19-12-2002

Bill on 2003 State Budget Deficit Passed

This week the lower house passed a bill on the 2003 state budget with a deficit amounting to over 111.3 billion Czech crowns or 3.7 billion EURO, the highest budget deficit in Czech history. The vote was close, with the bill passing by only four votes. Freedom Union MP, Hana Marvanova, who voted against the government proposed tax reforms package in September, which were designed to pay for damages caused by August's floods, abstained from the vote. The approved budget expects expenditures amounting to 795 billion crowns and revenues totalling 684 billion crowns.

Finance Minister Details Budget Reform Plan

In a related story, Finance Minister Bohuslav Sobotka, says that the reform of public finances is essential to preserve a functioning welfare state. Sobotka proposed a batch of measures, including increased taxes, especially on Internet and telecom services, stricter criteria for payment of benefits, and lower state support for building society saving schemes. The finance minister has prepared two scenarios; in one the deficit would be reduced to 71 billion crowns by 2006, which is 3.7% of GDP, and in the less radical version to 106 billion crowns, or 4.9% of GDP.

Public Sector Salaries To Rise In New Year

Base salaries in the state sector will rise by an average of 8.2% on January 1st of the new year. The increase will be about 7% on average. However, some categories will get more, such as teachers, around 10%, and health sector workers, around 17%. The government is also increasing the salaries of Czech soldiers serving abroad from 3,000 to 4,000 US dollars a month.

Two Japanese companies to build manufacturing plant in Plzen

The city of Plzen, in Western Bohemia, has approved the sale of land to Japanese companies Koyo Steering Systems Czech and Fuji Koyo Czech, which jointly plan to invest around one billion Czech crowns or 300 million EURO in constructing two production halls at the Borska Field Industrial Park to produce hydraulic-electrical systems for cars.

Seven former IPB bank executives charged with abuse of confidence

Police brought charges against seven executives of the IPB bank management in connection with issuing bonds in April 1998. The Czech National Bank placed IPB under forced administration on June 19, 2000 and the bank was sold to the CSOB three days later. The problem is that the bonds were issued by the bank itself, meaning that it actually lent money to itself but said it was foreign capital.

European Union Will Protect Budejovice Beer Designations

The European Union has recognised the name for beer brewed in the city of Ceske Budejovice or Budweis in German - Budejovicke pivo and Ceskobudejovicke pivo. However, the EU has not recognised the German-based designation Budweiser. Court battles around the world continue to be fought between the Czech brewery in Ceske Budjovice and the American giant Anheuser-Busch in St. Louis USA over use the Budwierser name. The EU also refused a range of other requests from Czech producers, including Karlsbad wafers and Olomouc stinky cheeses.

Retail revenue growth slows down in October

Retail revenues in October grew by only 1.4% year on year, compared to an almost 7% increase in September, according to figures published by the Czech Statistical Office. Compared to the 2002 average, October growth fell by 1.5%, mainly due to a drop in sales of automobiles by 3.7%. A favourable trend was recorded in sales of groceries, pharmaceuticals, footwear and clothing.

Czech and Slovak economies before and after the dissolution of the common state

As the tenth anniversary of break-up of Czechoslovakia approaches in this weeks economics report we take a look at both the Czech and Slovak at economies.

Historically their has been discrepancies in economic development between the Czech lands and Slovakia. These discrepancies were due, to a large extent, on the position each nation held in the Austro-Hungarian empire. Under Austrian rule the Czech lands were industrialised, giving this part of Czechoslovakia a principal advantage when the country was created in 1918. Slovakia, on the other hand, was not industrialised under Hungarian rule and remained a largely agrarian economy. 1921 figures indicate that 61 percent of the working population of Slovakia worked in agriculture and forestry, similarity, 40 percent of the Czech workforce was employed in manufacturing, construction, crafts, where only 17 percent of the Slovak workforce was located in this sector.

After World War II and the on-set of communism major attempts were made by communist planners to industrialise the Slovak economy in order to decrease the level of economic disparities that existed between the two peoples of Czechoslovakia. Beginning with the two year plan Slovakia developed its economy and created economic convergence with the Czech lands. From 1948 to 1989 employment in Slovakia grew by 68 percent, while in the Czech lands only by 35 percent. The structure of employment also changed during this time. The number of jobs in agriculture declined from 60 to 12 percent, while in industry it rose from 15 to 33 percent.

By 1989 and the fall of the communist regime disparities in regards to economic development were almost eradicated in Czechoslovakia. But now a new challenge faced the Czechoslovak economy, the transformation from a centrally planned economy to that of a market based one. This proved to be a demanding task, and perhaps more significantly, it negatively effected the Slovak economy visa-vi the Czech economy. I spoke with Petr Dufek who is the director of macroeconomic research at the Czechoslovak Business Bank who focuses on both the Czech and Slovak economies. I asked him first if the transformation process was carried out differently in Slovakia then it was in the Czech Republic:

"Yes of course, after the split of Czechoslovakia the transformation in the Slovak republic was much slower. The previous governments preferred non-transparent privatisation, delayed and unpopular measures in the economy, and usually preferred Slovak investors over foreign companies. Therefor, Slovakia was absolutely unpopular for foreign investors, and we can still only find some big international companies. Compared to the Czech Republic there is only a small percentage of foreign companies in the Slovak republic."

Did Slovakia have any major problems in transforming its economy to the free market?

"A lot of problems were the same as they were in the Czech Republic. Moreover, Slovakia usually a problem with the current account deficit. Its connected with the structural changes and the structure of the economy as a whole. Usually when domestic demand in the Slovak republic grows to fast they have a problem with the current account deficit which is more then 5%of GDP, its typical for a small and open economy like Slovakia."

Why is the unemployment rate so high in Slovakia?

"Slovakia together with Poland have a big problem with unemployment. Its a long term structural problem of Slovakia because during the communist era Slovakia was oriented towards heavy industry, producing weapons especially. And after the velvet revolution a lot of companies were closed-down in Slovakia and a lot of people lost there jobs. Moreover, unemployment is a regional problem in Slovakia. We can see a very low unemployment rate in Bratislava against 30-35% unemployment rate in the middle and Eastern parts of the country. So its also connected with the low presence of foreign investors, with the slowdown in the restructuring of companies, with non-transparent privatisation, and so on."

I also asked Mr. Dufek how inter-related the economies are today, seeing that they were the essentially joined for more then 70 years.

"More different then 5 years ago for example. Now Germany is the most important partner for the Czech Republic as well as for Slovakia. Some years ago Slovakia was a very important trade partner for us and we were a very important trade partner for Slovakia. Now for example, the share of Slovak imports in the Czech Republic is around 5%. So that's comparable with the share of Italy, France, or other countries. Now we are more dependent on the development of Germany than the Slovak republic."

How do you see the future of Czech-Slovak trade?

"I am not sure if we can expect any big changes in our trade, Slovakia is now for us only one of the other trade partners. We are more dependent on Germany now and therefor I think we can not expect any huge changes. Maybe some Czech companies can invest in Slovakia because now Slovakia is more attractive country because of investment incentives, because of expected entry to the European Union, and because of present radical changes in the economy. So maybe Czech investor can be more present on the Slovak market."

19-12-2002