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Czech Republic: Macro-Economic Performance 'Impressive' Says EBRD

London, 16 April 1997 (RFE/RL) -- A report published by the European Bank for Reconstruction and Development says the Czech Republic government has continued its "impressive" macro-economic performance after pursuing conservative fiscal policies.

The report says the Czech Republic has one of the lowest levels of inflation in Eastern and Central Europe, strong foreign currency reserves, and the region's lowest foreign debt per capita. It also says that strict economic policies have sought to achieve a balanced budget.

Despite the overall positive tone of the EBRD report, news reports from London also said there was criticism of the Czech Republic as an investment climate. EBRD first vice-president Ron Freemen said this week that the Czech Republic had caused some concern by failing to combat financial fraud vigorously enough.

The EBRD report was prepared by CzechInvest, the Czech Agency for Foreign Investment, for presentation to the sixth annual meeting in London this week of the bank. A section on the EBRD's banking activities in the country was prepared by EBRD banking staff.

The report says the average inflation rate last year was 8.8 percent. However, further liberalisation of energy and housing prices "may have an impact on 1997 inflation." The country's national debt -- $1.7 billion in September, 1996 -- was the region's lowest.

The report says the Czech Republic has moved to Number 34 in 1996 on the list of countries rated by the Swiss Institute for Management Development in terms of overall competitiveness. (Leading the list is the U.S. followed by Singapore and Hong Kong.)

The report says real GDP grew by 4.8 percent in 1995. This performance was fuelled primarily by increased exports in both goods and services, foreign investments and domestic spending. For three-quarters of 1996, the estimated GDP growth was four percent.

Privatisation is essentially complete with over 80 percent of former state property transferred to private ownership or the National Property Fund. But some large-scale privatisation remains, including the Czech train service, some health care facilities and the postal service.

Export volume grew 17 percent in 1993, mainly due to the trade shift away from Slovakia toward the West, and has continued to climb, growing by 10 percent annually in 1994 and 1995.

Trade has recently been oriented toward the European Union, which accounts for over 50 percent of the Czech export market.

Real output initially fell due to the loss of trade with former Comecon markets. After more than four years of reform, however, there are now clear signs of recovery. Retail sales increased 11.4 percent in 1996, the construction sector recorded 6.3 percent growth, and industrial production rose by 8.4 percent.

The report says unemployment, averaging 3.2 percent in 1994 and 2.9 percent in 1995, coupled with growth in consumer demand, confirm macroeconomic stability. For 1996, unemployment was 3.5 percent.

The report says that Germany (28.6 percent) has the largest foreign direct investment in the Czech Republic followed by the Netherlands (15.3 percent), the U.S. (15.1 percent) and Switzerland (12.7 percent).