chairmen warned that all sides in the
conflict "must make an effort to achieve movement toward a
AZERI, CRIMEAN TATAR REACTION TO TURKES'S DEATH.
Azerbaijani President Heidar Aliev, Musavat Party Chairman
Isa Gambar, and Azerbaijan Popular Front Chairman Abulfaz
Elchibey, and Crimean-Tatar Council Chairman Mustafa
Abdulcemil have all expressed condolences on the death of
right-wing Nationalist Movement Party Alparslan Turkes,
Turkiye and Zaman reported. Aliyev postponed a planned trip to
Turkey in order to avoid being in Ankara today when Turkes's
funeral took place.
KAZAKSTAN ORDERS OIL COMPANIES TO SEND FUEL
Western oil companies working in Kazakstan
have been ordered by presidential decree to send unspecified
quantities of crude oil to local refineries for Kazakstan's farms,
Reuters reported yesterday. An official from the Kazak
Agricultural Ministry said 350,000 tons of diesel and 100,000
tons of gasoline were urgently needed for spring planting. The
two biggest Western oil companies in Kazakstan are the U.S.'s
Chevron and Mobil concerns, both of which are working in the
western Tengiz field. Some Western companies said the decree
violated existing contracts, while others argued it could drive
away potential investors. Fuel will be purchased with futures
contracts based on this year's harvest.
RUSSIA, PAKISTAN DISCUSS AFGHANISTAN.
Islamabad say Pakistan has opened dialogue with Russia over
the problems in Afghanistan, AFP reported yesterday. Pakistan
will send a senior ministry official to Moscow later this week.
The Pakistani daily The News reports the Russians are not
against the Taliban but believe "all ethnic groups" should be
represented in any future government. Russia--like Kazakstan,
Kyrgyzstan, Tajikistan, and Uzbekistan--has warned of the
dire consequences if the Taliban captures Afghanistan's
northern provinces. Meanwhile, the Taliban are engaging
warlord Gen. Rashid Dostum's forces, the last buffer
protecting the CIS's southern border.
RUSSIAN FOREIGN MINISTER REFUSES TO COMMENT ON
SITUATION IN BELARUS.
Yevgenii Primakov says it is not for
him to criticize internal developments in Belarus. Primakov
was speaking at a press conference in Minsk yesterday
following a meeting with his Belarusian counterpart, Ivan
Antonovich. Primakov sidestepped questions about his views
on the internal situation in Belarus, arguing that the Russian
Foreign Ministry should not meddle in the affairs of another
country. Primakov said the form of the Russian-Belarusian
union depends on the will of the people and will be decided in
the future, not immediately. Primakov is scheduled to address
a conference in Minsk today on creating a nuclear-free zone in
Eastern Europe. He then flies to Paris for talks with French
officials on NATO's planned expansion.
LUKASHENKA ON JOINT RUSSIAN-BELARUSIAN
Belarusian President Alyaksandr
Lukashenka says that Belarus and Russia are "in absolute
agreement" on a draft constitution for their planned union,
Interfax reported yesterday. Lukashenka was speaking after
meeting with Primakov. The two leaders also decided to
publish the draft in the Russian and Belarusian press
tomorrow. Primakov told Lukashenka that he is a "convinced
advocate" of the two countries' unification and that he hopes
the two nations will "come even closer together" during public
discussion of the draft constitution.
UKRAINIAN DEPUTY PRIME MINISTER EXPLAINS
Viktor Pynzenyk, who was responsible for
economic reforms, says he had to resign "because he could not
see any chance of success." Pynzenyk was speaking at a press
conference in Kyiv yesterday after Prime Minister Pavlo
Lazarenko accepted his resignation. Pynzenyk submitted his
resignation last week, after the parliament failed to approve
the government's 1997 budget and new tax law. President
Leonid Kuchma then ordered Lazarenko to make a final
decision on whether to accept his resignation. Pynzenyk often
criticized the government and parliament for dragging their
feet on implementing urgently needed economic measures.
Meanwhile, Kuchma has appointed Mikhail Zubets as
agriculture minister. Zubets, 58, replaces Anatoly Khorishko,
who was fired in January.
