Electronic Library of Scientific Literature


Volume 46 / No. 4 / 1998



Both hypothecary products and hypothecary banking embodied in actual economic conditions as their integral part respecting its development conditions and possibilities positive influencing thereof.
Hypothecary products are of more importance, in said meaning, then a merely new product in banking as they by far exceed banking and sector scope.
In consideration of their long-term nature they are extremely sensitive to macroeconomic and bank monetary ambient stability.
Decreasing inflation rate from 25.1% in 1993 to scheduled level not exceeding 6.4% this year, can be considered a positive.
Whereas in 1993 high inflation rate was the most severe destabilization factor, nowadays the efforts of economic and monetary policy should be focused at the solution of high interest rate problem. In said connection, efforts, to release financial policy conditioned by return to surplus fiscal balance and reasonable income policy as well as by according economic and monetary policy and this not only as expansion-restriction but also in terms of used tools as Keynesian-monetary, should be encouraged.
However currently the problem of high interest rates simply exists and the new financial product cannot but cope with it. High interest rates result in high price of sources which project, together with hypothecary bank margins, in the price of credits.
This problem can be temporarily solved by application of primary sources as deposits, instead of capital market sources. Another possibility is the partial interest yield settlement by investor to state mortgage bonds, or using part of insurance companies or pension funds resources which must be allocated in low risk investments for business safety.
Relative low inflation level as well as the effort to maintain it at a financially safe level also in the future, had a favourable influence on mortgage bonds investments.
In consideration of the existing conditions hypothecary products can be expected not to highly exceed 5 years due time stipulated as a minimum limit for long-term products. Likewise, hypothecary products can be assumed firstly in less risky form, decreasing at the same time yields therefrom.
Our argument to support liberal block system, is the problem of capital market resources supply, its insufficient absorptive capacity. Banks in liberal block system may allocate acquired resources repeatedly, thus credit instalments can serve as a source of further mortgage credits.
From the point of view of hypothecary bank integration in banking system it is necessary determining top limit of issued mortgage bonds.
It follows out of the hypothecary products quantification analysis that this is a case of a relatively costly product. Repayment methods outline certain advantages of annuity method, however, coordination between uniform bonds yield and annuity credits repayment requires application of a model through which an interest rate to guarantee a requisite hypothecary bank margin (minimum interest span) can be ascertained, which is included in the thesis.
Regarding the hypothecary products government support present support can be cha-racterized as qualitative, focused to creating legislation and methods for hypothecary products implementation. From the quantitative viewpoint, i. e. in direct subsidies field or as soft, mortgage bonds yield support appears efficient. The main reason is an option of more favourable mortgage bonds allocation with either higher revenues, or in case of a subsidy to hypothecary bank revenues, this may a subsidy of e. g. 1% project in hypothecary credit advantage by more than 1%.
Legislative conditions for hypothecary products implementation may be considered as satisfactory for these products introduction. Legislative adjustment of difference between municipal bonds, would be advisable, or introduction of a new municipal bonds concept for the purposes of hypothecary banking, e. g. municipal mortgage debentures.
Despite all the contradictions and difficulties accompanying hypothecary banking implementation in conditions within the Slovak Republic, this product represents the only feasible alternative in conditions where due to absence of long-term resources, there almost do not exist other long-term credits granting facilities.



