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Czech Republic: Uneasy Political Calm Ends Dramatically

Prague, 1 December 1997 (RFE/RL) -- Months of uneasy political calm in the Czech Republic have ended dramatically with the resignation of Prime Minister Vaclav Klaus and his coalition government.

Klaus stepped down early Sunday morning amid allegations that his Civic Democratic Party, the ODS, improperly accepted more than $200,000 in financial donations, which could have influenced privatization decisions.

The sudden fall of Klaus's long-troubled three-party coalition had an immediate impact on the financial markets as they reopened for trading today. The Czech koruna dropped sharply against the Deutschmark, and analysts say they expect further losses during the week. The currency was already weakened in past days as it became clear that the strains inside the government were reaching breaking point. Similarly the Prague Stock market suffered heavy losses at start of trading.

The fall of Klaus, who is seen as the architect of his country's transition to free enterprise, was precipitated from within the ODS itself. Two senior members, finance minister Ivan Pilip and former interior minister Jan Ruml, chose a moment when Klaus was absent from Prague to demand his resignation. That unleashed long-simmering tensions, with supporters of Klaus accusing Ruml and Pilip of plotting the leader's overthrow. President Vaclav Havel then called for Klaus to resign, saying the donation scandal was the straw which broke the camel's back. Havel, ever the intellectual, said that in any case the Klaus government had exhausted its conceptual potential. He was referring to the political and economic lethargy into which the Czech Republic has sunk following the crisis of confidence in the koruna last May.

Previous to that, the country had been regarded as a model among the transition economies, in that Klaus appeared to be successfully implementing clear policies of sweeping economic restructuring. Progress was good, and it looked as though Klaus would be able to re-animate the grand tradition of Czech private enterprise without the country having to go through the pain common in other transition economies. But Klaus failed to realize the importance of creating a proper regulatory framework to govern the new game. This eventually opened the way for widespread corruption and mismanagement, privatization of big enterprises lost momentum, and foreign investment dried up. Analysts say that since May, the Klaus government has been living on borrowed time.

The leftist opposition Social Democrats (CSSD), who are riding high in public opinion polls, have now called for new elections. But Havel has resisted this call, noting that he is not bound to call elections until other avenues have been exhausted. He said the country has come to a virtual standstill as it is, and elections would hold it frozen for another six months.

So the partners in the ruling coalition -- the ODS, the Civic Democratic Alliance (ODA) and the Christian Democrats have agreed with Havel that the present government will remain in power temporarily until the ODS holds a special congress to sort out its internal troubles, starting on December 13.

The congress is the key event which will determine whether the coalition partners can continue their cohabitation, or whether they have to leave the stage clear for early elections -- which would likely open the way for the CSSD to lead a new government, possibly in coalition with the Christian Democrats.

Christian Democrat leader Josef Lux has already said that if the ODS congress re-elects Klaus as party chairman, new elections seem the only way out of the crisis. Klaus has already signaled that he might stand for re-election as party chairman, although he says he will not be a member of the next government.

Klaus has also said that the main job of the temporary government now is to avoid economic chaos. All the major parties -- government and opposition -- have agreed that the current uncertainty must not be allowed to undermine the Czech efforts to enter the European Union and NATO alliance.

The crisis has already had an impact on the privatization process however. The coalition says privatization will continue on track, but Finance Minister Ivan Pilip has announced that several privatization decisions will be reviewed in the light of the allegations of undue influence within the ODS on the privatization process.

The CSSD has called for a complete halt to privatization until a new government takes over. Should the CSSD come to power in elections, economic analysts say no dramatic reversals of present policies should be expected. However, they worry that a leftist-oriented government would probably run a bigger budget deficit, and soften the fight against inflation. The CSSD, which has accused the present center-right coalition of starving the state sector, would also be less likely to push hard on privatization.

However, whatever government comes to power, it would be wrong to consider the fall of Klaus as a cataclysm for the Czech Republic. As Havel said, the present government's resignation creates scope for his countrymen to think about a different government, one with renewed energy and dynamism.