Country Overview
Country Facts
Overview of U.S. Government Assistance
In FY 2005, the USG allocated an estimated $16.33 million in assistance to the Czech Republic, including:
In FY 2005, a total of 157 Czechs traveled to the United States on USG-funded exchange programs.
The last year for new SEED bilateral funding to the Czech Republic was FY 1997, although some additional SEED funding for public diplomacy and democracy initiatives were provided to Czech Republic and other graduate countries through FY 2003. Some forms of non-SEED funded U.S. assistance to the Czech Republic continued through FY 2005.
FY 2005 Assistance OverviewU.S. STRATEGIC INTERESTS
The United States and the Czech Republic share strong historical ties and fundamental values of democracy and market economics. As a legacy of its struggle against communist dictatorship, the Czech Republic has embraced a pro-transatlantic foreign policy and democratic transformation around the world. With its membership in the North Atlantic Treaty Organization (NATO), European Union (EU), and the World Trade Organization (WTO), combined with increasing awareness of its role in international affairs, the Czech Republic has proven an important ally in promoting democracy, market reforms, anti-terrorism, and non-proliferation.
KEY ISSUES
The Czech Republic is a success story of transition from a communist dictatorship and planned economy to a thriving democracy and market economy. The Czech Republic is now an emerging donor, funding small but active development assistance and democracy transition assistance programs of its own. The Transition Promotion Unit in the Ministry of Foreign Affairs is targeting democracy promotion in Cuba, Iraq, Belarus, and the Balkans through such programs as training Iraqi judges and supporting the development of NGOs in Iraq, supporting dissidents and raising political awareness in Cuba, and supporting opposition political parties and training local government officials in Belarus. The last bilateral SEED funds were disbursed in calendar year 2003. In FY 2005, the Embassy provided approximately $101,500 of public diplomacy funds in the form of small grants.
Since joining the EU in May 2004, the Czech Republic continues to make strides and tackle challenges associated with a fully functioning democracy and market economy. Major achievements in the area of democracy include a peaceful transition of power following a corruption scandal that ousted the prime minister, and an active foreign policy focused on the export of democratic transformation know-how. Key economic developments in 2005 include record economic growth (forecasted 2005 GDP growth is 4.8 percent), doubling of foreign direct investment (FDI), and a significant reduction of the budget deficit. The Czech Republic has announced that it will adopt the euro in 2010.
Key challenges in both the political and economic arena remain, including corruption and institution building. Sixteen years after the revolution that ended one-party rule and planned economy, the Czech Republic continues to play catch-up with its legislative infrastructure to support and secure its democracy and market economy.
FY 2005 Country Program Performance
Democratic Reform
The Czech Republic is now an emerging donor in the area of democratic reform. In 2004, the Czech Republic set up its own unit within the Ministry of Foreign Affairs to promote democracy in other countries such as Iraq, Cuba, Belarus and the Balkans. In some cases, the United States and the Czech Republic are coordinating efforts in this area.
The country still has serious problems with corruption. A September 2005 public opinion poll identified corruption as the leading problem in the Czech Republic. Several attempts were made to deal with the problem, including introduction of a conflict of interest bill, and a code of ethics in parliament. As of year end, neither had been successfully implemented.
The corruption problem contributed to, but was not the sole cause of, frequent turnovers at the highest levels of government. Prime Minister Gross was forced out of office in 2005 after questions were raised about the source of funds used to purchase his private home. The current Prime Minister, Jiri Paroubek, is the third since the general elections in the summer of 2002. Only five of the original 16 members of the cabinet chosen after that election remain in office today. Several ministries, including justice, defense, health, and agriculture, have had at least three ministers since the 2002 elections.
U.S. ASSISTANCE PRIORITIES
The United States no longer provides bilateral SEED funding to the Czech Republic for democratic reform, although implementation of small grants, funded through the SEED-funded Democracy Commission in prior fiscal years, continued by Czech NGOs.
ROGRAM PERFORMANCE
The USG provided approximately $77,000 in public diplomacy funds for projects related to democratic reform, in the form of small grants to Czech non-profit organizations. These projects included: support of multicultural and human rights education; enabling free access to information; and developing codes of conduct for government officials. Cooperation with former assistance grantees continued in the broader field of promoting corporate social responsibility, raising public awareness of corporate philanthropy, and NGO management.
Economic Reform
The Czech Republic achieved unprecedented macroeconomic stability and growth in 2005, with 2005 GDP growth forecasted at 4.8 percent and inflation (consumer prices) around 2 percent. Foreign direct investment (FDI) inflows doubled from 2004 to 2005, reaching CZK 240 billion (or $10 billion).
