WAS GOING WELL SO WE DECIDED TO TINKER WITH THE MECHANISM. MAYBE WE SHOULD HAVE
LET WELL ENOUGH ALONE
The Czech Republic, historically Eastern Europes
supreme success story, may just have started believing its own press releases
and become too complacent. In retrospect, the Czech Republic's early success was
accomplished mainly through the use of slight of hand and mirrors. The nation's
banks acquired the original privatized companies, the only source of funds large
enough to write the check. The government owned the banks and thus no privatization
had occurred at all. Czech banks used investment funds to make their contribution
to privatized companies and in many cases merely stripped the companies of their
assets leaving minority shareholders with nothing.
When it became time to pare the bloated employment
roles of these companies to make them competitive, bureaucrats were not up to
the effects of massive unemployment determined to leave the status quo alone. Tricky accounting for a time was able to show that
the Czech's had indeed accomplished a miracle that was envied by all of Eastern
Europe, when in effect all that had happened was the fact that the problem had
been pushed forward into time for another government to address.
The euphoria that accompanied the Czech success brought
a swarm of investors into the country that made the prophecy temporarily self-fulfilling.
Effectively, because nothing had really changed, the entire scenario was an enormous
hoax and they only pushed forward the day of reckoning. Investors that had been
duped will think more than twice before being taken for a ride again by the Czech
illusion. The country has suffered a slowdown in its industrial production, new
construction has been lagging and the national deficit has been rising unchecked.
Stock market and bank financial irregularities abound coupled with labor bloated
industrial complexes. A combination of these factors has frightened foreign investors
and the country, as a whole is moving backward instead of forward.
In probably in the most outlandish cut of all, Prime
Minister Vaclav, Eastern Europe's longest-serving government leader and premier
reformer was summarily dumped for accepting a substantial political donation from
a 13 year deceased occupant of a cemetery plot and a Mauritian who can't even
spell Czech Republic. This comes on top of fact that President Vaclav Havel, a
former playwright, has already lost a lung to cigarettes and cancer and although
he will be reelected to office, his health is extremely precarious.
The city of Prague has been invaded by skinheads
and Nazi like incidents against Gypsies are becoming legion. The European Center
for the Rights of Roma has reported more than 1,250 attacks on Gypsies in the
last several years and the situation has become so bad that they have begun an
exodus from the country. With a population of almost 300,000, the Gypsies, no
longer sanguine about their safety, have caused a clamor for asylum and the allied
visa problems have potentially jeopardized the country's entry into the European
The current account deficit has mushroomed resulting
in a substantial currency devaluation coupled with almost a stoppage of domestic
growth. The Governments
lack of leadership and indecision has reinforced international views that stronger
medicine must be taken.
Whats more, the currency tinkering wont
fix the countrys broader problem with competition. While the Czech Republic
got off to a fast start in the early 1990s with trade liberalization and open
markets, it has failed to take the more painful steps of restructuring and layoffs.
Businesses that have been privatized tend to be unproductive and overstaffed with
senior management and pruning is difficult if not impossible.
The largest companies were privatized under a mass
voucher system, which transferred ownership but didnt bring in new capital
or management with restructuring expertise. As a result, many of the countrys
largest companies remain mired in inefficiencies. The Czech unemployment rate
is an artificially low 4%, driving up real wages last year 16%. In contrast, Poland
and Hungary have undergone more extensive corporate reforms, resulting in wage
declines and higher unemployment. The Czechs are going to have to
pay the same price as their neighbors, said Zdenek Lukas, economist at the
Vienna Institute for Comparative Economic Studies.
The countrys banks are also suffering
from a lack of safeguards. This month, two top-ranking officers of Investicni
a Potovni Banka AS, the nations third-largest bank, were detained on charges
of embezzlement and insider dealing. Also this month, 11 high-ranking officials
of the Motoinvest Investment group and Agrobanka AS were detained by police on
charges of manipulating assets and embezzlement. The Wall Street Journal,
Robert Frank A12, May 28-9, 1997.
President Havel is an eloquent speechmaker and as
such is in tremendous demand on the European diner circuit with his Stevensonish
sense of timing and humor. His was not up to his humorous best when commenting
on the current group of thugs making up the Czech Republic's Government. "The
declared ideal of success and profit was turned to ridicule because we allowed
a situation in which the biggest success could be achieved by the most immoral
ones and the biggest profits could go to unpunishable thieves." He went on to proselytize the fact
that the entire system had failed because the country was caught in a vicious
circle of corporate deficits being funded by bank loans, which in turn created
an atmosphere that nurtured bureaucratic incompetence
He went on to describe his society as almost drone-like
when stating, "I am afraid this is a sphere where we have most of our debts
to pay and most of our work to do. Culture in the broadest sense is not measured
by the number of splendid rock stars who visit this country, or by the beauty
of dresses by prominent designers presented here by world-class models, society
is synthesized by what is "chanted by skinheads in a pub, by the number of
lynched or murdered Romany () people, by the dreadful behavior of some of our
people toward their fellow humans simply because of the different color of their
In the too little, to late department, the Czech
government announced plans to cut spending and freeze public sector wages, hardly
a panacea for their world class trading imbalance, coupled with uncompetitive
exports and a mismanaged banking system. The increased inflation, higher unemployment
and economic contraction associated with these moves hardly provides inspiration
for other struggling Eastern Bloc Nations in their attempts at monetary independence.
THAT WE HAVE FIXED THE ECONOMY, WE ARE GOING TO FIX THE STOCK MARKET AS WELL
As long as they were cleaning house anyway, the Government
promised to adopt American style securities regulations to a system riddled with
fraud. An endless procession of senior banking officials, along with investment
fund managers have been charged with embezzlement and looting, causing already
nervous markets to plummet.
Vaclav Klaus, Czech Prime Minister, spoke too soon
when he announced two years ago that the transformation of the Czech economy