Czech and Slovak Republics 1993/1994

174 Pages·10.169 MB·English

by  OECD

URVEY:
THE CZECH
AND SLOVAK
REPUBLICS
OECD
OCDE
1994
CENTRE FOR CO-OPERATION WITH THE ECONOMIES IN TRANSITION
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THE CZECH AND SLOVAK REPUBLICS
1994
ORGANISATIONFORECONOMICCO-OPERATIONANDDEVELOPMENT
ORGANISATION FOR ECONOMIC
CO-OPERATION AND DEVELOPMENT
Pursuantto Article 1 oftheConvention signed in Paris on 14th
December 1960, and which cameinto forceon 30th September 1961,
the Organisation for Economic Co-operation and Development
(OECD)shallpromotepoliciesdesigned:
to achieve the highest sustainable economic growth and
employment and a rising standard of living in Member
countries, whilemaintainingfinancialstability,andthusto
contributetothedevelopmentoftheworldeconomy;
to contribute to sound economic expansion in Member as
well as non-membercountries in theprocess ofeconomic
development;and
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance with
internationalobligations.
The original Member countries of the OECD are Austria,
Belgium, Canada, Denmark, France, Germany, Greece, Iceland,
Ireland, Italy, Luxembourg,theNetherlands,Norway,Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom and the United
States. The following countries became Members subsequently
through accession at the dates indicated hereafter: Japan (28th April
1964), Finland (28th January 1969), Australia (7th June 1971) and
New Zealand (29th May 1973). The Commission of the European
Communities takes part in the work ofthe OECD (Article 13 ofthe
OECDConvention).
TheCzech Republic, Hungary, Poland and theSlovak Republic
participate in the OECD programme "Partners in Transition". This
Economic Survey was carried out in the framework of this
programme, which is managed by the OECD's Centre for Co¬
operationwiththeEconomiesinTransition.
©OECD 1994
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Table of contents
Introduction 7
I. Economic Developments prior to the Dissolution of the
Federation 9
The performance of the economy in 1992 9
Macroeconomic policy and structural reforms 26
II. Economic Issues in the Dissolution of the Federation 42
Political and administrative background 42
Structural divergences 44
Separation as an economic problem 46
Fiscal and other transfers between the Republics 53
Inter-republican relations and developments in 1993 59
The economic consequences of separation: an assessment 62
in. The Czech Republic 64
Introduction 64
The starting point 65
Recent economic developments 69
Macroeconomic policy 72
Privatisation 82
Financial discipline: enterprises, banks 87
Consumers and competition 92
The outlook 94
IV. The Slovak Republic 96
Introduction 96
The starting point 97
Recent economic developments 101
A new economic strategy 106
Macroeconomic policy 108
Structural policy 116
Privatisation 118
Enterprises, bankruptcies and banks 124
The outlook 130
V. Conclusions 133
The Czech Republic 133
The Slovak Republic 141
Notes and references 148
Annexes
I. Sources of Data on Czech-Slovak Trade 161
II. Czech Competition Policy 163
III. Slovak Competition Policy 165
IV. The Tax System in the Czech and Slovak Republics 167
Tables
1. GDP decline, 1990-92 10
2. Attitudes about the role of the State 18
3. Balance of payments in convertible currencies, 1990-92 20
4. Financial position of enterprises 24
5. Monetary survey, 1990-92 28
6. General government expenditure and revenue 31
7. Growth of foreign direct investment in Poland, Hungary
and CSFR 36
8. Structural comparison 45
9. Fiscal and other indicators, 1992 55
10. Socio-economic indicators, Czech Republic, 1980-92 66
11. Balance of payments, Czech Republic, August 1993 70
12. The Czech budget: plans and outcomes in 1993 74
13. Large-scale privatisation in the Czech Republic 84
14. Bonds issues by the Fund of National Property 88
15. The outlook, Czech Republic 94
16. Socio-economic indicators, Slovak Republic, 1980-92 98
17. Balance of payments, Slovak Republic, September 1993 104
18. Fiscal position of the central government of the
Slovak Republic, 1993 109
19. Monetary survey, Slovak Republic 111
20. Large-scale privatisation in the Slovak Republic 120
21. The outlook, Slovak Republic 131
Charts
1. GDP and industrial production, 1991-93 1]
2. Inflation (CPI) 12
3. Employment and unemployment 14
4. Distribution of net household income 17
5. Redirection of Czechoslovak trade 21
6. Nominal and real effective exchange rates 29
7. Net material product produced and used 54
8. Czech and Slovak trade, 1991-93 61
