By Jana Mlcochova and Jan Lopatka
PRAGUE, Feb 25 (Reuters) - The Czech Republic may go ahead
with a planned eurobond issue but only if spreads reflect the
country is in a better position than other central and east
European states, Czech Finance Minister Miroslav Kalousek said
on Wednesday.
Kalousek told Reuters in an interview the crown's rate was
undervalued and the ministry could consider steps to boost it in
case it remained too weak.
The ministry dropped a plan to sell five-year eurobonds this
month after mandated banks offered the Czechs spreads of about
250 basis points, which the ministry considered poor at the time
and potentially hurting the domestic bond market.
"I still believe that (a eurobond) is possible under
relatively reasonable conditions, which is not to say that I
will sell tomorrow," Kalousek told Reuters in an interview.
"I do not so much care about the spreads but rather about
being able to demonstrate that we are not in the same pack with
the entire central Europe, that has much bigger significance for
me," he said.
Kalousek said the government can finance its entire domestic
borrowing needs domestically this year, thanks to a 70 billion
crown ($3.16 billion) cash cushion from the last year when the
government had a lower-than-planned deficit, and transfer of
31.7 billion crowns from reserve funds.
"At this point for our needs the domestic market has fairly
good absorption ability," he said.
He said that if economic growth this year is around zero,
the government financing needs will be below the target of
around 140 billion crowns. The ministry had said gross borrowing
need was 148.4 billion crowns this year including a 15.8 billion
crown credit from the European Investment Bank.
"The deficit will be bigger, now the question is by how
much... on the other hand we have, thanks to a much smaller than
planned deficit last year, a cushion of roughly 70 billion,
reducing our need to issue (debt)," he said.
Deputy Finance Minister Eduard Janota has said the country's
public sector deficit may reach about 4 percent of gross
domestic product this year, up from a planned 1.6 percent.
Kalousek said the crown currency's exchange rate, battered
along with other regional currencies in the past months, was
clearly undervalued and said converting funds the country gets
as EU subsidies on the open market was an option to boost the
currency.
The government has an agreement with the central bank,
struck when the crown was much stronger, to divert the funds
from the market. The net inflow was 22.8 billion crowns last
year.
"We are considering all tools... Obviously it is one of the
back-up possibilities that we will stop watching strictly that
conversions take place outside the foreign exchange market,"
Kalousek said.
He said the government would use that option in a situation
that the exchange rate continued to be outside a range
corresponding to the country's real convergence with western
Europe. He declined to say specifically where would he like to
see the crown to be.
"Now it is clear that just like the crown was a year ago
overvalued, that now it is off on the other side," he said.
(Editing by Toby Chopra)
