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UNCLAS SECTION 01 OF 04 PRAGUE 000698 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD PGOV EZ
SUBJECT: PM FISCHER MEETS WITH AMCHAM AND EMBASSY 
 
PRAGUE 00000698  001.2 OF 004 
 
 
(U)  This message is sensitive but unclassified.  Please 
treat accordingly.  Not for internet distribution. 
 
¶1.  (SBU) Summary: Prime Minister Fischer and members of the 
American Chamber of Commerce discussed the current investment 
climate in the Czech Republic at a November 23 dinner hosted 
by the Charge.  AmCham said concerns about the lack of 
government stability are beginning to take a toll on 
investment decisions.  AmCham also cited corruption and the 
inflexibility of Czech infrastructure providers and offered 
recommendations on taxation, promoting tourism, energy 
efficiency, euro adoption, research and development funding, 
and improving government transparency and efficiency.  PM 
Fischer said it is unfortunate that a non-political, interim 
government such as his exists at all, given the limitations 
it faces in making political decisions.  He complained that 
the current Czech electoral system produced weak coalition 
governments unable to enact difficult but needed reforms and 
suggested that changes to the electoral system may be needed. 
 He also bemoaned the poor relations between politicians and 
civil servants and society's short term thinking.  He 
announced plans to put forward a draft package of 
anti-corruption measures but was unsure how parliament might 
react.  He also noted his fiscal conservatism and said he was 
proud that the Czech Republic had avoided both protection 
measures and stimulating consumption during the economic 
slowdown.  End Summary 
 
AmCham's Concerns 
----------------- 
¶2. (SBU) AmCham Executive Director Weston Stacey noted that 
during his 18 years in the Czech Republic he has never before 
seen as large a disconnect between politicians and the 
business community as that which exists today and thanked the 
PM for being willing to start a dialog.  AmCham had polled 
its members and found that there currently exists a neutral 
investment and job climate among international firms in the 
Czech Republic, a significant improvement over last year. 
Companies are not planning to cut jobs or leave the country. 
They are also, however, not planning to hire additional labor 
or make additional investments, thus limiting the pace of the 
Czech economy recovery. 
 
¶3. (SBU) Stacey noted that AmCham members had identified 
three main concerns that are influencing their long-term 
investment plans.  First, while political stability used to 
be a major selling point for investing in the Czech Republic, 
this was no longer the case.  Weak governments unable to 
enact needed reforms as well as changes in government leading 
to significant changes in policy all made it very difficult 
for businesses to plan for the future.  Second, frequent 
corruption scandals have created the perception that a level 
playing field does not exist.  Third, while foreign 
investment in the past had been mainly for large cookie 
cutter manufacturing plants, future investment is much more 
likely to be by smaller businesses with specialized demands 
on Czech infrastructure.  It is not clear that the Czech 
authorities are able to respond quickly enough to meet these 
needs.  For instance, the Czech Republic recently lost a 
major investment when neither the semi-state electricity 
company CEZ nor CzechInvest were flexible enough to quickly 
accommodate the energy needs of a potential investor. 
 
AmCham Creates the Council for Czech Competitiveness 
--------------------- 
¶4. (SBU) Stacey, speaking for the group, briefed the PM on 
the creation of the Council of Czech Competitiveness (CCC) 
formed by AmCham with the cooperation of other foreign 
business associations and presented him with a booklet 
outlining the CCC's main priorities and recommendations. 
Stacey emphasized that tax policy was the single most 
important issue for businesses when making employment and 
investment decisions.  On behalf of the CCC, he urged the 
government to prepare a ten-year tax policy, to clamp down on 
the wide-spread tax evasion before raising the taxes of those 
businesses who are actually paying, and to create an 
effective tax modeling system.  (Note: The complexity of tax 
policy is a particular concern of both international and 
domestic businesses in the Czech Republic.  A recent study by 
the World Bank and PwC found that businesses must spend on 
average 614 hours to prepare their taxes compared to the EU 
average of just 232.  End note.) 
 
