CZECHOSLOVAKIA

& CHEZ EPUBLIC

 CZECHOSLOVAKIA
The independent Republic of Czechoslovakia was
formed in 1918, following the collapse of the
Austro - Hungarian empire after World War I. In
1948 Czechoslovakia became a communist-ruled
state. In 1968, the increasing dissatisfaction
culminated in attempts to reform the communist
regime.
 YEAR 1945-1948
 The Czechoslovak economy emerged from World War II
relatively undamaged.
 Exports of machinery and consumer goods paid for
imports of materials for processing.
 Agriculture and foreign trade was in the foreign hands.
 By 1948 Czechoslovak production approximated pre-
war levels, agricultural output being somewhat lower
and industrial output somewhat higher than earlier
levels.
 Labour force was skilled and productive.
 YEAR 1948-1960
 First Five-Year Plan (1949–53) was introduced and
main focus was on production of goods.
 The country became an important supplier of machinery
and arms to other communist countries.
 Second Five-Year Plan (1956-60) was introduced and
during this period investment continued to grow at high
rate and national income grew by 6.9%.
 In 1958-59 due to some trouble first economic reforms
was done and it involved some limited decentralization
of authority, most notably giving enterprises more
autonomy in handling investment funds.
 IN 1960’S
 In early 1960’s industrial production stagnated and the
agricultural sector also registered a relatively poor
performance.
 Third Five-Year Plan (1961–65) was introduced but it was
dropped after recession in 1962 and in year national income
declined.
 In late 1960’s and early 1970’s economy continued to grow
at a respectable rate throughout this period.
 Fourth Five-Year Plan (1966-70) was introduced and
during this period product grew at an average annual rate of
6.9 %, well exceeding the planned yearly increase of 4.1 to
4.4 %.
 IN 1970’S
 Fifth Five- Year Plan (1971–75) was introduced and
during this period net material product grew somewhat
more slowly, averaging 5.7% yearly, but still exceeded the
planned rate of 5.1% yearly.
 Wages, incomes, and personal consumption levels rose at
respectable rates despite an overall increase in investment
and agriculture continued to be weak.
 The Energy and Trade problems Czechoslovakia faced in
the late 1970s were also major factors in the slowdown in
industrial growth.
 Restraints on imports from non communist countries
reduced inputs for domestic industries.
 ECONOMY GROWTH
 In 1938 per capita GDP was $1800.
 In 1950 per capita GDP was $3501.
 In 1973 per capita GDP was $7041.
 In 1990’s per capita GDP of CHEZ REPUBLIC was
$8895 and of SLOVAKIA was $7762.
 BANKING SYSTEM
 The head of the country's banking system was the State Bank of
Czechoslovakia. The State Bank was the central bank, the
government's financial agent, the country's commercial bank, an
investment bank, and the clearing agent for collection notices.
 The Commercial Bank of Czechoslovakia was primarily the
bank for foreign currency transactions.
 Three additional banks—two of which were savings banks, one
for each of the republics, providing credit to individuals—
completed the banking system in 1980.
 The central authorities set interest rates, which neither reflected
the cost of capital nor appreciably affected the flow of credit.
 CHEZ REPUBLIC
In November 1989, Czechoslovakia returned to a liberal democracy
through the peaceful "Velvet Revolution". However, Slovak national
aspirations strengthened and on January 1, 1993, the
country peacefully split into the independent Czech Republic and Slovakia.
Both countries went through economic reforms and privatisations,
with the intention of creating a capitalist economy. This process was
largely successful, as in 2006, the Czech Republic was recognised by
the World Bank as a "developed country" and in 2009 the
Human Development Index ranked it as a nation of "Very High Human
Development". From 1991, the Czech Republic, originally as part of
Czechoslovakia and now in its own right, has been a member of the
Visegrád Group and from 1995, the OECD. The Czech Republic joined
NATO on 12 March 1999 and the European Union on 1 May 2004. It
held the Presidency of the European Union for the first half of 2009.
 YEAR 1990-95
After 1991, consistent liberalization and astute economic
management has led to the removal of 95% of all price
controls, low unemployment, a positive
balance of payments position, a stable exchange rate, a shift
of exports from former communist economic bloc markets to
Western Europe, and relatively low foreign debt. Inflation
has been higher than in some other countries - mostly in the
10% range - and the government has run consistent modest
budget deficits. Two government priorities have been strict
fiscal policies and creating a good climate for incoming
investment in the republic. Restructuring of existing banking
and telecommunications facilities and FDI share was 12.9%.
 YEAR 1995-2000
 Political and financial crises in 1997 shattered the Czech
Republic's image as one of the most stable and prosperous
of post-Communist states. Delays in enterprise
restructuring and failure to develop a well-functioning
capital market played major roles in Czech economic
troubles, which culminated in a currency crisis in May.
 Current account deficit, which reached nearly 8% of GDP.
 Growth dropped to 0.3% in 1997, -2.3% in 1998, and
-0.5% in 1999.
 The economy, fueled by increased export growth and
investment, was expected to recover by 2000.
 YEAR 2000-05
Growth in 2000-05 was supported by exports to the EU, primarily to
Germany, and a strong recovery of foreign and domestic investment.
Domestic demand is playing an ever more important role in underpinning
growth as interest rates drop and the availability of credit cards and
mortgages increases. Current account deficits of around 5% of GDP
are beginning to decline as demand for Czech products in the European
Union increases. Inflation is under control. In early 2004 the
government passed increases in the Value Added Tax (VAT) and
tightened eligibility for social benefits with the intention to bring the
public finance gap down to 4% of GDP by 2006, but more difficult
pension and healthcare reforms will have to wait until after the next
elections. Privatization of the state-owned telecommunications firm
Český Telecom took place in 2005. Intensified restructuring among large
enterprises, improvements in the financial sector, and effective use of
available EU funds should strengthen output growth.
