Mr. Tosovsky gives the Czech Republic’s perspective of transition in Central and Eastern Europe Text of eighth Gerhard de Kock Memorial Lecture given by the Governor of the Czech National Bank, Mr. Josef Tosovsky, to an audience at the South African Reserve Bank in Pretoria on 17/2/97. It is a great honour and pleasure for me to be invited to give the eighth Gerhard de Kock Memorial Lecture, especially as this is probably (if I am not mistaken) the first time that a governor from the reforming countries of Central and Eastern Europe has been afforded this privilege. The region of Central and Eastern Europe has undergone a profound re-shaping. More than 100 million people of Central and Eastern Europe got involved in a far-reaching process of political, economic and social change. Because of its unprecedented character and size the impact of this multidimensional transformation has been in continent-wide Europe. Indeed, the political and economic map of the whole of Europe is nowadays rather different from what it used to be throughout the postwar period till the 1990s. Ladies and gentlemen, allow me to share with you some experience we have acquired. At the beginning of my lecture I cannot avoid briefly mentioning options for economic and political reforms as opened up for the countries of Central and Eastern Europe in the 1990s as well as the starting position of the former Czechoslovakia on the eve of the “velvet revolution” which in November 1989 enabled us to start a process of radical economic reforms.

The implications of that fact should be remembered when assessing the course of changes in the previously centrally planned economies. The transition in Central and Eastern Europe is inevitably a much more complex and longer-term phenomenon, for which no generalised theory could be available to apply. Such radical transformation requires a feasible strategy implemented with wide political support of the population. Transformation requires some minimum speed, and must start with some “critical mass” of change to secure sufficient impact on the behaviour of economic agents. In individual Central European post-communist countries, the sequence, speed, BIS Review 25/1997  -2-  and forms of individual steps necessarily differed; they had different starting conditions, different degrees of political support of the new governments, and they also applied different strategies. The Czechoslovak case At the start of transformation in 1990, Czechoslovakia had some economic advantages over the other Central and East European post-communist countries. In Czechoslovakia, during the preceding decade, state budgets were mostly balanced, foreign debt was low, and the balance of payments showed no big deficits or surpluses. Inflation was relatively low. Even if there was an inflationary potential (reflected not only in open inflation but also in the forms of hidden and repressed inflation) and the monetary overhang was increasing in the 1980s, its dimensions continued to be considerably lower than in the other countries of Central and Eastern Europe. Czechoslovakia, especially the Czech Republic, also had the advantage of a long industrial history, and of well-educated and skilled labour.