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Czech National Bank

3.8bn bailout approved for health insurers; Cabinet approves public finance reform report and 22.5bn crown bond to pay the state's debt to the CNB; CNB governor notes shift to household consumption driving economy; PM says economy could reach 8pct growth rate by 2007; E&Y survey names Czech Republic 7th most attractive country for foreign investors; Transparency International says state overpaid by 32bn for contracts last year; Lawyers, notaries to report 'suspicious' deals to their chambers

3.8bn bailout approved for health insurers

Health minister Milada Emmerova, photo: CTK
The Cabinet this week approved a 3.8 billion crown bailout for health insurers, a step that health minister Milada Emmerova had called a prerequisite for overhauling the ailing health sector. The health ministry, meanwhile, will begin regulating the margins on drug sales; through this and other changes outlined this week, the government expects to save billions of crowns each year.

Cabinet approves public finance reform report...

Government ministers have also approved a public finance reform report drafted by the Finance Ministry, a main goal of which is to meet the requirements for joining the eurozone within four to five years. Finance Minister Bohuslav Sobotka said that the government had succeeded in reducing the public budget deficit last year to the European Union-agreed target of 3 percent of GDP. The government will now have to focus on trimming public spending, and reform of the pension system.

...and 22.5bn crown bond to pay the state's debt to the CNB

The Cabinet also approved a 22.5 billion crown bond for paying the state's debt to the Czech National Bank from the period of bank bailouts in the 1990s. Once this debt is repaid, the central bank will release some 16.5 billion crowns earned from the privatization of the fixed-line operator Cesky Telecom over the state.

CNB governor notes shift to household consumption driving economy

Meanwhile, the governor of the Czech National Bank, Zdenek Tuma, said this week that the structure of the growth of the Czech economy has changed significantly in the last couple of years. Household consumption has slowed as exports have become the driving force of growth, he said.

PM says economy could reach 8pct growth rate by 2007

In related news, Prime Minister Jiri Paroubek said the Czech economy could reach a stable growth rate of nearly 8 percent by the year 2007 and reach the EU average by 2013. To reach the EU level, the Czech Republic would need an average annual growth of 7.8 percent; several leading economists in the private sector said that growth would likely only reach half that rate. They said the Prime Minister's predictions of increased foreign direct investment and the dispersal of billions of crowns from the EU were unrealistic.

E&Y survey names Czech Republic 7th most attractive country for foreign investors

In other news, the international consultancy Ernst & Young has released a survey that names the Czech Republic as the seventh most-attractive country in the world for foreign investors. Ernst & Young said that investors are attracted to the Czech Republic due to affordable land prices, relatively low labour costs and the flexibility of labour laws. China, the United States. India, Poland, Germany and the U.K. came out ahead of the Czech Republic in the survey.

Transparency International says state overpaid by 32bn for contracts last year

The Czech branch of the anti-corruption watchdog group Transparency International, meanwhile, has said that non-transparent state contracts cost taxpayers 32 billion crowns in 2004 alone. Citing the government's failure to adopt strong conflicts of interest and public procurement laws, Transparency International said the outlook remained grim.

Lawyers, notaries to report 'suspicious' deals to their chambers

However, an amendment to the law on the legalisation of proceeds from criminal activities did pass this week; lawyers and notaries will now have to report suspicious deals to their professional chambers, in accordance with EU guidelines. Previously, these professionals were required to pass on such information to the financial and analytical department of the Finance Ministry.

Other news

In other news this week, four banks and financial consortia have been short-listed in a tender to finance the purchase of 12 new Airbus planes for the national carrier Czech Airlines; they are: Citibank and the consortia of Komercni banka and Societe Generale, ING and brokerage company Calyon, CSOB and BNP Paribas, and Natexis. Meanwhile, a law aimed at preventing tax evasion went into effect on July 1; it requires businesses to issues receipts for purchases over 50 crowns, which has small businesses up in arms over added expenses and paperwork; and Oskar Mobil has begun using the logo of its new owner, Vodafone, alongside its own; in a year's time the Oskar brand will be phased out completely.