¶5. (SBU) Stacey also reported that the CCC believes that 
tourism has the potential to become a major pillar of the 
Czech economy.  Government policy on tourism, however, is 
split between several different agencies creating duplication 
and waste.  Most cultural events are also aimed at a local 
Czech audience rather than striving to bring in foreign 
 
PRAGUE 00000698  002.2 OF 004 
 
 
tourists.  Thus the CCC is recommending that the government 
consolidate tourism policy under one agency, create a 
five-year marketing plan, invest in convention tourism, 
concentrate on on-line promotions, review Czech visa policy 
and fund two major international cultural events a year. 
 
¶6. (SBU) In regard to the Czech Republic's goal of 
transforming itself from an assembly line economy to a 
knowledge-based economy, Stacey noted that the CCC is 
recommending that the government focus its research funding 
on a few priority areas, actively recruit world class 
scholars in those priority areas, and create unique research 
opportunities.  The Czech Republic is too small to try to do 
everything or to rely on its scientists alone.  Stacey also 
urged the Czech government to separate grant-giving and 
grant-receiving agencies.  Stacey also offered AmCham's 
assistance to help the government learn from the experiences 
of other countries such as the U.S. on how to sponsor greater 
university-business cooperation and the greater 
commercialization of research. 
 
¶7. (SBU) Stacey noted that uncertainly about Czech intentions 
regarding the Euro made it difficult for businesses to plan 
long-term.  Thus the CCC is urging the government to clearly 
announce its intent regarding Euro adoption and to establish 
a regularly updated timeline and plan toward Euro adoption. 
Stacey also noted that the Czech Republic has one of the 
worst energy intensity levels in the EU and urged the 
government to make energy efficiency a bigger priority. 
 
¶8. (SBU) Stacey also noted that the large budget deficit and 
growing distrust in public officials should compel the 
government to become both more efficient and transparent.  To 
this end, the CCC is recommending the government sign and 
implement EU conventions on good government conduct, follow 
the Slovak example regarding legislation designed to prevent 
the distortion of competition by public agencies, reduce the 
wide-spread use of no-bid contracts and eliminate the ability 
of government officials to hide their ownership in companies 
competing for government contracts through the use of bearer 
shares.  Finally Stacey, on behalf of the CCC, urged the 
government to increase training for judges on the new 
bankruptcy law, which was prepared with the help of AmCham 
and the Embassy. 
 
Fischer: Electoral System Creates Weak Governments 
--------------------- 
¶9. (SBU) PM Fischer thanked AmCham for the critique and 
recommendations and expressed strong interest in continuing a 
dialog.  He noted that his government is non-political and 
temporary and was limited in what it could do.  He said it 
was unfortunate that his temporary government was 
unexpectedly entering its second six month period.  It is 
much harder to plan for two six month periods rather than for 
one year.  The Czech Republic also needs a strong government 
able to make the difficult political decisions.  An interim 
government should have no place in the Czech Republic and it 
is unfortunate that the politicians have not recognized this. 
 He noted the extension of his government meant that it will 
now have to address some of the issues such as certain 
privatizations and legislation that it expected to leave to 
the politicians and for which, because of its non-political 
nature, it is ill prepared to tackle. 
 
¶10. (SBU) PM Fischer noted that the political system in the 
Czech Republic is broken.  It produces weak coalition 
governments, which have to compromise and are unable to enact 
needed reforms or take difficult decisions.  He was not 
confident that the next election would change this, 
suggesting the likely outcome would be another weak coalition 
or a weak minority government.  This in turn would create 
even more public disillusionment with politics.  Thus he 
thought the Czech Republic should seriously consider changing 
its electoral system.  He also complained of the large divide 
between politicians and civil servants.  Partly as a vestige 
of the Communist era, civil servants are looked down upon in 
the Czech Republic as parasites feeding on taxpayer money. 
Politicians often appoint politicians to positions better 
suited to career civil servants and generally treat the civil 
service very poorly.  As a result, civil servants bear a 
grudge against politicians.  He also complained that the 
Czech political scene suffered from short term thinking that 
enabled difficult decisions and needed reforms to be 
constantly postponed. 
 
