East European Perspectives: February 20, 2002

PATRONAGE AND CORRUPTION IN THE CZECH REPUBLIC (PART 1)

By Jeffrey M. Jordan

I. Introduction
Corruption was endemic to the communist system of the Soviet bloc prior to its collapse in 1989, and Czechoslovakia was no exception. From a practical standpoint, corruption generally arose from the shortages inherent to the communist system, and it usually took the form of bribery. Such behavior became generally accepted since, in a dysfunctional and illegitimate system, the rule of law was subordinated to the pursuit of personal well-being. A Czech axiom during this time went something like, "If you do not steal from the state, you rob your family."

Corruption remains a deeply rooted malignancy in the postcommunist Czech Republic, and the problem is becoming increasingly serious. A considerable part of the bureaucracy is infected by it, from the lowest level functionaries to some of the highest officials. Sadly, those few who have remained above the fray, such as President Vaclav Havel, have been discounted as astute moralists, but ineffectual politicians. Meanwhile, postrevolution euphoria has faded into disillusion as the country that seemed to show the greatest potential to transform itself into a "normal" Western country after 1989 regresses into its old communist habits. According to Freedom House, a human rights group, "corruption in the Czech Republic has long passed the stage of occasional unrelated bribes to government officials." Rather, "it exists on a national scale as a sophisticated enterprise that is parallel with public service" (Karanycky et al, 2001, p. 166). Transparency International, an anticorruption watchdog, underlined the seriousness of Czech corruption in its Corruption Perceptions Index 2001. The Czech Republic ranked 47th out of 91 countries surveyed, with a rating of 3.9 out of 10 ("Transparency International," 2001). A "10" rating indicates a country perceived to be totally clean. In 1997, the Czechs ranked 27th with a rating of 5.2, and were tied with Belgium ("Transparency International," 1997). Now they are tied with Bulgaria. Ironically, the government that has overseen this backsliding was elected on an anticorruption platform and has implemented an official, though largely ineffectual, "Clean Hands" campaign. Yet corruption may reach very high levels of the current administration.

This paper examines three explanations for high-level corruption in the Czech Republic. First, preconditions amenable to corrupt behavior are still in place in the Czech Republic, as in other postcommunist countries. Lingering problems and tendencies from its communist history, overlaid with new freedoms, have made the Czech Republic fertile ground for corruption. Added to this, the Czechs' emerging ambivalence toward Western institutions and norms provides water to this soil and allows corruption to flourish. The second explanation for high-level corruption lies in power politics. Corrupt networks are firmly embedded in the Czech government. The very nature of the current "Opposition Agreement" between the Social Democrats (CSSD) and the Civic Democrats (ODS) is a recipe for corruption. In addition, a communist-crony network within the Social Democratic Party has gained influence in the government. Lastly, external corrupt networks, most notably the Russian mafia and intelligence services, have been able to capitalize effectively on these favorable preconditions for corruption, and on the ascendancy of old-guard communists in the government, to strengthen their presence in the Czech Republic and to exert greater influence in the Czech government.

II. Postcommunist Czech Republic: A Context For Corruption
Postcommunist Malaise

Corruption has found fertile ground and taken deep root in the Czech Republic as a result of the "postcommunist malaise" that affects all countries undergoing postcommunist transition. In the Czech context, this malaise takes on a peculiarly national flavor when combined with a growing ambivalence toward the West and the responsibilities that "rejoining the West" entails. Postcommunist malaise may generally be described as the dissonance between the communist histories and the new freedoms thrust upon these ill-prepared societies in 1989. These transitioning countries have come to find out that unbridled freedom is not the cure for a postcommunist hangover. In the Czech Republic, these problems of postcommunism are widely manifested in the political and economic spheres.

