Hungary's year of bankruptcies

May 20, 1992
Issue 

By Laszlo Andor

BUDAPEST — As the European Bank for Reconstruction and Development held its assembly here last month, and its leader Jacques Attali pointed out the advantages of the Hungarian path to a free market, one-third of Hungarian firms and half of all collective farms faced bankruptcy within a year, according to a government announcement.

The controversial development of the country was also illustrated by two events that occurred on Saturday April 25. One was a live advertisement for the monumental production of Aida, with camels, a show people will see only by paying on average three days' salary. The other was the Day of Anger organised by the demagogic Smallholders Party, which brought "armed" peasants to the capital to express their discontent with the economic policy of the government.

In the opinion of most observers, Hungary seems to be developing into a regional centre for finance and trade, a kind of Singapore of eastern Europe. Indeed, one gets this impression from downtown Budapest, where some very modern office buildings represent westernisation, which will go into top gear with the ambitious staging of the 1996 World Expo.

The greatest success is the large amount of capital inflow. The last two Hungarian Socialist Workers Party (Communist) governments had already established significant benefits for foreign investors. Beyond this, two decades of market reforms created better market institutions than in any other countries of the former Soviet bloc. And the National Bank interest rates high and attractive to foreigners seeking profits.

Thanks to the money flooding into the country, the National Bank has an easy time with debt servicing for the next few years, and foreign exchange reserves have risen to an all time high (from less than US$1 billion in May 1990 to more than US$3 billion).

Deficit blows out

However, the budget deficit is soaring to new heights. By the end of April, the deficit had surpassed the level planned for the whole year. Present revenues include all planned privatisation receipts for the year, and almost all the state-owned banks have been ordered to finance a portion of the deficit, to be refunded later, when the budget will be in a better position. The Ministry of Finance expects an improvement from greater austerity and increased tariff collections, and from a more stringent approach towards tax debts.

But the deficit is also explained by an unexpected further decline in GNP. According to the Kupa Plan (the four-year plan of the minister of finance), 1992 should bring stagnation or even some slight growth in national output. But the reality seems to be a downward spiral of further bankruptcies, cutbacks and lay-offs.

Unemployment continues to grow. If the ill-conceived Solidarity Fund runs out of money, the budget will again have to augment the fund. Moreover, as people come to the end of the two-year limit on unemployment benefits, they are left completely unsupported by social welfare.

The steady decline of GNP over the last three years has encouraged some governing Hungarian Democratic Forum (MDF) policy makers to search for a Keynesian policy. The new minister of industry, appointed in December, has spoken about the need for some kind of structural policy and some centrally defined priorities in industry.

The threat of a social explosion is encouraging the MDF to move away from the IMF economic recipe. This attempt at a new approach began in November with the dismissal of the head of the National Bank, a former IMF employee.

Until recently, industrial policy has been more or less limited to the replacement of managers appointed before 1989. As these are replaced, more and more MDF, Smallholders and Christian Democratic stalwarts are being appointed to lead the state firms. This prompted opposition Free Democrat MPs to submit a bill about the separation of economic and political positions. But the bill is not likely passed against the government majority.

Unions

What was passed was a new Labour Act which says not one word about the role of trade unions at the level of the firm. The unions are not recognised as representatives of non-unionised workers in negotiations with management. Future elected plant committees are supposed to represent the employees, but nobody really knows when or how these committees will be elected.

The right-wing unions (the League and the Workers' Councils — which lost much of their membership during the year due to their pro-business, pro-government behaviour) want to use the plant committee elections to beat back the 2-million-strong MSOS national union federation with a renewed anticommunist campaign. Their propaganda seems to be loosing steam, however, and they have been unable to show anything recently except a joint visit to Washington to negotiate with World Bank, Treasury and AFL-CIO officials.

Meanwhile, the MSOS-affiliated health workers union held its largest ever demonstration when 30,000 doctors and nurses took to the streets of Budapest against further cuts and for a 50% wage rise.

One major issue not resolved by parliament relates to the basic principles of privatisation. According to professor Tamas Sarkozy, a distinguished economic law-maker of the previous governments, the MDF has not been able to decide whether it wants to sell or defend national property.

A hard core within the MDF, the so-called Monopoly Group, has often raised the dangers of selling large state companies, especially to foreigners. But the biggest obstacle to privatisation is the free market itself, since the 2000-3000 billion forints' worth of state property face some 200-300 million forints of domestic purchasing power. This problem has forced the government to put conditions on its bank privatisation that will make the process slower than anybody expected.

Media battlefield

With privatisation bogged down and the unions paralysed, the media have become the major battlefield between the government and opposition. In 1989-90, most national and regional newspapers arranged their own privatisation through western investors like Axel Springer in order to escape a new form of governmental moral regulation. But the national television and radio programs became propaganda tools of the government. Many electronic media presenters were in fact loyal hardliners of the previous years.

When in March the conservative Freedom of the Press Club became the Hungarian Journalist Community, one old professor announced in his keynote address the need for "honesty of the press", instead of freedom of the press, because opposition journalists use the freedom of the press dishonestly. But when the former Maxwell property, Esti Hirlap (Evening News) was seized by the government, the editors immediately turned a non-political daily into a vehicle for anti-liberal, anti-socialist attacks.

At the beginning of the year the previously somnambulant Christian Democratic Party woke up and penetrated the political debate in the fight over the media. The national radio had restructured its programming in a way that increased the number of religious programs, but the Christian Democrats (and the church behind it) were upset by the fact that most of these programs were transferred from AM to FM stations, which are harder to receive in the villages. The previous HSWP membership of the president of the radio was put on the agenda until the requirements of the "religious community" were fulfilled.

The fight over television turned to violence on the Day of the Press, March 15. The respected sociologist Elemer Hankiss, president of television as a result of a six-party agreement in 1990, was forced to return from a four-month US professorship because the new vice-president started to "substitute" for him.

Hankiss and his colleagues became a target of the populist right, which organised a mass demonstration at the television headquarters with the participation of skinheads, 1956 veterans and MDF activists. The crowd screamed anti-Semitic slogans and assaulted some journalists.

Using support from the MDF, the extreme right became a recognised player in the political game. It is more and more apparent that the government uses the far right in a fashion similar to the 1920s and 1930s, before Horthy allied with Hitler against communism and for those "eternal" parts of the "historical Hungary" located in neighbouring countries.

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