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

Abstract

The 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. A slightly higher inflation in 1993 - estimated at 21 per cent at annual rate - reflects the price increase resulting from the new tax system introduced in January 1993 and the impacts of starting economic recovery. Low inflationary expectations bring forth favourable impacts on entrepreneurial climate in the economy.