Czech cos struggle to cope with stronger currency
Tuesday, 26 February 2008

Agence France-Presse . Prague

Jiri Suchanek has watched the Czech currency's record breaking start to the year with growing anxiety at one of the country's showcase exporters, agricultural machinery maker Agrostroj Pelhrimov.

The finance director and chief buyer for the family firm employing 1,300 is now trying to re-negotiate some of its contracts to limit the damage caused by the koruna's six per cent rise against the euro so far this year.

'We are trying to re-negotiate some contracts, which is very difficult,' explained Suchanek. Whatever the outcome of such efforts, he already expects profits to be cut as a result by three to four per cent this year at his company exports nearly all its output, mainly to West European and eurozone markets.

Suchanek's misery took another twist on Friday when the koruna broke through the key psychological barrier of 25 to the euro for the first time, making its exports more expensive to European buyers and so less competitive. The local unit is now the fastest appreciating currency this year, overtaking the Israeli shekel and Chilean peso, according to Prague-based Raiffeisenbank economist Ales Michl.

'It has appreciated by 6.0 per cent against the euro and 7.8 per cent against the dollar ... This is a very robust and dramatic rise,' Michl said. The only comfort for Suchanek is that he is far from alone. Around 70 per cent of companies in the open Central European economy are in the same boat, relying heavily on exports for a substantial part of their business.

Sales to eurozone countries or in euros account for 80 per cent of business for the country's biggest manufacturer and exporter, Skoda Auto, part of the Volkswagen group.

'At the moment there is nothing we can do. We have three manufacturing plants here and seven assembly plants in the rest of the world but they just assemble what is produced here,' spokesman Jaroslav Cerny commented.

The Volkswagen unit expects profits to be hit by 'tens of millions of koruna,' Cerny said, adding: 'At the moment there are no plans to move production elsewhere.' Skoda, like other members of the Czech Association of Exporters, is among the strongest backers of a switch to the euro as soon as possible but the centre-right government has set no target date for such a step.

Newly re-elected president and euro-sceptic, Vaclav Klaus, who appoints central bank board members, is in no hurry to see the koruna dropped for a currency he has criticised in the past.

'Some of the smallest companies, those which cannot afford hedging against exchange risks, are threatened with going out of business,' warned the head of the exporters' association, Jiri Grund.

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