Despite this stability and growth, the Czech economy continues to face significant challenges in the area of economic reform. Structural reforms in fiscal policy and labor markets are particularly pressing given the Czech Republic's self-imposed target of 2010 for adopting the euro. While bigger-than-expected tax revenues resulting from harmonization of Value Added Tax (VAT) with EU regulations and faster-than-expected growth have both contributed to a healthy budget situation in 2005, the situation cannot be regarded as sustainable until two fiscal reform issues are addressed: indexation and mandatory spending. The Czech government budget is a cyclical budget indexed to the previous year's budget instead of the previous year's spending levels, which results in significant slack. Mandatory expenditures have been increasing since the 2002 elections, and stand at 62 percent of the 2006 budget. The biggest portion of mandatory expenditures goes towards social benefits. With one of the fastest aging populations in Europe and one of the lowest fertility rates in the world, reform in the social benefits system will have significant impact on the fiscal sustainability of the Czech economy.
The loss of independent monetary policy once the Czech Republic adopts the euro means that the adjustment of the economy to shocks will place higher demands on other adjustment mechanisms - primarily the stabilization function of public finance, labor market flexibility, and the financial system to absorb shocks. Given the lack of reform in these areas, the Czech economy remains vulnerable to external shocks and downturns in the business cycle.
Corruption also remains a significant problem. Transparency International Czech Republic reports that non-transparent public contracts caused a loss of CZK 32 billion (about $1.5 billion) in 2004. TI attributes this to the lack of efficient controls in the government procurement process and excessive influence by politicians in public contract awarding procedures.
U.S. ASSISTANCE PRIORITIES
The USG no longer provides economic reform assistance to the Czech Republic. However, some public diplomacy programming provides professional training and exchanges to Czech decision-makers in areas important to economic reform.
PROGRAM PERFORMANCE
The USG continues to nominate and support individuals for training on intellectual property rights in the United States. In August and September 2005, the USG provided $12,000 for two judges and one prosecutor from the Czech Republic to receive such training at the U.S. Patents and Trademarks Office in Virginia.
Social Reform and Humanitarian Assistance
With a fast-aging population similar to the rest of continental Europe, combined with the second lowest fertility rate in the world, the Czech social benefits system is a significant drain on the country's resources. By 2050, the elderly will account for 53 percent of the population and the working-age population will shrink by 22 percent compared with 2005. Almost 30 percent of all spending in 2006 will go to pension benefits. The Czech Republic has one of the highest shares of public spending on healthcare among OECD countries. The International Monetary Fund projects budgetary spending on pensions and healthcare will increase from 14 percent of GDP in 2005 to 22 percent by 2050. The cost of the current level of unemployment (between 8 percent and 9 percent), in the form of benefits paid and taxes foregone, equals the size of the current budget deficit (about $4.2 billion). Despite these social pressures, the proposed new labor code gives labor unions additional powers and fails to make the labor market more flexible.
The Czech Republic is an emerging donor in the areas of humanitarian assistance. In 2005, the Czech government approved humanitarian assistance to the United States for Hurricane Katrina relief efforts and to Pakistan for earthquake relief efforts.
U.S. ASSISTANCE PRIORITIES
The Czech Republic is no longer receiving USG assistance in this sector.
Security, Regional Stability and Law Enforcement
As a relatively new member of NATO, the Czech Republic remains focused on achieving US/NATO interoperable "niche" capabilities as well as continuing deployment of forces to support the global war on terrorism (GWOT). Czech Republic niche capabilities include nuclear, biological, and chemical weapons (NBC) defense, deployable medical forces, security police/peacekeeping forces and Special Forces. Special Forces, medical forces and security forces were deployed during FY 2005. The Army of the Czech Republic was assigned leadership responsibility of the International NBC Defense Battalion, utilizing training and equipment received through the International Military Education and Training (IMET) and Foreign Military Financing (FMF) programs.
In addition to maintaining a vigilant antiterrorist posture, the major challenges confronting Czech law enforcement authorities include organized crime, money laundering, and corruption. Transnational organized criminal syndicates have successfully operated in the Czech Republic since the fall of the Communist regime, and are deeply involved in narcotics trafficking, fraud, smuggling, and trafficking in persons, and other criminal efforts. Although the use of drugs such as heroin is relatively stable, the Czechs are among Europe's leading users of recreational drugs. The Czech Republic is a destination, transit, and to a significantly lesser degree, source country for trafficking in persons. Although they are generally effective in maintaining order and enforcing the laws of the Republic, Czech police are hampered by lack of training and resources, statutory shortcomings, and there are significant indications of morale problems within the force.
