UNCLAS SECTION 01 OF 02 PRAGUE 000978

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON PREL PGOV RU EZ
SUBJECT: CZECH REPUBLIC REJECTS SURPRISE RUSSIAN NOMINATION
OF TOSOVSKY FOR IMF HEAD



1. (SBU) SUMMARY AND COMMENT: Russia's surprise nomination of
former Czech central bank governor and former Prime Minister
Josef Tosovsky as IMF Managing Director has received much
attention in Czech media, mostly in the form of negative and
cynical commentary about Tosovsky's checkered past and
Russian motivations for the nomination. While no one
questions Tosovsky's qualifications for the job, the
nomination has revived old suspicions based on Tosovsky's
Communist Party membership, widely rumored (and denied)
connections to the secret police (STB), and his possible
involvement in "tunneling" (privatization schemes resulting
in asset stripping). According to open STB files, Tosovsky
worked on "economic information only" in his previous
capacity as advisor to the central bank governor but never
reported on individual persons. Other than his Communist
Party connections, Tosovsky's current connections to Russia
remain unclear. Likewise, there is no consensus here on
Russia's motives for this move. The Czech government
position is clear: they will not break ranks with the EU and
will support the EU candidate, Strauss-Kahn. END SUMMARY AND
COMMENT.

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NEGATIVE AND CYNICAL REACTIONS
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2. (SBU) Czech politicians and the media appear to have been
genuinely surprised with Russia's decision to nominate
Tosovsky for the IMF post. Most official comments made clear
that the Czechs did not appreciate being put in the difficult
position of having to choose between the EU candidate and a
countryman. But the government quickly stated that they
would not break consensus and that Strauss-Kahn remained
their choice for the position. The comments of government
officials have been, at best, strained. Thus far, the only
truly supportive reaction to the nomination came from former
President Vaclav Havel (who tapped Tosovsky to head a
caretaker government in 1998). An editorial in the leading
mainstream daily paper (Mlada Fronta Dnes) highlights

Tosovsky's qualifications, describing him as a first-class
candidate who may be better qualified than the current EU
candidate from France given his respect within financial
markets and strong reputation among central banks. The
journalist (Pavel Paral) says that for Tosovsky to have a
chance, he will need USG support and the U.S. has not yet
given its position. Paral also states this would be a great
opportunity for the U.S. to "take revenge" for the European
countries bringing down Paul Wolfowitz as World Bank
president with a "fabricated scandal."


3. (SBU) While President Klaus has thus far refrained from
making any public statements, the fact that Havel (his
nemesis) supports Tosovsky's nomination would be reason
enough for him to oppose it. However, Klaus also has other
reasons: he blames then-central bank governor Tosovsky for
the collapse of the government Klaus led following the 1997
economic crisis. While Klaus has been silent, his people
have not been. Klaus's spokesman told local journalists that
the President considers the Russian nomination "strange"
since it is not usual for a State to nominate a citizen of
another State, but declined to speculate on Russian
motivations. Klaus's Political Advisor, Ladislav Jakl, was
quoted in the press as saying, "One cannot help wondering
whether he (Tosovsky) did not act in the interest of a
foreign power some other time already."

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THEORIES BEHIND THE NOMINATION
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4. (SBU) There is considerable speculation in Prague about
Russian motives for this nomination (accompanied by somewhat
less speculation about Tosovsky was thinking in agreeing to
what seems surely to be a losing proposition). The
charitable view is that Russia is seeking a European
candidate from a transition country to bring a new
perspective to the top of the IMF, and to curry favor with
large developing countries. The less charitable view is that
Russia's only motive is to split the EU by trying to get the
Czechs (and perhaps other "new" members) to abandon the
French candidate, while possibly trying to revive the old
"brotherhood." There is also no clarity on the question of
whether or not the Russians are actually serious, or just
trying to look like a shining international statesman
(similar to his proposals for missile defense). If the
Russians were serious about trying to woo at least the Czechs
away from the EU, they miscalculated in choosing Tosovsky,
and with their execution of the plan. Assuming they are
serious, they appear to have also miscalculated by

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underestimating the tendency for Czechs to disapprove of
Czechs who are either successful or highly respected abroad
(e.g., Havel, Kundera, Tosovsky).

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BIOGRAPHIC INFO
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5. (U) The bio below is from open sources and is lacking some
details and does not account for every year. There are
rumors that Tosovsky studied in Russia but post is not able
to confirm.

September 28, 1950 Born in Nachod, Czechoslovakia (Eastern
Bohemia)
1973 graduated from the Prague School of Economics with a
focus on foreign trade
1973 started work at the central bank (Czechoslovak State
Bank, CSSB)
1976 joined the Communist Party of Czechoslovakia
1977 started working for the London branch of Zivnostenska
Banka
1980 left for France to study banking
1984 - 85 Economist with London branch of Zivnostenska Banka
1986 - 99 Advisor to central bank Governor Jan Stejskal
1989 returned to London
1990 - 92 Governor of Central Bank of Czechoslovakia (CSSB)
1992 - 97 Governor of Central Bank of Czech Republic (Czech
National Bank, CNB)
January - July 1998 caretaker Prime Minister
July 1998 - November 2000 Governor of CNB
December 2000 to present Chairman of BIS Financial Stability
Institute, Basel, Switzerland
GRABER