Central Europe: beginning in the year 2000, the European Union (EU) will assign one billion European Currency Units (ECUs) to assist economic reform in countries aspiring for EU membership, and 500 million ECUs for agricultural reforms, said the EU Commissioner, Franz Fischler. According to Fischler, the most important tasks include the creation of coherent agricultural policies, strengthening rural administration bodies, and raising the quality of food products.

Czech Republic: on 22 June, Moody's Investors Services, the international credit rating agency gave an A-1 rating to a state bond denominated in Czech crowns, on the grounds that the Czech Government has been exercising a healthy financial policy and maintained a good relationship between domestic and foreign debt. At the same time, the agency pointed out that inflation has been kept at an acceptable level of 11.5 per cent.

According to the Czech Statistical Office (CSU), in May the Czech Republic had a foreign trade deficit of 8.8 billion crowns (US$271.6 million). Imports grew by 18.9 per cent and exports by 23.3 per cent, year-on-year. For the first five months the deficit stood at 33.2 billion crowns, down 29.7 billion crowns from the same period last year.

The CSU also declared that the Czech Republic's first quarter Gross Domestic Product (GDP) dropped 0.9 per cent in real terms, compared with the first quarter of 1997. This is the first fall in GDP since 1993.

On 9 July the CSU announced that the Consumer Price Index (CPI) in June grew 0.3 per cent against May, and 12 per cent year-on-year. Average inflation for the last twelve months compared to the previous twelve months stood at 11.5 per cent in June.

The June increase in the CPI has been adjusted for seasonal influences, regulated prices and tax adjustments.

According to the Ministry of Labour and Social Affairs, on 30 June the unemployment index stood at 5.6 per cent of the total workforce, which represents an increase of 0.3 per cent compared to the end of May.

From January to May, Czech exports to Member States of the Central European Free Trade Agreement (CEFTA) totalled 72.9 billion crowns ($2.25 billion). According to the CSU, this was up 20.5 per cent year-on-year. Imports from CEFTA countries rose 10.8 per cent to 55.1 billion crowns, which gave the Czech Republic a surplus of 17.8 billion crowns ($549.38 million). At the end of last week in Prague, CEFTA trade ministers agreed that continued protectionist measures had to be used to safeguard local markets temporarily.

The central bank, the Czech National Bank (CNB), has completed its two year stabilisation programme. For a period of seven years, CNB bought the worst assets from six banks which joined the programme. The move was aimed to prevent an avalanche of bank collapses and to restore trust in domestic banks.

On 6 July the CNB said that the growth rate of the key M2 money supply indicator slowed in May to 6.2 per cent from 6.5 per cent in April (year-on-year basis). The average interest rates on all crown loans rose from 13.46 per cent to 13.48 per cent, while average rates on crown deposits fell from 8.46 per cent in April to 8.20 per cent in May.

Estonia: Kaja Kell, Deputy Head of the Information Department at Estonia's central bank, said that the country's banks will have to raise their share capital to a minimum of five million Euros, or about 75 million Estonian kroons, ($5.17 million) by 1 January 2000. At present there are three banks in Estonia whose share capital is below the required 75 million kroons - Forekspank, ERA Bank and Eesti Krediipank.

According to the Statistical Office of Estonia, the trade deficit in May was 1.9 billion kroons, ($131.03 million) down from 2.4 billion kroons in April, but up 0.3 billion kroons from May 1997. Compared to May 1997, both Estonia's exports and imports increased by 16 per cent in May 1998. The EU countries accounted for 51.4 per cent of Estonia's exports and 60.8 per cent of imports in May 1998.

The Statistical Office also stated that in June, consumer prices in Estonia rose 0.2 per cent from the previous month and 10.2 per cent from the same month a year earlier.

In May, consumer prices in Estonia rose 0.4 per cent from April and 10.8 per cent from the same month in 1997.

