03-05-2001

Coming up in Economics Report, we'll be taking a look at the Czech Republic's new Finance Minister, Jiri Rusnok, a few weeks into his new job, to find out what challenges he faces following the sudden resignation of his predecessor Pavel Mertlik. But first, here's a brief round up of the business stories making the headlines this week...

Finance minister outlines budget plans

Well Mr Rusnok has outlined two possible scenarios for next year's state budget. One counts on a deficit of ten billion Czech crowns, and the other on a 20-billion crown deficit. The outline budgets had already been drawn up by his predecessor, who resigned last month. More on that later...

Cesky Telecom's Q1 net profit falls from Kc1.63bn to Kc1.47bn

Cesky Telecom's net profit fell from 1.630 billion Czech crowns to 1.467 billion Czech crowns year-on-year, in pre-audit first quarter figures announced earlier this week. Investors were disappointed by the results, and Telecom's shares slumped by one percentage point from 367 crowns to 363 crowns on the Prague Stock Exchange immediately after the news was announced.

Government's EU negotiator warns of negative impact of transition periods

The Czech government's chief negotiator for European Union membership, Pavel Telicka, warned the EU this week not to underestimate the possible negative impact of calls by politicians in Western Europe for a temporary restriction on the free movement of labour following enlargement. Mr Telicka said the EU 15 ought to realise that talk of a transition period could have a negative effect on public opinion in candidate countries, and could be exploited by Euro-sceptic politicians.

Transgas transformed into joint-stock company

The Czech Republic's state-owned gas utility Transgas was carved up on Wednesday, part of the government's planned privatisation of the gas industry. Transgas was divided into a joint stock company, to be put up for sale, and a majority state-owned enterprise. The government's privatisation agency - the National Property Fund has selected Solomon Brothers International and Citibank as advisers for the sale, but the decision has gone to the anti-monopoly office at the request of one of the bidders.

More people choosing to travel by train

There was good news for Czech Railways this week, with new figures showing more and more people choosing to travel by train. First quarter figures showed an increase of 6 percent, and the head of the railways says the trend should continue. Czech Railways says it plans to increase the number of high quality services such as EuroCity and InterCity trains. Czech Railways also reported an increase in goods traffic, largely thanks to international container transport. Nonetheless total losses this year are expected to remain at billions of crowns.

What lies ahead for Finance Minister Jiri Rusnok?

Four weeks ago, life was relatively peaceful for Jiri Rusnok, in his job as deputy minister at the Ministry of Labour and Social Affairs. Then came April 10th, and the sudden resignation of Finance Minister Pavel Mertlik and within a few days Mr Rusnok had been appointed to replace him in what is widely regarded as one of the toughest, if not the toughest, posts in the Cabinet.

His predecessor, Pavel Mertlik, respected by the business community both at home and abroad, faced problems from day one in the post, in particular due to constant disputes and conflict with Trade and Industry Minister Gregr, forty years his senior and one of the major players in the Social Democrat government. When Mr Mertlik stepped down, he blamed his departure on a lack of support for his reforms, such as key privatisation projects, within the government.

Jiri Rusnok is, like his predecessor Pavel Mertlik, relatively young at the age of forty one, and, like Mertlik, is a graduate of the Prague School of Economics. Although few people in the Czech media or the general public know much about him, he has a reputation for being honest and professional and, most important;y, says commentator Vaclav Zak, he is not beholden to any faction within the ruling Social Democrats:

Analyst Jan Sykora of Wood & Company also has high hopes for the new finance minister, and he believes that what Mr Rusnok may lack in experience will be made up for with hard work and professionalism:

Mr Rusnok has been rather quiet since taking up his post less than a month ago. But in the past few days, he has indicated that there'll be no tax increases either this year or the next. Jan Sykora feels that a transition period before a new minister takes the helm is natural and that Mr Rusnok's statement promises continuity of his predecessor's reforms:

According to commentator Vaclav Zak, however, the new finance minister faces an uphill struggle, since Trade and Industry Miroslav Gregr, sometimes described as his predecessor's nemesis, has also been promoted to the post of deputy prime minister:

But Mr Rusnok may also benefit from the fact that many of the disputes between Mr Mertlik and other Cabinet ministers stemmed more from personal differences than anything else:

Time is indeed running out, as the Czechs are due to go the polls in parliamentary elections in June 2002. The Social Democrats have suffered from a long-term slump in the polls, and few experts believe that Mr Rusnok has a chance of remaining in office after the elections. Another problem is that his hands may well be tied on issues such as taxation, as any increases would require the approval of parliament, which is unlikely to happen before the elections:

But, says commentator Vaclav Zak, youthful energy and a lack of party affiliations may well stand in Jiri Rusnok's stead, and he may well make an effective finance minister:

03-05-2001