As governor of the Czech National Bank, Josef Tosovsky (born 1950) served as one of the key figures in the newly privatized Czech economy. In 1997, he was named Prime Minister of the Czech Republic after a scandal forced his predecessor step down.
Widely recognized as one of the premier bankers in Europe, Josef Tosovsky served for several years as Governor of the Czech Republic's National Bank. In late 1997, he was appointed the role of Prime Minister when the previous occupant of that position, Vaclav Klaus, was forced to step down in the midst of a campaign finance scandal. Tosovsky's interim government, which aims to privatize the banking sector, faced a deadline of midsummer 1998, when elections brought in the Socialist Democrats, who do not fully support the reforms Tosovsky favors.
Josef Tosovsky was born September 28, 1950, in the Czech city of Nachod. He graduated from the Prague School of Economics with a major in foreign trade in 1973 and began his career in the Czechoslovak State Bank (SBCS), where he held a variety of positions. Two years later, he was married to Bohuska Svetlikova, with whom he had two daughters. During his tenure at the SBCS, he went on study visits to Great Britain in 1977 and France in 1980. Later, in 1984, he took a position as an economist in the London branch of Zivnostenska Banka. It was through these foreign posts that Tosovsky began to develop an appreciation of the power of market-driven economies versus those controlled by the state.
From 1985 until 1989, he worked as an advisor to the SBCS in London, and in 1989, he returned briefly to Zivnostenska Banka, as deputy-director of the London branch. During this period, he became, along with Vaclav Klaus, Karel Dyba, Ivan Kocarnik, and Dusan Triskaa, a member of a group of liberal economists based first within the SBCS, then in the Academy of Sciences, and others. This group further fueled his belief in free markets, and helped secure his reputation with the opposition forces already surging against the Communist leadership of Czechoslovakia.
Tosovsky Becomes National Bank Governor
In November of 1989, the Communist government under Milos Jakes was abruptly forced out of power in the so-called "Velvet Revolution." A new, democratic government coalesced around the dissident playwright Vaclav Havel, and shortly thereafter, Tosovsky was named Governor of the SBCS, which under his leadership began to assume the functions of a central bank. When Czechoslovakia dissolved in 1993, he was appointed Governor to the SBCS's successor, the Czech National Bank (CNB).
Tosovsky's years with the CNB proved extremely fruitful. He served as a governor of the International Monetary Fund, became a member of the Research Council of the Prague School of Economics, and joined the board of the Center for Economic Research and Graduate Education. He also became a member of the body of advisors to the Rector of Charles University in Prague.
The Czech Republic thrived economically in the first few years after the revolution. With the political stability of a single President and a single Prime Minister for many years, the nation established growth rates far better than Poland and Hungary, both of which cycled through several governments during the same period. State industries were sold off, and under the free market system, performed remarkably well. Until the second half of the 1990s, the Czech Republic was considered by many to be a model for privatization among the former Soviet satellites.
Tosovsky's work in the banking sector of that growing economy did not go unnoticed outside the Czech Republic. In 1993 he was named Central Banker of the Year by Euromoney magazine, during the anniversary session of the International Monetary Fund in Washington, D.C. The following year, the European Business Press Federation named him European Manager of the Year. Also in 1994, he became the first economist to receive the Karel Englis Prize from Masaryk University in Brno. Finally, in 1996, he was named European Banker of the Year by an association of European Union journalists called the Group 20.
Czech Financial Crises
Unfortunately, many of the accomplishments of Vaclav Havel's government were based on faulty foundations. For local Czech businesses, there was the problem of inflation. Buoyed by reassurances of a strong, growing economy, wages rose at very generous rates-more generous than could be feasibly sustained. Furthermore, the Czech crown was virtually worthless on the international currency market. As a result, the country was caught in an inflationary spiral, with rates moving regularly into the ten percent range.