The Estonian and Norwegian foreign
ministers signed an agreement yesterday in Oslo providing for
visa-free travel, BNS reported. The accord takes effect on 1
May, along with similar agreements Estonia signed earlier with
Sweden and Finland. The previous day, Defense Minister
Andrus Oovel met with his Swiss counterpart, Adolf Ogi, in
Tallinn. Ogi said after the meeting that Switzerland is prepared
to give Estonia material help and to cooperate in defense,
including training military personnel and developing a
mobilization system. Meanwhile, President Lennart Meri has
confirmed the appointment of Peep Aru as minister without
portfolio responsible for regional policies, administrative
reform, and coordination of land reform. Aru is a member of
the ruling coalition's senior partner, the Coalition Party.
OSCE SAYS LATVIA'S NATURALIZATION TEST TOO
OSCE High Commissioner on National
Minorities Max van der Stoel has said Latvia's test for citizens
seeking naturalization is too complicated, BNS reported. He
told deputies yesterday that most citizens of the Netherlands
would fail a test with similar questions about Dutch history
and law. Van der Stoel was in Latvia to discuss the pace at
which minorities, especially ethnic Russians, are gaining
Latvian citizenship. He has been asked by the EU to help
assess the treatment of minorities in countries hoping to gain
EU membership. A better naturalization process would speed
integration, he told parliamentary speaker Alfred Cepanis.
During the past two years, less than 4% of the estimated
55,000 people in Latvia eligible to apply for citizenship have
U.S. EXPERTS HELP IMPROVE SAFETY AT LITHUANIAN
A group of U.S. experts has arrived in
Lithuania to upgrade safety at the Ignalina nuclear power
plant, which is considered one of the world's most dangerous,
Interfax reported. They will join a U.S. Energy Department
delegation already at the facility. Vytautas Bieliauskas,
nuclear energy chief at the Lithuanian Economics Ministry,
said the experts will decide what U.S. companies can do to
improve safety. The Ignalina plant supplies about 80% of
Lithuania's electricity. It has Soviet-made, graphite-cooled
reactors like the ones at Chornobyl, site of the world's worst
nuclear accident in 1986.
POLISH PRESIDENT IN ITALY.
says he hopes the 1993 Concordat between the Vatican and
Poland will soon be ratified, RFE/RL's Warsaw correspondent
reports. Kwasniewski is on a four-day official visit to Italy.
Yesterday, he had a 40-minute audience with Pope John Paul
II in the Vatican. It was Kwasniewski's first meeting with the
head of the Catholic Church since he was elected president in
November 1995. Relations between the Catholic Church and
Poland have been strained over the Sejm's failure to ratify the
Concordat. The Sejm has postponed ratification until the
adoption of the new constitution.
NEW CHARGES AGAINST SLOVAK INTELLIGENCE.
Patrik, who claims to be a member of the Slovak Intelligence
Service (SIS), says top SIS officials have tried to obstruct the
investigation into the 1995 kidnapping of Slovak President
Michal Kovac's son, RFE/RL's correspondent reported
yesterday. Patrik was speaking to journalists at a secret
meeting outside Slovakia. He also claimed to be one of the
people used by the SIS to give false testimony that the
kidnapping was organized by Kovac's son. President Kovac, for
his part, has singled out the SIS as the chief suspect in the
kidnapping. Patrik says the SIS promised to give him 15
million crowns and a U.S. visa for his services but has failed to
STOWAWAYS FOUND ON SLOVAK-UKRAINIAN BORDER.
spokesman for the Ukrainian State Border Protection
Committee has told journalists that Ukrainian border guards
yesterday detained 55 Chinese citizens who allegedly planned
to cross into neighboring Slovakia on the back of a truck. The
spokesman said the group was found hiding in a canvas-
covered truck on a road outside the city of Uzhgorod, near the
Slovak border. Four people were hospitalized with signs of
carbon dioxide poisoning. The rest have been taken into
custody by the border service.
HUNGARIAN DEFENSE MINISTER SAYS NO DEAL SOON ON
Gyorgy Keleti has said once again that
Hungary will not be rushed into buying NATO-compatible
fighter aircraft, Reuters reported yesterday. He was speaking
at a joint news conference in Budapest with visiting Swedish
Defense Minister Bjorn von Sydow. Keleti said Hungary will
wait to see if NATO offers it membership before it decides on
buying the aircraft. Meanwhile, President Arpad Goncz is in
Argentina, where he and his Argentinean counterpart, Saul
Menem, opened a Hungarian-Argentinean business forum.
ALBANIAN SOCIALISTS REFUSE TO DISCUSS
CONSTITUTION WITH BERISHA.