9. Monthly interest rates, Czech Republic, 1993 78
10. Trade by partner country, Slovak Republic, January-August 1993 100
11. Output and exports, Slovak Republic, January-April 1993 103
12. Structure of banking, Slovak Republic, December 1992 126
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Introduction
On 1 January 1993 the Czech and Slovak Federal Republic (CSFR) ceased
to exist, the two federated states becoming independent. At the time of the
previous OECD survey in November 1991, the dispute over the division of
powers between the federal government and the two republics was already
exercising an important influence over economic policy, in particular on the
implementation of the structural reform programme; as divergences of opinion
widened, the necessary policy co-ordination became increasingly difficult. These
forces strengthened throughout 1992 culminating, after the elections in June
1992, in protracted negotiations which finally led to the breakup of the
Federation.
This survey reviews the economic developments through 1992, discusses
the economic issues which arose during the separation of the two republics and
outlines how each republic is responding not only to these demands, but also to
the pressures arising from structural reform and stabilisation.
Stabilisation policy was broadly maintained by the federal authorities in
1992 although the implementation of structural policy - which was more influ¬
enced by the republics - slipped. While output fell further there were signs of
recovery in the second half. Part I discusses these developments, highlighting the
emerging differences between the two republics both in policy and performance.
The break-up of the old federal republic involved not only a division of
assets and liabilities but also decisions aboutthe modalities and the institutions to
govern trade and monetary relations. By and large, the separation has proceeded
surprisingly smoothly. Part II outlines the issues and the choices which were
made and reviews how they have functioned thus far.
For 1993 and 1994, the results and prospects for the Czech Republic appear
good: the initial shock of separation seems to have been largely absorbed,
stabilisation policy has been generally maintained and privatisation is proceeding
rapidly. On the other hand, financial discipline remains a problem and structural
adjustment following privatisation is still at an early stage. These developments
are discussed in Part III.
The shock arising from separation is quite different for the Slovak Republic
where the situation is likely to remain difficult in thenearfuture. Agovernmental
structure has had to be established almostfrom scratch and policy with respect to
the budget, balance of payments and structural policy formulated and imple¬
mented all atthe sametime. The main forces at work and the directions forpolicy
are discussed in Part IV.
I. Economic Developments prior
to the Dissolution of the Federation
In 1992, theyearpriortothedissolution ofthe Federation, theeconomy was
subject to a number of negative influences but output showed the first signs of
recovery following the reformprogrammeinitiated in January 1991. Thecollapse
ofthe CMEA trade was felt most strongly in 1991 and was replaced in 1992 by a
positive impulse arising from the continuing increase in exports to the OECD
area. The financial reverberation of the collapse nevertheless continued through¬
out 1992. Although large privatisation and the implementation ofthe bankruptcy
law were delayed, a large number of reforms were implemented in 1991 and
provided a positive influence on economic performance in 1992. GDP, however,
fell by some 7 per cent. The decline was concentrated in the first quarter, with
signs of a recovery in the second half, although a reliablejudgement is clouded
by the complex forces set in motion by the dissolution of the Federation. This
chapter describes the economic performance ofthe economy in 1992, discussing
the forces at work and the impact on the two new republics.
The performance of the economy in 1992
Output and inflation
After declining by some 15 per cent in 1991, GDP fell further by around 7
per cent in 1992 (Table 1). The divergent trends of the goods-producing and
service industries, already apparent in the preceding two years, seem to have
persisted. Whereas economic activity in the "material production sphere" was
clearly compressed sharply, the available data are not sufficient to say whether
service sector output actually increased.