One of the basic functions in the financial market is the function of liquidity, through which the financial market provides for the investors the possibility to exchange their fortune preserved in the various financial tools into cash money. From the investor's point of view the speed of this transaction is important too, provided no loss is linked to this exchange. The liquidity of the financial asset is thus always connected with the price stability, reversibility and negotiability. Bonds belong to the category of financial assets, where the financial theory particularly watches their liquidity problem. The more profound analysis of the market with bonds shows, that various kinds of bonds have also various liquidity, and that even the bonds from the same issuer can have different liquidity.
The basis for the whole analysis is the theory of liquidity preference; one of its main representatives is J. M. Keynes. According to this theory the demand for money influences mainly the behaviour of an investor from the transaction, safety, and speculative points of view. From a short-term point of view it is obvious, that the demand for money, as well as the level of interest rates and after all also the liquidity of bonds are influenced by the speculative motive only. Logical conclusion of this theory is the fact that the investor has a tendency to purchase preferably the short-term bonds over long-term ones. This is related partly to the demand of cash in a short time by the investor, partly however to the lower price risk of the short-term bonds compared to the long term ones. The compensation for risk, the investor is willing to bear in case of long-term bonds is the so called liquid bonus. Its height is however also variable according to the maturity period, it grows mainly in the first years of this period, whereas along with the prolongation of this period the growth rate is lower.
The risk of the considerable price movement at long-term bonds as well as their lower liquidity brings about in the world financial markets the shortening of the time horizon of the bond life.
Two contradictory interests turned to be the paradox of every capital market. On the one side there are investors, who out of safety considerations prefer short-term investments, and on the other side there are issuers, who are interested above all to get long-term resources for their purpose.
The theory of finance and the economic practice try to harmonize these interests also by various innovations in the bonds market. In this sphere a roll-over effect is well known; here the investor is no longer limited by the maturity period and is able to ensure his liquidity each time at the end of a certain period. Roll-over effect thus enables the issuer to avoid higher liquid bonus, on the other hand it carries along for the issuer higher costs (refinancing, repeated registration of the emission, advertising etc.).
At present the bond market in Slovakia is equivalent to the stock market, and has thus similar troubles. From the theory of liquidity point of view one can say today, that on the bonds market the "liquidity crisis" manifested itself openly. When evaluating the present negative state of the Slovak capital market one meets many causes originating in the overall transformation process of the Slovak economy. The main cause of the low liquidity in the bonds market is the lack of internal resources, which results in the need to acquire above all foreign resources by means of a capital market. This problem is linked to the interconnection of our capital market to the world financial markets.
The sphere of availability and structure of the internal and foreign resources from the point of view of individual subjects is questionable too. The practice of our capital market hitherto demonstrates, that most resources are drawn away by the government as a result of the ever growing state budget deficit. On the capital market therefore remain available only limited resources for the microsphere.
Liquidity crisis on the bonds market was induced to a great extent also by the considerable movement of interest rates in the money market, which in compliance with the theory of liquidity markedly strengthened the speculative motive of investors, who automatically started to shift themselves to the short-term money market. The decline of demand on the bonds market brought about also a considerable price decrease of medium-term bonds, which automatically decreased their negotiability. Many investors into bonds could at present renew their liquidity only on the assumption of considerable loss. Present level of interest rates also prevents the issuers from entering the capital market. Assuming that the issuer does not respect toady's level of interest rate and issues bonds of lower interest rates, his emission obviously can not be implemented in the market. On the other hand, the acceptance of the present interest rate level in the emission of the bonds would mean for the issuer the purchase of expensive resources, which means after all the cost increase and the pressure on the price level in the market.
The bonds' liquidity in the Slovak capital market is influenced to a great extent by legislation measures, which can to a certain extent stimulate or hinder the development of the capital market. Conceptual confusion of some legislation rules as well as recent tax adjustments contributed rather to the deterioration of the liquidity crisis in the capital market.


Viliam PÁLENÍK - Ladislav BORS - Vladimír KVETAN

Analyzing and forecasting of macroeconomic development is an important part of the research into the national economy. In a transitional economy the necessity to quantify impacts of accomplished and intended transformation steps ascend to the foreground.
The goal of this paper is a short time standard forecast of macroeconomic indicators of the Slovak economy. It is based on previous econometric papers as well as on other works of the Institute of Slovak and World Economics related to the macroeconomic development of the SR.
For forecast calculation the model ISWE98q2 consisting of 144 equations has been used. The model is based on a 250 time series database. Difference between ISWE98q2 and previous models is mainly in including some important relationships between variables. From the methodological point of view ISWE98q2 is an interdependent kind of model. Form subject matter it is divided into six closely interconnected blocks of regression equations and identities:
- population block;
- prices and productivity of labour block;
- foreign trade block;
- monetary block;
- state budget block;
- GDP block.
The model includes all relevant and important macroeconomic relations, which is in the authors' opinion, an important precondition for the evaluation of a forecast with reliable significance.

Assumption of model forecast

Dependency of future development of the Slovak economy on the hitherto development, on environment, on economic policy, and on the structure dynamics of the Slovak economy was the basic assumption of this forecast. The past is implied in the structure of the model and in the part of exogenous variables. The rest of the exogenous variables react to the environment and tools of economic policy.
In standard forecast it was assumed that there will be no restriction to exports. An unchanged exchange rate has been assumed as well. Import and export of services have been assumed to continue their current development. Assumption of no demand shocks, similar to those which occurred after liberalisation of imports, has been included too. Otherwise an enormous increase of import could be expected. Other assumptions included the decrease of government capital expenditure its and replacement by private investments.
Deflators are taken as single-figure growth rates. At first, the average interest rate for credits grows quarterly by 0.1-0.2% and discount rate is justified on the level 8.8%. Private consumption deflator is counted in the model by means of a new regression equation. The GDP deflator is evaluated as an identity.

Standard forecast

In 1997 the expectations of a slightly growing consumer price index (CPI) were confirmed, due to the influence of industrial producer prices. It has increased due to import charge implementation and thus import prices increased.
Gradual relaxation of the import prices increase and thus also industrial producers prices, which is expected in 1998, will have an impact on the slowdown of the index of consumer price growth rate. Setting of import charge to 0% level and a restrictive monetary policy will have an influence on the slowdown of CPI as well. On the other hand cost inflation will be pushed by high credit interest rates. The continuing deregulation of prices (gas, electric energy) will have an influence on cost inflation as well. That is why for the year 1999 we can expect inflation on the level of 6.5%, in 2000 to 7.5%.

