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Czech Republic: Prime Minister Keeps Cool, Plays Down Economic Gloom

By Jolyon Naegele and Breffni O'Rourke

Czech Republic, Prague, 16 April 1997 (RFE/RL) - Czech Prime Minister Vaclav Klaus today announced a series of measures designed to stabilize the faltering economy of the Czech Republic.

But the prime minister used cool rhetoric at a press conference to avoid giving credence to what many analysts regard as the serious situation facing the country.

Klaus spoke soothingly of "corrections" which he said are designed to deal with "certain imbalances" in the economy. His comments come at a time when the country has a soaring trade deficit, a sinking currency, and is suffering from the aftermath of bank failures and a big embezzlement scandal.

The local and international media have referred widely to today's package of measures as a major climb-down by Klaus, who has alweays profiled himself as a laissez-faire economist with absolute belief in the market mechanism to regulate economic life.

Klaus sought to answer his critics by insisting the corrections do not represent a change in the government's views on the relationship between the citizen and the state, or the free market or state intervention.

He said "there is no major turnaround in this area".

Be that as it may, Klaus told journalists that the measures include slashing budget outlays by five percent, which would appear to be the equivalent of nearly $900 million. He says the austerity measures will have the effect of slowing down the imbalances and set the economy growing.

Klaus's coalition ally, the Civic Democratic Alliance chairman Michael Zantovsky, told reporters short-term steps agreed upon today will be painful but unavoidable, while long term changes are intended to revive the economy and as he put it "strengthen the rule of law."

Today's press conference was held to announce the agreement on the package between the three ruling coalition parties. The cabinet continues finalize the package of measures, which will be announced in full shortly.

Earlier today, it was reported that the government was expected to announce the introduction of a system of "import deposits" in a bid to stem the growing foreign trade deficit, which last year more than doubled to nearly $6 billion (160,000 million crowns) followed by a further 900 million dollar increase during the first two months of this year.

One of the three government coalition parties (ODA) so far has opposed import restrictions while Klaus and his party (ODS) have until now taken a restrained stand on restricting imports. But the other coalition partner, the Christian Democrats (KDU-CSL), and its chairman, Josef Lux, have been strong advocates of import restrictions. Lux, who is also Agriculture Minister, is under pressure from farmers to respond to the flood of cheap imported produce that has made Spanish oranges and Latin American bananas cheaper for Czechs than local apples, and Dutch potatoes cheaper than home-grown varieties.

The leading Czech economic daily "Hospodarske noviny" today reports that under the "import deposit" system, if approved today, importers of foodstuffs and consumer goods would have to make an interest-free six-month deposit at a predetermined bank equal to 20 percent of the value of the goods they want to import. Customs authorities would be required to bar entry into the country of any such goods lacking confirmation that a corresponding deposit had been made. While the move could reduce imports it could, if inadequately regulated, also offer windfall profits to importers who would pass the cost of the deposit on to the consumer and collect cash from the bank six months later.

"Hospodarske noviny" also reports that other measures slated for announcement include reducing the state budget by the equivalent of some $841 million (25,500 million crowns) by limiting the annual growth rate of wages and salaries in the state sector to seven percent. The move comes just days after the state-owned railways signed a contract with the trade unions for a 17 percent wage increase. Certain pension and disability payments are to be reduced for a further saving of some $109 million.

Government investments would generally be reduced by 20 percent ($254 million or 7,700 million crowns) except in transportation-infrastructure and defense, where cutbacks would total only eight percent. Non-investment government subsidies would be reduced by nine percent.

Klaus informed President Havel of the planned measures yesterday in Brussels. Havel told reporters he will support the measures and said he would be willing to explain them to the public. But Social Democratic opposition leader Milos Zeman later responded "the president is not an economist." Klaus also presented the package to EU officials including European Commission chairman Jacques Santer, and EU commissioners Leon Brittan, Martin Bangemann and Franz Fischler.

Czech National Bank governor Josef Tosovsky, facing a weakening Czech crown and resisting pressure to devalue, says the central bank will consider taking corrective action in monetary policy following.