Leaders of the Socialist
Party yesterday rejected calls by President Sali Berisha to
discuss a new constitution. Socialist spokesman Pandeli
Majko argued that "it seems absurd to discuss the constitution
with tanks in the streets." Another Socialist leader, Rexhep
Mejdani, called Berisha's suggestion "absurd." Albania is still
using its communist-era constitution, together with a package
of post-communist laws. Tensions are running high between
Berisha and the opposition following the attack on the
weekend against Socialist Prime Minister Bashkim Fino, which
some Socialists blame on Berisha's backers.
POLITICS PLAGUE "OPERATION ALBA."
officials say Italy plans to assign Greek troops to a remote area
once the planned intervention force enters Albania, Reuters
reported last weekend. Rome wants the Greek contingent to go
to the northern town of Lezha, while Athens wants its troops
deployed in Tirana and Vlora. The Greeks charge the Italians
with setting up "zones of influence" on their own. The Greek
contingent of 700 troops will be the third largest in Operation
Alba, after the 2,000-strong Italian and 1,000-strong French
contingents. Italian domestic political squabbles also could
hold up the mission, but the French and Spanish troops are
set to go. Greece's traditional interests have been in southern
Albania, where a Greek minority and a large Albanian
Orthodox population live.
ALBANIA'S MARITIME CHAMBER OF HORRORS.
people have died and 700 have been injured since looters
began taking tens of thousands of weapons from government
facilities across Albania last month. Navy officials now warn
that ship hijackers dumped some 25,000 37mm shells, 50
torpedoes, and 70 mines off Pasha Liman near Vlora. Albanian
fishermen often kill their prey by tossing hand grenades into
the water, and the navy fears a major disaster if such grenades
impact on the underwater explosives.
KOSOVO TALKS BEGIN IN NEW YORK.
A three-day meeting
of Serbian and ethnic Albanian political leaders opened
yesterday under the sponsorship of the Princeton-based
Project on Ethnic Relations. Foreign NGOs have often hosted
such "dialogues of the deaf" in recent years, but this time the
session takes place with opposition to President Slobodan
Milosevic clearly growing. Milosevic's Socialists say Kosovo is
an internal Serbian issue and are boycotting the session, but
the New Democracy group is on hand to represent the regime.
Opposition leaders Vuk Draskovic and Vesna Pesic are taking
part, as are leading Albanian politicians Adem Demaci, Fehmi
Agani, and Mahmut Bakalli, Nasa Borba reports.
IZETBEGOVIC PLEDGES MORE SECURITY FOR PAPAL
Alija Izetbegovic, current chairman of the joint Bosnian
presidency, says he will step up security for Pope John Paul II
during his visit this weekend. Izetbegovic's remarks came
yesterday after the latest in a series of unexplained attacks on
Roman Catholic and Muslim religious buildings. A UN police
spokesman called current protection for such buildings poor
and said security must improve for the pope's visit, RFE/RL
reported. In other news, the UN police spokesman said donors
have pledged only $6.5 million for mine-clearing programs,
although $38 million is needed. He also cited an incident
yesterday in which two armed men hijacked a bus on the
Sarajevo-Gorazde route through Bosnian Serb territory and
robbed and abused the Muslim passengers.
GERMANY TO KEEP SENDING BOSNIANS HOME.
the Bavarian and Berlin states told an RFE/RL correspondent
over the weekend that they will continue to deport Bosnian
refugees as a way of encouraging other Bosnians to go home
voluntarily. Critics at home and abroad have blasted the
deportations as cruel, saying there is neither housing nor
employment for most refugees back in Bosnia. Berlin Interior
Minister Jorg Schoenbohm rejected these arguments, saying
that those who stayed in Bosnia braved greater dangers during
the war than the deportees face now. He added that the
refugees have a duty to help rebuild their country. During the
Yugoslav wars, Germany took in more refugees than any other
country outside the former Yugoslavia. But domestic political
pressures are now mounting to reduce the number of
foreigners in Germany.
IS KARADZIC MILKING REPUBLIKA SRPSKA?
Bosnian Serb leader and indicted war criminal Radovan
Karadzic has a monopoly on supplying gasoline, cigarettes,
and other goods on Bosnian Serb territory, the International
Herald Tribune reported yesterday. Both he and Momcilo
Krajisnik, the Serb member of the Bosnian presidency, have
gotten rich by running two key companies behind the scenes,
the newspaper claims. The monopoly costs consumers dearly
and cheats the state out of huge amounts of revenue. The
government cannot enforce tax laws against the companies
because the police are also on the take. Republika Srpska
President Biljana Plavsic says the lawlessness threatens the
future of the Bosnian Serb entity. Originally a protg of
Karadzic, she is now locked in a power struggle with Krajisnik.
