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CZECH REPUBLIC

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Area (sq.km) 
78,866

Population 
10,249,216 

Density 
(per sq.km) 
132.2

Capital 
Prague 

Currency 
Koruna 

President 
Vaclav Klaus

Private sector 
% of GDP 
80%

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CNN.COM ELECTION WATCH

Update No: 088 - (27/08/04)

New government forms
Stanislav Gross formed a new government on August 4th, as Czech Prime Minister. Europe's youngest leader inherits a one-seat majority in parliament that impeded legislation under his predecessor, Vladimir Spidla.
"The government continues to rely on a one-seat majority, and that is a danger which even the best coalition agreement in the world cannot do anything about,'' said Tomas Lebeda, a political analyst at the Institute of Sociology of the Czech Academy of Science in Prague. Gross replaced Spidla to defend his party's position as the second-strongest party ahead of the Communists, and he will probably use populist policy to achieve it,'' Lebeda said. "If he fails, he will face the same fate as Spidla.'' 
President Vaclav Klaus from the conservative wing of the country's political spectrum, swore in the cabinet of Gross, making the 34-year-old the fifth Czech premier since the 1993 split of Czechoslovakia. His challenges include winning a confidence vote on Aug. 24 and gaining parliament's approval for spending cuts necessary to adopt the euro by 2010. Klaus picked Gross, who is also the Social Democratic Party interim chairman and was interior minister in the last government, to lead talks on a new administration. 
"The approach of the government won't be just to survive until the end of the government term'' in 2006, Gross said at a ceremony at Prague Castle. "We want to work so that in the Czech Republic, sincerity pays off, rules are respected, and people do not fear the future.''
The Czech Republic, the second-largest of the 10 countries that joined the European Union in May, needs to reduce its budget deficit, which at 13% of GDP was the worst in the EU last year, to below 3 % and overhaul its pension and health-care systems in order to qualify for the euro. Gross's three-party coalition has pledged to reduce bureaucracy and cut some state spending to prepare for adoption of the euro. It also promised to boost support for families and small businesses. 

Spidla's Resignation 
Spidla resigned in June as prime minister and leader of the ruling Social Democratic Party amid pressure from party members after they won only two of 24 seats in June's European Parliament elections. 
He suffered defeats in parliament when not enough lawmakers attended, coalition legislators refused to support him or Klaus vetoed bills: plans to increase regulated rents failed in March, while a bill bringing value-added tax rules in line with EU requirements was vetoed and was only overridden when a lawmaker was flown in by helicopter from his sickbed. 

Same Parties 
The new government comprises the same three parties as the previous administration; the Social Democrats, the Christian Democratic Union-Czechoslovak People's Party and the Freedom Union- Democratic Union. Only six of the 18-member cabinet are new additions. 
"There was little reduction of old faces, but I believe that this team with the new Prime Minister will try to do something new,'' Klaus, 63, said at the ceremony. It was formed because "the public sent out a signal that it wants a change in governing of the country and I believe that these calls will be met.'' 
Not all deputies from the Social Democrats have pledged to support the government in the confidence vote because they oppose the appointment of some of the cabinet ministers or prefer a minority Social Democratic government with the silent support of the Communist Party of Bohemia and Moravia. 

2002 Victory 
Under Spidla, the Social Democrats won the 2002 elections by promising to increase social benefits, lower the retirement age and raise taxes on the wealthy. Instead, they increased excise and value-added taxes, cut sick pay and raised the retirement age to save about 200 billion koruna ($7.7 billion) from the state budget over the next three years. 
With his narrow majority and slumping support for the party among voters, Gross may be reluctant to cut welfare benefits and force people to pay more for health care in order to lower the budget deficit, Lebeda said. The coalition said Monday it will favor families with children by increasing housing subsidies and welfare payments for people on maternity or paternity leave. 
The European Commission, the EU's executive arm, on June 24 called on Poland, Hungary and the Czech Republic to work harder to cut their budget deficits and called the Czech efforts to cut spending ``not very ambitious.'' It estimated the Czech budget deficit for 2004 at 5.9 percent of GDP and predicted it would lag other countries such as Estonia and Slovenia, in adopting the euro. 
Gross is married with two children. Opposition politicians in the Civic Democratic Party have criticized his lack of international experience, including command of foreign languages.