Labour market and wages
In the transformation period, wages development was influenced mostly by rapidly growing consumer prices, and by labour productivity decline. Since 1993, however, wages development has continuously had an autonomous character, which can be explained by pressures of trade unions.
Results of standard forecast (tab 1.2) show that growth rate of nominal monthly wages is slightly slowing down from 13.2% in 1997 to 11.3% in 2000. So in 1999 the nominal monthly wage will be 11,615 SKK and in 2000 it will reach the figure of 12,923.
As we can see nominal wages will grow more quickly than CPI so we can expect also growth of monthly real wages. Due to higher CPI the growth rate will smoothly slow down. So in 1999 monthly real wage will be at the level of 9, 473 SKK and in 2000, 9,808 SKK.
Assumed replacement of government investment by private investment will have connection with stabilisation on the field of labour demand. In 1999 the amount of employed persons in national economics will be on level 2 032 mil. employees and in 2000 it should gradually grow to 2 049 mil.
Labour productivity is described by means of the ratio of GDP and the amount of people employed the in national economy. GDP will grow faster than manpower and thus labour productivity in fixed and also in current prices will grow. (See tab. 1.2)

Foreign trade and balance of payment.
Because of the open character of the Slovak economy foreign trade forecasts have great importance. Because of this and a the long-term balance of payment deficit, we pay great attention to the foreign trade situation.
1. Analysis shows that 1% growth of trade partners' import will increase Slovak export only by 0.60%. On the other side a 1% increase of gross production (GDP + intermediate product) will increase SR imports by 1.17%.
2. Slovak import is more sensitive to price relations, in comparison with export. So possible devaluation would more restrict imports than support exports.
3. Export prices depend much more on the situation in internal prices (price of industrial producers) than on import prices of SR trade partners.
Based on this analysis the following results of foreign trade forecast were made. In the years 1998-2000 the passive balance of payment ratio to GDP will grow, reaching the level of 1996. (From -4.6% in 1997 to -10.9% in 2000).
Import of goods and services in current prices will increase in 1998 by 11.7% and 9.8% in 1999, and in 2000 the growth rate of import will be 10.5%. In 2000, import would be 550 mld SKK. On the other hand export in current prices will grow a bit slower, from 7.3% in 1998 to 9.1% in 2000, to an amount of 470 mld SKK. In fixed prices situation will be similar.

Monetary development
Development of components of monetary stock in the past and forecast till year 2000 is illustrated in tabs. 1.4, 1.5. In the year 1997 one of the goals of the monetary programme of the National Bank of Slovakia (NBS) was a monetary aggregate M2 yearly growth rate of 10.7%. This goal was realised with a 9.1% growth rate. With a 13.6% GDP growth rate in current prices we can refer to a restrictive NBS policy compared to 1995 and 1996. In the years 1998-1999 we can expect neutral or a slightly expansive monetary policy with growth of 4% points under GDP in current price growth rate (tabs 1.4 and 1.7). Expected M2 growth rate is 19.6% and 1999 and for 2000 the forecast is 16%.
An important component of money stock in 1997 was the trend in M1, which reached absolute decrease in a rate of -4.5%. It was effected by a rapid growth of interest rates of time deposits. A mirror trend was recognised in 1997 in quasi money (18.6%) and time deposits of population (23.2%) growth rates. This behaviour is combined with the already mentioned growth of interest rate for time deposits to the level of investment-motivating real interest rate. In 1998 we are expecting, as a result of the mentioned change in monetary policy, M1 money annual growth rate on the level of 24%, which will increase the money ratio on liquid liabilities by 2.1%. In the following years we are expecting a slowdown of M1 money annual growth rate to 12.5% in 1999 and 13.1% in 2000. M2 aggregate growth rate will increase from 38.9% in 1998 to 41.9% in 2000.
In the case that the change in policy NBS monetary to a slightly expansive policy in the forecast period will not take place, assumption of standard forecast will not materialize. In such a situation we could expect a nominal fall of credit volume to enterprises and the population with wide impacts we were unable to fully quantify.

State budget
Forecasts state budget of income and outlay are in table 1.10. The basic indicator in this block is the state budget deficit. State budget law allows for a fiscal deficit of 5 billion SKK. Compared to the year 1997, this means a decrease of 58.4%. Standard forecast of deficit shows a deficit increase to 10 billion SKK in 1999, and in year 2000 the deficit will reach 8 mld SKK. We started from the assumption that it is impossible to keep the deficit on the level 5 billion SKK or less.
As regards the total state budget income we assume in 1998 a drop of total income to the level of 176.8 billion SKK. Compared to the year 1997 it means a drop of 0.6%, caused mainly by an expected drop in non-tax revenues and also by the drop in the forecast of the excise tax. Forecast of annual growth rate in total income is on the level of 9.4%.
Total expenditures in 1998 should reach the level of 181.8 billion SKK, assuming a 5 billion SKK deficit, which means an annual decrease of 4.3%. This drop was reached by means of reducing the nominal expenditures of government. In the year 2000 we can expect slightly a positive revival in trend of government investment, and thus a certain replacement of private investments by government ones; assuming an expected profit growth, this should not necessarily endanger the favourable development of budget revenues from legal entity taxes.

