RPT-INTERVIEW-Czech PM says firms can cope with crown rise

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By Jan Lopatka

The rise of the Czech crown to record highs helps to offset high energy prices and companies can cope with it, Prime Minister Mirek Topolanek said on Tuesday.

The centre-right prime minister told Reuters in an interview the worst bottleneck in the fast-growing central European economy was the tight labour market, and that the government would launch the first wave of pension reforms early next year.

"Abrupt changes would be a problem, those can be very hardly hedged, very hardly predicted," Topolanek said. "I think that in the end entrepreneurs can cope with gradual crown rise."

The crown jumped to all-time high of 25.933 to the euro on Monday, driven by an outlook for higher interest rates and strong overall economic performance. It firmed to 26.02 from 26.10 after Topolanek's comments.

The currency has gained 5.8 percent since January, helping to slow down an inflation spike that brought consumer prices to a six-year high of 5 percent in November and prompted the central bank to raise interest rates four times this year.

"Although entrepreneurs are complaining (about the crown), still the trade balance is positive, we are able to export even under worsened conditions," Toplanek said.

"It shows we still have reserves in labour productivity, costs," he said.

An inflexible labour market is the main trouble in the economy where growth dipped to 6.0 percent in the third quarter from 6.3 percent in the previous three months, the prime minister said.

"The tightest bottlenecks... are connected with the rigidity of the labour market," he said.

The government is preparing a liberalising labour code, plans to crack down on illegal labour and welfare abuse, and will loosen bureaucracy to lure more foreign workers, he said.

Unemployment has dropped to 5.6 percent in November from 7.3 percent a year ago, the lowest reading since a new methodology was adopted in 2004, and companies have complained they cannot find enough workers even though there are 312,558 jobless.

"At least 150,000 people are available immediately, so with this (large) offer of jobs they should be pushed a little by the social system to take a job," Topolanek said.

PENSION REFORM NOW, EURO DOWN THE ROAD

Topolanek said he planned to submit to parliament the first stage of a pension reform early next year, possibly in January, even if the government -- which holds just 100 seats in the 200-seat lower house -- does not agree with the opposition.

The reform mainly raises the retirement age gradually to 65 years from 63, and raises the compulsory number of years of social insurance.

Next steps would create an account to pay for a switch to a system where people would be allowed to divert part of their insurance payments into pension savings. At the moment, all payments by the working population go directly into pensions for the elderly.

Topolanek also reiterated the government was not ready to set a firm euro target date, a position taken earlier this year despite attempts by Finance Minister Miroslav Kalousek to push for a 2012 target.

"Until this government has certainty that it will enact the mid-term health and pension reforms, then setting any date... I consider as a moral hazard which we do not want to afford," Topolanek said. (Editing by Ian Jones)

Keywords: CZECH TOPOLANEK/

[PRAGUE/Reuters/Finance.cz]