Czech Watch - 5 March 2001

The lower house of the Czech parliament approved on Friday a law allowing the government to issue CZK 4.8 billion bond to raise funds for a debt payment to Germany. The Finance Ministry said the debt is payable in euro in two tranches by the end of June and end of September this year. The ministry declined to give details on how the money would be converted into euro. A conversion on the open market could knock the koruna currency or at least slow down its long-term strengthening trend, which would be in line with central bank wishes. The Czech central bank has in the past bought some foreign currency inflows into its reserves to avoid upward pressure on the koruna, which comes from foreign direct investment inflows. The bank warned last week it may intervene against the koruna's strength.

The Freedom Union was debating its role in the Four Party Coalition at a weekend conference in Hradec Kralove. The meeting has dashed hopes of the coalition integrating into a single right wing party at some future date and brought out into the open fresh controversy between the Freedom Union and the Christian Democratic Party over the division of power within the alliance.

The Czech authorities have taken action to prevent the spread of foot and mouth disease to the Czech Republic. Border crossing points and all airports have been ordered to effect tight security checks. Any food products confiscated from passengers as well as food leftovers from incoming flights from Great Britain and Northern Ireland are to be collected and eliminated.

The Czech koruna slipped to five-week lows against the euro on Friday as the European currency soared against the dollar and the yen. The koruna was quoted at 34.87/90 to the European single currency in late afternoon from 34.69/72 at the open and the same late on Thursday. The currency was at 37.25/28 to the dollar from the morning's 37.26/30 and similar levels late on Thursday.

Bonds continued to weaken. The longest state 6.95/16 bond down 15 points to 105.90/20, yielding 6.32/29 percent. The state 6.75/05 down five points to 103.80/10, yielding 5.65/56 percent. Long and medium term bonds have been going through a boom since late November but now dealers say that falling yields and the prospect of the government releasing CZK 58 billion worth of debt onto the market this year may cause prices to fall.

(David Marek)