People do not change overnight, and the same corrupt practices that were acceptable during communism did not simply vanish with the appearance of a market-based economy. New freedoms have merely provided new avenues to profit for those in a position to exploit them. Moreover, the administrators of the market economy, both in business and in government, are often the same individuals who pulled the levers of power in communist Czechoslovakia. The common perception is that the rule of law has failed to adequately regulate the workings of this new system, and that those in power can cynically manipulate the laws to their own benefit. This view is summed up in a 1999 "Lidove noviny" headline: "Czechs have reached the conclusion that the state will not protect them from lawlessness." The article goes on to say that a growing number of Czechs have no faith in the justice system and no trust in the government. In fact, 70 percent of respondents to a survey last year indicated their belief that the country is run by organized crime ( cited in Karanycky et al, 2001, p. 165).

The hangover also remains very evident in the Czech economy. Forty years of communism and Soviet domination left the Czech Republic with a dysfunctional economy and the colossal challenge to transform it into a "functioning market economy." Government attempts to meet this challenge in the end only served to prolong the hangover. The privatization of Czech enterprise often worked to directly benefit the former communist leaders and their cronies, who were able to grab state assets on the cheap. Conversely, in the case of former Prime Minister Vaclav Klaus' voucher privatization scheme, in which the state effectively foisted its assets into the hands of an unprepared public, people had the "illusion of participation." But in reality, absent the effective rule of business law or common recognition of private property rights, the door was left wide open to fraud perpetrated by financially savvy "entrepreneurs." Czech privatization generated minimal income for the government, as assets were either given away or sold for bargain basement prices. Direct foreign investment was effectively blocked by the various privatization schemes employed, and by the political imperative to avoid selling "the family silver." Finally, the majority of Czech industry remained unaccountable to shareholders, unrestructured, uncompetitive, and directly dependent upon state subsidies or heavily indebted to state-owned banks ("Prague Business Journal," 28 September 2001). In sum, privatization was a disaster for the Czech economy, and the current government is still dealing with the macroeconomic results of these decisions. Fiscal budget deficits tripled between 1997 and 2000, to 46.1 billion crowns (3.7 percent of GDP). Unemployment increased to 9.3 percent in 1999 from 3.6 percent in 1996 due to flagging or bankrupt enterprises (The Economist Intelligence Unit, 2001, pp. 30, 50-51). While these trends are not exclusively the result of chosen privatization methods, the direct costs of bankruptcies and ongoing subsidies, as well as the arrested development of competitive industry, have certainly contributed to the current economic woes.

The government is under intense pressure to generate cashflow for its own budget and to do what it can to assist Czech enterprises to remain afloat. These imperatives are made more urgent by the increasing dissatisfaction of the Czech populace with progress made since 1989 vis-a-vis its high initial expectations, and by growing concerns over the country's ability to get its house in order in time to make the first wave of EU enlargement. Readily available, if non-recurring, sources of income lie in remaining state-held assets to be privatized, and in the collection of communist-era debts from Russia, Iran, Iraq, Syria, Libya, and numerous third-world countries. Another strategy employed is the promotion of Czech exports abroad to help alleviate the immediate problem of unemployment, and to generate increased tax revenues in the future (assuming the government's ability to collect these taxes). The challenges are indeed daunting, but as the current government has shown, every challenge contains an opportunity. And the current ministers seem to show little compunction at exploiting every opportunity for personal gain.

'Neo-Svejkianism'

Postcommunist malaise becomes distinctively Czech when it is overlaid with the Czechs' growing ambivalence toward their Western partners and Western institutions and norms. The Czech Republic maintains a formal affiliation with the West through its membership in NATO and its inclusion on the list of EU candidates, yet it has wavered in its political will to shoulder the costs and responsibilities that such association entails. The Czechs joined NATO in spite of a relatively low level of public support for it, and in its first major test as an ally during the Kosova war, the government moved quickly to dissociate itself from the campaign. Support for EU membership has also started to wane in the face of seemingly continuous directives and criticism from Brussels regarding the implementation of the "aquis communautaire." The Czechs have grown increasingly resentful at what they regard as outside interference in their internal affairs (Rhodes, 2000, pp. 58-59). According to a recent poll, only 20 percent of Czechs consider the country's accession to the EU an important issue ("Prague Business Journal," 16 July 2001).

