Business News

Foreign trade slows down, deficit grows

The Czech foreign trade deficit decreased in June year-on-year, although the deficit of 1.4 billion USD for the first six months of this year was higher compared to the same period in the year 2000. However, growth in both imports and exports continued to slow down in June. Economic analyst Petr Zahradnik from Conseq Investment Management is convinced that the development is due mainly to external factors. Matsushita to delay production in Czech Republic

Matsushita Communication Industrial, Japan's largest mobile handset maker, said on Wednesday it would delay launching handset production at its new plant in the Czech Republic until next year due to weak demand. The plant, which was originally due to begin handset production in the autumn, was built to serve the European market. The company said it would also review its current domestic production structure as part of an overhaul of global production, after posting a net loss earlier on Wednesday for the second quarter -- its first quarterly loss since the company was listed.

Cigarettes to cost the same throughout the country

As of September, cigarettes in the Czech Republic will cost the same in all retail outlets, and price tags are to be attached to the packs by the producer. On Tuesday, Finance Minister Jiri Rusnok approved a directive which changes the conditions for the retail sale of cigarettes and the consumer tax rates imposed on tobacco. Cigarettes without a price indicated on the pack by the producer can only be sold on the market until March 2002.

Radiokom privatisation postponed

The government has postponed a decision to sell its majority stake in the wireless operator Ceske Radiokomunikace. The main reason for the delay is that the privatisation steering committee has not issued a clear recommendation. In April this year, the cabinet declared that negotiations would be held exclusively with a consortium consisting of Deutsche Bank and Tele Danmark. Although the consortium increased its bid from 225 million USD to 300 USD in line with a demand from the Czech government, their concept for the conditions of the deal still differ. Tele Danmark holds nearly 21 percent in Ceske Radiokomunikace, which owns stakes in the telecommunications company Contactel and the mobile phone operator RadioMobil.

IMF: beware of public finance deficit

On Wednesday, the International Monetary Fund issued its regular report on the Czech economy. According to Roger Nord, the IMF representative for the Czech Republic and Hungary, the IMF perceives a solid economic recovery in the Czech Republic, but has joined other international institutions, such as the OECD, in warning against the country's growing national debt.

As Mr. Nord told journalists, the IMF predicts economic growth of 3 to 3.5 percent for 2001, slightly below the Czech government's forecasts. The IMF perceives the main problem to be the growing public finance deficit. In the year 2000, fiscal policy was expansionary, with the general government deficit - excluding privatisation receipts and bank restructuring costs - increasing by nearly 1 percentage point, to 4.1 percent of GDP. For 2001, the general government deficit is set to expand by a further 1.6 percentage points to 5.7 percent of GDP. In addition, bank restructuring costs could add up to 5 percent of GDP to the government's total financing requirement. The IMF has also compiled an assessment of the stability of the Czech Republic's financial system. The IMF notes a significant improvement in the stability of the banking sector, which is due to a clean-up of the banking sector and privatisation of state-owned banks. However, Mr. Nord pointed out, this came at a substantial cost. In connection with problems in the financial sector in the past, the IMF has called for changes to supervision of the sector. Under the current scheme, the central bank is responsible for supervising the banks, the Ministry of Finance is responsible for supervising insurance companies and pension funds, and the Securities commission is responsible for supervising the capital markets. Although the supervisory principles in most respects comply to international standards, the IMF maintains that there is need for better coordination between the individual supervisory bodies.