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Skip Navigation LinksHome :: Back Issues :: CZECH REPUBLIC: Positive effects of IPB crisis

July 2000

CZECH REPUBLIC: Positive effects of IPB crisis





The imposition of forced administration on Investicni a postovni banka, the Czech Republic's third-largest bank, on June 16 and the bank's immediate takeover by Ceskoslovenska Obchodni Banka, is significant far beyond the change it brings to the Czech banking sector. It also represents a milestone in Czech politics, as the last major bastion of cronyism between banks and politicians and political parties has come crashing down.

Despite the likely burden it will place on the taxpayer, it may be the most positive development in economics or politics over the past decade.

"I think this is the coup de grace to the cosy relationship between the Civic Democratic Party (ODS) and the Czech Republic's most powerful economic actors," says Jonathan Stein, a political analyst at the Institute for East West Studies in Prague. These words were ironically supported by statements made by the ODS leader, former prime minister Vaclav Klaus, who labelled the forced administration and takeover of IPB as "Sarajevo assasination number two". Klaus has made the idea of a "Sarajevo assasination" into a myth since his ministers turned against him and brought down the government in November 1998 while he was visiting Sarajevo.

The more recent statement however appears to admit that the demise of IPB is synonymous with an attack on Klaus or the ODS.

This is supported by the historical evidence of the ODS-IPB relationship, ranging from a Kr55million ($1.45 million) election loan guaranteed in the mid-1990s by a trust set up by IPB managers, to the hosting of the ODS Congress in 1997 by a hotel owned by Porcela Plus. In 1999 Porcela Plus had loans from IPB exceeding Kr6 billion. IPB also has ownership connections or lends to both the Czech Republic's private television stations. No financial wrong-doing is alleged in any of these relationships but politicians have been unhappy about them for some time as they feel they gave the ODS political advantage.

It is therefore not surprising that ODS politicians have been the only ones to protest at the events surrounding IPB. Senior ODS figures even suggested that the attack on IPB could lead to the end of the Opposition Agreement under which the ODS keeps the minority Social Democratic government in power in return for key political positions.

However, Klaus has played down suggestions that the ODS will pull the rug, while the passage of a new electoral law by the Senate on June 23 - the ODS's most important condition for tolerating the government - has underlined the strength of the agreement. The law will give a major advantage to larger parties at the expense of small ones.

The demise of IPB is good news. IPB was symbolic of a system in which powerful financial groups benefited from lax laws, weak enforcement and weak regulation. "IPB was one of the biggest pillars of non-transparency," says Vojtech Kraus, a Czech equities analyst at HSBC in London.

A revitalization programme for Czech industry was slowed down by IPB, which refused to agree on the restructuring of key companies. IPB's loans at such companies will now be assumed by the government-owned Konsolidacni Banka, the main player in revitalization.

The IPB upheaval raises the question what balance of political forces will now emerge in the Czech Republic? Can reform-minded politicians achieve critical mass under the new law?






As I seek to add some eloquence to our track record in support of our claim to be worthy winners, I can only quote Aristotle’s definition of excellence to you: ‘We are what we repeatedly do. Excellence is not an act but a habit’  

An investment banker shows off his knowledge of Greek philosophy in his attempt to win a global Award for Excellence. Unfortunately, Euromoney was unpersuaded

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