For the larger, international businesses, there were bigger worries. When the economy had been initially privatized, the government had naively assumed that a free market would smooth over many potential problems, something Tosovsky had spoken strongly against. In the absence of any meaningful regulation, the nation's large banks had continued their Soviet-era role as a safety net for industry, picking up losses and bad loans. These same banks, however, now held significant percentages of stock in the industries they supported, meaning that debt was merely being shifted around. This was not a problem until these debts began seriously to mount up, due in part to the inescapable inflation. Cash-strapped Czech industry had few sources of income to fall back on.
Banks began to fail. Eleven major banks either closed or were placed under forced administration, and the cost of cleaning up the mess soared. Tosovsky harshly criticized Prime Minister Vaclav Klaus for his failure to regulate the banking sector, and called on the International Monetary Fund to help set up a "hospital bank" which would absorb the bad debts incurred by other banks. Klaus belatedly drew up a plan whereby the largest banks would have most of their assets sold off. At this point, however, ethical issues rose to complicate the situation still further.
Cronyism-the secret brokering of privatization deals with major political contributors-had been a growing problem since the Velvet Revolution. This practice eventually found its way to the highest levels of government, as shown by the discovery in November of 1997 of a secret Swiss bank account belonging to Klaus. The account contained five million dollars in funds contributed to the Civic Democrats-Klaus's party-by investors who were given special favors in the privatization process. The right-center coalition that maintained Klaus's position abandoned him, and even some of his own party members rebelled, forcing him from office.
Tosovsky Becomes Prime Minister
With the bank privatization deal effectively stalled, Klaus's coalition destabilized. With his own party discredited, Vaclav Havel faced a dilemma. A strong supporter of privatization, he knew that Parliamentary elections would most likely take place the following summer, or November at the latest. The Social Democrats, the left wing of Czech politics, would probably sweep into power, and they were very dubious of privatization strategies, especially in the banking sector. Furthermore, Havel himself faced the end of his term in only a couple of months. He had almost died of lung cancer in 1996, and was occasionally stricken with pneumonia. He had already served eight years as President and so had every reason to wish to step down.
In light of the crisis, however, he chose to run again in January of 1998, winning easily. First, though, on December 16, 1997, he selected Tosovsky as the nation's new Prime Minister. Tosovsky, aware of the very short term before him-the Social Democrats would certainly select a Prime Minister from their own ranks if they took the Parliament the following summer-acted as quickly as he could, selecting a broad-based cabinet containing four of those who had rebelled against Klaus. This, of course, denied him the support of Klaus and most of the Civic Democrats in the confidence vote which would take place in January, but it eased tensions with the Social Democrats. This fact, combined with Tosovsky's lack of political affiliation, brought him safely through the vote, which he took as a mandate to complete the privatization projects on the table.
Tosovsky's first piece of legislation backed this agenda. The Banking Act, passed on the first of January, 1998, restricted banks to a maximum 15% holding in any company whose primary business is not finance. It also prevented bank members from sitting on the board of any non-financial company, in order to reduce insider trading.
Since January, the Social Democrats had softened on the privatization issue, saying that they would follow through on the breakup of major banks. Tosovsky had not wasted any time, though. Four banks were slated for sell-offs: Komercni, Ceska Sporitelna, Ceskoslovenska Obchodni, and Investicni a Postovni. The last of these was already in negotiations with a Japanese investment firm to sell 36 percent of their holdings.
Tosovsky was one of the Czech Republic's most popular politicians, due not only to his modesty and strong work ethic, but also because of his determination to avoid political pressures by departing the public stage as soon as his term was up.
Banker, March 1996, p. 6; February 1998, p. 47.
Central European, February, 1998, p. 12.
Economist, January 3, 1998, p. 48.
Euromoney, April 1992, p. 22.
Finance East Europe, October 11, 1996, p. 13.
Wall Street Journal, June 5, 1990, p. A21.
Washington Post, December 18, 1997, p. A30.
"Josef Tosovsky, " Radio Prague,http://werich.radio.cz/toshovsky.html (March 28, 1998).
"Mr. Tosovsky's Cabinet, " http://www.czech.cz/washington/general/tosov.html (March 28, 1998).
"Premier of the Czech Republic, " Czech Info Center,http://www.muselik.com/czech/premier.html (March 28, 1998).