Czech Graft Worse Than Rwanda Propels Niche Parties Before Vote

When Milan Kastil was asked for a
bribe to avoid a 250,000 koruna ($13,000) fine that threatened
to ruin his Prague restaurant, he worked with Czech police to
have the corrupt officials arrested in a sting operation.

“The fine was unjustified and paying bribes is against all
my principles, so I had to report them,” Kastil, 38, said in an
interview. Elections this week “present a very hard choice. The
only option I see is to vote for a new party that hasn’t been
tainted by corruption.”

Niche parties with names such as Head Held High and Dawn
are tapping into anger over graft, which Transparency
International ranks worse than in Rwanda, after Prime Minister
Petr Necas was sunk by a spying and corruption scandal. Polls
show a record seven parties may enter parliament, with a
fragmented legislature threatening to extend policy paralysis
and hinder recovery from the nation’s longest-ever recession.

“There’s the possibility of a stalemate,” Vaclav France,
an analyst at Raiffeisenbank in Prague, said yesterday by phone.
“It may be very difficult to create a stable government.
Protracted post-election negotiations, and the related
uncertainty over future government policies would probably be
the worst outcome for the market.”

Niche parties that have campaigned against graft, which
also include ANO, or YES, and Dawn, are backed by a quarter of
the electorate, according to the latest polls. ANO, founded by
self-made billionaire Andrej Babis, who’s labeled rivals inept
liars out for personal gain, is as high as second place.

Public Mistrust

Ninety-four percent of Czechs perceive corruption as
widespread throughout government, the worst result among
countries with a free press, according to a Gallup survey
published Oct. 18. The nation ranked 54th in Transparency
International
’s 2012 Corruption Perception Index, the lowest
among the European Union’s three largest post-communist
economies and four places worse than Rwanda.

Fraud in public contracts is about 100 billion koruna a
year, the size of the Czech budget deficit, according to Karel Janecek, who co-owns Prague-based algorithmic trader RSJ AS and
who’s set up an anti-corruption foundation.

The graft scandal that toppled Necas, in which three of his
former lawmakers were charged for swapping their seats for jobs
at state companies, “underlines the magnitude of the problem,”
Gallup said in a statement. Those detained had parliamentary
immunity and escaped prosecution.

Wine Box

Opposition politicians have also become embroiled in graft
scandals. Police arrested then-Social Democrat lawmaker David
Rath last year in possession of a wine box filled with 7 million
koruna of banknotes that prosecutors said was bribes from public
projects. Rath, who now faces a trial for corruption, has denied
knowledge of the money and wrongdoing.

With trust in government, parliament and political parties
at historical lows, non-parliamentary political parties and
movements have a substantial chance to get elected, according to
Jan Herzmann, a statistician who analyzes opinion polls.

“People want to see the state defending their interests,
they don’t want it to be just a front for transferring public
money into private hands,” he said Oct. 3 by phone.

The Czech Republic has a history of unstable governments
and will usher in an eighth premier in a decade after the Oct.
25-26 vote, more than Italy or any other EU country in the last
decade. Elections in 2006 resulted in a hung parliament, leading
to months of wrangling before Mirek Topolanek’s cabinet was
approved. It collapsed three years later in the midst of the
country’s EU presidency.

Low Yields

At the same time, investors have ignored the country’s
political track record as the economy doubled in size in from
2003. The yield on the country’s 10-year government bond has
averaged 3.9 percent over the past decade, compared with 5.7
percent for Poland and 3.5 percent for higher-rated France. The
Czech 10-year yield was at 2.38 percent today, 11 basis points,
or 0.11 percentage points, below comparable U.S. Treasuries.

While polls suggest three niche movements may cross the 5
percent threshold for entering parliament, a traditional party
retains the upper hand as voters seek policies to revive an
economy that shrank for six quarters through the end of March.

The Social Democrats, the main opposition party during the
last seven years, are poised to win the elections with as much
as 26 percent support, most polls show. It’s considering forming
a single-party government that may be backed by the Communist
Party in parliament.

“Despite some changes in ratings, our baseline scenario
remains a center-left minority coalition government supported by
the Communist Party,” Otilia Dhand, an analyst at London-based
Teneo Intelligence, said Oct. 10 by e-mail. Such an option
“could in fact be a relatively stable arrangement.”

That hasn’t deterred Babis, who vows to battle the
“stealing and lying” that’s become ingrained in Czech politics
with his ANO party enjoying 16 percent support.

In Prague, those promises have resonated with Kastil, who
plans to vote for the tycoon, the country’s second-richest
person with a fortune Forbes estimates at $2 billion.

“I can’t give my vote to any of the existing parties
because they already had their chance to stop graft,” Kastil
said. “They missed it and nothing happened.”

To contact the reporters on this story:
Peter Laca in Prague at
[email protected];
Lenka Ponikelska in Prague at
[email protected]

To contact the editors responsible for this story:
James M. Gomez at
[email protected];
Balazs Penz at
[email protected]