The Good Soldier Svejk still lives. Svejk, the archetypal Czech passive rebel, remained outwardly obedient to his Austrian masters, but privately pursued his own interests and usually undermined his authorities through insubordination disguised as ineptitude. By all appearances, the Czechs have been guided by Svejk in their recent relations with NATO and the EU. The fact that Czech partnership with the West is voluntary rather than coerced provides the government with leeway to pursue interests that diverge from, and even oppose, those of the West. The Czech "neo-Svejkian" posture toward NATO and the EU often means saying one thing and doing another. The revival of Svejk in the postcommunist context produces a dangerous mixture of norms, practices, problems, and personalities remaining from the country's communist history, overlaid with a new freedom that is detached from all sense of responsibility. Today, the Soldier Svejk is watering the seeds of postcommunist corruption.

...With Machine Guns and Ammo for All

The confluence of postcommunist malaise and diffidence toward the West is notoriously evident in Czech conduct in the international arms trade. The Czech economy has long maintained a significant military-industrial component, and communist Czechoslovakia was a principal supplier to anti-Western regimes during the Cold War. Following a tradition that dated back to the days of the Austro-Hungarian Empire, Czechoslovakia was one of the largest arms producers and dealers in the world. By the late 1980s the industry employed well over 90,000 people and accounted for about half of the country's foreign trade. During the Cold War, Czechoslovakia was a principal arms supplier to areas of Cold War conflict, including Iraq, Ethiopia, Syria, Sudan, Libya, Algeria, India, and Vietnam. The Czechs were also a favored supplier to numerous terrorist organizations and they developed a reputation worldwide for indiscriminate sales of explosives and machine guns to such networks ("Respekt," 18 June 2001). The Czech-made plastic explosive Semtex was employed in the Lockerbie bombing in 1988.

After the Cold War, the industry began to suffer due to global military spending cuts and the loss of traditional markets in the Soviet bloc and "rogue states," which led to growing unemployment. Attempts to transform the industry were unsuccessful and strongly resisted by the arms lobby, which still retained protectors in high places in the government. More recently, the Czech government has renewed its emphasis on arms production and trade in order to capitalize on a relatively advanced segment of its industry. It has even made state support for arms sales an integral part of its foreign policy by tasking commercial and military representatives at Czech missions worldwide with the promotion of Czech weapons exports ("Lidove noviny," 4 October 2000). Also, with NATO upgrades underway, enormous army stockpiles of unusable, obsolete "materiel," too costly to upgrade or dispose of, sit waiting under lax security to be sold to the highest bidder ("Respekt," 18 June 2001).

With the support of outside Russian "business interests" and with the seeming inability of the Czech Security Information Service (BIS) to stem the outflow of weapons, illicit trade in arms has flourished. In 1999, the BIS acknowledged that one of the largest international arms smuggling groups had been operating in the Czech Republic for a number of years, and that, in spite of its close surveillance of the operation, numerous illegal transactions had been completed. A company called Agroplast, officially engaged in mineral mining and waste-glass processing, had been supplying countries like Libya, Iran, and North Korea from former Eastern bloc arms depots. In March of that year, several company representatives were detained in Azerbaijan in connection with the export of 6 MiG-21s from the Czech Republic to North Korea. According to the BIS, the smugglers operated from Russia, and the company was financed by Russian banks. Two company executives had also been detained in Russia, but the benevolent intervention of Moscow Mayor Yurii Luzhkov secured their release ("Mlada fronta Dnes," 12 October 1999).

