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Newsline - April 8, 1997




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 SPENDING.

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 CAMPAIGN AIDES.

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.

Vagit Alekperov, 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 KEMEROVO.

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.

The 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 economic targets.




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 real settlement."

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 FOR FARMS.

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.

Officials in 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 CONSTITUTION.

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 RESIGNATION.

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.

ESTONIAN ROUNDUP.

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 COMPLICATED.

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 submitted applications.

U.S. EXPERTS HELP IMPROVE SAFETY AT LITHUANIAN POWER PLANT.

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.

Aleksander Kwasniewski 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.

Michal 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 do so.

STOWAWAYS FOUND ON SLOVAK-UKRAINIAN BORDER.

A 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 NATO FIGHTERS.

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."

Greek government 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.

Some 200 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 VISIT.

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.

Officials of 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?

Former 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 PRIVATIZATION.

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 GOVERNMENT.

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 be rectified. 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 deficit. 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 country. 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 import 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%




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