In its session on 20 December 1994, the CNB Bank Board discussed and approved the 1995 monetary program. The program is based on a year-to-year GDP increase of 3-4%, on maintaining balanced public budgets and on Government and CNB efforts to keep inflation rate below 10%. The CNB will pursue such monetary policy that will keep the existing exchange rate level, exert intensive pressure against price growth and create monetary conditions for sustained economic growth. For these purposes, it is considered appropriate to manage the development of money supply (M2) so that it will be 14-17% higher in Q4 1995 than Q4 1994.
The state budget ran a surplus of CZK 10.4 bn as of 31 December 1994. The CNB considers this surplus an important aid in the struggle against inflation. On 14 December 1994, the Parliament adopted the CR state budget for 1995 with expenditures and revenues of CZK 411 746 bn, i.e. the budget is in balance and, in comparison with the original Government draft, higher by CZK 200 mil. The most significant public finance item will again be social transfers (approximately CZK 161 bn). State subsidies to business entities will be directed particularly towards transport and agriculture.
From 1 January 1995, prices of household heat increased by 10%. At the same time, new measures are reflected in the prices of heat for other consumers (e.g. growth from 8% to 9% in the share of profit earmarked for investment in heating). From 1 June 1995, the prices of electricity and gas for households will be increased by 12% and 10% respectively. This is an important step in equalizing prices for households and other consumers, or, in other words, eliminating state subsidies in this area. From 1 July 1995, rents will increase by roughly 22 - 30% (in flats with rents still regulated by the state) in a differentiated way with regard to the regional situation and the size of municipalities. Rent prices will continue to grow each year from 1 July depending on the development of inflation.
One of the two VAT rates included in prices and therefore paid by consumers decreased from 23% to 22% from 1 January 1995. At the same time, customs duties were reduced on imports of some kinds of goods (e.g. automobiles). The impact of these changes on consumer prices has not yet been felt. From 1 January 1995, the income tax rate of juridical persons fell from 42% to 41% and the maximum rate of this tax for natural persons decreased from 44% to 43%.
During 3 - 6 December 1994, Dr. W. R. White, the Director of the Monetary and Economic Department of the BIS visited the CNB. His discussions with the CNB Governor and Bank Board members dealt with the issues of foreign capital inflows, the mechanism for determining the foreign exchange rate and monetary policy management by means of interest rates.
From 5 to 9 December 1995, the CNB in cooperation with the British know-how Fund held another in the series of seminars for employees of the Banking Supervision Department on the problems of the financial analysis of banks. Lecturers were from the Bank of England. The seminar helped to increase the skills of CNB banking supervision employees.
The Heritage Foundation in its report, "Index of Economic Freedom", ranked the CR in twelfth place amongst the world's most economically liberal states and first amongst the European countries in transition. This rating particularly applies to banking, state regulation, investments, government consumption, ownership rights, wage and salary control and prices.
On 14 December 1994, an agreement was signed between the European Investment Bank and the Czech firm MERO CR on the extension of a long-term credit worth ECU 125 mil. to complete financing of the Ingolstadt - Kralupy oil pipe-line. The credit was arranged by CSOB.
CSOB and the Rothschild Banking Group have established a joint-venture, Consilium, to specialize in consultation on the finances of business firms. The Rothschild Banking Group's share of Consilium is 40%.
On 6 December 1994, the 7th issue of Agrobanka shares was completed. The shares, whose nominal value was CZK 635 mil., were thus underwritten and paid up a month before the planned date. Agrobanka's basic assets thereby increased to CZK 3.175 bn and its capital adequacy approached 4%. This complies with the intentions of the bank's consolidation program for 1994. In December 1994, Ceska sporitelna increased its assets from CZK 5.6 to 7.6 bn through underwriting of new shares. The first and second rounds were reserved for the present shareholders with first rights, the third round performed in auction form.
At the end of December 1994, Ceska sporitelna and Banque Nationale de Paris signed an agreement on a general credit worth FRF 50 mil. specifying the terms of financing imports of equipment, technologies, services and industrial products of French origin by Ceska sporitelna's clientele. Based on this agreement, Ceska sporitelna will finance from this general credit 85% of the delivery's value.
On 16 December 1994, the issue was successfully concluded of Eurobonds worth USD 150 mil. of the Netherlands company, CEZ Finance B.V., established by CEZ, the Czech power company. The primary manager of this issue was the American investment bank, J.P. Morgan Securities. In December 1994, the Dutch bank ABN AMRO Bank NV entered the Czech capital market with an issue worth CZK 1 bn of three-year bonds at an interest rate of 11%. This is the first issue of foreign bank securities in the Czech capital market.