Gross Domestic Product
The results of forecasts are in tables 1.1, 1.6, 1.7, 1.8 and include GDP forecast and components of use. We can see that growth of GDP should be influenced by the growth of gross capital formation and the growth of export and stagnation in import.
Private consumption should continue its growing trend, but compared to the year 1997 the growth rate will drop slightly. In 1998 we expect an annual growth rate on the level of 3.9%, in 1999 6% and in the year 2000 3.3%. The trend in private consumption is closely influenced by the real disposable income of the population, where we also expect a slowdown.
Government consumption growth rate is assumed to slow down, slightly to 3.4% in 1998 and to 3.5% in 1999. This assumption is based on the trend analysis from the past.
The most dynamic part of domestic demand is still gross capital formation, including private investment, government investment and the change in stock creation. After a 4.7% decrease in 1997, in 1998 we are expecting growth of 20.5%, in 1999 14% and in 2000 11.7%.
The GDP growth rate in 1998 will reach the level of 5.3% and in 1999, 6.5%. This is based on positive trends in investment and in foreign trade. The deterioration of the foreign trade balance expected in 2000 will influence the GDP growth rate as well.

Closing remarks
Every year's changes in the Slovak economy during the transition period make predictions of future development difficult. Many non-standard situations and problems are going hand in hand with inexperienced economic policy, which either does not at all use, or only with great delay, standard expected tools. In forecasting by means of econometric modelling this is also worsened by the short relevant time series. Another important role is the influence of political aims on economic-political solutions.
But we can recognise some economic situations and their solutions, so we can easily assume some reactions used in the past. Slovak economic science has not yet sufficient knowledge on the influence of economic-political cycles in the business cycle. In the forecasting period 1998-2000 this aspect is very important because parliamentary elections will take place within that time.
The presented forecast comes from the assumptions listed in this paper and we can characterise them as the continuation of the current economic policy with some necessary, relatively small corrections. It quantifies in details the probable future macroeconomical development which in our view will demand some economic policy changes. Above all, it will be necessary to deal with the problem of economic restructuring supported by appropriate fiscal and monetary policies.


