IMF: Czech govt must cut spending now
An International Monetary Fund mission to the Czech Republic has criticised the Czech government's fiscal policy, as well as over-ambitious plans to boost the Czech industrial sector by massive investment. In its regular study, the IMF warns that besides the obvious long-term risks of widening fiscal deficits, expansionary fiscal policies in the short term increase vulnerability to external shocks and can represent a threat to macroeconomic stability. It specifically warns against increasing state expenditure by relying on revenue from uncertain sources, such as privatisation. The Fund therefore urges the Czech government to initiate structural reforms of public finances immediately.
Tax arrears threaten budget balance
The Finance Ministry has proposed state budget expenditure cuts as revenues fall behind expectations. Deputy Finance Minister Eduard Janota attributed the gap of 10 to 15 billion crowns to ineffective tax collection. The ministry proposes cuts in investment and current expenditures to cover the shortfall. Another way to compensate for the deficit would be to make Russia repay some of its outstanding debts to the Czech Republic.
New Finance Minister appointed
The Czech Republic has a new finance minister, the third in less than three years. Former Deputy Minister of Labour and Social Affairs, Jiri Rusnok, replaces Pavel Mertlik, who resigned last Tuesday. Mr Rusnok is now facing several tasks that his predecessor left behind, such as the privatisation of the remaining state-owned enterprises and complete reform of state budget expenditure. Mr Rusnok, like his predecessor, has spoken of the necessity of raising taxes, although not in the short term - not surprisingly, seeing there's a general election in just over a year.
Upon his appointment, Mr Rusnok said he would aim to cut the state budget deficit for 2002 to a minimum. The Social Democrat government has committed itself to a maximum 10 billion crown deficit in 2002, while this year, the deficit is planned to reach nearly 50 billion crowns. However, economic analysts are rather sceptical as to Mr Rusnok's ability to force austerity measures to rein in the ambitions of his big-spending cabinet colleagues.
The IT sector has been under recession with a number of dot.coms going out of business, hardware manufacturers facing drops in sales... The region of Central and Eastern Europe has so far been more or less insulated from the downturn due to its relative underdevelopment compared to the West. What can companies in Central and Eastern Europe do to avoid such a scenario? And how can the "traditional" and "new" economy work together? Mr Hakan Ramsin works for Provider IT, a Swedish venture capital company which is interested in developing partnerships in Central and Eastern Europe. Mr Ramsin recently visited Prague to attend an international conference on telecommunications, information technologies, new media and entertainment.
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