Electronic Library of Scientific Literature - © Academic Electronic Press


Volume 51 / No. 1 / 2003



Book Reviews

Process of the Foundation of a Functioning Market Economy in Candidate countries of Central and Eastern Europe in the 90s


This article is based on the contribution to the Research Report that was prepared as a result of the Slovak and Czech common collaboration at the International Trade Department of the Economic University in Bratislava. It offers a detailed look at the current results of the candidate countries in the process of the foundation of market economy, provides a comparison of cumulative results of the Slovak Republic (SR) and the Czech Republic (CR) in 1999 – 2001 and informs on macro-economic development in selected candidate countries.

The author applies a method of the Office of the Head Economist of the EBRD that describes the level of the formation of standard (functioning) market economy in 28 tran-sitive countries (apart from the European countries including Baltic States there are implemented countries of Community of Independent States as well). Since 1994 results have been regularly published in Transition Reports. The article is based on Transition Report 2001 that provided assessments of progress in transition based on Statistics from the half of 2001.

Assessments are made for a number of core areas of reform that correspond with se-veral main elements of a market economy – markets and trade, enterprises and financial institutions. Progress in each of these areas represents an improvement in how well markets, enterprises and financial institutions function. Progress is measured against the standards of industrialized market economies, recognizing that there is neither a perfectly functioning market economy nor a unique end-point for transition. The measurement scale for the indicators ranges from 1 to 4+, where 1 represents little or no changes from a rigidly planned economy and 4+ represents the standard of an industrialized market economy.

European Bank for Reconstruction and Development implemented Classification system for transition indicators that covered Small-scale privatization, Price liberalization, Trade and Foreign exchange system, Large-scale privatization, Governance and enterprise restructuring, Competition policy, Banking reform and interest rate liberalization and Securities markets and non-bank financial institutions.

The author has applied a very simple statistical method for the expression of cumulative results and assessments. On the base of these cumulative results and assessments the rank of candidate countries was accounted. It is necessary to stress that the main attention has been devoted to the most development candidate countries: Czech Republic, Hungary, Poland, Slovak Republic and Slovenia (alphabetic order).

According to cumulative results Hungary ranges the 1st rank with 30+ points, the CR and Poland the 2nd and the 3rd rank (29 points), the SR with 28 points ranges the 5th rank and Slovenia (26+ points) the 7th rank. Author made a comparison of the SR and the CR cumulative results in greater details and concluded the results of these countries – both the SR and the CR – were balanced.

The analysis of the macro-economic development of selected candidate countries in the period of 1999 – 2001 was provided, as well. The author based her conclusion on the international statistics and in connection with it concluded her opinion that macro-economic development of selected candidate countries during 1999 – 2001 was very solid. The experience of two countries (the SR and the CR) has been expressed in the Analysis: the development of both the SR and the CR was balanced and solid, as well.

Agricultural Policy and European Integration


The Common Agricultural Policy (CAP) of the European Union (EU) has protected European farmers while distorting world markets and creating a major problem for the European Community’s budget. The primary objective of the CAP is to redistribute income from the non-farm sector to farmers. Commodity price supports with import barriers and export subsidies (along with output controls) have been the most common means used by the CAP to achieve this objective. A common support price to all countries is the cornerstone of the CAP. The EU’s price support mechanism implies two types of income transfers to farmers: a transfer from consumers and taxpayers to farmers and a transfer from one country to another. The former type of transfer is accomplished through transfers to farmers from consumers who pay higher prices than they otherwise would with import levies and sometimes alternative forms of production controls, and from taxpayers who finance production and export subsidies and other policy instruments dealing with excess production. Inter-country transfers occur indirectly because of the “financial solidarity” in financing the CAP with the common budget and of net positive and negative trade positions between countries. Contributions to the common budget consist of revenues from import duties, producer levies, and contributions from member states as a per cent of their value-added tax (VAT) base. After 1988, budget revenues are determined as a factor of gross domestic product (GDP), depending on the amount needed to balance the budget. An individual country’s benefit from the CAP depends on the sectors obtaining subsidies, the country’s net trade position (reflecting consumer transfers from one country to farmers in another) and the relative size of that country’s production relative to total production in the EU.

The decision-making on the CAP is institutionally complex. The European Commission and the Council of Agricultural Ministers play an important role in decision-making on the CAP. The latter are strongly influenced in their positions by pressure from interest groups in their countries.

In our paper we develop a two-stage political economy model that explicitly models the complexity of decision-making in the EU on the CAP, and use the model to investigate the impact of accession of Central and East European Countries into the EU.

