Accessibility links

Breaking News

Czech Republic: Tension Grows, Cabinet Faces Changes, Currency Under Attack

Prague, 21 May 1997 (RFE/RL) -- Political tension is rising in the Czech capital Prague today as the governing centre right cabinet faces a reshuffle sparked by the dramatic fall in value of the currency, the koruna.

Prime Minister Vaclav Klaus met deep into the night with his coalition partners in an attempt to decide on changes which can calm growing public concern.

Party leaders emerging from the meeting in the early hours of this morning would only say that they've agreed on the definite need for changes, but not on their extent. Klaus, in his usual understated way, spoke of a rotation of competencies rather than personnel changes. But sources say others want more than a mere swapping of seats, seeing the axe as the necessary implement in this case.

Looking over the shoulders of the politicians is an angry public, which has grown used to considering the Czech Republic a model of economic reform and progress among the countries converting from centralised planning. Recently, however, Czechs have had to face a less rosy reality, as the Klaus government has imposed a major austerity program in a bid to correct a rising budget deficit, low economic growth, increasing inflation and loss of foreign investor confidence.

A poll carried yesterday in the Prague daily "Mlada Fronta Dnes" indicates that an absolute majority of Czechs want ministerial changes. The paper quotes a noted sociologist as saying that the worst thing the government can do would be to try to carry on with the same composition.

The cabinet held a meeting in the course of today, and the coalition parties were reported to be holding separate deliberations among themselves on what line to take. A plenary meeting of the parties is expected tomorrow.

Whatever the changes, the relative strengths of the three parties in the cabinet are expected to remain the same: Klaus's Civic Democratic Party, ODS, has eight positions, and the Christian Democrats, KDU-CSL, chaired by Josef Lux and the Civic Democratic Alliance, ODA, chaired by Michael Zantovsky have four each.

One change reported possible is the move of present foreign minister Josef Zieleniec to the finance portfolio to replace Ivan Kocarnik. The same sources say that Zantovsky, a former Czech ambassador to the United States, would become foreign minister. Zantovsky, who is not a minister of the present government, yesterday sharply criticised ministers of the KDU-CSL.

Not only the domestic credibility of the government is at stake, the international financial world is watching the Czech fight to stave off an involuntary devaluation of the koruna. The currency in the last week has plunged by 8 percent to its lowest level in five years, and the Czech Central Bank reportedly has spent abou $1 billion to shore up the currency against speculators. It also raised inter-bank interest rates to new heights. Experts say neither this level of expenditure, nor such high interest rates, can be maintained. They say the Czechs themselves will have to take the initiative soon for a controlled devaluation, so as to avoid disorder and uncertainty as the currency plunges further due to speculative pressure.

A stable koruna has been one of the achievements of particular pride to premier Klaus, and although it has long been considered somewhat overvalued, the koruna's sudden and increasing vulnerability to speculators has come as a surprise to many financial analysts.

Massive sales of the koruna on foreign exchange markets are attributed to the increasing perception of disarray in the government, as well the lack of a clear policy from the Central Bank on interest rates, the country's faltering growth rate, and the background of banking and financial scandals which have rocked Prague.