Eduard Szittay

The approximation of methods of boom prognoses used in the OECD countries is linked to approaches presented at the 23rd CIRET Conference that originate in the quantitative or qualitative analysis of selected indicators classified into main groups. OECD enumerates and publishes for its members leading indicators with monthly periodicity.
The evaluation of criteria for the acceptance of the chosen time line as an indicator is a cyclic behaviour. Cyclic movement is tested on the basis of timing methods or on the basis of the peak-and-trough analysis. Cross-correlation analysis can indicate cyclic adjustment.
Generally, one starts out of widely conceived series of macroeconomic time lines obtained from statistical surveys. On their basis one identifies three basic indicator groups: Leading, coincident, and lagging indicators. More precise and reliable predictors of fluctuation deve-lopment can be obtained by the aggregation into these indicators that are aggregated into monthly composite leading indices. More precise evaluation of the composite index prediction accuracy enable comparisons supported by further methods, for instance the random walk model, or the method of interest rate spread. The so called filter procedure is the latest step. For instance the method suggested by Hamilton (1989) evaluates whether composite leading index permits prediction signals of the main cyclic inflection points.
Transformed time lines are differentiated according to the same period of the preceding year for instance by means of the Hodrick-Prescot band filter. Very simple method is that of the approximation of time lines cyclic component by the logarithm difference of the same time period in the preceding year in all selected quantitative indicators. Stationary indicators are classified against lagging time coincident indicators and leading indicator of economic activity.
When the achieved peak in the cross corellogramme between time lines lies within the range for instance 0 ± 3 months, the indicator is classified as time coincident, when it shows exceeded time-negative values then it is leading, by an analogy at positive values it is classified as lagging. The cyclic component of the selected indicator is insufficiently correlated with the economic cycle development, when the cross correlation of the peak does not exceed the value of 0.55.
One can arrive at the prediction of development by an investigation of relation between composite time coincident index and leading indicators. Dual relation between. leading indicators and time coincident index is examined by means of mean values of Sims version of the Granger's causality test (F-statistics). Statistically significant relation between present values of the cyclic indicator and future values of the composite index suggests, that cyclic indicator can be helpful in forecasting the time coincident index.. Seasonal fluctuations are eliminated by the so called recursive filter.
The prediction accuracy of the composite leading index is evaluated for various time horizons of predictions. Based on the qualitative and quantitative support of predictions we diffe-rentiate qualitative and quantitative approach in forecasting the inflection points. Qualitative support is compared with some prediction tools, as for instance interest spread or the random walk model. Quantitative predictions of the leading indicator are supported by the regression of the composite index lag values.
Econometric models between the regimes of expansion and recession, for instance Hamilton switching model, work on the principle of conditional probabilities. When they exceed or drop under the value of 0.5, expansion or recession are signalled. Composite leading index is evaluated by the method of peak and trough or by the method of inflection point coherence.
There are several approaches that try to forecast or signal inflection points of the economic cycle. The beginning of inflection point identifies the lead of leading indicator related to the relevant reference series. The gradient of the interest rate spread, e.g. the difference between long-term and short-term interest rate is a very sensitive indicator of the long-term future development.
Another often used method for the inflection point definition is the method using lead-leg analysis.
OECD maintains the system of leading and time coincident indicators relating to the 22 member countries, based on cyclic movements of the monthly industrial production index. Since the beginning of the sixties OECD has used for the monitored period a modified phase assessment of the trend average. For each member country monthly composite leading index is calculated as a simple average of time lines.
The evaluation concerning the prediction of cyclic reversal of leading indicators expects to select an appropriate filter rule, which then maps inflection points in the changes of prediction indicators, for instance Neftci's (1982) and Hamilton's filter (1989). All these empirical rules include the accuracy balance of the time coherence and lost & false signals. Neftci's non-linear filter models composite leading index by means of the shifts between expansion and recession regimes. The switch is a result of a stochastic process. Neftci's filter enables to estimate the group of parameters including conditional probabilities, at which cyclic inflection points occur. When the probabilities exceed or sink below a certain reliable statistical level, they may be interpreted as a resolution of the cyclic inflection point.
The accuracy evaluation of cyclic inflection points in the interest rate spread uses a simple rule. The change of sign can be interpreted as a signal of the main growth cyclic inflection point. Interest gains of time lines containing nil and unit indicate, whether the economy is in a boom period or in a recession. Lead-lag analysis includes dependent variables with sufficiently long leads to the estimated function, at which optimum distances of target variables are determined. The methods of correlation series are complemented by techniques examining critical periods around inflection points, the so called selective phase. Dependent and independent variables are compared and then optimum time lag is defined for each discussed variable. Correlation coefficients offer a tool for finding optimum lead-lag relation among va-riables, for instance Pearson's coefficient of the moment of correlation coefficient.
Listed approaches that comply with OECD approaches, provide the survey of methods used for predictions of economic cycle development. Qualitative and quantitative indicators represent an approximation of this problem, which provides the basic starting point for the analysis and prediction of economic fluctuations development in industrial countries.



Balance theories can be defined as corporate theories on the essence, functions, formal contents, segmentation of balance sheet, various concepts of assets preservation, requirements on principles how to arrange balance sheet items, or as case may be balance sheet items valuation.
Based on the knowledge of balance theories' approaches to the 1. purpose of the balance sheet, 2 preservation of the existence of the enterprise, and 3. profit periodicity acceptance.
We can break down balance theories to
- monistic, dualistic, comprehensive,
- preferring preservation of cash assets (nominal, real), preferring preservation of assets (absolute, relative),
- accepting "total" income, accepting income of the accounting period.
From the historical point of view one can break down balance theories into two basic groups: classical, and modern balance theories.
Classical balance theories are traditionally classified into the three major groups: static, dynamic, and organic.
In static theories the purpose of balance sheet is the identification and classification of assets and liabilities as to the specific instant of time.
According to the dynamic balance theory the main task of balance sheet is to find out the correct income for a certain time period. One cannot obtain the identification of the correct income by comparing the capital in various time periods, but rather by co-ordination of legitimate revenues and expenses related to the specific time period. Income statement is a focal point here.
Representatives of the organic balance theory reason, that the main purpose of the balance sheet is the assets preservation of an enterprise, while eliminating the so called fictitious profit resulting from an inflation or from currency value changes.
Modern balance theories are unified in criticizing the classic balance sheet and its ability to present information on profit, which would correctly reveal the real economic situation of an enterprise. Those who criticize profit detection by means of balance sheet state that such a balance profit can be used neither for planning and audit purposes of the enterprise management decision making process, nor for the information of the owners and creditors on the economic situation of the enterprise; such a balance profit provides no information on the maximum amount that could be distributed within the enterprise, which is understood as a permanent source of revenues and is aimed at the highest possible income flow. The maximum available economic profit in the enterprise, the so called economic profit, as the annuity of future surplus revenues, cannot be detected form the balance sheet as an output of accounting, but solely by means of investment calculations.
Economic profit is defined in modern balance theories as the difference between enterprise revenue value at the end and at the beginning of the period to be calculated from the enterprise surplus revenues expected in future. To define economic profit one does not use balance sheet values of individual parts of assets, but revenue surpluses, that can be achieved by these assets. This profit understanding oriented at the future quantities is, however, unsuitable for tax and business balancing, aimed at the nominal preservation of capital. It cannot fully replace account rendering by property and liabilities itemising towards the yearly balance sheet day. It can be used only as a separately prepared calculation for the enterprise management as an instrument for future long-range decisions, and for external users it can serve as a supplementary tool to appraise managerial qualities of the enterprise management at the accomplishment of prognoses prepared in the past. It shows, what part of the produced balance profit can be distributed considering the requirement of enterprise preservation. This enterprise preservation is to be understood not in the sense of the preservation of certain parts of property, but rather as the preservation of the asset value of the property.
Capital-theory balance theories and anti-balance concepts (instrumental balance theories) most markedly manifested themselves out of all modern balance theories.
Capital-theory balance theories are based on the definition of the result, where the evaluation of individual parts of assets and total assets are no longer fundamental, but the enterprise assets are explained as an outcome potential, which has to be preserved as a permanent resource of the entrepreneur's revenue.
The representatives of the antibalance concepts require either to amend the balance by the parallel statement or to replace the balance by some other suitable accounting instrument with better explanatory ability, e.g. by capital flow statement or financial plan table.