According to provisional figures from the Institute of Market Research, Estonia's GDP growth reached eight per cent in the first six months of this year. During the two years that Estonia experienced rapid economic growth, a survey by the Institute states that GDP grew by nearly a quarter.

Hungary: the Central Statistics Office (KSH) reported a preliminary GDP growth of 4.9 per cent in the first quarter of 1998, compared to the same period last year.

Latvia: the total assets of Latvian commercial banks increased by 1.2 per cent over the last month and came to 1.950 billion lats at the end of May, according to the Association of Commercial Banks of Latvia.

Parex Banka topped the list, followed by Latvijas Unibanka and Rietumu Banka.

Lithuania: industrial output increased by ten per cent in constant prices in the first five months of this year, compared to the same period of 1997. The biggest rise was reported in the extraction and mining industry, up 20.2 per cent, and the processing industry, up 14 per cent, while the electricity, gas and water supply slumped by 4.6 per cent. In May, the industrial output was 141.8 million lats in current prices, which was 3.2 per cent less than in April, but 10.6 per cent more than in May 1997.

The European Investment Bank (EIB) will issue Lithuania a 40 million ECU loan. According to the agreement signed in Vilnius by EIB Vice-President, Wolfgang Roth, and Finance Minister, Algirdas Semeta, it is an 18 year loan for a gravel road project. The entire project is estimated at 80 million ECUs. The remaining 40 million ECUs will be allocated by the Lithuanian Motorways Fund.

Poland: according to the Central Statistical Office (GUS), the GDP in the first quarter of 1998 grew by 6.5 per cent in comparison with the corresponding period of 1997. In May, unemployment fell for the fourth time this year and consumer inflation, while at 0.4 per cent, was the lowest in 1998. In the first five months of 1998, industrial output rose by 9.2 per cent against January to May 1997.

According to figures released by MW Drzewieccy SAMAR, car sales were up in the first five months of the year over the same period in 1997, while sales of delivery vans dropped.

The sale of new cars totalled 234,000, a rise of ten per cent, while delivery vans totalled 19,274, a drop of 11 per cent over 1997.

On 24 June, Tarnow city authorities agreed to the setting up of a special economic zone for chemical industry related ventures. The project of a special zone is strongly supported by city and provincial authorities, as well as by Zaklady Azotowe SA, a leading fertiliser maker, and by the Tarnow SA mechanical plant. The new industrial centre will produce ten thousand new jobs and give an incentive for the development of the local economy.

The Chair of the EkoFundusz Board, Maciej Nowicki, reported that the EkoFundusz Board has granted over 64.5 million zlotys ($18.4 million) for the implementation of 25 environment protecting projects. Subsidies will go for projects concerning waste management, the protection of the atmosphere and the reduction of the pollution of the Baltic waters.

The National Bank of Poland (NBP) said that the deficit on the current balance of payments rose to $5.065 billion after the first five months of 1998, compared with $4.859 billion in the corresponding period of 1997.

On 6 July, Deputy Finance Minister, Jaroslaw Bauc, said that the Government approved the proposal by the Finance Ministry concerning the macroeconomic guidelines to the State budget for 1999. The guidelines to next year's budget provides for bringing inflation from this year's forecast of 9.5 per cent to 8.1 per cent, and year-on-year inflation to 8.5 per cent. It also allows for increasing the GDP to 6.1 per cent from the end of 1998 level of 5.6 per cent. The Ministry proposed to set next year's budget deficit at 11.040 billion zlotys, $3.2 billion.

The United States Agency for International Development (USAID) has officially launched a $25 million local government aid programme in Krakow. According to the Head of USAID for Poland, William Frej, the main aim of the three year programme is to promote a local government model that would effectively implement social priorities of local communities and would be responsible for them. USAID has supported Polish democratic institutions and market economy mechanism since 1989.

Russia: Russia and Kazakhstan signed an agreement dividing the northern sector of the Caspian Sea. The agreement will allow each country to claim sub-sea resources on its side of the border, giving them access to oil and gas fields.

