The Czech economy has suffered a lingering recession during the past two years, for example, GDP for 1998 dropped by 2,7% and unemployment is currently over 9%. Could you outline the reason for this and what is your economic forecast for this year?
The recession has been over since the second quarter of 1999, the economy is recovering and we expect it to continue to do so through 2000 .The Official annual forecast for this year is 1,5%, but personnaly think the growth may be better and expect it to be around 2%.
The main problems the economy was faced with before the recession were structural problems, and partly also financial problems (voucher privatization and other "policy mistakes" related to restitution as well as privatization; increase of crediting stock exchange trade)
In 1997 there was a big foreign trade and foreign account deficit and decrease of exchange rate. The so-called stabilization package had to fight the recession. The positive aspect was the change of the economic structure: exports with higher share, including. products, lower share of raw materials; we are not a country rich in materials. Nowadays, compared to 1997, the year of recession, the economic structure is apparently closer to the western one (European patterns). The recession was of course socially and economically a painful process but with positive results. We will continue in this policy of export promotion, investment promotion, and other activities which are aiming to go further into the restructuring process of the country.
The public deficit is expected to reach the level of 3,5% of GDP this year. What will be done to better the situation and pay the interest on this?
Our expectation is between 3,5 to 3,8%. There is quite a big difference between last year when it was 3% and now. It is because we are paying the bill for the past troubles. Then we have to face the necessity to continue and finish the privatization process and prepare the structural reform of the public finance system, particularly tax reform and pension system reform. This year we will be working on the legal background. The reform will be actualized in 2001.
Another train package is the administrative reform of this country. The regional division of the country is already prepared now and will start working next year. Many powers and responsibilities will be shifted down to regional level, including. financial support.
There have been difficulties passing the recent budget in parliament. We are already in February and the budget has only pasted the first reading. Why is this ?
The budget was approved in the first reading. It will go to parliament, and there should be three readings, the other two will take place during the first week of March.
It is quite sure, the budget will be approved in the second reading, because there are no political obstacles at this point . From the macroeconomic point of view it is the continuation of last year's policy. We tried to construct the budget as fiscally neutral, in terms of continuation of support of domestic demand, and decreasing public deficit.
You have mentioned the privatization. Concerning the privatization of the banks, it seems to be a very difficult process...
Our aim is to finish it by the end of the year. Now we are preparing the groundwork for the banks, because we know it is not possible to sell them in their current structure. Then we will send the information to the banks that have been reacting to our privatization advertisement. Hopefully in November the process of selection will be finished. Regarding Komercní Banka the situation is much better than with Ceská Sporitelna. After the restructuralization of the portfolio the bank will be more attractive. Ceská Sporitelna is a retail bank, while Komercní Banka is more internationally oriented.
Concerning the banking sector, when do you expect that banks will offer more services?
There is a strong development now in three areas. One of them is the development of foreign banks and their branches, in the last year they have reached 20% of the market in R. Generally those services (whole sale operations, corporate banking) are comparable to services in Germany or Austria. The weakest point is in retail banking and services.
The Czech Republic is one of the countries applying for EU membership. What are the upcoming prospects for coming year to meet the Maastricht and Copenhagen criteria; when do you think we can realistically expect the Czech Republic to join EU ?
The Copenhagen criteria are the most important for us. We believe that the main economic criteria is to be fully competitive and to take place in an open European market . The country will be able to fulfill and to survive under the pressure created by the common market. I believe that we have the potential to it. | Regarding the formal adaptation process of the law; it could last one year. The country has made major progress. In the beginning of 2003 there will be no more technical obstacles in those terms.
2003 is the official date. The European Commission is working on our integration according to this date. The Czech Republic has to be prepared economically, technically and legally by this date. l am quite confident about it will be.
What is your current relationship with the I.M.F. and the World Bank, especially considering the upcoming summit of IMF in Prague this summer?
We have very good relations. In relation to the World Bank (which is the highest responsibility of Ministry of Finance), we are planning assistance.
The preparation of annual meetings is smooth. There are thousands of small problems on the way, but we are confident that everything will be prepared in at acceptable level. After Seattle one of the main aspect for us resides in the security.
There is a project of supporting investment in Czech Republic. What kind of new incentives are planned to attract foreign investments in the country.
Czech parliament has approved new Investment Incentives Act which increases the possibility to support investors coming to the country. First of all we extended the existing five years tax vacations to ten years. It reduces the size of investment from 10 to 5 mill. USD. It also includes the number of jobs created. The Act is more flexible. In addition, we are trying to finance certain types of projects, like the preparation of the industrial zones. Other things remain the same: investors can get land or pre-invested land free or for little (symbolic) price, subsidies for retraining, tax-free import of high-tech equipment etc. We are also supporting the position of Czech Invest agency.
According to your opinion, what are the most attractive investment possibilities in present time?
There are two clusters growing rapidly, in the industrial area, automotive and electronics (and optical production), a lot of new investment in services, Reggie sector, retail etc. Besides the services it would be the industrial sector. There is quality labor force, we have good technical universities, skilled makers and technicians in various traditional engineering fields. For example the number of investors in the automotive industry during the past two years makes up about 10% of the new companies.
A personal issue, being such a young minister, which are the most pleasant issues you have discovered since becoming finance minister?
It is a difficult question, there are some bad things too - about the amount of work here, I was used to having plenty of free time.
l can tell you two pleasant things. I can really influence the decision process and from time to time it is successful. For example the privatization of Ceská sporitelna now. It was a difficult question. CS is a less attractive retail bank but we have finally found good investor, similarly oriented but much stronger retail bank from Austria. I believe this work was a success.
The second point concerns my education, I am an economist, so I can implement what I was previously only teaching about.
As a final issue, what would be your message to our readers?
I would like to stress once again, that Czech Republic is associated with EU with association agreement in most means with few exceptions like agricultural area. The treatment of the company in this country is identical as in EU. To invest in Czech Republic is a direct and open possibility to trade and operate in most European markets also and on the other hand we still have good contacts with the Eastern countries. |
