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Czech Watch - 23 October 2000

23.10.2000 8:40
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The row over the 2001 budget continues, as nobody agrees what exactly was agreed by Messrs. Zeman and Klaus regarding the UMTS licenses. Interestingly, Mr. Klaus argues that the ODS forced the CSSD to cut budget deficit to half and that during his reign, the state budget was always balanced, ignoring imploding public budgets and overlooking the debt accumulated in various off-budget institutions. Economics it is feeble, but politics, it is superb.
Ministry of finance wants to tighten now rather generous subsidies for "construction accounts", the country's most popular saving vehicle. The Coalition of four (that wants lower taxes and lower deficits) wants the subsidy to double. What a consistency…
EU enlargement commissioner Verheugen expects 5-10 countries to enter the EU between 2003 and 2005. It is rather high number and remains to be seen whether Mr. Verheugen was serious enough or whether he just shoot at the sky.
The EBRD made its move and within weeks after the CNB Governor withdrew his candidacy, the Bank appointed the Polish Governor Hanna Gronkiewitz-Walts as a Vice-president. Ms. Gronkiewicz-Waltz earned high reputation for steering the Polish economy through rapid boom with reasonable inflation and zloty stability. She has also showed strong will and independence when the Polish central bank hiked interest rates early this year to prevent overheating of the Polish economy. A comparison of Polish central bank (less talk, more action) with the Czech central bank is interesting and may have been instrumental for the EBRD.
Meanwhile, the Czech koruna held to its new highs vis-a-vis the euro at 34.75 CZK/EUR. Against the dollar, the koruna is less impressing as it lost marginally to 41.50 CZK/USD. The koruna remains volatile, though, as its recent strength owns to an estimated CZK 20 bil. purchase of the Czech currency. Once this effect is over, the koruna is expected to weaken again, so nobody wants to be caught out in the wood.
Bonds fell again on Friday. Despite very good foreign trade figures, which actually sent the prices up by a fraction, prices ended much lower again. Sellers appeared very soon after the market opened and only used higher prices to sell more. IRS very not very active on Friday, so it is more bad sentiment of market that sends prices down more and more, as well as some stoploses.
Ministry of finance published government bonds issuance calender for 2001, schedule is pretty similar to this year's, with reopening auctions every month on MoF 6.90/03, 6.75/05, 6.30/07 and 6.40/10 until August, with new 3, 5, 7, and 10 benchmarks on schedule from September. The very new is 15-year government, first to be issued in mid-January, with 2 reopenings in 2001. T-bills bring higher volume as well. Such news cannot bring much bullish mood, in fact. We are only wondering how will the Ministry treat decreasing demand for bonds.
Current benchmark prices: MoF 6.75/05 99.00-30 (unchanged), MoF 6.30/07 94.40-70 (-15 bps), MoF 6.40/10 92.85-15 (-20 bps).

(Ondrej Schneider and Dalimil Vyskovsky)


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