The latest economic survey published by the United Nations Economic Commission for Europe warns that Russia is now 'dangerously exposed to volatile short-term capital flows from abroad to finance its budget deficit.' (FT 7/7/98)

Poland: on 24 June the Krakow town council authorised the drawing of a long-term 90 million ECU loan to finance the first stage of construction of the first tramway line in the city. The money will be borrowed in equal parts from the European Bank for Research and Development (EBRD) and the EIB. It will be paid back in 15 years after a four year grace period.

The French Onduline roof material producer, Park Special Economic Zone Mielec, has been given permission to invest in the Euro, and is planning to make an investment of 28 million zlotys ($8 million), in the zone. Onduline intends to produce four million roof plates annually and employ 120 people, said Janusz Sobon of the Industry Development Agency in Mielec. Onduline is one of the four firms that have recently been granted permission to invest in the Mielec Special Economic Zone. Thirty-four investors have invested 510 million zlotys in the Mielec Zone, creating 2,400 new jobs.

Romania: Romanian Prime Minister, Radu Vasile, told members of the Polish Economic Chamber (KIG), that Romania wanted Polish companies to invest in pharmaceutical and textile industries, as well as the transport, tourism and telecommunication sectors of the economy. He added that the chief priorities of his cabinet were halting the decline of the economy, reducing inflation and completing privatisation by the end of next year.

Czech Republic: the Pivovar Velke Popovice brewery reported a loss of 159.8 million crowns ($4.9 million) on revenues totalling 594.583 million crowns in 1997. Pivovar Velke Popovice is the fifth largest brewer in terms of exports of its total production in the Czech Republic, and is 84.21 per cent controlled by Pivovar Radegast.

The National Property Fund (FNM) has proposed the liquidation of the indebted state-owned Benzina company. According to the Government decision, Benzina was supposed to be offered for sale through a tender.

Pragonet, the telecommunications company, reported a rise in last year's operating revenues to nine million crowns, an increase of 260 per cent compared with 1996. The company is fully owned by the city of Prague.

Last year, the Jihoceska Plynarenska (JCP) gas utility in south Bohemia reported a profit of 25.935 million crowns on the revenues at 1.561 billion crowns. JCP has a share capital of 485.523 million crowns ($14.9 million). Its principal shareholders are the National Property Fund with 47 per cent, municipalities holding 34 per cent, and investment funds with 16.5 per cent.

From January to May 1998, the Skoda Auto Company sold 145,341 cars abroad, up 11.1 per cent year-on-year, said company spokesman, Milan Smutny. But the sale on the domestic market went down by 16.3 per cent.

At a general meeting, the Investicni a Prumyslove Stavby (IPS), a construction company, decided to raise share capital by 700 million crowns ($21.5 million), with the option of raising it a further 140 million crowns, said Anna Kovarikova of IPS's Public Relations Department.

Estonia: Estonia's Tallinna Port will receive a 20 million Deutsche Mark ($11.1 million) syndicated loan, lead managed by Hansapank and Bankgesellschaft Berlin. The funds will be used for reconstruction and expansion. Tallinna Port made a profit of 55.6 million kroons ($3.8 million) for the first quarter of this year, up by 14.7 per cent from the same period a year ago.

The council of Estonia's Hoiupank has decided to accept the proposal of Hansa Capital, a subsidiary of Hanspank, to buy Hoiupank's leasing arm, Hoiupanga Liising, for 66 million kroons. Hansa Capital is the holding firm of Hansapank's leasing group, with 40 million kroons of stock capital. Under the Hansapank and Hoiupank merger concept, the operations of the two banks' subsidiaries will be united parallel to the banks' merger.

According to non-audited figures, Estonia's Forekspank suffered 9.58 million kroons of loss as a result of the stock market fall in the first six months of 1998. In the same period in 1997, the bank earned 49.4 million kroons in profit ($3.4 million). The June loss from stocks was mainly caused by a general fall of the Estonian securities market, the bank's management says.

