Quotation of the Month: "You Must Have a Message, and Sell It."

New York Times correspondent Jane Perlez analyzes the charismatic Prime Minister of the Czech Republic

Vaclav Klaus, the conservative economist who is Prime Minister of the Czech Republic, is on stage in the cultural hall of Sokolov, a coal-mining town where the pollution is so bad the air tastes of grit. He is explaining to an admiring audience how all is well in the land. Unemployment, at 3.3 percent, is the lowest in Europe. Inflation is 10 percent, one of the most moderate rates in the former Eastern bloc. And the country has a healthy budget surplus of $400 million, the only Central European nation in this enviable position.

The sole dissonant note during the smoothly orchestrated performance comes from some students in the balcony holding up a white banner to protest proposed nationwide fees for university education, and the combative Klaus rises to the provocation.

"Why should anyone in this room pay for the investment in somebody else's future? asks the Prime Minister, cutting the air with a few karate chops and staring down his young critics. The audience, mostly middle-aged and elderly, likes the jousting and erupts in applause.

Klaus, in a double-breasted blazer that matches his graying hair, sounds like a professor going for the kill. "Every investment costs something," he says. "If you want to invest, you have to pay something first. Then you get your money back." There's not even a whimper from the balcony, the banner disappears and Klaus moves on to another favorite theme, even more radical in a post-Communist society: means-tested welfare and social security benefits.

"I'm convinced not everyone should get them," he says. "Why should the people in this room support the [benefits of the] general director of the porcelain factory? We don't think these people should have them, and I think you all agree." Everyone in the auditorium, most of them members or believers in the Prime Minister's Civic Democratic Party, nods in agreement.

Vaclav Klaus is the most uncommon political leader in Central Europe. He was not a dissident; he was not a reform Communist. In the 1970s and 1980s he developed an affinity for free-market thinkers like Milton Friedman and Friedrich von Hayek as he argued with other junior colleagues in the state bank about the right economic model for a future Czechoslovakia. At 54 he even looks different: none of the overindulgent pudginess, wan complexion or badly cut suits one usually encounters among the bureaucrats of Central Europe.

For the Czech Republic, after more than five years of Klaus's free-market policies, the results are obvious, even in village squares far from Prague's bustle and swagger. With the speedy series of highly organized privatization steps following Communism's fall in 1989, the Government now boasts that close to 80 percent of the economy is wholly or partly privatize, although independent analysts put the figure closer to 60 percent.

So far, in order to maintain social peace, he has maintained much of the safety net. Rent controls, for example, as well as subsidies for electricity and heating have remained in place. This year Klaus is trying to nibble at the allowances paid to all families for children up to age 18 no matter what the family income. He has introduced legislation gradually to raise the retirement age for women from 55 to 62 and for men from 62 to 65 and to impose means tests for some additional social security benefits.

Klaus was appointed Finance Minister in the heady days of December 1989 and elected Prime Minister in June 1992. Mass privatization, his chief instrument of change, effectively transferred the vast majority of state-owned companies to the private sector by the end of 1994. Under the Klaus plan, every adult could buy a booklet of vouchers for about $35 and then either invest in a broad-based mutual fund or use the vouchers to bid for shares in individual state enterprises. The strategy gave Czech citizens a large and stable stake in the transformation process.

At the same time, restructuring big enterprises, many of which still retain archaic management and a bloated work force, [has been delayed]. Worse, many newly privatized companies have big, bad debts, which are held by state banks, which in turn own many of the investment funds in which Czechs have invested their vouchers.

The Prime Minister believes the marketplace will take care of everything: "I don't think the free market means high unemployment. I don't think the free market means thousands of bankruptcies a day." He expects that rapid expansion of new businesses, many of them connected to the Czech Republic's tourist boom, will absorb the fallout from structuring inefficient and costly enterprises, like O.K.D. coal mines in Ostrava, where there are more than 60,000 employees.

Though he had never participated in politics before November 1989, Klaus probably has had the fastest trajectory of any leader in Central Europe. This is largely because he understood, more quickly than Havel and his dissident friends, the need in a modern political party for a power base beyond his expertise as an economist. What was the source of his political instinct? "What you must have as a politician is an understanding of the relationship between the citizen and the state. I had been spending all my life studying economics, studying money, public finance. And public finance is nothing else than a sophisticated discussion of the relationship between the individual and the state."

He also understood the need to communicate. "You must have a message and sell it." As a vehicle for his message, he carved a party out of the remnants of Havel's Civic Forum, the opposition grouping that had brought down the Communists. Through his Civic Democratic Party, Klaus has run a permanent campaign that reaches deeply into the country.

Some economists still believe that Klaus's biggest test is yet to come. How will society react to restructuring and bankruptcies of the newly privatized companies. Klaus "has been more right than wrong" said one Western diplomat. Klaus would surely agree with this assessment.

Excerpted from "The Fist in the Velvet Glove," New York Times Magazine.