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Czechoslovakia BANKING AND FINANCE
The koruna (Kcs), or crown, is the national currency and
consists of 100 halers. In 1986 the currency continued to be
convertible only under restricted conditions and at official
rates. Violation of exchange regulations constituted a serious
offense. The koruna could be used only within the country and was
not used in foreign trade. In 1987 the official, or commercial,
exchange rate was Kcs5.4 per US$l; the tourist, or noncommercial,
rate was Kcs10.5 per US$l. The koruna was legally defined in
terms of 123 milligrams of gold, which provided a historical
basis for the commercial rate.
At the head of the country's banking system was the State
Bank of Czechoslovakia. The State Bank was the central bank, the
government's financial agent, the country's commercial bank, an
investment bank, and the clearing agent for collection notices.
It also supervised the other banking in the country and, in
conjunction with specific ministries, formulated the financial
plan for Czechoslovakia. The other banks, also state owned, were
subordinate to the State Bank and relegated to special functions.
The Commercial Bank of Czechoslovakia was primarily the bank for
foreign currency transactions. Three additional banks--two of
which were savings banks, one for each of the republics,
providing credit to individuals--completed the banking system in
1980.
The main function of the banking system was to act as the
government's agent in implementing the financial plan, an
important part of which consisted of expanding and contracting
credit to meet the economy's needs. The central authorities
controlled most investments directly, and the national plan
regulated production. The State Bank acted as a supervisory agent
in extending credit to the enterprises, ensuring that the
investments met plan goals. The bulk of bank credit was for
working capital, largely utilized to finance the purchase of
materials and the sale of finished products. The powers of the
State Bank appeared to be somewhat limited, however, since credit
was extended according to guidelines for planned production. The
central authorities set interest rates, which neither reflected
the cost of capital nor appreciably affected the flow of credit.
Instead, beginning in the 1970s, interest rates were
differentiated to accomplish objectives of the plan. Interest
rates were low for enterprises modernizing a production process.
Punitive rates were used if firms deviated from plan goals. In
the mid-1980s, the greatest portion of investment credits went to
the industrial sector, followed by agriculture, construction, and
retail trade.
The banking system operated within the framework of the
financial plan. Major elements of the financial plan included
allocation to consumption and investment, foreign and domestic
financing of investment, and wage and price changes. Planning
authorities were in a position to use the centralized banking
system to carry out major corrective measures, as occurred in
1953 when inflationary pressures became serious and the
population's accumulated savings were largely wiped out by a
conversion of the currency. After this experience, officials
placed stricter controls on investments, permitting real wages
and the standard of living to rise gradually. But in the late
1970s, and particularly in the early 1980s, the worsening terms
of trade, bottlenecks in the economy, and the need for large
investments in energy and industry combined to limit the
allocations for consumption.
Imposition of the Soviet model introduced a chronic
inflationary bias into the Czechoslovak economy, although the
inflation was not necessarily reflected in prices. Control of
prices (only private food produce, especially fruit and
vegetables, were priced freely) repeatedly produced inflationary
manifestations in other areas, such as shortages in the market
and increased savings by the population. Although officials
generally limited the rise in prices (causing price indexes to
advance slowly), by the mid-1970s prices had to be adjusted
upward more frequently. This trend continued into the 1980s, and
major food price increases occured in 1982.
In addition to the banking system, another major financial
tool for implementing economic policies and the annual plan was
the central and republic government budgets. The Czechoslovak
government published little budget information. Western observers
believed that small surpluses of revenues were more common than
deficits, however. Budget revenues were derived primarily from
state economic organizations and the turnover tax. Income taxes
provided a small part of revenues. Other minor revenue sources
included agricultural taxes and customs duties. The planning
authorities redistributed these budget funds according to the
plan guidelines, using the budget to encourage certain sectors
through subsidies or investment funds. Official policy, for
example, stressed rapid development of the Slovak economy, which
required the transfer of funds collected in the Czech lands. In
1983 the Slovak Socialist Republic received a fractionally larger
share of total revenue (34 percent) than population figures alone
would have warranted (32 percent of the country's total
population lived in the Slovak Socialist Republic).
Central authorities set prices on over 1.5 million kinds of
goods.
State enterprises were theoretically autonomous financial
entities that covered costs and profits from sales. Because the
government set production quotas, wage rates, and prices for the
products manufactured and the inputs used in the process,
however, managers had little freedom to manage. In the 1950s, the
government had collected nearly all enterprise funds above costs
for redirection according to its priorities. After the 1958
reforms, enterprises obtained a little more control over surplus
funds, although the government continued to control the amount of
the surplus. In the 1980s, the government was encouraging
enterprises to undertake modernization and other limited
investment from their own funds and bank credit and to rely less
on budget funds.
The turnover tax, another major source of budget revenue, was
originally employed in the Soviet Union as a simple and effective
method of collecting most of the funds needed by the government
without requiring extensive bookkeeping and estimating. It was
introduced in Czechoslovakia in 1953 and lost its importance as
the chief source of revenue only in the late 1960s, when other
levies extracted funds from state enterprises. The tax was
collected on goods destined for retail, the rate varying
according to the difference between the producer's costs plus
approved margin and the selling price as specified by pricing
officials. Retail prices of manufactured consumer goods, such as
clothing and particularly tobacco products, alcoholic beverages,
and sugar, were substantially higher than those of such basic
necessities as potatoes, milk, and eggs. The turnover tax
appeared to be both a source of revenue and a tool used to
influence consumption patterns.
Data as of August 1987
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