FINANCIAL REFORM IN CENTRAL AND EASTERN EUROPE

FINANCIAL REFORM IN CENTRAL AND EASTERN EUROPE

Also by Stephany Griffith-Jones THE CRISES OF DEBT AND DEVELOPMENT LOAN GUARANTEES FOR LARGE INFRASTRUCTURE PROJECTS MANAGING WORLD DEBT INTERNATIONAL FINANCE AND LATIN AMERICA

Financial Reform in Central and Eastern Europe Edited by Stephany Griffith-Jones Fellow Institute of Development Studies Sussex University and Zdeněk Drábek Czech National Bank Prague

Stephany Griffith-Jones and Zdeněk Drábek 1995 Softcover reprint of the hardcover 1st edition 1995 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published in Great Britain 1995 by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 978-1-349-23802-6 ISBN 978-1-349-23800-2 (ebook) DOI 10.1007/978-1-349-23800-2 10 9 8 7 6 5 4 3 2 04 03 02 01 00 99 98 97 96 First published in the United States of America 1995 by Scholarly and Reference Division, ST. MARTIN'S PRESS, INC., 175 Fifth Avenue, New York. N.Y. 10010 ISBN 978-0-312-12364-2 Library of Congress Cataloging-in-Publication Data Financial refom1 in Central and Eastern Europe / edited by Stephany Griffith-Jones and Zdeněk Drábek. p. cm. ISBN 978-0-312-12364-2 1. Finance-Europe, Eastern-Case studies. 2. Europe, Eastern -Economic policy-1989-3. Finance-Central Europe-Case studies. 4. Central Europe-Economic policy. I. Griffith-Jones, Stephany. II. Drábek, Zdeněk. HG186.E82F568 1995 332. 1'0947-dc20 94-24885 CIP

Contents Acknowledgements Notes on the Contributors vii viii Part I Introduction and Non-Banking Financial Flows 3 Introductory Framework Stephany Griffith-Jones 2 Non-Banking Financial Sector and the Link to Foreign Investment 'hlenek Drabek 3 17 Part II Case-Studies 3 Key Issues in Czech and Slovak Banking: A Central Banker's Perspective 67 Miroslav Kerous 4 Capital Accumulation for Long-Term Economic Growth in the Czech Republic 93 Jan Klacek 5 Problems of Financing Small and Medium-sized Enterprises in the Czech Republic 105 Oldiich Dedek 6 Development of the Financial Sector in Hungary During the Transition period 127 Rezso Nyers and Gabriella Rosta Lutz 7 Financial Sector Development and Macroeconomic Policy in Poland in 1990-3 151 Tadeusz Lamacz Part III Lessons from Developing Countries 8 Financial Liberalisation, Growth and Adjustment: Some Lessons from Developing Countries Rob Vos 179 v

vi Part IV Contents Conclusions and Policy Implications 9 Financial Sector Development in Central and Eastern Europe: Conclusions Stephany Griffith-Jones and E. V.K. FitzGerald Index 223 247

Acknowledgements This book was made financially possible due to a grant from the EU PHARE-ACE programme and due to financial support from the United Kingdom Overseas Development Administration. We very gratefully acknowledge both these contributions, particularly because we believe the project, the workshops and this resulting book are making an important contribution to financial reform in Central and Eastern Europe, as well as helping to show the value of collaborative research between West and East European colleagues and institutions. Many people have made valuable contributions to our project and we wish to thank them all. We are firstly grateful to our colleagues, the authors of the papers for their commitment to the project. Secondly, we warmly thank the many people who contributed to the high standard of our workshops by their comments and/or presentations. In particular, we would like to thank Karel Dyba, Czech Minister of Economy, for his support and participation at the Prague workshop, Mr J. Kunert, President, Czech Zivnostenska Banka, Mr H. Kierzkowski, then Deputy Chief Economist at the EBRD, Mr Wiessels from the European Commission, Ms K. Mortimer, from the UK Know-How Fund and Mr C. Morgan then from Coopers and Lybrand for their valuable comments at the Prague workshop. We are equally grateful to Mr T. Rybczynski, Visiting Professor at City University, Dr J. Rostowski, Senior Lecturer at the School of Slavonic Studies, University of London, Mr David Begg, Professor at Birkbeck College, as well as, again, Ms Mortimer and Mr Kierzkowski, for their valuable comments at the Sussex workshop. We are also grateful to the Czech National Bank and the EBRD for inviting part of our team to present the main results of our project, and to Mary Walker, for organising our presentation at the House of Commons. Last, but certainly not least, we wish to thank Olda Dedek and his colleagues for superb organisation of the Prague workshop and Angela Dowman for excellent organisation of the Sussex Workshop and London meetings. STEPHANY GRIFFITH-JONES ZDENEK DRABEK vii

