Electronic Library of Scientific Literature
Electronic Library of Scientific Literature
Volume 46 / No. 4 / 1998
Eva HORVÁTHOVÁ
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.
Božena CHOVANCOVÁ
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
Inflation
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.
Zuzana ŠURANOVÁ
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.
Milota VETRÁKOVÁ
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.
Rudolf KOSTOLANSKÝ
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.
Kebebush MULUGETA
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.