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Czech Watch – 19 April 2001

19.4.2001 8:45

The government decided at its meeting on Wednesday that CZK 11bn, by which it had surpassed last year’s approved state budget deficit, will be covered with additional revenues for 2001. The Chamber of Deputies did not pass a proposal to cover the gap with a state bond issue. After the cabinet meeting, Finance Minister Rusnok told journalists that no cuts in budget expenditures are planned this year. Additional budget revenues are to be acquired through the taxing of extraordinary income of České radiokomunikace, better tax collection and unblocking of foreign debts to the Czech Republic. On Tuesday, Deputy Finance Minister for budget issues Eduard Janota admitted that this year's budget revenues could be by CZK 10bn-15bn lower compared to the plan due to a less efficient tax collection and a lower-than-expected income from the sale of UMTS licenses.

The government has asked the Constitutional Court to rule on whether the premier should have co-signed with the president the decision to appoint Zdeněk Tůma Governor of the Czech National Bank (ČNB) last year. Originally the government had asked the Constitutional Court to rule on whether it was necessary for the premier to sign the decision to appoint the CNB governor and deputy governor. The Constitutional Court however rejected the request last week saying that it could only rule on particular cases. The issue is sensitive because legal clarification needed with respect to the future should not cast doubt on all the appointments of CNB governors in the country's history.

If parliamentary elections took place in April, Quad Coalition would win most seats in the Chamber of Deputies. According to a CVVM survey, the sum of election preferences for 4K and its member parties amounted to 23 %. A bad news for KDU-ČSL, Unie svobody, ODA and DEU can be a loss of 2 percentage points compared to March results of the regular survey. The support for ODS dipped from 20 to 19 %. ČSSD gained 2 percentage points and their election preferences rose to 18 %.

Continental of Germany said on Wednesday that it would invest CZK 2bn in one of its Czech subsidiaries, brake factory Continental Teves. Hannover-based Continental wants to build an assembly line that will add 670 jobs to its Czech unit, which now employs 900. The investment will make the plant one of Europe's biggest brake system producers. Continental received investment incentives in the form of a five-year partial corporate tax break, and it was freed from paying import duty on machinery.

A surprise 50bps rate cut by the U.S. Fed boosted the Czech crown to a three-week high late on Wednesday. After the Fed's rate cut announcement appeared, CZK jumped to 34.25 from 34.31 to the euro, before falling back to 34.30/33 late in the afternoon. Late on Wednesday, the crown was at 34.32/34 from 34.43/46 late Tuesday. CZK firmed against USD to 38.77/80 from 39.02/05. Dealers expect a nervous market on Thursday and say the crown should continue to copy USD/EUR development since no relevant economic figure is to be released soon. - The longest state 6.95/16 bond fell 35 basis points to 104.95/25, yielding 6.42/39 %. The state 6.75/05 was flat at 104.30/60, yielding 5.46/38 %.

late April 18 bond yield late April 17
State 6.75/05104.30/605.46/38104.30/60
State 6.95/16104.95/256.42/39105.30/60

(Martin Kupka)

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