Czechoslovak economy takes a nosedive

Wednesday, April 24, 1991

By Peter Annear

PRAGUE — A grim picture of the performance of the Czechoslovak economy during 1990 is painted by the Report of the Federal Statistical Office on Economic and Social Development, released in March. The report says defensively that the first post-November 1989 year was marked by preparations for economic reform.

Total national output fell 3.2% — production in the building industry dropped a huge 6.6%.

There was a rapid growth in the number of private businesses, doubling from 224,100 business people registered at the end of June to 488,400 by the end of December. (But many of these are not yet operative.)

Real wages fell by 5.6%. Due to both falling incomes and fears of a crown devalued by inflation, the index of savings decreased considerably, from 3.7% and 3.5% in 1988 and 1989 to 0.3% in 1990.

The cost of living for households rose an average 10%. (It was this inflation that ate into wages; 1991 rises will be much greater.)

Money incomes and expenditures increased by 8.7% and 12.3% respectively, the difference being the decline in savings. The average monthly money wage of workers in the dominant state and cooperative sector rose by 3.8% to 3380 crowns (A$157), while the net monthly money wage after tax reached 2755 crowns (A$128).

Total employment in the state and cooperative sector fell a massive 490,000. (Serious unemployment has appeared: figures from Czech and Slovak ministries of labour indicate official unemployment rose in the month of February by 33,000 or 25% to reach 152,323.)

Unemployment is worse in the disadvantaged Slovak Republic, where 77,570 or 2.57% of the population in the productive age group (as opposed to the work force) are out of work. In East Slovakia, where there is a large Hungarian minority, unemployment reached 3.2%. Unemployment agencies in the Czech Republic registered 74,753 applicants for jobs, or 1.23% unemployment in the productive age group.

There was a foreign trade deficit both with market economies (17 million crowns) and with the Council for Mutual Economic Assistance and other socialist economies (12.9 million crowns). In some cases trade losses were dramatic: the volume of exports to the GDR dropped 53.4%, to the USSR 11.4% and to Poland 21.4%. Imports from these countries also dropped.

Gross foreign debt expanded by US$200 million, to reach a total of US$8,100 million.

Devaluation of the crown, aimed at stimulating exports and reducing imports, failed to produce the necessary results, indicating the uncompetitiveness of the economy internationally. In trade with market economies, imports actually grew 9.7% while exports fell 3.1%. It is difficult to see how this trend will be reversed.

Federal Premier Marian Calfa, admitting there are economic difficulties, insists they are caused not by Civic Forum's high-interest monetary policies (the means for implementing privatisation), but by a marketing crisis due to the loss of trade within the CMEA. The government would like to shift most trade away from the USSR towards Germany, but this will not be easy.

The Soviet Union remains Czechoslovakia's biggest trade partner, accounting for 23.2% of turnover, followed by Germany with 19.6%, Austria, Poland and Hungary. Total trade declined by 7.7% in 1990, mainly due to a loss of trade with countries with non-convertible currency (by 13%), while trade with market economies also decreased (by 1.5%).

Czechoslovakia traditionally imports nearly 100% of its natural gas from the USSR, 95% of its oil, almost its entire consumption of iron ore and large quantities of precious metals. It exports mainly machinery and equipment to the USSR — which in the past made few demands on quality.

The Soviet economic malaise has crippled much of the trade. In March, Moscow announced a cut from 13 million to 5 million tonnes in its 1991 supplies of oil.

Czechoslovakia's ambassador to Moscow, Rudolf Slansky, has labelled economic relations with the USSR "unsatisfactory". All three of Czechoslovakia's federal and republican governments have entered trade negotiations with the USSR, hoping to compete on the Soviet market under world market conditions.

The director of the foreign trade department told Czechoslovak Life, "It would be very short-sighted ... to abandon a market which we are used to and look for new ones. It is well known that the world market is fully saturated. To what extent are Czechoslovak suppliers and Soviet customers prepared to take up new conditions? We believe that there is no possibility on either side to radically and to a full extent change the system of mutual trade."