U.S. ASSISTANCE PRIORITIES
In FY 2005, the USG provided $7.8 million of security assistance to the Czech Republic through FMF and IMET with the following goals: 1) increase the ability of the Army of the Czech Republic to prepare and deploy forces that can provide required support to NATO and coalition operations; 2) assist in the development and enhancement of NATO-supported niche capabilities, and support the ability of the Czech Republic to meet its NATO Force Goals; and 3) assist in the implementation of defense reform activities required to maximize military capabilities available to NATO and coalition operations.
In the area of law enforcement, the priority remains ensuring the continuation of strong and active Czech support in the battle against terrorism and against those who support or finance terrorist activities. In support of this objective, however, other law enforcement priorities target activities such as corruption, organized crime, trafficking in persons, drug trafficking, and fraud. These practices undermine regional security and could potentially offer terrorists a more permissive environment.
In FY 2005, the USG also provided funds to the Czech Republic through the U.S. Department of Justice for training on issues such as cyber crime and organized crime, as well as using public diplomacy funds to provide small grants, exchanges, and speakers tours on issues related to the transatlantic security dialogue, fighting global terrorism, and combating trafficking in drugs and persons.
PROGRAM PERFORMANCE
The Czech Republic presently uses its Foreign Military Financing grant money to enhance its ability to operate in coalition and NATO operations, reform its military planning capability and modernize its equipment. Current major open cases include modernization of the Czech rapid reaction/special forces with specialized equipment in support of their NATO "niche" capabilities and interoperability.
The International Military Education and Training program continues with successes in terms of filling top leadership positions with graduates from the program. Many graduates from past years fill top leadership positions within the Army of the Czech Republic and the Ministry of Defense. Training continues to support professionalizing the armed forces, especially in the area of non-commissioned officer (NCO) leadership development, a critical requirement for the Czech armed forces since conscription ended in December 2005.
In FY 2005 the Czech Republic spent 100 percent of its $1.9 million IMET budget, and received an additional $151,000 due to excellent execution. IMET sent 91 students to training in the United States, six to training in other locations, and conducted two Defense Institute of International Legal Studies (DIILS) Mobile Education Teams (MET). The Czech Republic routinely places its senior service school graduates in key leadership positions throughout its Ministry of Defense and the General Staff of the Czech Armed Forces.
In FY 2005 the Czechs received $5.9 million in FMF and an additional $6 million through the Coalition Solidarity Fund from the FY 2005 supplemental appropriation for their support of the GWOT. The Czechs have directed the majority of this money towards further developing their deployable forces, niche capabilities, and continuing established requests for combat arms (M4, M60, Mk43 etc.), tactical communications equipment (manpack radios, vehicle radios, etc.) and NBC Defense detection, identification and decontamination equipment.
FY 2005 Counterterrorism (CT) assistance focused on requests for participation in the Counter Terrorism Fellowship Program and METs. The Czech Republic receives no direct allocation of CT funds, but has been successful in gaining class seats and events after applying for available resources. The U.S. Embassy's working relationships with Czech government organizations involved in combating terrorism have improved significantly since their representatives attended various U.S.-sponsored CT programs, which generated interest for hosting a seminar in the Czech Republic.
The Czech Republic no longer receives SEED-funded law enforcement assistance. As a result, public diplomacy programs play a critical role in advancing USG interests in the country in the area of law enforcement. In 2005, the Department of State sponsored conferences in the Czech Republic on terrorist finance and drug trafficking, and the Department of Justice sponsored a program for investigators and prosecutors on organized crime. The USG has also sponsored prosecutors and law enforcement professionals' participation in exchanges and visitor programs. The USG has worked effectively with EU police representatives in the Czech Republic, particularly in combating trafficking in persons.
The loss of USG assistance will result in a slight decline in influence in this area, although security and law enforcement liaison and cooperation between the United States and the Czech Republic remain very strong. In 2005 the USG concluded negotiating a new Mutual Legal Assistance Treaty (MLAT) and a new Extradition Treaty with the Czech Government. The Czech Government has been an active and aggressive partner in the war on terror and elsewhere, but the absence of funding has hurt police capabilities and will somewhat diminish our ability to exchange experiences and best practices in problems of mutual concern.
The USG provided approximately $72,000 in Department of Justice funds for training to combat cyber crimes, support for the Central European organized crime working group, and conducting a "basic trial advocacy" training seminar. The USG also provided $24,500 in public diplomacy funds for small grants for programs promoting transatlantic security dialogue, and issues related to fighting global terrorism. These grants also funded exchanges through NATO tours for key Czech officials, journalists and academics. The USG also supported and organized a program of two USG speakers in the field of law enforcement for programs on combating trafficking in drugs.
Click for FY 2005 Funds Budgeted for U.S. Government Assistance to Czech Republic [PDF format]