 YEAR 2005-10
Growth continued in the first years of the EU membership. The
credit portion of the Financial crisis of 2007–2010 did not affect
the Czech Republic much, mostly due to its stable banking sector
which has learned its lessons during a smaller crisis in the late
1990s and became much more cautious. As a fraction of the GDP,
the Czech public debt belongs among the smallest ones in Central
and Eastern Europe. Moreover, unlike many other post-communist
countries, an overwhelming majority of the household debt - over
99% - is denominated in the local Czech currency. That's why the
country wasn't affected by the shrunken money supply in the U.S.
dollars. However, as a large exporter, the economy was sensitive to
the decrease of the demand in Germany and other trading partners. In
the middle of 2009, the annual drop of the GDP for 2009 was
estimated around 3% or 4.3%, a relatively modest decrease.
 STATISTICS
 GDP (pp.): $266.3 billion (2008)
 GDP Growth: 3.9% (2008)
 GDP per capita (pp.): $26,100 (2008)
 GDP by sector: Agriculture: 2.9% Industry: 38.7%
Services: 58.7% (2008)
 Inflation: 3.6% (2008)
 Labour Force: 5,370,000 (2008) Unemployment: 6%
(2008)
 Industrial production growth rate: 7% (2008)
 Public Debt: 4% GDP (2008)
 TRADE & FINANCE
 Exports: $122 billion (2007) Export goods: machinery and transport goods
52%, raw materials 9%, chemicals 5%, other 34% (2003).
 Imports: $116.6 billion Import goods: machinery and transport goods 46%, raw
materials and fuels 16%, chemicals 10%, other 28% (2003)
 Export partners: Germany 30.8%, Slovakia 8.7%, Poland 5.9%, France 5.4%,
UK 5.1%, Italy 4.9%, Austria 4.6% (2007).
 Import partners: Germany 31.4%, Netherlands 6.7%, Slovakia 6.4%, Poland
6.3%, Austria 5.1%, China 5.1%, Russia 4.5%, Italy 4.4%, France 4.1% (2007).
 Reserves: $34.59 billion (2007)
 Foreign Direct Investment: $86.75 billion (2007)
 Czech Investment Abroad: $6.058 billion (2007)
 Exchange rates: koruny (Kč) per US$1 – 18.277 (December 2007) 23.957
(2005), 25.7 (2004), 28.2 (2003), 32.7 (2002), 38.0 (2001), 38.6 (2001), 34.6
(1999), 32.3 (1998), 31.7 (1997), 27.1 (1996), 26.5 (1995)
 FINANCIAL MARKET
 Prague Stock Exchange
 Location: Prague, Czech Republic
 Currency: CZK
 Indexes: PX Index, PX-GLOB
 MONEY MARKET:
In the Czech Republic, short-term state securities (with
maturity under one year) include exchequer bills and bills of
the Czech National Bank (CNB). They may be acquired by
legal entities as well as physical persons who have a property
account at the CNB’s Registration Center. Exchequer bills are
registered securities registered in the Short-term bond system.
 CAPITAL MARKET
 BOND MARKET:
The Czech capital market is dominated by debt securities
(especially bonds). On the public markets, the vast
majority of transactions with bonds are realized in the
stock exchange market organized by the Prague Stock
Exchange.
 STOCK MARKET
 DERIVATIVE MARKET
 SECURITIES TRADED
 Prague Stock Exchange:
The Prague Stock Exchange (PSE) is the principal market in the Czech Republic
where listed shares and other investment instruments are traded. Securities are
classified according to the market on which they are traded, i.e. Main, Secondary,
New or Free. No shares have yet been traded on the New market.
 RM-System:
The RM-System – the secondary market – is based on computerized bid and offer
matching. Deals can be made through a broker or directly via a nationwide network
of approximately 250 offices. Most listed securities can be traded on this market.
 Over-the-Counter Market
 Securities Center:
Most Czech shares are registered in the computerized Securities Center in an
uncertificated (paperless) form. According to the Czech legislation, only shares,
investment certificates, bonds, investment coupons, coupons and warrants can exist
in uncertificated form.
 BANKS
 Czech National Bank:
Monetary stability has an internal dimension (price stability) and an
external dimension (exchange rate stability). Recently, the internal
dimension of the monetary stability – price stability – i.e. creation of
low-inflation environment has become the primary objective of
central banks. Achieving and maintaining monetary stability is the
central bank´s ongoing contribution to the creation of conditions for
sustainable economic growth. Central bank independence is a
prerequisite for implementation of the monetary policy leading to
price stability. The primary aims of the monetary policy and the
central bank´s objectives are laid down in the provisions of Section
98 of the Constitution of the Czech Republic and of Section 2 of the
Act No. 6/1993 Coll., on the Czech National Bank. These entrust the
Bank with maintaining the price stability.
 BANKS
 Czech Export Bank:
The Czech Export Bank (CEB) is a part of the state´s pro-export
policy system. It is a specialized banking institution the ownership
of which is split between the state (69.7%) and the state-owned
Export Guarantee and Insurance Corporation (EGAP). Pursuant to
the Act No. 58/1995 Coll., on state-supported export insurance and
financing and the amendment to the Act No. 166/1993 Coll., on the
Supreme Audit Office, as amended ("Act No. 58/1995 Coll."), CEB
is entrusted with the provision of state-supported financing. The Act
defines state-supported financing as short-term and long-term
financing and the provision of export credits, financing of
production for export, investment credits, project financing credits
and the provision of export-related financial services.
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