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Czech Watch – 28 May 2001

28.5.2001 8:58

The former 4K leader, Cyril Svoboda, was elected new party chairman at a KDU-CSL conference on Saturday. In the second round of the election, Svoboda beat his predecessor, Jan Kasal, by 17 votes (Svoboda won 162 votes Kasal received 145 votes). Svoboda was short of one vote to win already in the first round. Immediately after his victory, Svoboda offered cooperation to his party colleagues (including opponents). Under the party rules, amended by the delegates before the election, Svoboda's mandate is for two years. In other words, Svoboda will lead the party to the 2002 general election. Svoboda´s promotion to the top post in Christian Democracy is a chance to revitalize the 4K, a four-party grouping where KDU-CSL is the strongest partner and which enjoys considerable popular support despite internal tensions and inability to formulate a convincing political program.

The Lower Chamber surprisingly prolonged the existence of duty- and tax-free shops in the Czech Republic until 2003. As late as on April 3, the Chamber of Deputies supported a different version of the amendment, limiting the existence of the shops till the end of 2001. The amendment passed on Friday still needs to be endorsed by the Senate and then signed by the President. The survival of duty- and tax-free shops till the end of 2003 was criticized by former Finance Minister Pavel Mertlik, who claimed that such a move could complicate the Czech Republic's accession to the European Union on January 1, 2003. Foreign Minister Jan Kavan reemphasized the danger last weekend. The chairman of the deputies' club of CSSD, Bohuslav Sobotka, told CTK that the extension would be a burden namely for Czech international relations with Austria and Germany. Czech companies run some 18 duty-free shops on the borders with the two countries. Last year these shops and adjacent facilities employed more than 2000 people and produced CZK 7.5bn in revenues.

Shares of the largest Czech construction company (with revenues amounting to CZK 14.3bn in 2000), IPS, will be unlisted from the Czech official stock markets (Prague Stock Exchange and RM Systém). Unlisting the shares was an aim pursued by IPS's majority owner Skanska. The former majority owner of the company, Stredoevropska stavebni, made the first public offer for a buyout of IPS shares as early as in May 2000. Shortly afterwards, Stredoevropska stavebni sold the majority to Skanska which also took over the buyout. In May this year, Skanska raised its share in voting rights in IPS above 95 %.

The tender concerning delivery of new supersonic fighters worth about USD 2.5bn will continue despite a severe shrinking of the group of bidders. The defense ministry said on Thursday that any changes to the tender would have to be discussed by the cabinet. But Deputy Prime Minister Vladimir Spidla confirmed the cabinet’s stance on Friday. "The tender is declared, the rules are set, so it will continue according to the rules," Spidla told Reuters. Bids are due by May 31, and the government plans to review offers by the end of September. The tender has been frequently criticized due to lack of transparency, non-standard procedures and heavy lobbying. Opposition asked the government to cancel the tender after four out of five competitors left the race.

The Czech crown experienced sluggish trading in low volumes on Friday. Late on the day, the crown slightly strengthened against the euro to 34.28/33 CZK/EUR from 34.34/39 late on Thursday. The crown/dollar also changed negligibly, to 39.98/02 CZK/USD from 40.07/12 late Thursday. The market does not expect any strong impulses to appear this week.

Czech long-end government bond prices fell on Friday after an auction of CZK 4bn of State 6.95/16 was surprisingly undersubscribed. Investors bid for only CZK 3.6bn, with average yield 6.63 %. When the auction results were announced, investors started selling massively. The 6.95/16 lost 115bps to 102.10/40, yielding 6.71/68 %. The state 6.75/05 fell 20 points to 103.70/00, yielding 5.61/52 %. EIB 6,5/15 lost the record 120bps. Some traders believe that negative sentiment will prevail in the market also in the first days of this week.

late May 25 bond yield late May 24
State 6.75/05103.70/005.61/52103.90/20
State 6.95/16102.10/406.71/68103.25/55

(Martin Kupka)

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