Notes on the Contributors Oldrich Dedek is the Deputy Director of the Institute of Economics at the Czech National Bank. After graduating from the Prague School of Economics, he was Visiting Fellow at the London School of Economics and at the Economics Department of Warwick University. He is a member of the executive board of the Czech journals Political Economy and Prague Economic Papers, and former adviser to the Deputy Minister of Economics. He has published extensively on various aspects of economic policy including Voucher Privatisation and the Development of the Capital Market in Czechoslovakia. He has translated the Macmillan Dictionary of Modern Economics. Zdenek Drabek is Principal Adviser to the Governer of the Czech National Bank. He has been a chief negotiator for his country in dealing with the European Community and GATI. Previously he was a Senior Economist with the World Bank and Chairman of the Department of Economics at the University of Buckingham. Stephany Griffith-Jones is a Fellow of the Institute of Development Studies, at Sussex University. She has acted as senior consultant to many international organisations, including the European Community, the World Bank, the Inter-American Development Bank, UNICEF and others. She has also acted as consultant to the UK Know-How Fund. Her research and consultancy cover the fields of macroeconomic policy, financial sector development, and international finance. She has published widely. Her most recent book was Loan Guarantees for Large Infrastructure Projects. E.V.K. FitzGerald is Director of the Finance and Trade Policy Research Centre at the University of Oxford and a professorial fellow of St Antony's College, Oxford. Trained at Oxford and Cambridge, he was Assistant Director of Development Studies at Cambridge and Professor of Development Economics at The Hague from 1981 until 1992. His current research interests include international capital flows to, and private investment behaviour in, semi-industrial economies. Miroslav Kerous is a banking consultant, chairman of the board of a large investment fund, a member of the board of a Czech bank and an investment viii

Notes on Contributors IX fund representative on the board of a large brewery. He studied at the Prague School of Economics. He was awarded the fellowship at the Georgetown University School for Foreign Service. In 1990 he was appointed Deputy Chairman of the Central Bank of former Czechoslovakia. From 1990 to 1993 he was responsible for the implementation of monetary policy and for the supervision and management of the Central Bank's branches. He was also a member of the board of the National Property Fund of the Czech Republic. Jan Klacek is Head of the Research Unit of the Czech National Bank. He graduated from the Prague School of Economics in 1966. He was affiliated to the Institute of Econ-omics at the Czechoslovak Academy of Sciences as Research Fellow and in 1985 he was appointed Head of the Department of Economic Growth. In 1990 he was promoted to the post of Director of the Institute. From 1990 until 1992 Dr Klacek was adviser to the Minister of Economics. Tadeusz Lamacz is adviser to the Polish Government in the fields of foreign direct investments and the reform of the fin-ancial system in Poland, and is a member of the Advisory Team on Economic Policy attached to the Prime Minister's Office. Lamacz undertook research in the Institute of Developing Countries at Warsaw University in the field of intra-regional trade in the Third World in the 1970s. Gabriella Rosta Lutz graduated at the Budapest University of Economics in 1980 and since then has worked for the National Bank of Hungary, specialising in the development of the banking sector, concentrating on the main problems of the transition of the Hungarian economy. Rezso Nyers is Managing Director, a member of the board and Head of the Economic Research Department at the National Bank of Hungary. He graduated from the University of Economic Sciences in Budapest in 1969 and continued there as assistant lecturer. From 1974 until 1986 he was Economic Adviser to the Hungarian government. In 1986 he was appointed Managing Director of the Hungarian Credit Bank and in 1989 he moved to his present position at the National Bank of Hungary. He has published studies on the Hungarian banking system, monetary policy in Hungary during the transitional period, the process of foreign debt and debt management policy in Hungary, currency convertibility, the Hungarian capital market and the reorganisation of the Hungarian banking system.

X Notes on Contributors Rob Vos is Senior Lecturer of Development Economics and International Finance at the Institute of Social Studies, in The Hague. He has worked as a consultant and adviser to international agencies (including the United Nations, the Inter-American Development Bank and the World Bank) and to developing country governments in various Asian and Latin America countries. Recent publications include Debt and Adjustmellf in the World Economy (1994), and Finance and Development: A Structural Approach to Monetary Policy (with E.V.K. FitzGerald, 1989).