Eesti Energia AS, the country's energy utility, intends to modernise its Narva Power Plant by buying 117 million kroons worth of installations from ABB, according to a contract signed on 6 July. The modernisation, which is to increase the efficiency of turbines by seven per cent, is to be completed in the year 2000.

Hungary: Matra Eromu Rt, the power generator, reported a net sales revenue of 29.864 billion forints ($135.7 million) in 1997, and a gross profit of 2.652 billion forints. The expected profit for 1998 is 2.238 billion forints ($10.2 million).

TVK Rt, the country's largest chemicals producer in terms of sales, has opened a new two billion forint ($9.4 million), plastic plant to produce double layer foil, in a bid to strengthen its position as a plastics producer. (Napi Gazdasag 7/7/98)

On 25 June, Tibor Kuhl, Manager of Dunamenti, the Hungarian power company which is majority owned by the Belgian Tractebel SA electricity, announced that it is to bid for five government projects running between 2001 and 2005. The projects, valued at approximately $1 billion, are the first before Tractebel's expansion into other Central and Eastern European markets.

Lithuania: Birzai-based Naftotiekis oil pipeline earned 15.85 million lits ($3.9 million) in after-tax profits over the first five months of this year. This year the company's profits increased 47.5 per cent over the same period last year, when it earned 10.75 million lits in net profit.

Poland: in an expansion plan, Bank Przemyslowo-Handlowy SA (BPH), plans to double its own one billion zloty ($287.4 million) funds by the year 2000, said the bank's President, Henryka Pieronkiewicz. She added that the bank needs a strategic investor that will help the bank offer its services on foreign markets. The state will retain a 46.7 per cent stake in the bank.

The Motorway Construction and Exploitation Agency said that the Katowice Engineering Work enterprise and Dromex won a tender worth $41.4 million for the construction of an A-4 motorway section. The section, some 4.5 kilometres long, goes through Katowice (southern Poland). The construction will be financed from PHARE funds.

Marzena Ziebicka of Alcatel Polska SA announced that the company signed a 60 million zloty ($17.2 million) contract on the construction of a system of technological telecommunications along the Polish stretch of the Yamal-Europe gas pipeline. The Polish 682 kilometre section of the pipeline will be built by the Transit Pipeline System EuRoPol Gaz SA.

Last year, Telekomunikacja Polska SA (TP SA) reported a net profit of 758 million zlotys ($219 million) on sales of 6.432 billion zlotys. The book value of its assets has been defined at 9.47 billion zlotys.

Optimus, Poland's leading computer maker, is planning to invest $20 million in advanced computer technologies by the end of 1999, said company President, Roman Kluska. The investment will include the Internet, system integration and data transmission. It is first expected to pay dividends in 1999, as 1998 revenues from sales of the firm's technologies are set to grow to 100 million zlotys ($28.9 million), up 74 per cent on the 1996 figure, and to 200 million zlotys in 1999.

On 24 June, Invest-Bank's spokesman, Julita Wojciechowska, said that Invest-Bank SA and Bank Staropolski SA are ready to merge. She added that banking procedures, products and infrastructures have been uniformed, and that the banks can go ahead with the operation. Wojciechowska confirmed that Invest-Bank had a 1997 net profit of 11.5 million zlotys ($3.3 million), 46.5 per cent more than in 1996.

Fugo SA, the Strip Mine Equipment production company based in Konin, central Poland, plans to double exports, consolidate its position on the home market and expand its production offer by the year 2000, said Wojciech Staszak, the company's Chief Executive Officer (CEO). The company's plans to expand the existing co-operation for the years 1998-2000, and to establish new contacts in Germany, Austria, the Czech Republic, Scandinavian countries and the Far East.

The General Assembly of the TU Tuk SA Insurance Society has decided to change the company's name to Daewoo Insurance Society SA.

