Docstoc

Czech

Document Sample
Czech Powered By Docstoc
					L1: Czech intro



                       MA EITEI
                  May 25th, 2009
Basics   Brief History        Reforms          Micro         Macro        Success         Failure


         Area                                      78,866 km2

         Population                                10,211,904 (July 2009 est.)
         Life Expectancy                           total population: 76.81 years
                                                   male: 73.54 years
                                                   female: 80.28 years (2009 est.)
         HDI rank                                  32nd (behind Portugal, Slovenia, Cyprus,
                                                   2007)

         GDP p.c.                                  $26,100 (2008 est.)


         Real GDP growth                           6.1% (2005)
                                                   5.7% (2007 est.)
                                                   3.9% (2008 est.)
         Exports of goods and services             72% (2005)
         As a % of GDP
         Unemployment                              6% (2008)

         Inflation                                 3.6% (2008)

         Average monthly income                    23,542 CZK (1Q 2009, i.e. approx. 1,000€)

         Time needed to start a business           40



                                         CZECH REPUBLIC
Basics   Brief History   Reforms    Micro      Macro   Success   Failure



  • 1918 – Independent Czechoslovak Republic
  • 1939 – Annexation by Germany, war economy with
    centralized planning
  • 1945 – 1948 – Transitory period, nationalization of banks
    and large enterprises
  • 1948 – Communistic coup d’etat, followed by elimination
    of private enterprise
  • 1968 – “Prague Spring” reforms ended by Soviet
    invasion and followed by “normalization”
  • 1989 – „Velvet Revolution“ followed by economic
    transformation
  • 1993 – Split up of Czechoslovakia
  • 2004 – Czech and Slovak Republics entering the EU

                              CZECH REPUBLIC
Basics   Brief History   Reforms    Micro      Macro   Success   Failure



  • At first, attempts at „country-specific“ planning, later
    replaced by soviet-styled model (1953)

  • At first 2-year plan, then 5-year plans

  • The whole national economy was managed as one big
    enterprise, very rigid and detailed planning

  • Emphasis on heavy industry

  • Prices set centrally (wholesale and retail prices)

  • Planning appeared to be much more complicated than
    planners expected

                              CZECH REPUBLIC
Basics   Brief History   Reforms     Micro      Macro     Success     Failure



  • Reform attempts (Rozsypal, Šik) not successful

  • State monopoly over foreign trade (PZO – Companies for foreign
    trade)

  • Normal companies had no real contact with markets to which they
    were selling

  • Every company was paid so-called „wholesale price“ (set by state)
    that was fixed and did not depend on the price achieved on foreign
    markets

  • „Costs of reproduction of foreign exchange“ – the price of forex that
    firms „produced“ for the state

  • Orientation on „soft markets“ – CMEA

  • No convertibility, no forex market
                               CZECH REPUBLIC
Basics        Brief History    Reforms       Micro        Macro      Success   Failure



                         Czech Economy at the End of 1980s

  • Positive factors:

         – Compared to other CEE countries relatively good external and internal
           balance, low inflation and low foreign debt
         – Educated workforce
         – Industrial traditions
         – Remote reminiscences of entrepreneurship

  • Negative factors:

         –   Structural problems, overinvestment in wrong sectors
         –   High degree of concentration
         –   Technological backwardness
         –   Red tape
         –   „Socialistic ethic“ – who does not steal, robs his own family


                                      CZECH REPUBLIC
Basics       Brief History   Reforms    Micro      Macro   Success   Failure



                   Reforms in early 1990s
  • Adopted in September 1990
  • Main points:
         – Macroeconomic stabilization
         – Liberalization of prices
         – Limited convertibility of Czechoslovak crown
         – Liberalization of foreign trade
         – Fast privatization with important role of „voucher
           privatization“
         – Active role of state in restructuring at micro- and
           macroeconomic level

                                  CZECH REPUBLIC
Basics      Brief History   Reforms     Micro       Macro    Success     Failure



  • September 1990 – Scenario of economic reform
    (compromise)
  • December 1990 – Law on small privatization
  • 1.1.1991 – the official start of real transformation
         – Internal convertibility on trade account (fixed exchange rate +
           sharp devaluation)
         – Liberalization of prices
  • April 1991 – Law on large privatization
  • 1.1.1993 – Tax reform
  • October 1995 – Current account convertibility
  • 1997 – „Reform packages“, floating and depreciation of
    crown
  • 1998 – Introduction of investment incentives
  • 1998 – 2001 Privatization of banking completed
                                  CZECH REPUBLIC
Basics      Brief History   Reforms    Micro      Macro    Success    Failure



                            Stabilization
  • At the beginning „heterodox strategy“ – combination of
    restrictive fiscal and monetary policy and wage controls
  • Despite liberalization of prices some sensitive sectors
    remained regulated
  • Stabilization successful – relatively balanced foreign
    trade, disinflation
  • Problems:
         – Monetary restriction was to some extent compensated by
           payment arrears between firms (chain debts)
         – Restriction tends to worsen the transformation recession



                                 CZECH REPUBLIC
Basics      Brief History   Reforms    Micro      Macro   Success   Failure



