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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 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.
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
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.
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.
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
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.
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,
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.
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
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.
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.
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)
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
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
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.
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
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