Czech Republic: Krediet Bank Luxembourg is about to acquire 49 per cent of Patria Finance from MC European Capital Holding SA. Another 45 per cent of Patria is owned by Zdenek Bakala. In 1997, Patria Finance generated a net profit of 98.7 million crowns ($3.04 million). Patria Finance has a share capital of 335.6 million crowns ($10.3 million). (Mlada Fronta Dnes 4/7/98)

Estonia: the EIB has issued 150 million Estonian kroons worth of three year Euro bonds, with an annual interest of ten per cent. The issue was arranged by Finland's Merita Bank.

The International Finance Corporation, an investment arm of The World Bank, issued three year Euro bonds for 100 million Estonian kroons. The issue is the first ever Euro bond issue in the Estonian currency.

Hungary: supermarket firm, Csemege-Julius Meinl Rt, has sold its minority stake in the food retailer, Vaci Ker Rt. The sale of the 49.9 per cent stake follows the purchase of a 100 per cent stake in the real estate company Alfa-Kor Kft. (Magyar Tokepiac 7/98)

Poland: in a statement on 23 June, Bank Handlowy SA said that it has placed 2,759,900,000 zlotys ($796.5 million) worth of orders for PeKaO Bank SA shares. The State Treasury Ministry plans to sell 35 per cent shares of the PeKaO bank to one or more strategic investors in the third quarter of 1998.

On 1 July, Arkadiusz Kaminski of the Finance Ministry launched a two billion zloty, ($576 million) one year bond issue with a permanent interest rate of 20.71 per cent.

Seven institutions submitted bids for the purchase of 4,316,670 shares in Bank Przemyslowo Handlowy (BPH), currently held by the State Treasury. Alicja Kornasiewicz said that BPH will still be privatised this year, with the State Treasury retaining a five per cent stake to cover re-privatisation claims.

BPH's major shareholders are currently the State Treasury with 46.67 per cent, the EBRD with 15.06 per cent, and ING Group of Holland with 12.6 per cent. Other shareholders hold 25.67 per cent.

Russia: the Treasury bill market was hit by the cash crisis, when the Government was forced to accept annual yields in excess of 100 per cent on a 45-day bond issue, and to use reserves to meet redemption payments.

Czech Republic: a total of 49 different companies have expressed an interest in buying Skoda Energetika, which Skoda Plzen plans to sell in September. Among the companies interested in buying Skoda Energetika are the power companies CEZ and Zapadoceska energetika.

Estonia: Estonia's Economic Ministry reported that the French state-owned power monopoly, Electricite de France (EDF), which invested heavily in power stations in Poland and Russia, has now expressed an interest in participating in the privatisation of Estonia's power grids Narva and in the western Laanemaa region, Arvi Hamburg. However, the Ministry also expects bids to be made by Finland's Imatran Voima, Sweden's Vattenfall, ABB, Norway's AEG, and the power company of Hamburg, Germany.

Poland: Treasury Minister, Emil Wasacz, confirmed that the privatisation of Telekomunikacja Polska SA, Poland's largest telecomms company, will go ahead in 1998. The first stage of privatisation provides for the sale of 20-25 per cent of all shares, one-third of which will be traded at the Warsaw Stock Exchange (WSE) and the remaining two-thirds on foreign stock markets. Last year, TP SA reported a net profit of 758 million zlotys ($219 million) on sales of 6.432 billion zlotys. The book value of its assets has been defined at 9.47 billion zlotys. TP SA has over seven million subscribers and 74,000 employees.

On 6 July, Poland presented the restructuring plan of the steel industry to experts from EU countries. The Commission's experts insisted on 'greater clarity with respect to dates and details of privatisation' of Polish steelmills, and in particular, a clear cut pledge to merge the two largest steelworks before their privatisation.

Russia: two consortia, The Royal Dutch/Shell and British Petroleum, which were regarded as the most probable buyers of Rosneft, Russian last state-owned oil company, announced that they will not bid for the company, blaming low oil prices for their decision.

