Mr. Tosovsky gives the Czech Republic’s perspective of transition in Central and Eastern Europe Text of eighth Gerhard de Kock Memorial Lecture given by the Governor of the Czech National Bank, Mr. Josef Tosovsky, to an audience at the South African Reserve Bank in Pretoria on 17/2/97. It is a great honour and pleasure for me to be invited to give the eighth Gerhard de Kock Memorial Lecture, especially as this is probably (if I am not mistaken) the first time that a governor from the reforming countries of Central and Eastern Europe has been afforded this privilege. The region of Central and Eastern Europe has undergone a profound re-shaping. More than 100 million people of Central and Eastern Europe got involved in a far-reaching process of political, economic and social change. Because of its unprecedented character and size the impact of this multidimensional transformation has been in continent-wide Europe. Indeed, the political and economic map of the whole of Europe is nowadays rather different from what it used to be throughout the postwar period till the 1990s. Ladies and gentlemen, allow me to share with you some experience we have acquired. At the beginning of my lecture I cannot avoid briefly mentioning options for economic and political reforms as opened up for the countries of Central and Eastern Europe in the 1990s as well as the starting position of the former Czechoslovakia on the eve of the “velvet revolution” which in November 1989 enabled us to start a process of radical economic reforms.
It could possibly be claimed that the stricter budgetary discipline  BIS Review 18/2002  1  is a rather last-minute conversion, as countries with large deficits are often forced to borrow on the international markets and there submit to the requirements made, in only to keep down the loan costs. Large, growing budget deficits also reduce the possibilities for parties other than the central government to assess the future and increase their costs. Borrowers are forced to pay high and varying risk premiums to borrow on the bond markets, as financial investors want to be paid for the uncertainty regarding the inflation rate or exchange rate. In addition, there is always a risk that if the debt becomes too large the central government will be forced to implement large savings that will in themselves lead to increased unemployment and poor profitability for domestically oriented companies. Large international efforts have been made and are being made to create new regulations and standards that will reduce the risk of financial instability in a deregulated environment. The Basel Committee's new capital adequacy rules are an example of this. Financial supervisory authorities in most countries have been strengthened considerably, although the complexity of the markets always threatens to increase more rapidly than the competence to supervise them. Quantitative deregulation of the financial markets is largely complete and the adaptations have been made. Increased experience of acting in a deregulated environment should in itself have reduced the risk of financial crises.