There has also been a string of recent scandals surrounding state-licensed transactions involving rogue states, countries known to divert arms to such states, and a new growth market in the conflict regions of Africa. Transparency International characterizes the arms trade as "hard-wired for corruption" due to the inherent opacity that surrounds weapons transactions ("TI Newsletter," June 2001). The Czechs especially have earned a reputation for non-transparency in their official arms trade. In contrast to EU countries, which publish annual reports on arms sales, the Czech Ministry of Industry and Trade keeps its figures secret ("The Prague Post," 23 May 2001). Czech arms dealers have been particularly creative in maintaining an illusion of legitimacy. In Africa, assault rifles have been sold as "hunting guns," ammunition as "agricultural explosives," mortars as "carriers of chemicals," and tanks as "construction machinery" ("Respekt," 18 June 2001). Or sometimes, a destination may be changed by sleight of hand, as happened last year when a shipment of armaments, bound for Aspara, Georgia was almost re-routed to Asmara, Eritrea ("Respekt," 12 June 2001).

The extent of the trade, the seeming ease with which it is conducted, the opacity that surrounds it, and the inability of the secret service to curtail it suggest the possibility of official complicity and corruption in these transactions. The Czech Republic has resumed its old place as rogue arms supplier par excellence. According to journalist, Jaroslav Kmenta:

"In a way, it is a tradition. The Czech Republic has very good relations from the past with these countries. The Czech Republic has a number of receivables from the communist era there. It is still trying to have them repaid. Czech businessmen have really 'special' relations with local politicians and authorities. Because of its risky nature, any deal with such a country, both legal and illegal, increases the value of the bid. The amount of money involved is able to shut the eyes of politicians, officials or businessmen in Prague over problems that might arise" ("Mlada fronta Dnes," 28 February 2000).

Such transactions fly directly in the face of Czech commitments to its NATO allies and future EU partners. Although it has not yet signed it, the Czech Republic has agreed to abide by the EU Code of Conduct on Arms Exports, which is intended to prevent arms transfers to human rights abusers, areas of violent conflict, and countries that might export weapons to unauthorized third parties. To justify its actions, the Czech government insists that none of its authorized trades are technically illegal (i.e., trade with embargoed countries). Instead it can comfortably claim "plausible denial," arguing that it cannot be held responsible for what happens to the goods after they are delivered. Foreign Ministry spokesman Ales Pospisil put forth this government position, with just a touch of sarcasm, following a controversial sale to Sri Lanka:

"I don't want to sound cynical, but for any country, the most important thing is that the trade is correct within international law. Of course, it would be much nicer to trade with Western Europe or the United States � it would be crystal clear that no gun would be misused. But this is reality ("The Prague Post," 23 May 2001).

In response, the West has had to resort to the use of "sticks" in order to make its position clear. In 1999, after warnings about risky transactions were repeatedly ignored by the Czech government, the U.S. resorted to the threat of sanctions to prevent Czech firm ZVVZ Milevsko from selling air-conditioning and ventilation systems to a nuclear plant under construction by the Iranian government. While the Czechs saw justification in the fact that Iran was not an embargoed country and the goods in question were not restricted, the U.S. and Israel expressed grave concern that this nuclear plant would provide Iran with the capability to develop a nuclear arsenal. Even China had bowed to Western pressure to withdraw from the deal. Additional complexities surrounding the transaction suggest that there was more to it than meets the eye. Most notably, former Premier and current Chamber of Deputies Chairman Vaclav Klaus' wife, Lyvia, is a member of ZVVZ's board of directors.

Since the Iran affair, the Czechs have sought to avoid a similar recurrence by resorting to old-style secret diplomacy. An official visit by government and business leaders to Iraq in early 2000 encompassed all the elements of the current Czech malaise. Iraq was one of communist Czechoslovakia's principle trading partners and the Czechs still hold about $500 million in receivables from Iraq, but trade between the two has been substantially curtailed as a result of the UN embargo. Also, Radio Free Europe/Radio Liberty (RFE/RL) broadcasts from Prague to Iraq have further damaged economic and diplomatic relations between the two countries, in spite of vociferous efforts by the Czech government to dissociate itself from what it insists is a U.S. initiative. Minister of Industry and Trade Miroslav Gregr once proposed that the U.S. reimburse the Czechs for lost trade resulting from RFE/RL broadcasts to Iran and Iraq ("Respekt," 1 February 2000).