Czech Republic: Restitution Investment Fund (RIF), the largest Czech fund, generated earnings of 1.2 billion crowns ($36.9 million) in the first five months of the year, and its assets stood at 14.7 billion crowns.

Lithuania: the Scandinavian Baltic Development Limited Fund, controlled by the EBRD, will invest in two Lithuanian textile companies, Utenos Trikotazas and the Klaipeda-based Trinyciai, according to agreements signed between the fund and the two companies' major shareholder, the Lithuanian SBA concern, last week.

Albania: the Albanian Democratic Party, led by former President Sali Berisha, is to resume its boycott of Parliament in protest at what it claims is violence and corruption within the Socialist-led Government. Berisha and his Government were accused of being responsible for Albania's descent into anarchy in early 1997, after the collapse of a series of pyramid investment schemes.

Czech Republic: the results of the general election show the left-wing Social Democrats (CSSD), led by Milos Zeman, finishing as the largest party with 74 seats, although unlikely to be able to form a majority government. Following meetings with the leader of four of the parties that gained seats during the weekend's general election, President Vaclav Havel invited Milos Zeman, Chair of CSSD, to start talks on forming a coalition government.

According to the agreement signed on 9 July between Milos Zeman's CSSD, and Vaclav Klaus's Civic Democratic Party (ODS), the ODS will Chair both the Chamber of Deputies and the Senate, and will have posts in leading control organs in the Chamber of Deputies. The terms of the agreement stipulate that neither of them will provoke a vote of confidence, or no confidence, in the government, nor will they make use of possibilities offered by the constitution to dissolve the Chamber of Deputies. They also undertake not to support any such proposals put forward by other parties.

The leadership of Vaclav Klaus' ODS has rejected a proposal by the Christian Democrats (KDU-CSL) and the Freedom Union that the party, which has 63 seats out of 200, form a minority government with their support. 'The ODS intends to proceed so that the result of the political talks is the creation of a long-term stable environment in the Czech Republic,' said Chair Vaclav Klaus. However, the Chamber of Deputies' group Chair, Vlastimil Tlusty, pointed out that the ODS was still in favour of a coalition with the two parties, and that this was more acceptable and closer to it than tolerating a CSSD only government.

Hungary: Fidesz-MPP and the Smallholders party are expected to sign an agreement concerning the responsibilities of new ministries. According to the draft agreement, the Smallholders will control four ministries, agriculture, defence, environment and European integration, while the MDF will control the Ministry of Justice.

Viktor Orban, the new Hungarian Prime Minister, confirmed that his Government will clear the country's budget deficit at five per cent of the GDP in 1999 as planned, and will instead continue with the health, pension and infrastructure reforms. The new coalition government also said it would slash inflation to about ten per cent by the year 2000, and spur growth through a more focused channelling of investments.

Zsigmond Jarai, politician, businessman and reformer, was nominated as Hungary's new Finance Minister. Having substantial expertise in the securities market, Jarai also holds the position of Chair at the Budapest Stock Exchange (BSE) council.

Poland: speaking at the International Bertelsmann Forum in Berlin on 4 July, President Aleksander Kwasniewski warned against delaying the broadening of the EU. The President emphasised that Poland can be helpful in shaping the policy of social dialogue and reconciliation towards new neighbours in the east. He mentioned that countries like the Ukraine and Russia should be included in the 'partnership for prosperity'. The International Bertelsmann Forum focuses on problems of European policy on the threshold of the 21st century.

Russia: Bill Clinton has decided to visit Moscow for a summit with President Boris Yeltsin in September, to discuss Russia's economic situation, the deteriorating situation in Kosovo and disarmament.

Serbia: in accordance with the decision by the Yugoslavian President, diplomatic patrols were increased in Kosovo. The increase of patrols aimed to reinforce international presence in the Serbian province designed to encourage both Serbs and ethnic Albanians to move towards a ceasefire.

Exchange rates (10 July)

Rates derive from the FT as of 10 July 1998.
Rates for Georgia, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan provided by the National Banks of each country