Central bank says misleading reports in the foreign press are harming the Czech economy

25-02-2009

Several respected newspapers and magazines such as The Economist and the Financial Times have in recent weeks reported on the severe economic problems facing Eastern Europe without properly distinguishing between the region’s individual states. The Czech National bank on Tuesday voiced strong objections to what it described as “misleading and inaccurate” coverage of the state of the Czech Republic’s economy by the foreign media; coverage they say is harming the country.

Prime Minister Mirek Topolánek jokingly told reporters on Friday that the Czech Republic might end up needing EU bail-out if analysts and journalists keep lumping it together with other eastern European countries, regardless of the actual differences in their economies. The Czech National Bank has taken the matter more seriously. In an unprecedented move, the central bank on Tuesday voiced objections to “misleading and inaccurate” information on the country’s economy recently published by some foreign media. Mojmír Hampl is a vice-governor of the Czech National Bank.

“We have been frustrated by the fact that even prestigious journalists and newspapers, such as the Financial Times and the Economist published incorrect and misleading information about the Czech banking sector.”

The British Financial Times reported last week that the Czech foreign debt amounted to 192 billion US dollars, basing the figure on loans allegedly provided to Czech banks by their foreign owners. Another story, which appeared in the prestigious UK weekly The Economist on Saturday, labelled the Czech Republic as one the countries whose households were “in agony” over mortgages in euros and Swiss francs. Mojmír Hampl says that while the latter story is a generalization of one or two countries’ specific problems for the whole region, the report on the Czech foreign debt was based on a wrong interpretation of the situation in the country’s banking sector.

“We have been trying to explain that what has been described as foreign banks lending to the Czech financial sector is just a balance sheet of the Czech banking sector, in Czech crowns, and Czech banks’ loans to Czech households and companies. We wanted to stress that this information was completely misleading and might have also misled investors.”

But not all the foreign press sees the region spreading from the Czech Republic to Ukraine, as a monolithic “East European” bloc which shares the same problems. The New York Times ran a story on Tuesday entitled “A crisis is separating Eastern Europe’s strong from its weak”. Its author, and the paper’s Prague correspondent, Dan Bilefsky, says journalists tend to behave the same way as the financial markets they report on.

“I think that what’s happening at the moment is that foreign media as well as financial markets are not distinguishing between the relatively resilient economies, like the Czech Republic, and economies that are in serious trouble, such as Ukraine. So I think the Czech National Bank has a point that the media has to do perhaps a more nuanced job of distinguishing between how sick economies are. But at the same time, the Czech economy is undermined by the global economic crisis, and the media has a responsibility to report that.”

The central bank says both publications have acknowledged their mistakes and promised to publish the bank’s reservations. Mojmír Hampl says the bank does not attach too much importance to the issue, but then again, in view of the economic crisis, it feels the need to set the record straight.

“I don’t think that based on this article, everybody got to their screens and started selling. I don’t think it’s that straightforward. But it was one, just one piece of information that in the current context might have influenced at least some of those who don’t read those analyses and papers critically. So that’s why we felt it was necessary to react.”

25-02-2009