The delegation to Iraq ostensibly intended to discuss the possibility of renewing trade and resolving outstanding debts, and to present the Czech point of view concerning RFE/RL ("Respekt," 15 February 2000). The Foreign Ministry termed it as "routine diplomatic talks." But if this is the case, why was it kept under the utmost secrecy for the next 10 months, including the names of those comprising the delegation?

The government finally divulged the list of participants under threat of a lawsuit by Senator Michal Zantovsky. The mission was organized by Miroslav Slouf, a former communist functionary who is Prime Minister Milos Zeman's chief adviser, and an increasingly suspicious element in the current government. It included Deputy Foreign Minister Hynek Kmonicek, three representatives of Vitkovice Iron Works, and, most peculiarly, Milan Jedlicka, a Czech-American with an alleged criminal past that includes a conviction in the U.S. for cocaine smuggling and fraud, as well as investigation for the murder of a U.S. drug-enforcement agent. This connection between Slouf and Jedlicka aroused sufficient suspicion in the U.S. government to justify personal warnings by former U.S. Ambassador John Shattuck to both Prime Minister Zeman and Foreign Minister Jan Kavan, and by former Secretary of State Madelaine Albright to President Havel. Jedlicka's later involvement in organizing Zeman's planned fall 2000 trip to the U.S. is thought to have been the reason for the trip's cancellation by the U.S. government, though this is staunchly denied by Zeman.

It is still unknown exactly what transpired in these "diplomatic talks" and what Slouf might have promised to his hosts. Members of the delegation give conflicting accounts, and some still deny their participation, including Jedlicka. Allegedly, Jedlicka was brought in as a representative of Magna Oil, a U.S. firm that purchases Iraqi oil in the UN "Oil for Food" Program. The Czechs planned to employ his expertise in placing Iraqi oil in the world market in anticipation of accepting Iraqi oil in payment for goods. The delegation reported that it had no success in obtaining Iraqi orders ("Respekt," 16 November 2000).

Given its established tendencies in the arms trade, as well as the presence of Slouf and Jedlicka in the Baghdad delegation, the re-establishment of Czech commercial connections with Iraq through secret diplomatic missions is a worrisome development. The Iraqi secret service is very active in Prague and the Czech BIS has proven singularly inept in restricting its operations. Iraq has made no secret of its desire to acquire the "miraculous" Czech Tamara radar, which is thought to be able to track even the U.S. stealth fighter-bomber. Since the bankrupt firm that produces the Tamara was privatized in 1993, it has not sold a single radar, but strangely four of the six it reportedly had in inventory went missing in late 1999. They are thought to have disappeared while the firm's most recent owner was in prison for tax evasion, fraud and embezzlement. However, the BIS insists that it would know if there had been a theft. In the meantime, the company was recently sold again, while the Czech government was engaged in a losing battle to reclaim control over the copyrighted Tamara technology ("Respekt," 10 September 1999; "Lidove noviny," 10 September and 6 October 1999; "Pravo," 11 September and 8 December 1999).

Regardless of the actual outcome of this mission, the Czech government's self-interested attempt at appeasement of a brutal dictatorship finds an ironic historical parallel with another infamous round of "diplomatic talks." Could Baghdad have been Munich in reverse?

III. Power Politics: The ODS And The CSSD
Cooperative Opposition

A corrupt network exists within the Czech political class, and it has exploited the vulnerabilities in the Czech system for its own profit and has consolidated its hold on power. However, this network is not exclusively about money. It is further strengthened by "mutual knowledge of guilt and the chance to use this for [mutual] blackmail" ("Prague Business Journal," 17 September 2001). The network has two main components. The first is the power bloc formed by the so-called "Opposition Agreement" between the CSSD and the ODS. The second is within the CSSD. A powerful communist-crony network has emerged within the party, with possible ties to the Russian mafia and intelligence services.