CONCERN OVER NEW SERBIAN REFUGEE EXODUS.
Elisabeth Rehn, the UN's chief envoy for human rights in the
former Yugoslavia, urged Croatia yesterday to better protect
the rights of its ethnic Serb minority. She worries that a series
of incidents could prompt Serbs in eastern Slavonia to flee
when the area rejoins Croatia in July. The UN has gone to
great pains to convince the eastern Slavonian Serbs to stay,
and Croatia has promised them a package of rights that the
UN and U.S. call generous. There is also concern in federal
Yugoslavia about a new influx of refugees joining the 600,000
from Croatia and Bosnia already there. President Slobodan
Milosevic's government denies them citizenship and hence the
prospect of fully integrating. Reuters reports that, in any
event, almost 3 million Serbs cannot meet their own minimum
needs for food.
ROMANIAN GOVERNMENT ADOPTS DRAFT LAW ON BANK
The government has adopted a draft law on
the privatization of state-owned banks, RFE/RL's Bucharest
bureau reported. The move coincided with the arrival in the
Romanian capital yesterday of Chief IMF negotiator for
Romania Poul Thomsen. The draft, which will be submitted to
the parliament for urgent consideration, stipulates that no
person can hold more than 5% of shares in a privatized bank
without the approval of the National Bank. Companies can
acquire up to 20%, but some 100 banks of "world repute" are
to be exempt from this ceiling. The state will hold 10% of
shares in each bank. Thomsen yesterday met with Finance
Minister Mircea Ciumara. He is scheduled to meet with
Premier Victor Ciorbea and other officials to discuss Romania's
progress on fulfilling IMF conditions for the release of a stand-
by loan agreed on during his January visit.
COUNCIL OF EUROPE COMMITTEE RECOMMENDS END
TO MONITORING OF ROMANIA.
The Judicial Committee of
the Council of Europe's Parliamentary Assembly yesterday
approved rapporteur Gunnar Jansson's recommendation to
cease monitoring Romania's implementation of human rights,
Romanian TV reported. The move is conditional on the
amendment of several laws, including Penal Code provisions
on homosexual offenses, and the passage of new legislation
dealing with xenophobia and intolerance and providing for the
return of confiscated Church property. Should Romania fail to
pass such legislation, monitoring will be resumed within a
year. The Assembly is likely to approve the recommendation
later this month. Romania will then cease to be monitored
separately and, like all other CE members, will be overseen by
a new committee set up in January.
SMIRNOV WANTS TRANSDNIESTER TO JOIN UKRAINE.
Igor Smirnov, the leader of Moldova's breakaway region, says
he would have "no objection" to the Transdniester's joining
Ukraine. "If Ukraine shifts its border to the Dniester [River], I
will not intervene," Smirnov said in an interview with the
Ukrainian newspaper Kievskiye Vedomosti last week. He
emphasized that 250,000 of the Transdniester's inhabitants
are Ukrainian, which, he said, "cannot be simply overlooked."
In other news, Interfax reported that Smirnov flew to Moscow
yesterday to try to persuade Russian Foreign Minister
Primakov to include Tiraspol during his scheduled visit to
Moldova on 10 April. The agenda provides for a meeting with
Smirnov in Chisinau.
BULGARIAN SOCIALISTS WITHDRAW SUPPORT FROM
The Socialist Party is withdrawing its support
for the caretaker cabinet of Stefan Sofiyanski. In an open letter
to President Petar Stoyanov published in the Bulgarian press
yesterday, Socialist leader Georgi Parvanov said the cabinet is
not respecting last month's agreement that put an end to
street protests and made possible the establishment of the
caretaker government. He complains that pro-Socialist
managers of state firms are being sacked for political reasons
and says his party has not yet received the text of the accord
between the cabinet and the IMF on new stand-by credits. He
also warns against price hikes, saying social tensions may lead
to the country's "Albanization." In other news, the tiny
Communist Party threatens to sue the former Socialist
leadership for bringing the country to the verge of collapse.
BULGARIAN ELECTION NEWS.