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AUTOMOBILES

Skoda mulls Asian model launch

Czech carmaker Skoda Auto said it was contemplating the possibility of designing a car for the Asian market, Business Line reported recently. 
"It will take some time for the whole plan to take shape," marketing manager with Skoda Auto India Shashank Vaid told Business Line. Vaid said Skoda had a market study underway in Asia, which would help the management come round to a decision. He refused to disclose whether the company planned to manufacture the Asian car in India as well. "Still, customers will always be our top priority," India is no longer a market in itself. Business can step over borders, he said.

Skoda targets taxi market

Skoda is targeting the Singapore taxi market by offering a ready supply of a new generation of "green" cars, Deutsche Presse-Agentur (dpa) reported recently. 
The Volkswagen-owned brand, imported by Czech Auto, has a 2.5-litre Super model with a turbocharged V6 diesel engine that will meet stepped-up emission controls set to go into effect in October 2006, The Straits Times said. Taxis and commercial vehicles that meet the new standard, known as Euro 4, before the deadline will qualify for tax rebates.

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BANKING

Raiffeisenbank profit up

The Raiffeisenbank arm in the Czech Republic saw its net profit rise 167% year-on-year to 235m Czech crowns in the first half of 2004, bank spokesman, Cestmir Ondrusek, said recently, Interfax News Agency reported.
The bank's gross profit more than doubled to 300m crowns in the period under examination. Raiffeisenbank's net revenues rose 18% year-on-year to 618m crowns, with net fees and commissions soaring 44% to 257m crowns in the first half. The bank's total assets grew 16% to 69.5bn crowns in June 2004. Client deposits advanced 10% to 44bn Crowns. Loans rose one per cent year-on-year to 33.7bn crowns. The bank had over 122,000 clients at end-June, on an upward trend from 104,000 a year ago. Raiffeisenbank saw its net profit more than double year-on-year to 219m crowns last year. Raiffeisenbank is among the top six banks in the Czech Republic. The bank has over 1,000 employees in 46 branches actoss the country. In addition to banking services, Raiffeisenbank offers home-building savings, insurance and leasing.

CNB revises downward inflation forecast

New Europe has reported that the Czech Republic's central bank (CNB) in its latest forecast revised slightly downward inflation growth for June next year, by 0.2 points to 2.2-3.6%, against its April forecast, CNB governor, Zdenek Tuma, said recently.
The modest interest rate growth for the rest of the year and further growth in the following period is consistent with the forecast, Tuma said. Economists had expected the downward revision by the CNB, saying that the central bank will repeat the June rate hike by a quarter of a percentage point once or twice this year. The key two-week repo rate now stands at 2.25% and the CNB has not raised it so far.
As expected, the central bank left the interest rates unchanged, but against expectations it did not markedly cut the inflation forecast, CTK quoted Raiffeisenbank chief economist Ivo Nejdl as saying.
"We will certainly see one more interest rate hike (this year), by a quarter or half of a percentage point," he said. Against the previous forecast, CNB lowered gross domestic product (GDP) growth estimate this year by two tenths to 3.6-4.0%, while for next year it raised GDP growth forecast by three tenths to 3.5-4.9%.
In December 2005 Czech inflation should reach 2.3-3.7%, while in April the central bank said inflation would reach this level in September next year.
Tuma said the inflation forecast for this year was cut in particular, while for next year there are no fundamental changes.
Other financial institutions are predicting slower increases in consumer prices next year as well as lower GDP growth. The finance ministry counts on 2.8% of inflation, while the Organisation for Economic Cooperation and Development (OECD) is putting inflation at 2.5%.
The finance ministry said GDP growth this year will reach 3.1% and next year it will stand at 3.2%, with OECD predicting two tenths higher GDP surge in 2005. According to Tuma, cost pressures caused by import prices for example and also prices of oil and other commodities on world markets are posing threats to growth in inflation.