The Opposition Agreement was hatched in mid-1998 when the CSSD failed to attain the majority needed to form a government. Rather than entering a coalition with the four other center-right opposition parties, CSSD Chairman Milos Zeman entered into this agreement with Vaclav Klaus' ODS, in spite of the fact that Klaus and his party had recently fallen from grace in a corruption scandal that sank his government. Under the Opposition Agreement, the ODS vows not to support a vote of no confidence in Zeman's government in exchange for key posts for ODS party members, including Klaus' leadership of the Chamber of Deputies. Given the political rivalry between these two parties and their ideological opposition to one another, the Opposition Agreement actually blocks any possibility of real reform. The ODS simply maintains the illusion of being a genuine opposition party, and relations between the two parties are reduced to their lowest common denominator: catering to special interests vested in the power bloc and "making hay while the sun shines." In this unhappy marriage of political enemies, the two parties appear to have grown content with political sparring in public while privately turning a blind eye to one another's misdeeds. "Prague Business Journal" investigative journalist Jan Machacek has observed that most of the public disagreements seem to occur just before a deal is concluded between the two. One cannot help but wonder if the fighting is simply a "smokescreen" to provide political cover while pockets are lined on both sides ("Prague Business Journal," 2 July 2001). There is too much opacity, too many clear conflicts of interest, and too much cooperation between the two parties in recent privatizations, procurement tenders, and other "political deals" for such questions not to be raised -- too much smoke for there not to be a huge fire.

There has been an increasing tendency on the part of the CSSD-ODS bloc to base economic decisions crucial to the Czech economy on political criteria -- not in line with party political-economic ideology, but on the basis of raw power. Significant areas of political and economic power are still left to be allocated and exploited, including remaining privatizations, decisions on the fate of major state-owned companies, the restructuring of bankrupt firms, the sale of a mountain of bad loans, the collection of communist-era debts, and decisions on major public contracts. Opportunities for "entrepreneurial" politicians are boundless.

Much of this potential power is now consolidated and made susceptible to political control by virtue of the recent creation of the Ceska Konsolidacni Agentura (CKA), a "garbage can" for bad commercial loans. CKA unified the existing state agencies involved in bad-debt collection. Rather than placing legal and economic experts on CKA's board, the government staffed it with political appointees: three CSSD MPs and four ODS MPs. As CKA is not a bank, it will not fall under Czech National Bank regulations concerning transparency. Its original management was dismissed following the resignation of former Finance Minister Pavel Mertlik in spring of this year. Mertlik was an opponent of "enterprising political interests."

CKA's economic power lies not only in the fact that its losses are to be covered by privatization income and other state sources, but also because it is a wealth of information concerning pending bankruptcies and privatizations. Furthermore, it represents a wellspring of potential political favors, to be compensated by party sponsorship or direct payments to individuals, since many prospective, motivated buyers of the debt are the same "tunnelers" (see Part 2) and asset-strippers who created the problems, and who have the greatest information on the value of the collateral. One could even envision a scenario in which a debtor repurchased his own loan from CKA at a steep discount, regained title to the collateral, and had the Czech taxpayers cover the difference.

In order to provide "smokescreen" cover to the real issue of political control over this vitally powerful agency, the MPs on the board were initially granted exorbitant salaries for their services. In the public-relations firestorm that followed this announcement, the salaries were rescinded, creating the impression for the uninformed public that the problem was solved ("Prague Business Journal," 1 October 2001). However, the costs to Czech taxpayers could be enormous. Political control over industrial restructuring has already driven the costs of Czech restructuring to 40 percent of GDP, making the Czech process the most expensive in the world next to that of Yugoslavia. And no end appears in sight. CKA currently administers a 270 billion-crown portfolio of bad assets that will soon swell to 450 billion with the inclusion of the non-performing assets from failed IPB bank. Through the CKA, about 23 percent of Czech GDP will be subject to the political whim of seven MPs ("Prague Business Journal," 8 October 2001).