                            Liberalization
  • Liberalization of prices – necessary to replace prices
    dictated by state by real market prices
         – 1991 … 85% of all prices liberalized
         – 1992 … 95% of all prices liberalized


  • Liberalization of foreign trade – foreign competition
    should lead domestic firms (often former monopolists)
    towards higher efficiency

  • Changes in legal system – legalization of private
    entrepreneurial activities, very liberal approach
                                 CZECH REPUBLIC
Basics       Brief History     Reforms       Micro        Macro      Success      Failure



                                  Privatization
  •   „Small privatization“ (10 billion USD)
         – Small shops, restaurants, etc.
         – Auction sales
         – Fast, without major problems

  •   „Large privatization“ (31 billion USD)
         – Large enterprises
         – Direct sale to a Czech or foreign investor and/or participation in coupon
           (voucher) privatization
         – Problems caused by weak corporate governance and inefficient law enforcement

  •   Restitutions – compensation for property confiscated by communists after
      February 25, 1948 (5-7 billion USD)

  •   Municipalization (12 billion USD)

  •   Transformation of cooperatives (1 billion USD)

                                       CZECH REPUBLIC
Basics       Brief History   Reforms    Micro       Macro    Success    Failure



                  Transformation Recession
  • Problems with measurement of its depth

         –   Previous socialistic data were often biased
         –   Shadow economy
         –   Firms - motivation to undervalue economic results
         –   Importance of qualitative changes
         –   Changes in statistical methodology, numerous revisions of data,
             unreliable time series

  • Therefore – it was deeper and longer than originally
    expected, but less severe than it appeared from the
    original data

                                  CZECH REPUBLIC
Basics       Brief History                  Reforms              Micro                Macro               Success              Failure



                      Transformation recession
              GDP annual growth rate (% ), 1990 prices, US$ (UN estimates)

    8
    6                                                     5.9                                                                    6
             4.5                                                 4.2                                                     4.7
    4                                                                                        3.9
                                                                                                                  3.2
    2                                              2.2                                              2.6
                                                                                      1.2                  1.5
    0                                       0.1
                                    -0.5                                -0.7 -1.1
                    -1.2
       89

              90

                     91

                             92

                                    93

                                             94

                                                    95

                                                           96

                                                                  97

                                                                         98

                                                                                99

                                                                                       00

                                                                                              01

                                                                                                     02

                                                                                                            03

                                                                                                                   04

                                                                                                                          05
    -2
     19

            19

                   19

                           19

                                  19

                                           19

                                                  19

                                                         19

                                                                19

                                                                       19

                                                                              19

                                                                                     20

                                                                                            20

                                                                                                   20

                                                                                                          20

                                                                                                                 20

                                                                                                                        20
    -4
    -6
    -8
   -10
   -12                      -11.6
   -14



                                                         CZECH REPUBLIC
Basics     Brief History   Reforms      Micro       Macro     Success      Failure




                           Czech inflation rate, CSO

    25

    20

    15

    10

     5

     0
         1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


                                  CZECH REPUBLIC
Basics          Brief History   Reforms     Micro        Macro     Success     Failure




                         Czech foreign trade at current CZK, CSO

         50,0

          0,0
                 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
     -50,0

    -100,0

    -150,0

    -200,0


                                      CZECH REPUBLIC
Basics     Brief History     Reforms    Micro      Macro   Success   Failure




                           Czech unemployment rate, CSO

    10,0

     8,0

     6,0

     4,0

     2,0

     0,0
            90
            91
            92
            93
            94
            95
            96
            97
            98
            99
            00
            01
            02
            03
            04
            05
            06
         19
         19
         19
         19
         19
         19
         19
         19
         19
         19
         20
         20
         20
         20
         20
         20
         20
                                  CZECH REPUBLIC
Basics       Brief History   Reforms     Micro      Macro     Success     Failure




                     Czech FDI inflows, mil $, OECD and Patria

   12000

   10000

    8000

    6000

    4000

    2000
         0
             1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005


                                   CZECH REPUBLIC
Basics      Brief History   Reforms     Micro      Macro     Success    Failure


  Key economic outcomes of the 1990s - Successes

  • Creation of stable democratic and market economy

         – „The Czech Republic is a functioning market economy“ (EU Comm, 2001)

  • Changes in structure of economy

  • Rapid modernization

  • Successful teritorial reorientation of foreign trade

  • High investment into environment friendly technologies and into
    elimination of damage made under planned economy


                                  CZECH REPUBLIC
Basics     Brief History     Reforms       Micro      Macro      Success     Failure


      Key economic outcomes of the 1990s - Failures
  •   Despite relatively high initial GDP p.c. and high investment/GDP (28.3% in
      2000) until recently slow growth only

  •   Weak corporate governance, „tunelling“ and asset stripping

  •   Dismal economic results of many firms that underwent the „Czech Way of
      Privatization“

  •   Until recently slow growth of productivity

  •   In 1996-97 problems with balance of payments (high deficit of foreign trade)

  •   Banking restructuring at enormous costs

  •   Relatively high rate of unemployment even in light of high recent growth



                                    CZECH REPUBLIC

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:9
posted:8/22/2011
language:English
pages:19