In the first stage (which takes place at the member state level) national governments choose their optimum amount of protection of domestic farmers through the CAP, reflec-ting preferences and differential influences of voters and interest groups. In the second stage (which takes place at EU level), we model the CAP decision-making. European Commission proposes a policy position and Council of Ministers votes on the proposal whereby the voting of each minister is determined by the politically optimal policies for the government the minister represents. The impact of simple majority voting and qualified majority voting on the final common outcome are discussed.

We derive several results. Preferences of countries on agricultural protection change within the CAP compared to their preferences outside the CAP. The fact is due financial solidarity of the CAP. Financial solidarity causes that some countries are net beneficiaries of the CAP while other countries are net contributors to the CAP. Net beneficiaries prefer higher protection of their agriculture in the CAP then they would have opted for outside the CAP, or on their own. The reason is straightforward. Some of the income going to farmers of a net beneficiary comes from taxes on consumers or taxpayers in the net contributing countries. The opposite obviously holds for net contributors to the CAP.

The accession of the Central and East European Countries (CEECs) into the EU’s CAP will alter preferences for agricultural protection both in the current EU countries and in the CEECs. Preferences in current EU countries will be lowered. The reason is straightforward. The current EU countries will become larger net contributors to the common agricultural policy (under current CAP). This is reflected in the process of CAP reform and an effort of current members to deprive future EU members from CEECs of some of the direct payments.

The CEECs, on the other hand, will prefer higher agricultural support when members of the EU than they prefer now because their expected status of net beneficiaries of the CAP. This is also reflected in an effort to rise agricultural protection in pre-accession period, which is however constrained by other domestic factors like low purchasing power of consumers and high relative expenditures of households on food.

In conclusion, even if the CAP remains unreformed, the Eastward enlargement of the EU would decrease the level of agricultural protection in the EU. The impetus will be provided by the current EU members because of a deteriorating effect of the accession on their net contribution position. 



The paper presents integrated historical view at the origin, development and alloca-tion of the international monetary unit Special Drawing Rights (SDR), which was created by the International Monetary Fund in the year 1967 in connection with the disintegra-ting Bretton-Wood monetary system. The paper explains the development of SDR formation, the structure of SDR market basket and monetary participation of relevant currencies in the SDR. It deals with the tasks and importance of SDR in current international monetary system.

The first part deals with the volume development of SDR emissions beginning by SDR creation up to nowadays. It presents the arguments for SDR emissions within the IMF and their organisation. Special attention is paid to the latest special SDR allocation, its distribution among individual member countries, especially among the countries belonging to the Belgian group, into which falls also the Slovak Republic. Within the framework of the latest special SDR allocation, the increase of SDR amount in circulation by 21.4 billion SDR has taken place, which means to double the existing SDR allocation that will then reach the level of 42 866 660 400 SDR. Slovak Republic too got the allotment amounting 75 458 840 SDR. All transforming Central and East European countries thus received total SDR allotment 29.315788813 per cent of the IMF member quota after the ninth revision of the member quotas.

This special SDR allocation is carried out based on the Fourth Amendment of Articles of Agreement and will be valid only after the ratification by the 3/5 of member countries with the 85 per cent voting power. In the middle of August 2001, 109 member countries, representing the voting power of 72.18 per cent of all votes accepted the suggested change.

In the second part of the paper, the authors dealt with the tasks or functions of special drawing rights. They pointed out at the fact that SDR serves as an accounting or recording unit for all operations of member countries with the IMF and with the other international organisations. SDR fulfil also the function of value rate or international value denominator, which under the condition of big currency exchange rate movements can contribute towards more stable expression of value parameters. They can be used also for the derivation of currency exchange rates by means of the so-called method of the standard basket of currencies. They are unconditioned foreign currency facility, which serves to get additional liquidity of member countries and in this sense; they are the component of foreign currency reserves. One can use them also in the private sector at the emission of private financial tools.

The third part deals with the development of the definition of SDR value and with the explanation of the SDR calculation method by means of the currencies’ basket method. It presents the development of the composition of the SDR basket of currencies and the shares of individual currencies in the basket of currencies; where from the history point of view one notices considerable changes. Current composition of the basket of curren-cies consists of EUR – 29 per cent, JPY – 15 per cent, GBP – 11 per cent a USD – 45 per cent and reflects current integration process by constituting the European Monetary Union.

The final part of the paper presents the method of calculating the SDR interest rate and its utilisation at financial operations within the IMF. The SDR interest rate is calculated weekly based on the weighted mean of representative interest rates of short-term bonds at the money markets of countries, whose currencies enter the SDR basket of currencies. It serves to deduce the amount of periodic payments and remuneration for member countries at their communication with the IMF and influences its management.

In the conclusion one states that SDR have overcome up to now considerable changes, which involved the volume of their allocation and thus also the extension of currency reserves, forms of their usage, definition of their value and interest rates. SDR utilisation meant an asset for the world economy; however, original ideas of SDR originators on their wide application were not fulfilled.

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