Czechs Brace for Revamp in Contrast to Its Neighbors, the Czech Republic Switches to Free Market with Ease

By Justin Burke, writer of The Christian Science Monitor | The Christian Science Monitor, February 25, 1994 | Go to article overview

Czechs Brace for Revamp in Contrast to Its Neighbors, the Czech Republic Switches to Free Market with Ease


Justin Burke, writer of The Christian Science Monitor, The Christian Science Monitor


ON a European continent wrenched by a recession in the West and radical reforms in the East, the Czech Republic stands relatively content in the middle. It has so far maintained political and social stability while undergoing drastic economic change.

By just about any measure, the Czech Republic can be considered the biggest economic success story among Eastern European nations trying to make the unprecedented switch to a market economy from a communist command system.

Nearly all Eastern European governments have stumbled, and some have retreated slightly on reform attempts since 1989, the year that totalitarian governments came crashing down throughout the region. But here, the fiscally conservative policies of Czech Prime Minister Vaclav Klaus have remained largely intact, even amid last year's peaceful partition of the former Czechoslovakia.

Unemployment, the scourge of the European Union, is relatively unknown in this nation of 10.5 million. The roughly 3.5 percent jobless rate is the Continent's second lowest behind Luxembourg.

Other favorable economic conditions in the Czech Republic include: a stable currency; a relatively low 1993 inflation rate of 18 percent, which is projected to fall further this year; and no significant foreign debt.

Czech government officials say foreign investment is pouring into the country, and trade with Western Europe is rising. Czech Central Bank figures show that foreign investment totaled about $455 million during the first nine months of 1993, one of the highest rates of investment per capita in Europe.

But despite all the bright statistics, many prominent figures in the nation's fledgling financial community say now is no time for self-congratulation. This nation still faces the daunting challenge of economic restructuring, experts and officials say.

"Right now there is a gap between stabilization and restructuring," explains Pavel Kavanek, chairman of Ceskoslovenska Obchodni Banka, the principal foreign trade bank of both the Czech and Slovak republics.

Among the challenges is an expected rise in unemployment. As market conditions develop, entire industrial sectors stand to be phased out and others to undergo consolidation. The Czech consumer electronics industry, for example, is one likely casualty. "Everyone knows the Asians can make the products cheaper," says Michal Otradovec, a senior consultant with BIG, a Prague-based financial consulting firm. …

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