Hungarians meet the new boss

April 10, 1991

By Laszlo Andor and Peter Annear

BUDAPEST — Hungarians' originally high expectations about the transition to a Western-style market economy have, in the last few months, started to recede. While the old regime and its political elite have gone, the economic crisis remains, causing enormous hardship for workers.

Those who voted in last May's parliamentary elections for the new right parties, led by the ruling Hungarian Democratic Forum (HDF), dreamed of a new Marshall Plan like the US-sponsored economic reconstruction of Western Europe after the second world war, and of strong connections with sympathetic Western capital. The reality is very different: Western interests are represented in Hungary not by benevolent investors but by the iron fist of the International Monetary Fund.

Hungary is the most indebted country in Europe. The total foreign debt of US$21 billion is close to the country's annual national income; interest and repayments consume almost half of all export revenues, or nearly US$1 billion a year. No progress has been made on reducing the level of the debt.

This perilous position prevails after nine years' membership of the IMF, which supposedly should have solved the problem. Hungary joined the IMF in a state of virtual insolvency in 1982, at about the time the international debt crisis set in.

Until recently, the IMF — as manager of the global debt — considered Hungary a successful reform economy and a role model for marketisation in other East European countries.

In those days, the IMF was more willing to deal with Hungary than with other debtor countries. This was regarded as a mark of its credit worthiness, and as a result Hungary more easily secured new loans during the 1980s, allowing short-term relief and a temporary easing of immediate economic burdens.

But this debt-building process merely projected potentially greater sacrifices further into the future, causing ever greater secrecy about relations with the IMF and about the actual origins of the 1980s market reform project in Hungary. Although introduced under the former Communist regime, it was prompted more by the foreign money pushers than by Hungarian political reformers.

Behind the government's media image of a happy partnership between Hungarian economic policy makers and leaders of international monetary institutions, Hungarians in the know could detect the seemingly magical coincidence of the timing of important domestic political changes and the awarding of IMF contracts.

Eventually, by the time of the 1990 budget discussions, the Communist reform government of Miklos Nemeth was left with only one argument in favour of further austerity, which was by then the hallmark of economic reform: "These are the requirements of the International Monetary Fund and the World Bank".

The elements of the IMF "adjustment program" are nearly the same in all circumstances and in all countries regardless of economic structures: monetary restriction, liberalisation, deregulation, privatisation. The stated aim is to increase exports and to tailor economies to the needs of the world market — that is, to recreate the debtor nations as a periphery of the dominant industrial and financial centres.

Commonly, this IMF economic restructuring places an unbearable burden on wage earners and precipitates a deepening social differentiation inside the debtor countries, without any hope of a future economic improvement. It transfers income and wealth from the poorer to the richer classes and nations.

Hungarians began to feel the heat of the IMF's reforms in 1987 and 1988. In those years the savings of the lower middle class stared to melt away, and have now actually disappeared. An average family in Hungary spent half its income on essentials such as food, heating and electricity in 1988. With 30% inflation in 1990, the proportion spent on essentials rose to three-quarters, and by the end of 1991 will rise to 90%.

Homelessness became widespread in Budapest in the second half of 1989, and street beggars recently became a common sight. Crime has reached a record high. 1991 will be the year when mass unemployment appears for the first time in half a century as the continuing austerity, alongside the recession and the economic reorientation, could triple — to 6% of the workforce — the recent 100,000 jobless number.

By promising a rise in living standards in the next three years, the HDF government is repeating empty phrases uttered by successive prime ministers in the recent past; the claim increasingly attracts public cynicism. In fact, under the new economic policy, Hungarian workers bear a triple burden, produced by: economic stagnation resulting from austerity; the attempts to achieve a balance of payments surplus for of debt-servicing; and the needs of accumulation of the new entrepreneurial class under the privatisation program.

There are also tensions at the top. While the HDF aims to develop a national capital-owning class, the IMF throws obstacles in the way of internal accumulation in deference to foreign owners.

Sooner or later, the government must come into conflict with its own social base. The now more or less open debates between HDF ministers and leaders of domestic financial institutions — who act as a transmission belt for multinational finance — are an indication of the developing tension.

Nonetheless, only one MP (an HDF member) has spoken decisively in parliament against the monetary terror of the IMF and the World Bank. One other MP, a Socialist and leader of the Steelworkers' Union, said that parliament had "humbled itself" as much as possible before international creditors in passing the 1991 budget.

The strongest opposition to the present economic and political policy has come from the extreme right on the one hand and the on the other — of course for very different reasons.

The popular writer and former economist Gyula Hernadi expressed a common view about Hungary's indebtedness when he told the daily Magyar Hirlap on January 23: "The experts vainly keep on repeating that the present situation is a consequence of the previous mismanagement; nobody is interested in this. Please, find a solution, so that we don't feel the difficulties so much. That's why these gentlemen are ministers. And don't always lick the bottom of the new god, the International Monetary Fund. Some four or five bow-tied young men come here and simply command us to increase the inflation rate by 32%, decrease real wages by 24%, do this, do that. Why should we woo these people so much? ... We should announce that we are able to repay only a fragment of the debt. If it's not OK, goodbye. Maybe they can give us a kind of new Marshall loan."

Things are not as easy as Hernadi says, but he accurately reflects the rising concern. The satirical biweekly Snow-boot wrote on October 18: "When the World Bank announced its lack of willingness to finance a potential Hungarian mobilisation against Iraq, and will not give any money for highways, World Expos, or for anything at all, the Hungarian minister of finance announced that for US$50,000 he will publicly eat a spider".

This black humour is a sign of a very dark future. In the present hopeless situation, the only valid aim of a national economic policy would be the minimisation of losses and the prevention of social explosions. The HDF is unable to recognise this.

The destiny of the HDF now mirrors that of the failed Hungarian Socialist Workers Party (HSWP — the former Communist administration). Andrea Szego, a left-wing sociologist, predicted in the first issue of the left review Eszemlet at the beginning of 1989 that the HSWP would collapse as a result of its attempts to sell the IMF policy, a prediction that was realised before the year was out.

Now the nationalist, populist HDF government wears the straitjacket of economic austerity, and before even the first anniversary of the 1990 parliamentary elections, the HDF has already fallen to third place in the opinion polls. What follows now will depend both on the strength of the alternative internal political forces and on the international situation.

[Laszlo Andor is an economist with the Hungarian Institute for Economic and Social Research of Trade Unions and a member of Left Alternative. Peter Annear is a Green Left journalist based in Prague.]

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