The article analyzes the essence and differences between personnel management and human resources management.
The people who work in the organization are the starting point, and they are a resource that is relatively inflexible in comparison with other resources like cash and materials. But personnel is the human face of management, an important aspect of making the organization work effectively and ensuring that employees are well looked after.
Personnel management seems to offer all that. The philosophy of personnel management is that it is a series of activities which first enable working people and their employing organizations to agree about the nature and objectives of the working relationship between them and, secondly, ensures that the agreement is fulfilled. Personnel management is workforce-centred, directed mainly at the organizations employees, finding and training them, arranging for them to be paid, explaining managements expectations, justifying managements actions, satisfying employees work - related needs, dealing with their problems and seeking to modify management action that could produce unwelcome employee response.
Human resources managemet is the reaction on changing conditions and growth of competition on the market in the 1980s. It focuses on the flexibility, high standard of performance and the development of employees in such a way that the organization will survive and develop further. The demand for flexibility and speed of reaction on the changes on the market will be increasing.
In human resources management, the stress is laid on the orientation to strategic results and integration of human resources with strategic planning and management. It takes into consideration very carefully the needs of shareholders in order to reach the use of human resources in favour of increasing the company's performance value. Human resources management underlines the significance of the ability of people to act and adapt quickly to the environmental changes. It is aimed at the quality of a product and selection of high quality employees. It develops motivation and inspiration of workforce. Human resource management helps to raise profitability and effectiveness in the company.
Effective human resources management is facilitated to the extent that:
- management of human resources is an integral part of management,
- there is a more proactive role for line managers,
- there is a top management responsibility for managing culture,
- there is an overall corporate purpose and that the human resource dimensions of that purpose are evident,
- a process of developing strategy within the organization exists and is understood, and that there is explicit consideration of human resource dimensions,
- it includes the responsibility to identify and interact in the social, political, technological and economic environments in which the organization and will be doing business.



