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