With only about four months until the next elections, the government has declared its intention to complete several of the largest privatizations to date while it still has time. These are to include energy producer Ceske energeticke zavody (CEZ), chemical holding company Unipetrol, Transgas, Czech Telecom, Ceske Radiokomunikace, and even a portion of Prague's Ruzyne Airport. Questions have been raised as to why the hurry, particularly since the most recent series of comparably sized transactions took three-and-a-half years to complete. Jan Machacek argues that it cannot be due to a newfound love of neo-liberal economics on the part of Zeman and his cabinet. Nor is it for the simple purpose of raising money to cover fiscal deficits and provide the electorate some "goodies" before the election. The economic effects of these privatizations will not be felt until after the elections. He argues that the motives lie in the exercise of power:

"The ministers want to enjoy the power of this decision-making so some future government will not be able to. No one is 100 percent sure at the moment that any form of the current CSSD/ODS power bloc will survive the elections, so the thinking is, let's not leave the fruits of power for anyone who might succeed us.

"But what makes the opportunity to decide on sales and privatizations so attractive?

"Here's where things get really messy.... Opportunities abound for sponsorships to political parties, for getting some 'pocket money' for certain individuals. ODS and CSSD officially admit that the 'opposition agreement' extends to privatization deals. They know each other. They do not know who their new partners might be after the elections. Hence, the hurry" ("Prague Business Journal," 22 October 2001).

Machacek's predictions seem to have been confirmed by more recent developments. In keeping with its emerging practice, the government directly appointed advisers for the sales of the three utilities, CEZ, Unipetrol, and Transgas, rather than submitting the selection process to competitive bids. Given that each of these three privatizations are expected to be valued in the hundreds of billions of crowns, the total of these advisory contracts is expected to approach 1 billion crowns. The advisers chosen are reportedly the favorites of Minister of Industry and Trade Miroslav Gregr, the coordinator of the privatizations ("Prague Business Journal," 29 October 2001).

It appears the government may have also found its buyer for CEZ, although the bidding is supposedly still in process. Eyebrows have been raised over special care that has been given by the government to the French state energy firm, Electricite de France (EdF). Several meetings between the two parties, including a visit to Paris by five CSSD and ODS MPs, followed by a trip by Gregr, have raised concerns over favoritism among the other competing bidders. Both of these visits coincided with major modifications to the privatization terms that took other bidders quite by surprise. In January of this year, the government decided to abandon a public tender offer for the CEZ privatization in favor of a direct sale. In spite of the fact that EdF proposals have been disqualified in two previous rounds of the tender process, it is still in the running. Informed observers speculate that the government's public courting of other interested buyers, like German energy giant RWE, is merely a ploy to encourage EdF to raise its price and meet the government's terms for the sale ("Prague Business Journal," 4 February 2002). Interestingly, EdF's adviser is the Vienna-based European Privatization and Investment Corporation (EPIC), which is headed by Vladimir Motlik. EPIC is also the publisher of the Czech tabloid "Super," which is known to be friendly toward the ODS, possibly due to the fact that Motlik is a long-time friend and tennis partner of Vaclav Klaus ("Mlada fronta Dnes," 2 November 2001).

(The author lived and taught in the Czech Republic from 1997-2000 and is currently an MA candidate at the Johns Hopkins School of Advanced International Studies).

SOURCES The Economist Intelligence Unit, 2001, "Country Profile 2001: Czech Republic" (London: The Economist Intelligence Unit).



Karanycky, A., Motyl, A. and Schnetzer, A., (eds.), 2001, Nations In Transit 2001 (New Brunswick: Transaction Publishers for Freedom House, Inc.).



"Lidove noviny" (Prague), 1999-2000.



"Respekt" (Prague), 1999- 2001.



"Pravo" (Prague), 1999.



"Mlada fronta Dnes" (Prague), 1999-2001.



"Prague Business Journal" (Prague), 2001-2002.



"Transparency International," 1997, 2001.



" The Prague Post" (Prague), 2001.



Rhodes, M., 2000, "Czech Malaise and Europe," in "Problems of Post Communism," March/April, vol. 47, no. 2, pp. 57-67.



"TI Newsletter", 2001.