While in local politics may slow down public reform, indications are that such troubles are having no visible effects on the economy, which stood the tests of similar instability in recent years.

The Czech Republic has made long strides and is among the strongest and more stabile economies among the new EU members. Following the systemic changes, an even more radical economic transition period began in the Czech Republic than in Hungary, which included stabilization of the currency rate and a sweeping privatization program.

“The strategy was to make the privatization as quick as it possible, and while this was positive, in practice it was not working,” says Ladislav Lukács, commercial councilor of the Czech Republic Embassy in Budapest. “Privatization was the tool of the economic transformation, but the legislation could not keep pace with the changes.”

INVESTOR CONFIDENCE
London-based weekly, The Economist, asked the heads of some 300 multinational companies to name which country they would move their firm’s regional center to among the new EU entrants – and over 40 percent chose Prague, behind Budapest or Warsaw. Not only are European multinational companies looking to the Czech Republic, but Asian firms also see the country as an important investment target. Recently, several large Asian electronic firms moved their European producing centers to the Czech Republic, from Western European nations. The appeal of the Czech is not only limited to cheap manpower, but to its geographical closeness to Western Europe, according to the Financial Times. According to data from Jetro Japan Commercial and Investor Agency, Japanese companies have already invested USD 2 billion into the Czech economy, creating jobs for some 23,000 people. In addition, the Czech Republic is negotiating with another 25 Japanese companies about possible future investments. At the same time Jetro also points out that that Hungary, Poland, and Slovakia are getting stronger as rivals.

Delays in bank privatization

Toward the end of the 1990s, delays in bank privatizations and the lack of companies’ ability to attract international capital caused a crisis in the Czech economy.

“A too great amount of money went in private hands, in too little time,” says Lukács. “The new owners did not end up being effective owners: they saw only their own interests, and as a result many companies went bankrupt, and the state-owned banks did not get back their money,” he says, explaining the background behind the economic crisis which reached its peak in 1997.

The other aspect of privatization was a strategy by the former, conservative euro-skeptic Prime Minister Vaclav Klaus to keep out foreign investors. Analysts say this fostered the development of a non-market oriented approach to privatization.

Following Klaus’ resignation on allegations of misleading Parliament, the transition government Prime Minister Josef Tosovsky came into power to initiate austerity measures, which speeded up privatization, initiated an eventual bank privatization that created the environment for a market-oriented economic strategy.

INTERNATIONAL
FILM FESTIVAL
The Czech film industry is one of the strongest in Eastern and Central Europe, with highly developed film studios and a solidinternational reputation of Czech directors. The Karlovy Vary Film Festival, the oldest in the region, makes the Czech film industry even more important – as the festival is regarded as the most important international competition screening in Eastern Europe. This year, the 39th festival took place June 25-July 12. The festival was founded in 1946 in the town of Karlovy Vary, about 55 miles west of Prague on the Czech-German border, an area celebrated for its curative springs under its German name “Carlsbad” during the late 18th and early 19th centuries. While the festival had been organized by the state until 1992, it gained independence with the newly established Karlovy Vary Film Festival. Festival programs try to showcase top quality films filmed across the globe. Films are categorized into thematic sections so visitors can view collections of new works from former “Eastern bloc” countries, included in a special section” “East of the West.” A second category, “Another View,” is comprised of experimental films, films from lesser known film industries and those featuring unusual filmmaking and production approaches. The “Forum of Independents” category contains discoveries from independent productions in the US and other countries – features, documentaries and certain short feature films.

Positive indicators

In recent years, the Czech economy became more dynamic, and the country acceded the EU with positive economic indicators: both inflation and interest rates have remained low and observers credit the Czech Republic as one of the most attractive places region-wide for international investment. Thanks to huge sums of foreign investment, the country enjoys a positive balance-of-payments. At the same time, while internal political instability may slow down public reform, indications are that economic growth will remain stable.

The failure of Vladimir Spindla’s Social Democratic Party to garner enough support in the recent European Parliamentary elections, winning a mere two of 24 seats contested, resulted in ultimate failure of his government. After he narrowly survived a vote of confidence in late June, the embattled prime minister announced his resignation.

“If the newly elected government will not make major changes to the economic strategy, fiscal and monetary policies of the Czech Republic, then the failure of the government is will have little effect, and the government changes will simply result in a shift in the interior power relations,” says Gábor Tury, a Central and Eastern European researcher at the Hungarian Academy of Sciences.

Lukács points out that Czech public finances are in urgent need of reform. He says Spindla made the first steps, but public health and pension reform have yet to be completed, “and if we are not able to establish a new government quickly or make an early elections, these reform will still be pending,” he adds.

Klaus says EU was “huge mistake”

It is ironic that the party of euro-skeptic Vaclav Klaus ended up victors at EP elections – all the more magnified as the elections sent Czech’s internal political landscape into turmoil. While Klaus says he is happy for the success of his party, he also told the press that joining the EU “was a huge mistake.

“Klaus, who lead the economic policy, and as a prime minister, caused big problems in creating an open market economy in the Czech Republic,” says Tury. “At the same time, as the president he cannot be that strong a factor, or cause problem for an investment in an EU member country. His Euro skepticism only means a representation of a stronger national point of view, which is deeply in every Czech thinking,” he concludes.

According to Tury, Czech foreign policy is very firm and uniformed, and the position of negotiation consistent, drawing clear aims for the country’s desires. Determined to strengthen competitiveness and play catch-up to other EU countries as soon as it possible, the Czech Republic has its work cut out for it.

CZECH REPUBLIC BUYS
EUROPEAN
The Czech Republic signed a 10-year lease agreement for 14 supersonic Gripen fighter aircraft for a total value of the equivalent of EUR 623 million in June. Hungary similarly leased 14 Gripen aircraft in an off-set deal, initially signing an agreement in 2001. In service with the Swedish Air Force since 1997, Gripen will also equip the South African Air Force.

COUNTRY DATA
Area: 78,866 sq.km
Region: Central Europe
Border countries: Germany, Poland, Austria, Slovakia

Official language: Czech
Official currency
Czech Koruna (CZK), USD 1= CZK
26.30, EUR 1 = CZK 31.84
Population: 10.211 million

GDP Growth
The Czech Republic’s GDP growth is strong when compared to the EU-15 and the US. In 2002, GDP growth was 2 percent, while in 2003 it was 2.9 percent and is expected to be the same in 2004. The EU-15’s GDP growth in 2002 was 1 percent, while in 2003 it was 0.7 percent and expected to be 1.9 percent this year.

Inflation Rate
Inflation hit an amazing success rate in the past few years: in 2002 it was only 1.4 percent and in 2003 was -0.1 percent.

Unemployment Rate
Unemployment is high and was 7.3 percent in 2002 and 7.8 percent in 2003