CZECH REPUBLIC: NO PLANS TO GRADUATE FROM EBRD

UNCLAS PRAGUE 001182

SIPDIS

STATE FOR EUR/NCE, EB/IFD/ODF
TREASURY FOR LESLIE HULL

E.O. 12958: N/A
TAGS: EFIN PREL EZ
SUBJECT: CZECH REPUBLIC: NO PLANS TO GRADUATE FROM EBRD



1. (U) SUMMARY: Ministry of Finance Department of
International Organizations Director Lenka Loudova and Czech
EBRD Member of the Board Igor Ocka made it clear that the
current government has no plans to graduate from the European
Bank for Reconstruction and Development (EBRD). It is not on
the current Ministry agenda. Ocka noted that while the Czech
Republic no longer considers itself a "developing" economy,
which is why it will no longer borrow from the IBRD, it still
considers itself a "transition" economy, which is why it has
not made plans to graduate from the EBRD. Additionally,
Loudova noted that the Ministry of Finance will undergo
significant reorganization starting October 2005, losing 20
percent of its current staff. END SUMMARY.


2. (U) At the behest of the Department of Treasury, econoffs
met August 10 with Lenka Loudova, Director of the Ministry of
Finance Department of International Organizations, to
ascertain the GOCR,s intentions with regard to graduating
from the EBRD, and to encourage the GOCR to graduate from
EBRD operations within two or three years. Also attending
the meeting was Czech EBRD Board Member Igor Ocka, who
happened to be in Prague on vacation. Highlighting the
country's macroeconomic stability, successful private sector
development and strong FDI inflows, econoff noted the
transition process seems complete and the Czech Republic
should look to graduate from the EBRD in the near term so the
Bank can focus more on countries still undergoing transition
to a market economy.

3. (U) Loudova emphasized there was no government position on
EBRD graduation, noting there has been no discussion in the
Czech government at either the cabinet or Ministry of
Finance. The government does not have EBRD graduation on its
agenda. She also said that while the USG does not seem to
make the distinction between &development8 and
"transition,8 the Czech Republic does make the distinction
and believes the former is complete but the latter is still
ongoing.


4. (U) EBRD Czech Member of the Board Igor Ocka noted EBRD
activities in the Czech Republic had appropriately decreased
over the last few years but the Bank still plays an important
role in certain areas, including SME support and
implementation of EU funds, and the process should be allowed
to run its course and not hurried. Ocka took issue with the
USG policy in the EBRD in general, stating that there is a
tendency for the USG to lump development and transition into
the same basket, noting that as a bank with a transition
mandate, the EBRD should not be compared to the IBRD.


5. (U) Loudova discussed the changes that the Ministry of
Finance faces in the months ahead. Approximately 18 to 20
percent of current staff will be let go under ministry
reorganization starting in October

2005. The Ministry will merge all of the international units
into one
department. She believes that current Director General of
the European Integration Department of the Ministry of
Finance, Hana Heidlerova, is likely to be named head of this
international department, but the appointment has not been
confirmed.


6. (U) COMMENT: With the upcoming organizational changes and
government elections in June of next year, further discussion
on this issue seems unlikely without significant external
stimulus, at least not for the next year. If Washington
wishes to push the issue further, Embassy believes a joint
demarche with other G-7 partners would be more effective. It
would also be helpful to see what the other new EU countries
are contemplating regarding EBRD graduation.
CABANISS