Macroeconomic Policies: Stabilization and Transition in Former Czechoslovakia and in the Czech Republic

Abstract

Paper discusses reform process in the Czech Republic (and former Czechoslovakia), which after some preparations in 1990 started in 1991 has been implemented along two major reform lines: - microeconomic restructuring including privatization, liberalization of prices and markets, and - creation of a market-typed institutional framework with the stress put on commercial banking and capital markets. The success which was achieved up till now in the field of macroeconomic stabilization is clearly visible. In spite of the price shock in the first three months of 1991 due to the price liberalization and the cuts of subsidies, the monthly consumer price increases since then until the end of 1992 did not surpass 2 percent and in 1992 annual inflation rate was 11.3 per cent, which was the lowest figure among all the ex-communist countries. The external stabilization of the economy has been reflected in the exchange rate of the Czechoslovak Koruna (CSK). This stability has been maintained in spite of the widening scope of internal convertibility. After the split the Czech Republic has kept the exchange rate of the Czech Koruna (CK) unchanged while Slovakia devalued the Slovak Koruna (SK) by 10 per cent. The price paid for the macroeconomic stabilization and the collapse of Comecon was a sharp decline in economic activity. Some progress was achieved within microeconomic restructuring. Almost one thousand big industrial enterprises were privatized through voucher privatization representing the property of more than USD 7 bn (in book value). A number of other firms have been privatized using standard privatization methods. A relatively successful macroeconomic stabilization has been accompanied by a surprisingly low unemployment - especially in the Czech Republic - where unemployment rate stayed at 3.4 in December 1993, which indicates that microeconomic restructuring has Macroeconomic Policies not yet taken place in the extent that could be compared with macroeconomic performance. This in turn means that the issue of macroeconomic stabilization will have to be addressed again in the near future.