Wednesday, April 18, 2001

Rusnok in the hot seat New minister dodges bullets on trade union background as he dons Mertlik's mantle By Christopher P. Winner To spend or not to spend? That, in a nutshell, is the question facing Jiri Rusnok -- and perhaps his cross to bear. The 40-year-old economist took over from Pavel Mertlik, who quit suddenly April 10, citing one too many battles with a quarreling government that had apparently grown impatient with his bullish approach to privatization and parsimony on public spending. Now, Rusnok -- who was deputy minister of labor and social affairs -- will manage a nervous economy that faces three formidable roadblocks: a deficit-laden budget, national elections in 2002 and increasing European Union pressure to conform to entry guidelines that emphasize financial restructuring. There is also considerable unfinished business: the selling of such giants as energy producer CEZ and ailing Komercni banka, both expected to provide the government with a needed infusion of capital. Rusnok also needs to get up to speed quickly, with three key April conferences on the agenda. He meets European Union finance ministers in Paris, European Bank for Reconstruction and Development (EBRD) officials in London, and then attends the April 26-30 spring session of the World Bank and International Monetary Fund in Washington, D.C. "It is impossible to perform any miracles," Rusnok said after his appointment, as if to assuage fears that he might suddenly reverse Mertlik's approach. The resignations of Jan Mladek, Mertlik's deputy, and Jiri Havel, who managed state sell-offs, added emphasis to the shakeup. If politicians and analysts agreed on one thing, it was that the swiftness of the new appointment momentarily nipped public, and European, doubt in the bud. "The main thing is that the new finance minister was appointed fast, and it was possible to calm the situation in a positive way," said Patria Finance analyst David Marek. While Mertlik was a Brussels darling, freshening up and selling ailing Czech banks with entrepreneurial zeal, Rusnok faces the stigma of a trade union past -- he was an economic adviser to the influential Confederation of Trade Unions before entering government -- and its welfare state implications. He is a close ally of new Social Democratic (CSSD) leader Vladimir Spidla, who is also the labor and social affairs minister. "He was, he is, really very good," Spidla told The Prague Post. But Rusnok will need to convince foreign investors and markets that he will not kowtow to Industry and Trade Minister Miroslav Gregr, who advocates massive spending bailouts to compensate for state losses and stimulate growth. One of his plans, the $2.5 billion "big bang" program, has been ridiculed by some market analysts as a budget-swelling recipe for sinking the precarious Czech economy. "Mertlik was pushing for fiscal prudence, privatization and consolidations," said Zsolt Papp, an emerging debt strategist at ABN Amro Bank in London. "Now there are a lot of question marks behind those issues." Miroslav Nosal of Merrill Lynch, indirectly alluding to big bang-like social welfare programs, said: "The most important thing is whether he withstands the demands for expenditures from individual ministries." Mr. Unknown Said Bohdan Zacek of Bowis Consulting in Prague: "I think he will be more left-wing oriented, which could prove to complicate state finances." But he said the choice confirmed the "status quo," with Rusnok largely unencumbered by political labels. "He has neither a positive or negative reputation to accompany him," Zacek said. Mertlik also said Rusnok was untainted by factional disputes "so it will be much easier for him ... to establish, or re-establish, the ministry." But investor worries were not calmed by Rusnok's early comment that while it was "necessary to keep public finances tight ... the current imbalance is acceptable." There were also fears that Rusnok would accept a bloated public deficit and eventually agree to higher taxes. The public sector deficit may go as high as 9.4 percent of the gross domestic product, and the crown has struggled recently against the euro and dollar. It dropped against both currencies when Mertlik quit, only to stabilize when Rusnok was named. But Rusnok's freedom of action, and the impact of his decisions, may be limited. With national elections set for mid-2002, the current CSSD government is nearing the end of its term -- making Rusnok something of a lame duck. While he will deal with EU officials until the vote, he is unlikely to maintain his post unless the CSSD, which lags badly in the polls, makes an unexpectedly strong showing. Drafting the 2002 budget could also be a problem, with the CSSD's "opposition agreement" partners, the conservative Civic Democrats, considered likely to stall any budget bill in a pre-electoral effort to call attention to spending differences with the Social Democrats. While observers and Mertlik himself have suggested the transition will be painless, Rusnok is not necessarily a fan of his predecessor. In 1999, early in Mertlik's tenure, Rusnok told a UN seminar that pension reform had been politically slowed by popular fears associated with the speed of privatization, implicitly suggesting the Finance Ministry might be moving too swiftly in its efforts to overhaul and shuck long-standing institutions. His appointment, however, was greeted with kindness by a political class known for its contentiousness. Mertlik immediately called him the "best possible candidate," but added, "at this point." "What is important in the first days and weeks is that he establishes himself," Mertlik told The Prague Post. "[He must] be able to clearly define his territory, to claim 'what is mine' and cannot be intervened in by other ministers." He said he hoped Rusnok would learn from his mistakes, especially in dealing with the stubborn Gregr. Quad Coalition leader Karel Kuhnl, who heads the right-leaning Freedom Union, called Rusnok "economically educated [and] competent," adding, "Maybe he could make quite a good finance minister." Ivan Langer, the deputy chairman of the ODS, was more cautious. "I don't know much about him," he said. "He used to work with the trade unions, and it will be interesting to see how he deals with the necessary restrictive [budget] measures, since in the past he stood on the other side." The presence of three state socialist-style figures atop the government spending structure -- Spidla in labor, Gregr in industry and now Rusnok in finance -- makes it difficult to foresee closer cooperation between the "opposition agreement" partners, whose relationship was cemented by former CSSD chief Milos Zeman, the prime minister. The ODS, led by former Prime Minister Vaclav Klaus, and the CSSD have long been at odds over the budget, with Klaus especially critical of Mertlik's willingness to privatize at almost all costs. Bowis' Zacek praised Rusnok's willingness to take the job. "I admire Mr. Rusnok's courage because I don't think too many people would take this job with so little time left before the next elections," he said. The Rusnok file Jiri Rusnok Born: Ostrava, Oct. 16, 1960 Family: Married, two children Education: 1984 graduate of the Prague School of Economics Party: Social Democrats (CSSD) Background: During 1980s, forecaster with the State Planning Commission Adviser to the Bohemian and Moravian Council of Trade Unions, now known as the Confederation of Trade Unions, from 1992 through 1997. Appointed deputy minister of labor and social affairs in 1998. -- Petr Kaspar Christopher P. Winner's e-mail address is cpwinner@praguepost.cz More business stories Ceska sporitelna plans to hike ATM charges Customers of other banks may have to pay twice as much to get their cash Banks brace for euro fraud Huge trading volume expected to encourage money laundering Movers & Shakers First Czech takes over at KPMG Spaces & Places Opening with style E-world Go east Portal hopes to be pioneer in Ukraine's Internet industry The best of Czech digerati Kal's Korner