What lies ahead for the Rusnok cabinet?

Photo: CTK

Though it is unclear how long Jiří Rusnok’s freshly appointed cabinet will remain in power, it will certainly face some difficult tasks. The government has pledged not to take any strategic decisions, such as on the extension of the Temelín nuclear plant. But it will have to try and revive economic growth while at the same time keeping a tight reign on the deficit.

Photo: CTK
Improving the performance of the faltering Czech economy will be one of the major tasks of the new technocrat government. The country has been in recession for a year and a half now, with depressed industrial output, high unemployment, and persisting problems with securing EU funds to speed up the recovery.

The Rusnok cabinet will presumably presents its economic policy outlines to the MPs when it asks them for confidence, as it is constitutionally bound to within 30 days. So far, some ministers in key positions, including those holding the finance and industry and trade portfolios, have not been very specific about their plans.

The new finance minister, Jan Fischer, has said he will focus on boosting economic growth through investments in transport and other kinds of infrastructure. He has also promised more funds for science and research. For his part, the new minister of industry and trade, Jiří Cienciala, has said he wants to begin by seeking consensus on what is wrong with the economy.

“Our current situation can be, in my opinion, considered a crisis. We need to overcome this period without industry suffering major losses; on the contrary, it should extend its potential and use all opportunities.”

Jiří Cienciala worked for 14 years as CEO of a major Czech steelworks and then served as rector of an Ostrava business college. He now sees promoting the interests of the Czech industry and entrepreneurs as a crucial task.

Jiří Cienciala, photo: CTK
“I want to focus on improving the competitiveness of Czech industry. My goal is to make industry one of our national interests. I will also focus on supporting entrepreneurs, because they have a great potential for economic and social development, and effectively lowering unemployment.”

The success or failure of any government efforts will naturally depend on whether or not the cabinet wins approval from the lower house. But Prime Minister Jiří Rusnok’s choice of ministers has come under scrutiny. Vít Hloušek is a political scientist at Brno’s Masaryk University.

“There are some people who served as ministers in Jan Fischer’s caretaker government. Then there are some strong political figures, or people with political ambitions, so it’s a strange mixture of political and non-political appointments, with an unclear perspective how it will all work together.

There are some independent experts who can certainly take over ministries – for instance, the new regional development minister. But others ministers’ perspectives are less clear.”

The previous centre-right government very much met its goal of lowering the deficit of Czech state budget. Last year, the deficit reached 5 percent of the country’s GDP. That number was however affected by payments towards the restitution of church property; without that, the deficit would have decreased to around 3.5 percent.

Jiří Rusnok, Jan Fischer, photo: CTK
But the price of narrowing the budget gap was deemed to high by many experts. The government failed to recover growth, and also struggled with relatively high unemployment. In the months before the collapse of the cabinet, its leaders began talking of easing austerity and instead boosting government spending. That should be a key task for the new caretaker cabinet as well, says economic consultant Petr Zahradník.

“My expectations regarding the government’s real potential are limited. But I’m very much in favour of some of the things we know of their programme which wants to focus on pro-growth and pro-investment measures.

“Over the last five years or so, the Czech Republic has been not only stagnating but declining on the rate of investments. The recovery in investment is a key economic priority.”

Ahead of his appointment on Wednesday, Jiří Rusnok said his government would like to keep the budget deficit below 3 percent of GDP. It will however not be easy to reach this goal and at the same time expand government spending to stimulate growth. However, consultant Petr Zahradník believes there are ways to source the necessary investments.

“The first is EU funds. Another is a real recovery of the CzechInvest agency which should focus on only on the inflow of foreign direct investment but also on supporting Czech exports. The third source would be the mobilization of private sources in various ways including new financial instruments, PPPs, and others such as projects bonds, particularly for the economic infrastructure.”

Jan Kohout, Miloš Zeman, photo: CTK
Economic diplomacy and support for Czech exporters is another area the Rusnok cabinet will focus on. The new foreign minister, Jan Kohout, will probably adopt President Zeman’s conviction that Czech diplomats abroad should work much more to pursue their country’s economic interests. Commentator Erik Best says that the government will have its hands tied in fiscal policy and other areas, but not in economic diplomacy.

“If they put greater emphasis on sending ambassadors to foreign countries that have economic experience and are able to do deals, or promote deals on part of Czech companies and the country, then we could see some greater investment. But I think on the domestic level where could see a big canal being built or something like that, this government will simply not have the authority to do that.”

To be able to pursue its plans in any area with at least some authority, the government will have to win confidence from the lower house. They have now 30 days to try, and although some reports suggest the Rusnok cabinet could be successful, most commentators believe MPs will not support the government appointed over their heads. If that is that case, what happens next will depend on a number of factors.

These include a possible decision by the political parties to dissolve the lower house and call snap elections, as well as president’s choice to either appoint another caretaker cabinet, or keep the Rusnok cabinet in power without the approval of the lower house. Masaryk University’s Vít Hloušek says this would be the worst case scenario.

“A government without such approval can do some maintenance but no proper policy starting with the budget and other important economic and other policies. So it would a period similar to that of Fischer’s government – a cabinet which functions but does not have the competency to deal with real problems.”

Photo: archive of Radio Prague
Meanhwhile, Erik Best believes that the president’s most likely decision might cause another stir on the Czech political scene.

“At this point, it seems Mr Zeman would probably go with some form of the newly appointed cabinet. That’s going to redefine the political situation. There are going to be debates about whether it’s constitutional, and it will divide up politicians and parties in terms of whether they’re in favour of what the president’s is doing and those against it. So we are likely in for a quite a debate in the second half of the summer.”

The situation might take several months to resolve. That delay itself would be critical to the condition of the Czech economy, according to consultant Petr Zahradník.

“I think that any kind of delay in the implementation of some measures we are talking about is the biggest risk. That’s why I partially support a cabinet that would be prepared to take immediate action, or one in a short period of time.”