Fischer on AmCham Critique 
-------------------- 
¶11. (SBU) Fischer noted that the perception of corruption was 
worst than the actual level of corruption,  Nevertheless, 
 
PRAGUE 00000698  003.2 OF 004 
 
 
Fischer announced that his government is planning to 
introduce a draft anti-corruption package by the end of the 
year, but cautioned that it is unclear how the political 
parties and the parliamentarians will receive it.  He said he 
personally supported Euro adoption.  The Czech Republic had 
made this commitment and should follow through.  His 
government is trying to control the budget deficit to make 
Euro adoption possible in the near future.  Nevertheless, in 
the current budget climate (the Czech budget deficit is 
expected to exceed 5 percent of GDP for the next several 
years) Euro adoption is only a distant dream.  He cautioned, 
however, that Euro adoption is a political issue that will be 
determined by future governments, but agreed that they should 
clearly articulate their goals and plans. 
 
¶12. (SBU) PM Fischer also agreed that tourism offered 
untapped potential and noted that visa policy toward the 
countries in the Western Balkans would be liberalized in 
December.  He also agreed that the government should more 
energetically promote the transition to a knowledge economy. 
University reform needs to be concluded.  It makes no sense 
for Ceske Budejovice to have two public universities, and all 
28 Czech public universities do not need to be research 
universities.  The Czech Republic also does not educate 
people to manage universities and research programs.  It is 
important to ensure that the government is funding research 
programs that are well-managed and competitive in Europe and 
globally and that the government is not just throwing money 
down a hole. 
 
¶13. (SBU) PM Fischer also advocated programs like 
e-government and consolidating government spending.  He said 
it makes no sense for each ministry to order cars and 
supplies separately.  Many ministries could use their 
resources better.  He questioned why the Czech Republic needs 
14 regions, something he admitted he could not change but 
called for slimmer and more effective local government.  On 
energy, he agreed on the need for greater energy efficiency 
and noted the desirability of further diversification of 
energy supplies and suppliers.  On tax reform, he said it was 
a pity that the previous government fell before former 
Finance Minister Kalousek had completed his ambitious tax 
reforms and hoped that the next government would continue 
Kalousek's work. 
 
Fischer on the Economy 
-------------------- 
¶14. (SBU) On the state of the economy, he noted that the 
Czech Republic had entered into the recession with two 
relative advantages.  First, the global crisis did not hit 
the Czech financial system and thus the Czech Republic did 
not experience any significant problems with toxic assets or 
liquidity.  Second, the crisis occurred after a period of 
very strong growth.  He noted that the first victims of 
recession are always the forecasters and economic models.  As 
late as November 2008, all international forecasters were 
still predicting that the Czech economy would grow by over 
two percent in 2009.  Fischer said he was pleased that 
unemployment is still lower that he would have predicted.  He 
cautioned, however, that history shows that in a recession 
the first to be hit is industry and businesses followed later 
by public finances and then households.  Even though real GDP 
fell 5 percent in the first half of the year, household 
consumption increased.  The recovery is following a similar 
path with first industry and businesses and then public 
finances and only then households showing improvement. 
 
¶15. (SBU) Fischer noted that he was proud that the Czech 
Republic resisted calls to increase spending to stimulate 
public consumption.  Instead the Czech Republic pursued a 
modest program designed to stimulate supply and employment. 
He also noted his pride that the Czech Republic had avoided 
protectionist policies.  He added that the recently passed 
package of austerity measures designed to keep the ballooning 
budget deficit under control had been far from ideal but was 
a compromise agreed between the two main political parties. 
To that end it neither reflected Keynesian nor Freemanesque 
thinking.  He also noted that he was reluctant to make 
predictions on next year but thought 1.5 percent growth was 
likely to be in the ball park. 
 
Comment 
------ 
¶16. (SBU) PM Fischer was extraordinarily open and frank about 
the limitations of his government and the Czech political 
scene.  On economic issues it is clear that he is a free 
market, fiscal conservative, whose views more closely track 
with those of the Civil Democrats (ODS) and TOP 09 than those 
of the Social Democrats (CSSD).  His honest, pragmatic, 
 
PRAGUE 00000698  004.2 OF 004 
 
 
low-key approach, apparently devoid of personal ambitions, 
has given his government among the highest approval rating of 
any government in the Czech Republic's short history. 
Thompson-Jones