CZECH REPUBLIC: AMBASSADOR'S INTRODUCTORY CALL

C O N F I D E N T I A L PRAGUE 001369 SIPDIS SIPDIS STATE FOR EUR/NCE ERIC FICHTE COMMERCE FOR ITA/MAC/EUR MIKE ROGERS TREASURY FOR OASIA ANNE ALIKONIS E.O. 12958: DECL: 11/02/2016 TAGS: ECON EFIN PGOV PREL EZ SUBJECT: CZECH REPUBLIC: AMBASSADOR'S INTRODUCTORY CALL WITH FINANCE MINISTER TLUSTY REF: A. PRAGUE 001356 ¶B. PRAGUE 001173 ¶C. STATE 181094 Classified By: Ambassador Richard Graber for reasons 1.5 b+d ¶1. (C) Summary: During the Ambassador,s November 1 introductory call on Civic Democrat (ODS) leader and Minister of Finance Vlastimil Tlusty, Tlusty commented on recent political developments concerning the formation of a government and conceded his party,s mistakes. Tlusty discussed growing deficits and said he has a plan of economic reforms to bring the government back to fiscal solvency. He also stated that Missile Defense has been a damaging issue for his party and felt the only way to ensure public/political support for the proposal would be an early decision from Washington. End Summary. ¶2. (C) ODS Finance Minister Vlastimil Tlusty briefed the Ambassador on recent political developments following the late October Senatorial and local elections, which his party dominated (reftel A). Tlusty said President Klaus is close to nominating a second person to lead the effort at forming a government, and regretted his party,s failure to identify someone from its own ranks for the nomination. He described this as a &big mistake8 and missed opportunity to influence the selection. Tlusty thinks that as early as November 6 or 7 President Klaus could name a successor to Prime Minister Mirek Topolanek. Tlusty predicted a well-respected political outsider, like a professor or economist, would be named Prime Minister and lead a technocratic government to early elections, which Tlusty thought could be as early as June 2007 or as late as autumn 2008. Tlusty lamented that the political crisis makes all politicians look stupid since they are not working on legislation yet collecting a salary. ¶3. (C) Tlusty reported that fiscal policy is in a &bad situation8 (reftel B) and said he had a duty as finance minister to clarify the situation with &open8 and &honest8 information. Tlusty told the Ambassador that he has a reform plan, formulated with the help of reformers from the Slovak Republic, that would address and reconcile current and future budget deficits. He offered the Ambassador a separate meeting to discuss in detail his reform package, but did say they focused on taxation, social expenditures, and the pension system. The pillar of his reform package is reduced taxation because &Czechs are clever not to pay taxes that are too high.8 He claimed that his reforms would initially increase budget deficits for the first year and then drop in subsequent years. He felt confident that a balanced budget was possible in seven to eight years. ¶4. (C) On the question of a possible U.S. missile defense facility in the Czech Republic, Tlusty advised that the U.S. needs to move quickly to win public and political approval. Tlusty seemed perplexed why the American decision was taking so long, and explained that the missile defense discussion is hurting his party. He explained that ODS opponents, such as the Communist Party (KSCM) and Social Democrats (CSSD),were using the issue as a political wedge to divide voters. He cited 60% of the public against a &base8 out of fears of historical occupation, but "radar is not a problem." ¶5. (C) The Ambassador concluded with a request for Iraqi official debt forgiveness (reftel C) and asked Tlusty to consider canceling the estimated USD 300 million in military debt still owed to the GOCR. Tlusty said he would consider the proposal. GRABER