Draft state budget condemned to rejection

Recent reports claim that the structure of the Czech state budget is in desperate need of reform and the newest political battle is brewing over the 2002 draft budget approved by the cabinet last week. The ruling Social Democrats and the right-of-centre Civic Democrats - which keep the government afloat under a power-sharing pact - are already butting heads over a skyrocketing deficit. Helen Belmont has more.

The overall deficit of Czech public finances has grown to 190 billion Czech crowns, or about 5 billion US dollars. International organisations such as the International Monetary Fund and OECD have warned that the growing fiscal imbalance could destabilise Czech economy. I spoke with an analyst at Wood and Company, a Czech stock broker, Mr. Slaby, and asked him whether the current deficit was sustainable:

"Definitely not. The current deficit is not sustainable. The Czech government should take steps to reduce public finance in medium term, otherwise the public finance will be in a difficult situation, in very bad shape. The public debt has been rising quite rapidly in past years so to prepare and to adopt such steps which would reduce public debt in the medium term are inevitable."

Mr. Slaby also commented that tax cuts, and structural reforms of the Czech Republic's pension system and tax system would be necessary. However, the ruling Social Democratic Party is reluctant to implement any possibly painful changes right before a general election. I spoke with the Deputy Leader of the Czech and Moravian Communist Party, Miroslav Ransdorf, about whether there is any chance of the reforms being implemented in the near future:

"In this year, it will be a very complicated deal to achieve agreement concerning state budget, because the ideas of the parties are diverging. The Social Democratic Party has only one interest, to survive up to elections and the Civic Democratic Party will try to persuade society that it is the true opposition. I am persuaded that the government will avoid all reforms and all reform measures before elections. They cannot dare to make it because of the very precarious political situation."

The question then remains how long the leading political parties will be able to put off such reforms without crippling the Czech economy.

Author: Helen Belmont
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