SEED Assistance Summary 1999
SEED Act
1994 | 1995 | 1996 | 1997 | 1998 | 1999
2000 | 2001 | 2002 | 2003 | 2004
Economic Developments
The Czech Republic has largely consolidated its economic transition to a market economy, with most enterprises now in private hands. Following an initially rapid transition, the country is now undergoing needed economic retrenchment after high but unsustainable levels of growth in 1995 and 1996. The economy contracted by nearly 3 percent in 1998 and declined slightly in 1999, with a return to growth anticipated in 2000 after further reforms take hold. Fiscal policies have loosened in response to the deep recession, also contributing to a return to growth. Inflation has dropped in recent years to below 5 percent, while unemployment is rising steadily toward 10 percent, as long delayed industrial restructuring gets underway.
The roots of the recent recession lie in unfinished structural reforms. These include the areas of bank privatization, judicial reform, industrial restructuring, improved capital markets regulation, transparency in government decision-making, and enforceable bankruptcy laws. The government's recent privatization of the country's fourth largest bank, Ceskoslovenska Obchodni Banka, and its promise to privatize the remaining two state-controlled banks, are important signs of its commitment to push forward with remaining reforms. Plans to address the remaining structural issues are also on the drawing board, but the government's minority status hampers its ability to introduce a comprehensive economic reform agenda rapidly.
Integrating the Czech economy into Western economic institutions remains a principal foreign policy goal. The Czech Republic is already a member of the WTO and the OECD. It formally applied for European Union membership in 1996, and started detailed negotiations on EU accession in November 1998. During the transition to EU membership, the country will harmonize its legal and regulatory framework with EU norms. The drive for EU accession will likely ensure that the remaining reforms needed to complete the country's transition to a fully market economy will be completed over the next few years. Economic relations between the Czech Republic and the U.S. are strong.
Political Developments
Since 1989, the Czech Republic has undergone a radical political and economic transformation, returning to the ranks of free-market democracies. It is a fully functioning parliamentary democracy, whose citizens enjoy the benefits of free speech, free assembly, and a vigorous free press. President Vaclav Havel is internationally recognized as an advocate of human rights and social justice. The constitution provides for an independent judiciary, which requires long-overdue procedural and structural reforms. The government recently proposed broad judicial reforms, which the Parliament is to consider in early 2000.
The minority Social Democratic (CSSD) government of Milos Zeman came to power in July 1998, after an "opposition" agreement was negotiated with the Civic Democratic Party of former Premier Vaclav Klaus. Its first year in office was plagued by a lack of previous governing experience, corruption allegations, and legislative gridlock. The resulting popular dissatisfaction with the government's performance has led to political jockeying, rumors of a cabinet reshuffle or new coalition government, and even speculation about early elections. Growing disenchantment with mainstream politicians has also contributed to the rise in popularity of the only partially reconstructed Czech Communist Party, now the country's second most popular party according to most polls. The next scheduled Parliamentary elections are due in June 2002.
U.S.-Czech relations are excellent and reflect strong historical ties. In March 1999, the Czech Republic became a NATO ally, contributing to Alliance actions in Kosovo and the NATO-led Stabilization Force in Bosnia. The U.S. and the Czech Republic also cooperate closely in other international fora, including the UN and the Organization for Security and Cooperation in Europe (OSCE). The U.S. International Military and Training (IMET) and Foreign Military Finance (FMF) programs are designed to help produce a highly trained mobile Western-style force, capable of working side-by-side with the U.S. and NATO. The U.S. also provides training in defense planning, military doctrine, peacekeeping operations, and English as the language of peacekeeping.
SEED ASSISTANCE SUMMARY
Municipal Infrastructure Finance Program
The Municipal Infrastructure Finance Program (MIFP) is the only bilateral USAIDfunded program to continue in the Czech Republic past closeout of the USAID mission in Prague in 1997. USAID's regional urban office in Poland and the U.S. Embassy in Prague jointly manage and monitor this program, which will end in 2000.
MIFP has succeeded in establishing a sustainable municipal credit system in the Czech Republic. The program has two components -- capital loans and technical assistance. The capital loans are used to finance infrastructure projects, such as reducing leakage in old water distribution systems and decreasing pollution by switching heating from coal to gas. Technical assistance has included developing capital improvement programs, budgets, and efficient project designs so that municipalities can better qualify for long-term loans and municipal bonds.
By mid-1999, there had been 19 issues of municipal bonds, both domestic and international. The program had made 116 loans for 205 projects in 108 municipalities, improving access to a variety of services for an estimated 280,000 people. Most of the participating municipalities are medium or small in size, with 90 percent of the loans benefiting municipalities with fewer than 20,000 people.
The technical assistance component of the program has been instrumental in training a cadre of urban and financial professionals at all levels, who are now well prepared to manage municipal infrastructure finance transactions and programs. The training was extended to both elected and appointed municipal officials, as well as to bankers. USAID strongly emphasized developing institutional capacity to provide training, once its support was phased out. The program has also introduced the use of financial performance indicators and benchmarks to help local officials monitor and manage the financial condition and debt position of municipalities and assess debt-carrying capacities.
Training courses for bankers and municipal officials have been established in association with the Banking Institute. Earlier in the technical assistance program, most of the training was provided free of charge. Charges were systematically introduced, however, and the program -now independent of USAID and of expatriate trainers -- is completely self-financing.
Partners for Financial Stability (PFS)
The Czech government only recently began significant reform efforts in the financial sector. Reforms include strengthening the capital markets regulatory system, privatizing commercial banks, breaking the non-commercial links between banks and the enterprise sector, and addressing the large volume of non-performing loans. A central feature of this reform effort is the strengthening of the Czech Securities Commission, an independent capital markets regulatory body established in April 1998. That Commission requested U.S. assistance under the PFS program to: 1) assist in developing a strategy for introducing international accounting and auditing standards; 2) educate Commission members and market participants on the principles of international accounting standards; and 3) provide legal assistance on investment companies and funds. With financial support from both the implementer and the Czech government, USAID has initiated the provision of the technical expertise required for this activity.
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