Economic Transformation of the Czech Republic

A detailed Summary of Economic Transformation of the Czech Republic

Of all of the former-communist states in Eastern Europe, the Czech Republic has perhaps had one of the most interesting and promising transformations to a market-system economy. Until a currency crisis in 1997, the Czech Republic was considered a role model transforming Eastern European nation. During the years that followed the Velvet Revolution, the Czech Republic's economy flourished, reporting very impressive data and employment statistics. However, the good times did not last, and the economy has struggled in recent years. Today, while the economy continues to recover from its downturn in the late 1990's, the Czech Republic remains one of the most interesting Eastern European economies. The Czech people are determined to return the republic to its pre-WWII position as a genuine European power.

In the mid 1990s, the outlook for the Czech Republic was very bright. The Czech Republic was considered to be a notable political and economic success story among the former East Bloc nations, boasting a stable currency, low unemployment, low national debt, relatively low inflation, and strong foreign currency reserves. For almost every after since 1989, when Czechoslovakia gained its freedom, its GDP had grown. Levels of unemplo

The trouble began with the introduction of the voucher system, which was poorly set-up, leaving the system open to fraud and corruption. Todd Allen writes, "Soon after the 1992 voucher system was introduced "investment privatization funds" (IPFs) were established to take advantage of a market breakdown. Many Czech citizens had never invested and consequently entrusted these IPFs, who promised very lofty returns, with nearly 70% of the vouchers. With very little legislation in place to separate investments and banks, the IPFs became entangled with banks, creating a conflict of interest by allowing banks to control large portions of the IPF funds and control the loaning of capital to business represented in the funds. These unethical and questionable loan practices led to outright fraud and corruption throughout the banking and investment sector. (Allen, http://www.unf.edu/~jsteagal/czpldocs/czechafter89/)."

Beginning in 1990, the Czech Republic's government began an aggressive economic policy laid out by the Finance Minister of the time, Vaclav Klaus. Todd Allen of the University of North Florida writes in his web-essay The Post-1989 Czech Republic Economy: A review of a country's transition to capitalism, "By 1994, the country envisioned owning "only 10 to 15 percent of all property". This benchmark seemed very lofty, however by 1994 the government had disassociated itself with almos

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