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BONDS

Ostrava and Eurobond issue

The northern Moravian city of Ostrava added €100m to its budget, after a successful bond issue on the London stock exchange on August 2nd, Radio Prague reported recently. 
It is the biggest loan the municipality has ever taken. Ostrava has 10 years to redeem the bonds. Initially, the municipality will use the money to repair and build motorways, as well as a new library, a retirement home and a sports hall.

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ENERGY

SCD nets 990m Czech crowns

Brown-coal mining company, Severoceske doly (SCD) posted a preliminary net profit of 993m Czech crowns in the first six months of 2004, down from 1.014bn in the same period last year, Interfax News Agency reported.
SCD's sales slumped to 3.8bn over January-June 2004 from 4.1bn in the same period of 2003. Operating profit decreased from 790m crowns to 763m. The company's total assets went up from 23.1bn crowns in June 2003 to 23.4bn crowns this year. SCD's own equity fell from 17.1bn in June 2003 to 15.8bn this year, after the mining company decided to pay a record dividend. The company will pay a record dividend of 235 crowns per share this year. A total of 2.1bn crowns will be paid out in dividends. SCD logged only 1.3bn crowns in last year's profit, so part of the profit had to be used to pay out dividends.

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INFORMATION TECHNOLOGY

Czechs pulling into information fast-lane

Digital television will arrive by the end of this year, followed by a secure Intranet linking all public agencies in 2005, and then Internet tax filing and other online services for citizens by 2006, Deutsche Presse-Agentur (dpa) reported recently. 
These are three of dozens of ambitious goals set by the Czech Republic's government in hopes of speeding the former communist country into the information fast-lane.
The goals were outlined in the "E-Czech 2006" policy document completed recently by the ministry of informatics, a cabinet-level agency created less than two years ago by former Prime Minister, Vladimir Spidla. The document's chief author, Informatics Minister, Vladimir Mlynar, said the government wants the country "to be the leader in communications and information technology in Central Europe."
Already nearly a third of the country's 10m people access the Internet at least once a month, Internet shopping is growing rapidly and mobile phone use has reached the saturation point.
But Czechs lag behind other Europeans in areas including school use of computers and home access to the Internet outside major cities. Only 20% of Czech households are linked to the Internet, the government says, compared with 40% in West Europe.
According to the policy document, the government wants to encourage balanced IT development as a way to close the "digital divide" that already separates large and small communities, governments and social agencies.
That divide is evident when, for example, one compares the high-tech information systems in Prague's hospitals with the outdated computers used in small city hospitals. The sophistication of IT systems also varies among federal government agencies. One step aimed at levelling IT access is to offer instruction in computer literacy. The goal, according to E-Czech, is for half the population as well as all managers in public administration offices to understand computer basics by 2006.
The government also wants to modernise the country's infrastructure with more high-speed Internet access and digital TV. Health services would be streamlined with, for example, electronic "smart cards" instead of citizen insurance cards and medical links to the rest of Europe. Eventually, if all goes as planned, Czechs would have access to most government information, application services and payment systems including taxes through their home computers. All large government purchases would be made through e-commerce systems by 2006.
Several hurdles remain. For example, a 2002 survey by the Czech Statistics Office found 67% of those citizens without Internet links don't think they need it, and more than 50% said it was too expensive. Mlynar's agency has been working with telecommunications companies, including the state-controlled utility Cesky Telecom, to reduce prices for services such as Internet access.

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TELECOMMUNICATIONS

CTU grants 3 digital TV licences

The Czech Telecommunications Office (CTU) has granted three DVB-T digital television broadcasting licences, the CTU announced on its web site. The state-owned landline operator Cesky Telcom (CT), second-largest telecom services provider on the Czech market Ceske radiokomunikace (CRa) and the Czech digital Group company have been granted licences. These companies, which have been testing the services for some time, say they are ready to start digital TV broadcasting in a few months. In the initial stage, CRa will cover Prague, Brno and Ostrava. CT will cover Prague, Brno, Ceske Budejovice Plzen, Karlovy Vary, Ustinad Labem, Liberec, Hradec Kralove, Pardubice and Olomouc. Experts estimate that traditional analogue broadcasting in the Czech Republic could wind down over 2010-2012.

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