A general meeting of Czechoslovak Airlines decided that, effective 26 January 1995, its name will change to Czech Airlines. This does not entail any changes in legal personality, organizational structure, airline network, foreign representations, etc. As well, the CSA logo and OK code will probably be retained. The construction of the new Prague airport terminal will be secured by Ceska sprava letist, a.s. (Czech Airports' Administration). Foreign firms - the French firm Bouygues and British Aerospace - will participate in the construction. Credits will be secured by Investicni a Postovni banka.
On February 1, 1995, the Association Agreement between the CR and the European Union took effect. This is the formal completion of putting into practice the provision of the European Agreement (particularly in trade relations) which has been going on between the CR and the EU since 1992. In connection with this agreement the CNB ceased regulating transfers of direct investments from the CR to EU countries. Therefore, Czech citizens interested in direct investments in EU countries need not apply for a foreign exchange licence but only advise about a particular transaction. Operations by foreign direct investors in the CR continue not to be subject to a foreign exchange licence.
On January 4, 1995, Governor Josef Tosovsky received Mr. Alfons Verplaetse, the Governor of the National Bank of Belgium. The aim of this meeting was to exchange experiences of central bank activities particularly in the area of banking trades. On January 17, 1995, Governor Josef Tosovsky received the President of the Central Bank of Chile, Robert Zahler. During their meeting they exchanged experience with foreign capital inflows to the Czech and Chilean economies and discussed central bank regulatory measures in this area. On January 27, 1995, Governor Tosovsky received the new Dutch Ambassador to the CR, Mr. Peter F. C. Koch.
At its session on January 26, 1995, the CNB Bank Board assessed positively an application for a banking licence for Ceska exportni banka (Czech Export Bank), a.s., seated in Prague. Ceska exportni banka is to extend more advantageous export credits, in the first phase especially to banks for exporters. The basic capital of this new bank is CZK 1.5 bn. However, the CEB will actually start operations after the necessary legislation has been adopted, which is expected in February this year.
Exportni garancni a pojistovaci spolecnost, a.s. (Export Guarantee and Insurance Company - EGAP) has been providing services to exporters for the third year. In 1995, because of deposits from the state budget and premiums income, a further increase in EGAP's insurance capacity is expected to such an extent that new export credits amounting to CZK 10 bn could be insured. EGAP provides insurance for short-term credits on a commercial basis against commercial risks in OECD countries, where thus far, nearly 100 insurance agreements have been concluded covering an export potential of approximately CZK 13 bn. EGAP's entire insurance activities presently cover territorial and commercial risks connected to 7.9% of the CR's total exports.
In the CR, 30 pension funds have already been granted licences. The following are among the newest funds: Sporitelni penzijni fond established by Ceska sporitelna and Sporitelni penzijni spolecnost, penzijni fond Thalia established by Dolte a.s., Cesky literarni fond and Syndikat novinaru, Obcansky penzijni fond established by Metrostav and a number of other firms, penzijni fond Slavia, established by the firm Time Scale, Prumyslovy penzijni fond established by Svaz prumyslu a dopravy and other institutions, and the fund Fontana established in Ostrava.
Although legislative measures related to the terms of mortgage bond issue are still under preparation, some banks commenced offering mortgage credits as early as the beginning of 1995. Ceska sporitelna, Komercni banka (which has established a Mortgage Institute for this purpose), Ceskomoravska hypotecni banka (previously Regiobanka), and a subsidiary of Investicni a Postovni banka are involved. A mortgage credit is long-term and designed for specific purposes, to finance housing needs and investments in real estate. It can account for 60% of an estimated real estate price or a budget for construction and reconstruction and is extended with preferential interest.
SPT Telecom has acquired a three-year syndicated credit of USD 100 mil. from Credit Lyonnais Banka Praha and three other banks (Fuji Bank, Bank of America and West LB). These financial means will be used to finance the purchase of equipment from foreign suppliers. This is the first syndicated credit for a Czech non-banking company organised on the European financial market which is not conditioned by a security or guarantee. The interest rate margin is only 0.35% p.a. above the reference inter-bank rate LIBOR.
In the CR, wage regulation based on monitoring the connection between consumer price growth and wages continues to be in effect. However, some rules of this regulation have been liberalised. The fine (hitherto 200% or 100%) has been reduced to a unified 50% and the period for monitoring the development of enterprise wages has been extended from 6 to 12 months. In 1994, only 5% of enterprises did not observe the rules of wage regulation.
According to information from the German-Czech Chamber of Commerce and Industry, trade between Germany and the CR has grown. From 1990 to 30.9.1994, the share of direct investments by German entrepreneurs in the CR of overall investments by direct foreign investors increased to 29.3%.