As a result of the elimination of the state monopoly in the Slovak foreign trade several new organizations are active. Their foreign trade activities are oriented essentially at the EU countries, or OECD, where almost 80% of the whole export volume of SR is routed. The share of foreign trade exchange with the geographically more distant territories particularly into the developing countries is low, in spite of potential advantages. One of the causes are the fears of risk, another cause may be lower trade margins because of the use of intermediate trade companies.
The author sees a possible solution of this problem in the substantially wider application of the modern marketing methods, respecting also the cultural and socio-political factors of foreign partners, and briefly explains the following parameters:
In the part material culture one briefly discusses the so called Heckscher-Ohlin theorem which assumes the identity of production functions in all countries and excludes the possibility of substitution of production factors by another factors. This theorem is understood as related to the Leontiev paradox, which however argues that the demand on production factors for a given commodity differs considerably in various countries and in this respect vast possibilities of mutual substitution of the participating factors exist.
Religious factors of the Jewish-Christian cultural heritage are significantly reflected in spite of expectations in our culture, since its priorities are derived from the Protestant ethics of Kalvin, Luther and other thinkers and religious reformers in many important aspects of the economic and social life. Out of the markets accessible and perspective for Slovakia it is important to know, that Islam teachings is being transformed into specific legislation adjustments, most recently also into the tendency to generate individual economic aggregation of Islamic countries.
Education in today's world has an ever growing trend. In spite of this general trend there are still certain countries, mainly in Africa but also in Asia and Latin America, where literacy among grown-ups is still very low, especially among older women. Data on the women education are important for entrepreneuring practically everywhere, among other things also because women with higher education usually have less children, and these are then healthier and better educated, which on the other side directly influences consumer behaviour.
Verbal communication thanks to the technology progress is cheaper and easier. English language plays a particular role in international business. The expansion of English in Europe and probably world-wide is very rapid; TV and radio broadcasting play an important part in this.
Business and organizational culture contains important features of national culture in a given country as well as strong individuals - founders and managers of companies. This manifests itself mainly at company's presentation, rank and authority, its eventual delegation , importance of various managing posts and functions, work organization and work discipline, and also decision making in the company and in many other important aspects.
Intercultural differences in non-verbal communication are important too. To reach an entrepreneuring aim by means of an advantageous contract demands among other things also the correct interpretation of non-verbal communication meaning - signs and mimics; misinterpretation of these could result in considerable misunderstanding. Some examples of certain typical gestures and their possible interpretations are cited.
The attitude towards time is highly appreciated in our culture and entrepreneuring world. There are, however, certain cultures and countries, where to wait for several hours is regarded as neither extraordinary, nor unwelcome. Therefore too much resolution, vigour and hardness during dealings can discourage partners from these countries, especially when such a behaviour has a form of pressure to conclude negotiations at a certain time or a deadline; the result could be the end of negotiations without reaching a successful result.
Organization and operation of a company is another of such parameters. Family relations on a wider scale and comprising a wider sphere of persons prevail in developing countries. The importance of this for entrepreneuring lies in the fact, that confidence or example among family members could be a good motivation for purchase or acquiring certain goods by other members of the family. From the foreign enterprising point of view it is important above all the social structuring and the generation and functioning of social units, associations, corporations and other organizations on the basis of age, sex, common interests political, economic or professional, which are at the same time an important sign of the level of civic society development.
Political culture of the country is fairly important for the risk evaluation, which exists in a given country from the point of view of political structures functioning not only for the sake of the pay-back period of investments, but above all to divert possible loss and to achieve maximum payment balance. Considerable risk is also hidden behind the tax system changes of the country, currency convertibility and inflation, import tariffs and quotas, licences, as well as in the possibilities of just and objective court procedures. Current occurrence of terrorism in various countries represents a great risk for entrepreneuring.
Human development index according to UNO represents an attempt to measure and objectivize the opportunities to the satiation of the fundamental human needs in a given country. It is based on the assumption that economy development is a process starting out of the possibilities the country offers to its population. In this index together with economic assets and GNP growth also perspectives of life, health, political freedom, education and the respect for human rights are included.
In the conclusion the author indicates the formation strategy of the plan for international entrepreneuring related to the economic level of the country. He arrives at the conclusion that in spite of the fact that in the focal point of the economic thinking lies national economy, nationalistic thought from the point of view of the current liberalization trends is conservative and limits economic development. While opening to the world - with the knowledge of other cultures and toleration - the author points out at the importance of cosmopolitan thinking even at the company's level.



Ethiopia had a centrally planned economy until the late 1980s when it undertook comprehensive economic and financial reforms. Currently with a population of about 55 million, it is the second most populous country in sub Saharan Africa. Agriculture, which is mainly characterised by peasant farming, is the backbone of the Ethiopian economy. The industrial sector contributes some 10-12% of export earnings.
During the last two decades, the economic performance of Ethiopia has been poor, mainly due to inappropriate government policies. The Transitional Government of Ethiopia (TGE), which took office in July 1991 (new government Federal Democratic Republic of Ethiopia /FDRE/ established in 1995), embarked on a major reform programme aimed at transforming Ethiopia's economy from a centrally planned economy into market-oriented one.
The government has undertaken the Economic Reform Programme which started in October 1992. This reform programme, also supported by International Financial Organizations, has both short-term and long-term objectives. The main part of the Economic Reform program was financial sector reform.
This short article examines the financial sector reform and its result in Ethiopia, divided into two parts. The first part includes Financial Sector Reform: motivation of reforms, the early history of banking in Ethiopia, an overview of the pre-reform period and the nature of financial market reform since 1992. The second part analyzes The Results of Financial Market Reform: financial market competitiveness, monetary stability and financial deepening, financial instruments and the quality of saving and investment, and creating a sustainable international reserve and foreign capital inflow. Finally, the paper will conclude by giving a brief summary and recommendations.

