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Czech Republic, Economy

voucher plan, state hands, Communist countries, EBRD, collapse of Communism

The Czech lands have been traditionally among the most economically developed regions of Europe. When the Communists came to power in Czechoslovakia in 1948, they created a highly centralized economic system. Nearly all aspects of economic planning and management came under the control of the central government. Virtually all of the countryís economic assets were placed in state hands; economic managers and decision-makers were cut off from their counterparts in the West; and foreign trade was conducted almost exclusively with other Communist countries. Although the economy remained strong by Eastern European standards, with one of the highest standards of living in the Communist world, the policies adopted by the Communist government led to long-term economic decline in Czechoslovakia. After the collapse of Communism in 1989, the new leaders of Czechoslovakia had to deal with this legacy.

In the early 1990s the post-Communist government moved quickly to convert the economy to a system based on free enterprise. A number of reform measures were adopted, including a voucher privatization plan, which gave citizens, for a low administrative fee, coupons that could later be traded for stock in companies. The voucher plan successfully transferred large parts of the economy to private ownership. By December 1994 more than 80 percent of firms in the Czech Republic were privatized or had decided on a privatization strategy. Business boomed in Prague and other cities in the mid-1990s as entrepreneurs established new companies. The government has also succeeded in reestablishing trade with the West and obtaining substantial levels of foreign investment.

The average standard of living in the Czech Republic dropped somewhat in the early 1990s as market reforms were introduced, but in recent years the economy has begun to recover. Inflation was about 10 percent in late 1994, less than half of what it was in 1991. Gross domestic product (GDP) increased by approximately 2 percent in 1994. Industrial production, which declined sharply in 1990 and 1991, also grew in 1994. The countryís foreign debt has remained modest. By 2000 the GDP had reached $50.8 billion.

The Czech Republic is a member of the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (World Bank), the European Bank for Reconstruction and Development (EBRD), the Central European Free Trade Association, and the Organization for Economic Cooperation and Development (OECD). The country became an associate member of the European Union (EU) in October 1993 and in December 1997 was invited to begin the process of becoming a full member. One of six nations picked for the EUís first round of expansion, the Czech Republic is expected to join the organization within five to ten years.

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