Transitional Success USSR to EU — страница 3

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These two measures combined to foster trade and investment. Initially, the CSFR set a 20 percent surcharge on imports coupled with a 5 percent tariff. These obstacles soon ended as major provisions were passed to more actively encourage trade and investment. Initial steps toward private property rights and the dissemination of publicly owned lands further enhanced the investment environment. Privatization Privatization is by far the most critical and complicated development the CSFR had to address. Speed was critical. The ‘default mechanism’ ensured that current managers and persons of powers would assume control and create their own joint venture agreements with foreign entities. State firms that were nearly completely vertically integrated needed to be desegregated by form

and function. And the process had to be done well, for flailing industries would simply increase state expenditures. Failures did not decrease expenditures in compliance with the transitional reform strategy. The CSFR privatization plan was threefold. Small-scale privatization was the easiest. Retail stores, restaurants and small service or industrial workshops were sold to the highest bidders in weekly public auctions. Where no CSFR buyers were found, a second round of auctions allowed foreigners to bid. Property restitution was more difficult. The government needed to equitably redistribute land that had been taken nearly 40 years earlier. This is a difficult and involved issue. CSFR citizens are allowed to claim land taken from them, though the burden of proof is on them.

Where no proof exists, special arrangements can be made for state assistance. In areas of conflict, the issue will be brought to the courts. A large part of the country was not in private hands before Soviet rule. Some of this land can be used as an offering to parties where disputes over ownership exist. Also, lands that have been improved (shops, developments, houses, etc.) are sold at specially determined rates to the former property owners. Prices and possible alternative compensation for those owners who do not wish to purchase these ‘improvements’ are again settled by a special court arrangement. Large-scale privatization progressed swiftly. Some state-owned firms were sold outright to private interests while others remained under indirect state control until buyers

were found, legal or economic concerns settled, or parliamentary debate resolved. Social Policy The strong tradition of labor unions and their political strength proved crucial to social security reforms throughout CEE. The CSFR was no exception. Labor unions were instrumental in keeping CSFR unemployment at very low levels and social safety net benefits quite high. Essentially the state guaranteed incomes at a minimal level to meet the ‘cost of living’ for the unemployed or the under-employed. Pensioners and parents of children received benefits adequately covering bare essentials. Further benefits for health care were distributed at the local level as the health system still remained under state control. Problems of Transitional Monetary Policy and the Financial Sector

Since the introduction of reforms, monetary policy played a key role in the economic stability of the Czech Republic throughout the transition. Inflation remained surprisingly low (though relatively high in 1989 and 1990), exchange rates were relatively stable (after initial fluctuations), and external reserves stayed strong throughout the period (spurred by unusual and unexpected outside interest in the Czech Republic as the first reformer to prove its success). What is perhaps most impressive are the obstacles Czech officials overcame in developing an effective monetary policy. First, the entire CMEA trading block was virtually dismantled. Reform and transition would be difficult even with stable trading partners. In the CMEA, all of the countries were experimenting with and

adjusting prices, exchange rates and policies. It was very difficult to set monetary conditions correctly, in real or absolute terms. Second, within just a few short years, the CSFR itself broke apart for economic and political reasons. This was largely unexpected and proved difficult in the policy making arena. As the break-up drew near, officials had a difficult time determining which policies should be enacted based upon which of many scenarios might occur in the CSFR. Third, after finally establishing the terms of the CSFR split and negotiating a seemingly effective customs and monetary union between the two new countries, the monetary union failed miserably. Within a few months, the union caused significant drains on much needed foreign reserves in both countries and had to