Financial sector reform and its result in Ethiopia
The pre-reform financial sector was highly repressed. At the risk of over-simplification, the key characteristics of the system could be summarized as follows:
- First, tight exchange controls were maintained on both inward and outward movements of capital.
- Second, the exchange rate was highly overvalued.
- Third, markets for financial securities were non existent.
- Fourth, financial institutions were rigid and segmented: On the liabilities side, the permitted methods of raising funds were defined and, on the assets side, the form of loans that could be extended and other assets acquired were both circumscribed.
- Fifth, features of the system.
- Sixth, the importance of public sector financial institutions.
- Seventh. there was extensive bank financing of the government budget deficit.
- Lastly, banks lent primarily to enterprises and not to households.
Consequently, the macro-economic situation worsened significantly. Real GDP declined at an annual average rate of 0.8 per cent between 1989/1990-1991/1992. Monetary overhang combined with large budget deficits further exacerbated inflationary pressures. On the eve of the reform, inflation picked up to the tune of 21.9 per cent, the highest in recorded history. The real interest rate become severely negative. Financial sector insolvency become the order of the day.
Knowing that the economy was in such trouble, the government decided to launch a comprehensive macro-economic reform including the financial sector in 1992, supported by the IMF and the World Bank.
The motivation for economic and financial liberalisation was the persistently poor performance of the Ethiopia economy relative to other industrial economies, and the recognition that institutional and regulatory rigidities hampered the economy's ability to adjust to structural changes in the economic environment.
The deep end of financial sector reform is to establish a competitive market. Since the reform, the banking and insurance sectors registered a significant movement, especially in terms of size. Today, there are five commercial banks (including two recently restructured specialized banks) and seven insurance companies, as compared to one government-owned commercial bank and one government-owned insurance company at the beginning of the reform, (i. e. 1991/1992).
Thereafter, the country attained a significant macro-economic improvement and growth. Since the reform, real GDP grew at an annual average of 6.3 per cent. Inflation declined from the high of 20.9 per cent in 1991/1992 to 1.2 per cent in 1993/1994 with a significant jump to 13.4 per cent in 1994/1995, largely due to external shocks.
In the financial sector, the number of banks and insurance companies increased from one and one to five and seven respectively. Quasi-money/broad money ratio rose significantly to 31.0 per cent at the end of 1994/95 largely enticed by positive real interest rates.
With respect to monetary development, there has been a significant shift in the narrow money/quasi money ratio from 3.2 in 1991/1992 to 2.2 in 1994/1995, evidencing that the public has been encouraged to save money in the banking system. Broad money/GDP ratio however, stationed around at 0.44, which indicates that no significant financial deepening has been achieved over the reform period. In fact, the introduction of the Treasury Bills auction in January 1995 is an important development in the financial markets. However, the quality of investment and coverage in this market is constrained by the existence of an unfavourable financial environment in the economy.
For all these developments, however, financial markets are still underdeveloped portending the risk of financial instability and economic stagnation if the necessary steps are not taken in time.
- To begin with, since financial markets are highly segmented and narrow, the qualities of savings and investment are poor.
- Secondly, the speed of economic liberalization has been pulled down due to the lack of developed financial markets. For instance, the slowdown in the process of privatisation and the insignificant role of foreign direct investment in the economy are some of the results.
- Thirdly, financial markets are also important for efficient monetary management. The shift of monetary management from direct control of credits and interest rates to indirect instruments through open market operation and reserve management is not possible without these markets. Consequently, the economy's ability to absorb external shocks would be questioned. For instance, the 1994/1995 unexpected increased in the international price of coffee challenged the NBE's ability to control the level of money. The actual growth in money supply reached 25% as against a target of 12%.
For all these developments, however, the financial markets are narrow and segmented so that the use of indirect monetary instruments is not possible. The CBE still dominates commercial banking activities. The National Bank of Ethiopia doesn't have sufficient instruments to control and influence the activities of commercial banks through the market. Even the Development of the T-bills auction is constrained by the existence of an unfavourable financial environment. All these entail that the necessary steps should be taken on time to improve financial market competitiveness and remove potential constraints.
Based on the analyses and conclusion of the paper the following points are recommended.
1. To increase the competitiveness of the financial sector, a study should be made to identify the obstacles constraining private sector participation in the banking sector, to allow foreigners among share holders in the financial sectors.
2. To build confidence of the public over depositing in small banks, and increase the competitiveness of new banks with large, state-owned banks, a deposit insurance scheme should be developed by the initiative of either the government or private companies.
3. Financial instruments should be diversified to equip the NBE with efficient monetary management instruments and facilitate the move towards open market operation. As the first step, an inter-bank credit market should be established as soon as possible. A study should also be made to open a discount window in the NBE to help monetary policy. This step should however go with the competitiveness of the banking system.
4. T-bills market should also be strengthened and expanded beyond today's role of financing current government borrowing requirements.
5. To create a sustainable foreign exchange reserve, a step by step move should be taken to encourage foreign exchange inflow. Towards this, the first should be to narrow the gap between official and black market rates of foreign exchange. Second, to establish an inter-bank foreign exchange market. Third, to encourage foreigners, especially non-resident Ethiopians abroad, to transfer and deposit in foreign currency deposit accounts in the commercial banks by attractive deposit rates.