The United Democratic
Forces (ODS) and the Initiative Committee for Renewal, a wing
of the ethnic Turkish Movement for Rights and Freedom (DPS),
have agreed to run jointly in the 19 April elections and
participate in the formation of the new government, RFE/RL's
correspondent in Haskovo reported. DPS member Giuner Tahir
recently formed the Initiative Committee, which opposes the
decision of DPS leader Ahmed Dogan not to join the ODS and
to run instead with the Alliance for National Salvation. The
Initiative Committee is active in northeastern Bulgaria, but it
is unlikely that DSP members in the southeast parts of the
country will join the committee, the correspondent observed.
CZECH ECONOMY IS IN TROUBLE BUT NOT IN CRISIS
by Jiri Pehe
The Czech economy is in trouble, experts and politicians
agree. But they disagree on whether the country is in an
economic crisis. The opposition Social Democrats like to
describe current problems in catastrophic terms. The
government claims those problems are not systemic and can
The most serious problems include a slowdown in
industrial production, a state budget deficit, a skyrocketing
foreign trade deficit, and a rapid growth of wages outpacing
the growth of labor productivity.
The government admits that some of those problems are
serious. But it also says that they are essentially temporary.
For example, the slowdown of industrial production in recent
months can be blamed on the harsh winter. The budget deficit,
which amounted to some 8.5 billion crowns in the first three
months of 1997, is partly blamed on an inefficient tax
collection system. The rapidly growing trade deficit, which
totaled some 27 billion crowns in the first two months of 1997
and is expected to reach an annual record high of more than
200 billion crowns, is partly attributed to economic problems
in Germany, the largest export market for Czech companies.
Such explanations may be partly true, but the causes of
the current problems run deeper. Owing to the government's
privatization program, most Czech companies are now in
private hands, but many of those companies have failed to
undergo restructuring. This has happened partly because the
voucher privatization program that played an important role in
the Czech privatization process has failed to create clear
ownership relations. Many individuals have sold their
vouchers to proliferating investment funds, largely owned by
the banks which, in turn, are largely owned either by the
government or by large investment funds.
In addition, many companies continue to be run by
managers whose interest is to enrich themselves and then
leave the company, rather than to streamline, rationalize, and
increase its productivity.
Many such companies run large debts, putting the bank sector
under strain. More than a dozen banks have collapsed in the
last three years--owing either to incompetence of new owners,
to fraud, or to the inability to cope with large, unpaid debts. In
short, problems in the banking sector point to deeper
problems in the Czech economy as a whole.
At the same time, those companies that have
restructured are importing large amounts of Western
technology. While such imports are increasing the companies'
competitiveness, they are also boosting the foreign trade
The foreign trade deficit is also fueled by growing
individual consumption, which, in turn, is tied to soaring
wages. Perhaps the most troubling developments of recent
months are the apparent lack of discipline and fiscal
responsibility on the part of trade unions, company
management, and individual consumers. The lack of discipline
in spending is seemingly exacerbated by widespread doubt,
shared by ordinary people as well as companies, about the
overall health of the political and economic systems in the
Mistrust has also increased over the recent collapse of
several banks and large-scale frauds in investment funds.
Companies and individuals seem to think it is safer to spend
rather than to save. That attitude contributes to growing
imports and makes it difficult to control inflation.
The current liberal-minded government has postponed
any restrictive or interventionist moves, such as introducing
tariffs, devaluing the crown, cutting budget spending,
reintroducing wage controls, or issuing high-yield bonds to
help channel people's spending into savings. Some of those
measures may be introduced soon, however. Last week, the
leaders of the government's three coalition parties announced
they will take concerted action to improve the economy.
But the most important challenge facing the government
is political: to be effective it must regain a degree of the
public's trust. And to accomplish that, it must act.
Despite the existing problems and doomsday scenarios,
the Czech economy continues to grow at the rate of more than
4% a year. This suggests that the economy is more robust
than the critics believe. Many problems seem to have been
caused by the government's neglect to create an environment
in which financial operations would be transparent and easily
verifiable and industrial enterprises reorganized to cope with
market rules. In short, more activist free market policies by
the government may be what the Czech economy most needs.
Czech Economic Data
GDP growth (1996): 4.5%
Unemployment rate: 4%
Annual Inflation Rate (1996): 8.9%
Trade deficit: 160 billion crowns
Hard-currency reserves: $13 billion
State Budget (1996): balanced
Expected average wage increase in 1997: 17%