Page:NATIONAL INTELLIGENCE SURVEY 18; CZECHOSLOVAKIA; THE ECONOMY CIA-RDP01-00707R000200110014-8.pdf/28

 APPROVED FOR RELEASE: 2009/06/16: CIA-RDP01-00707R000200110014-8

and the State Bank of Czechoslovakia share responsibility for financial planning, but the financial authorities in practice merely execute political decisions made at a higher level and have no policymaking functions. Since 1965 there has been much experimentation with the operations of the financial system, culminating in a reorganization of the banking system in 1969. The system now rests on three independent banks—a federal bank of issue (State Bank) and two national banks, one for the Czech Lands and one for Slovakia.

a. Financial organization

Control of the banking system is centered in the State Bank, whose functions are much broader in scope than those of central banks in Western countries. The State Bank controls the issue of currency, collects taxes, and has a near monopoly over the extension of both long-term and short-term credits. The State Bank also has operating control over both general credit and currency policy relating to foreign transactions and tourist currency exchanges. Since all transactions must be cleared through accounts in one of its branches, the State Bank has the power to monitor and control the current operations of the economy. The State Bank is directly subordinate to the Council of Ministers, although they work closely with the Ministry of Finance.

The new system of banking introduced in 1969 gave the State Bank overall control of monetary policy by transferring sole responsibility for drafting the foreign exchange plan, previously handled by the Ministry of Finance. The State Bank, however, delegated some of its authority to the Czech and Slovak national banks, which took over the day-to-day domestic banking operations such as the extension of long-term and short-term credits, and also were allowed to engage in foreign banking transactions.

The other Czechoslovak banks are subordinate to the Ministry of Finance but coordinate their work closely with the State Bank. On 1 January 1965 the Commercial Bank of Czechoslovakia was established as a joint stock company, with shares held by foreign trade, financial, and cooperative enterprises. It took over the State Bank's responsibilities for payment and credit transactions with foreign countries, accounts for internal clearing of foreign trade transactions, and the buying and selling of foreign currencies and gold. It has three representative offices abroad—New Delhi, Djakarta, and Beirut. A Trade Bank, with a branch in London, has additional minor responsibility for foreign trade, particularly with foreign countries; its activities seem to be confined largely to transactions involving private individuals and nonprofit organizations. The new system of banking introduced no significant changes in the structure or activities of these two banks specializing in foreign commercial transactions. Notwithstanding the transfer of investment financing to the State Bank in 1959, the Investment Bank was not liquidated; it is used as a safe-deposit facility for securities and other valuables and is responsible for the selling of state bonds. The National Savings Banks administer the savings deposits of individuals and provide consumer credit and long-term mortgage loans for home construction and repair.

Personal and property insurance, excluding social security, is issued by the State Insurance Organization, under the Ministry of Finance. Collective farms must insure their crops, livestock, and property, and private automobiles must be covered by personal liability insurance. Foreign trade insurance and reinsurance also are available.

b. Currency

The monetary unit in Czechoslovakia is the koruna (koruna ceskoslovenska—kcs). It is used exclusively for internal transactions. There is one rate used exclusively for foreign trade transactions and another for tourists. The foreign trade rate is generally tied to the ruble-dollar exchange rate. Exchange rates to the U.S. dollar are listed below:

Tourists from "capitalist" countries, Cuba, and Yugoslavia may purchase korunas at a slightly more preferential rate. In terms of domestic purchasing power the value of the koruna is somewhat higher than tourist rates.

c. Financial planning

The financial plan on the national level projects the flow of funds within the economy according to the production and consumption goals of the National Economic Plan. The key element in planning is the 5-year plan, but the annual plan continues to provide the operational basis. All regional levels of government and all state enterprises have financial plans, which are incorporated into and coordinated with the state plan. Projections are made for the incomes and expenditures of the population and for decentralized financial transactions not directly controlled by the

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APPROVED FOR RELEASE: 2009/06/16: CIA-RDP01-00707R000200110014-8