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Strategies & Market Trends : Investment in Russia and Eastern Europe

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To: Paul Berliner who wrote (1056)8/27/1999 4:19:00 PM
From: CIMA   of 1301
 
Communist Party Set to Gain Seats in Czech Senate

Summary:

Communists have attained their greatest popularity in the Czech
Republic since the end of the Cold War and they are poised to gain
seats in upcoming Senate elections. The rise of the party in one
of NATO's newest members signals dissatisfaction with economic
change and the sudden and very real burdens of membership in the
alliance. While the communists will not drastically alter the
Czech government, they are a bellwether of how poorly change is
being received in NATO's newest members.

Analysis:

Czech opinion polls indicate the Czech Communist Worker's Party
(KSCM), which already has 4 seats in the Czech senate, will
increase its share in upcoming elections. One-third of the 81
seats are up for grabs in the August 27 vote. The front-runner is
the dominant Czech Social Democratic Party (CSSD), now holding 23
seats. The second largest party, the right-wing Civic Democratic
Party (ODS), holds 26.

If opinion polls accurately reflect voters' intentions, the Czech
senate will be a very different place after the election.
Communist representation could double. At this point KSCM's
popularity stands at about 17 percent, with the ruling party CSSD
at 15 percent and the ODS at 23 percent.

While there is lingering resentment at the loss of Slovakia, much
of the surge in support for the KSCM and right-wing opposition
groups is pure frustration at a badly mishandled economy. The
Czech Republic, like Slovakia, is in a deep recession. Worried
about unemployment, the Czechs are increasingly interested in
trying to keep Slovak workers out of the republic.

Topping it off, the republic's decision to join the European Union,
which is struggling even to build a common currency, is widely seen
as stretching the limits of a mismanaged economy. Czech dependence
on the EU is growing, too. Czech central bankers are testing the
international bond markets, with reported plans for a US$300
million bond issue.

Though desired, the reality of the transition to the West has been
a jolting surprise to many Czechs. Acceptance to NATO earlier this
year has come with a considerable price tag. Early in the year,
western militaries began turning up the pressure for aspiring
nations to modernize their militaries. And as soon as the summit
in Washington granted the Czechs membership, they were asked to
extend overflight rights to alliance aircraft enroute to bomb
Yugoslavia. As the war dragged on, and talk of invasion mounted,
the republic faced the unpleasant prospect of having to help invade
a fellow Slavic nation.

The communists opposed entry into NATO, when the senate voted in
April, 1998, to seek membership by a margin of 64 to 2. Ever since
then, the KSCM has been taking advantage of anti-Western sentiment,
including feelings against radical economic reform. NATO's bombing
of Yugoslav bridges on the Danube River triggered Vojtech Filip,
the leader of the KSCM deputies group, to accuse U.S. President
Bill Clinton, U.S. Secretary of State Madeleine Albright, and Gen.
Wesley Clark, the NATO commander, of war crimes. Though extreme,
these accusations are consistent with the KSCM perspective.

KSCM is hostile to the growing U.S. and German influence in the
region and the West's effort to co-opt post-Soviet states for
Western strategic advances. Features of KSCM that make the party
attractive to voters are its active campaign for socialism, its
anti-corruption platform and cooperation with unions and interest
organizations.

Support for the party is genuine; but communism in the Czech
Republic is not fashionable, and is not favored by dispirited
youth. The party appears set for a promising minority role in the
parliament. Senate seats are held for six-year terms, allowing
KSCM to profit heavily.

The rise of communists in what is arguably a crown jewel for NATO
suggests a broader problem. Democracy has clearly won in what was
once called Eastern Europe. Capitalism is still an uncomfortable
companion. Poland's coalition government has begun to tackle
difficult economic reforms, particularly in heavy industry, that
were once seen as too tough. Reform is the price of joining the
EU. Poland will have to grapple with tension between its trade
unions and pro-market forces.

Hungary has created growth by selling off state-run enterprises to
foreign investors; today foreign-owned firms account for one-third
of the economy and two-thirds of exports. But Hungary, too, has a
long way to go in becoming part of the West it has ostensibly
joined.

In the Czech Republic, an increase in KSCM senate seats will give
the communists more leverage, particularly as their politics are
not entirely incompatible with other parties. With a larger senate
presence, the KSCM will be involved in more of the give-and-take of
democratic politics. This will enable it to influence the outcome
of much legislation, including legislation dealing with relations
with the West. The Czech Republic's cooperation with NATO, then,
stands a greater chance to be challenged in the long term. This
will be especially true if other parties start contending with
KSCM's popularity by borrowing from the anti-NATO, anti-EU
sentiments in their campaigns.

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