Czech Watch – 31 May 2001

- President Havel appointed Trade and Industry Minister Miroslav Gregr deputy Prime Minister after some hesitation. Premier Milos Zeman asked Havel to appoint Gregr deputy premier as early as on May 3. The Czech Constitution does not allow the president to refuse appointment of a candidate for a deputy premier proposed by the premier. Gregr replaced as a deputy premier Pavel Mertlik, the former finance minister, who recently resigned from the cabinet.

- Finance Minister Jiri Rusnok sacked Miloslav Hejnak, deputy minister for price policy, and replaced him with Jaroslav Sulc, previously at the Association of Pension Funds. Sulc will be in charge of price policy, state supervision in the insurance and private pension schemes segments, financial markets and banking, and state supervision over lotteries. Hejnak is the third deputy minister that had to leave his post after ex-Finance Minister Pavel Mertlik stepped down in April. In addition, two weeks ago, Rusnok removed Ladislav Reznicek from the post of CEO in Konsolidacni banka (KoB).

- The cabinet agreed to cut the narrowly defined central state budget deficit to CZK 10bn in 2002 from CZK 20bn scheduled for 2001. Prime Minister Zeman told a news conference that the government agreed to stick to the political contract with the ODS, in which a maximum deficit amounting to CZK 10bn is a price to be paid for keeping the cabinet in power until the next election. Zeman justified the planned budget improvement by accelerating economic growth and the higher tax receipt owing to increasing profits of companies.

- TheCzech army plans to save up to hundreds of millions of crowns through selling redundant real estate. As from end-March the Defense Ministry has transferred or sold 749 buildings at a book value of more than CZK 10bn. Another 744 real estate items with a book value of almost CZK 13bn should follow soon. The Defense Minister Tvrdik claims that "The fundamental effect is not the revenue from the real estate sale, but mainly from what we will save if we do not have to look after the buildings, to warm them up and to guard them". The money lost in this way is missing in the effort to fulfil Czech commitments within NATO. The failure to meet these commitments was criticized by NATO Secretary General George Robertson in February. According to Tvrdik, part of money received through the redundant property sales will be transferred to the Defence Ministry's budget.

- TheCzech crown was trading at 34.13/16 to the euro late on Wednesday from 34.15/21 late Tuesday. The crown/dollar firmed to 39.79/82 from 39.96/98 late Tuesday. Dealers believe that upcoming government decision on the privatization of Komercni Banka and the sale of Ceske Radiokomunikace could make the crown stronger. A senior Finance Ministry official said on Wednesday that the government expects to reach an agreement on selling its 51 % stake in Radiokomunikace within days. As to the CNB´s monthly policy meeting schedulled for Thursday, analysts think that the central bank is likely to keep interest rates unchanged.

- Bonds recovered further after heavy losses suffered on Friday. The 6.95/16 bond gained 40 basis points from late Tuesday, to 101.55/85, yielding 6.77/74 %. The state 6.75/05 was up 6 basis points to 103.36/66, yielding 5.71/62 %. Dealers said that Zeman´s announcement of planned budget deficit reduction in 2002 could affect long end bond prices. The CNB said that it would hold a Dutch-style auction of 26-week treasury bills on Thursday, with limit yield set at 5.04 % and in volume of CZK 8bn. Yield in the previous auction of 26-week bills on April 5 was 4.86 %.

	late May 30	bond yield	late May 29
CZK/EUR	34.13/16	-	34.15/21
CZK/USD	39.79/82	-	39.96/98
State 6.75/05	103.36/66	5.71/62	103.30/60
State 6.95/16	101.55/85	6.77/74	101.15/45

Martin Kupka