Government unveils plan to boost economy in light of slashed growth forecasts

The Czech government has been rethinking its finances for 2009, and is ready to almost double its budget deficit. With growth forecasts slashed from five to one percent, the cabinet has been seeking the advice of some of the country’s top financial experts to stimulate the economy. After the first meeting of the advisory board NERV on Sunday, the government presented its plan, in somewhat somber a manner.

NERV members, photo: CTK

Finance Minister Miroslav Kalousek presents the results of a marathon six-hour meeting of the country’s top ten economists and businessmen on Sunday. Members of the advisory board chewed over some 250 ideas to stimulate the Czech economy, which looks like it will grow by far less than the five percent predicted at the end of last year. At the press briefing after the meeting, both Prime Minister Mirek Topolánek and Finance Minister Miroslav Kalousek seriously down-scaled their ambitions, saying their new calculations were based upon a growth-rate of one percent, and that there was a second plan in the possible event of a recession. In light of the downturn, Mr Kalousek said, this year’s budget deficit would grow from 38 to 71 billion crowns. But, he stated, these extra funds would not, under any circumstance, be used to bail out firms and banks in an American or British style. Martin Kupka, the chief analyst at ČSOB bank, says that the move makes sense:

Miroslav Kalousek, photo: CTK

“Mr Kalousek is aware of the fact that there is a risk in an economy like the Czech one, that if you simply inject money and give this to consumers, for instance, then you can induce an increase in import demands. So, in other words, you won’t stimulate the Czech economy so much, but rather foreign producers. I think it has a logic. On the other hand, I think that there are some measures that form part of the package that do improve the situation of people who will be hit by the negative impacts of the current financial problems.”

So, instead of this afore-mentioned bank or firm bail-out, Mr Kalousek and the other members of NERV seem to be suggesting things such as stimulating local public transport networks, and pouring money into infrastructure and education. Do you think that this can really revive the economy?

“I think that the package is not quite homogenous in terms of time-scale, all of these measures will take a different amount of time before they start to work. For instance, I think that support for education is a must in the Czech economy, it is a must, it has been discussed for a long time, it is fine. But I am afraid that really it is not something that can be implemented from one day to the next.”

NERV suggests higher government spending on education and research, cutting firms’ social security costs when they employ new graduates, and contracting out the upkeep of the country’s infrastructure to more private enterprises as means of reviving the economy. The package will have to be approved by Parliament before it comes into effect. With the opposition Social Democrats holding very different views about how to jump-start the Czech economy, the proposals could be in for a rough ride.