Hungary 1991.

209 Pages·1991·10.503 MB·English

by  OECD

OECD
.HJRVEY!
V
CENTRE FOR CO-OPERATION WITH EUROPEAN ECONOMIES IN TRANSITION
©ECO
ECONOMIC SURVEYS
HUNGARY
1991
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
PursuanttoArticle 1 oftheConventionsignedinParison 14th
December1960,andwhichcameintoforceon30thSeptember1961,
the Organisation for Economic Co-operation and Development
(OECD)shallpromotepoliciesdesigned:
to achieve the highest sustainable economic growth and
employment and a rising standard of living in Member
countries, while maintaining financial stability, and thus to
contributetothedevelopmentoftheworldeconomy;
to contribute to sound economic expansion in Member as
well as non-member countries in the process of economic
development; and
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance with
internationalobligations.
The original Member countries of the OECD are Austria,
Belgium, Canada, Denmark, France, Germany, Greece, Iceland,
Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal,
Spain, Sweden, Switzerland, Turkey, the United Kingdom and the
United States. The following countries became Members
subsequently through accession at the dates indicated hereafter:
Japan(28thApril 1964),Finland (28thJanuary1969),Australia(7th
June 1971) andNewZealand (29thMay1973). The Commission of
the European Communities takes part in the work ofthe OECD
(Article 13 oftheOECD Convention).Yugoslaviaisa countrywith
aspecialstatusatOECD(agreementof28thOctober1961)
The Czeck and Slovak Federal Republic, Hungary and Poland
participateintheOECDprogramme "PartnersinTransition". This
Economic Survey was carried out in the framework of this
programme,which ismanagedbyOECD's CentreforCo-operation
withtheEuropeanEconomiesinTransition.
Publiéégalementenfrançais.
© OECD1991
Applicationsforpermissiontoreproduceortranslate
allorpartofthispublication shouldbemadeto:
HeadofPublicationsService,OECD
2,rueAndré-Pascal,75775PARISCEDEX16,France.
Contents
Introduction 9
I. Setting the stage: economic policies and conditions up to 1990 1 1
Historical background ] 1
The Hungarian economy at the start of the 1990s 12
Present challenges 21
II. Macroeconomic conditions and policies since 1990 27
Domestic demand and production 29
Employment and unemployment 32
Inflation 34
The balance of payments 37
Fiscal policy 41
Monetary policy 44
The exchange rate 47
The economic outlook 50
III. Overview of structural reform 57
The changing role of government 57
The establishment of a two-tier banking system 70
Labour market policies and wage setting 74
The legal framework for the development of a market economy 78
IV. Integration into the world economy 85
The traditional approach 85
Progress towards greater integration into the world economy 87
Policy options 97
Conclusions 102
V. Privatisation 107
Equity, efficiency, budgetary soundness and practicality 107
An overview of the move from state ownership to private
ownership 109
Evaluating the privatisation process 1 13
Conclusions 122
VI. Conclusions 128
Bibliography 138
Annexes
I. Industrial production, agricultural production, investment and
corporate-sector activity 141
II. Privatisation: the legal framework and the first SPA-initiated
programme 151
III. The reform of the tax system 156
IV. Standard of living and income distribution 169
V. The instruments of monetary policy 173
VI. Foreign trade 178
Tables
Text
1. Final expenditure on Gross Domestic Product, 1976-1990 29
2. Household disposable income and saving, 1977-1990 31
3. Debt indicators for selected countries, 1989 38
4. Balance of payments, 1985-1991: Ql 39
5. General government operations, 1985-1991 42
6. Selected monetary indicators, 1985-1990 45
7. Programme for conversion and development of the Hungarian
economy 51
8. Yield of Treasury bills, 1989-1991 59
9. Composition of government debt 60
10. Government subsidies and transfers, 1985-1991 64
11. Major social security programmes, 1985-1990 67
12. Interest rates for households, 1981-1990 72
13. Major sources of household income, 1985-1990 77
14. Housing by type of ownership 117
Annex I
1. Industrial production, 1976-1990 144
2. Agricultural production, 1981-1990 145
3. Sectoral breakdown of gross fixed capital formation in the
socialist sector, 1976-1990 146
4. Number of economic organisations by legal status 147
5. Corporate activity as a share of all enterprise activity, end of
1990 147
6. Share of large limited liability and joint-stock corporations in all
corporations 148
7. Joint ventures registered in 1990 148
8. Joint ventures registered in 1990 by industrial sectors 149
Annex II
1. Measures to privatise Hungarian enterprises, 1985-1991 152
2. First privatisation programme 154
Annex III
1. General government tax revenue, 1985-1991 166
2. Local government operations, 1985-1991 167
3. Value-added tax, 1986-1990 168
Annex V
1. Refinancing credits, 1988-1990 177
2. Central bank interest rates, 1985-1990 177
Annex VI
1. Export and import flows to major trade partners, 1980-1990 187
2. Export and import volume indices to major trade partners,
1980-1990 189
3. Hungarian imports and exports, rouble and non-rouble 191
4. Trade with CMEA countries 191
5. Hungarian trade by major trading partners 192
6. Regional distribution of Hungarian trade 193
7. Hungarian trade by major regions 194
8. Hungarian exports by major commodity categories 195
9. Hungarian imports by major commodity categories 196
10. Volume indices by major commodity categories 197
1 1. Changes in the composition and regional distribution of exports
in 1990 198
12. Changes in the composition and regional distribution of imports
in 1990 199
13. Net revenue/direct cost ratio of enterprises and co-operatives 200
14. Net revenue by industrial sectors, 1990 201
15. Changes in net revenue and net revenue ratios by direction of
exports 202
16. Indicators of trade transferability between rouble and non-
rouble trade, by commodity groups 203
17. Trade figures, January-May 1990-1991 204
Charts
Text
1. Unemployment and vacancies, January 1990-April 1991 33
2. Consumer and producer prices 35
3. Nominal and real effective exchange rates 47
4. Commercial and kerbside exchange rates 49
5. General government transfers, 1988-1991 66
6. Payroll taxes for social security in Hungary and selected OECD
countries, 1989 69
7. Distribution of changes in exports, 1990 88
8. Distribution of changes in imports, 1990 90
9. Hungarian exports 91
10. Hungarian imports 92
1 1. Regional distribution of Hungarian trade 93
This Survey was prepared by the OECD Secretariat
in thecontextofthePartnersin Transitionprogramme.
Itscontents werediscussedin a Partnersin Transition
meeting ofthe Economic and Development Review
Committeeon 11thJuly1991.
This Survey is published on the responsibility ofthe
Secretary-GeneralofOECD.
LU
CD
<
û.
<
CQ
Introduction
The year 1989 was a watershed for a number ofcountries in central and
eastern Europe, including Hungary, because of their decision to embark on a
process of transformation to full-fledged market economies. This decision
involves sailing through uncharted waters: knowledge about how best to pro¬
ceed is imperfect; assessments of the inevitable cost, in terms of lost output
and unemployment, are little better than informed guesses; how to maintain
the social and political cohesion to see the process through is an unsettled
question. There are also important differences among the countries of central
and eastern Europe in the initial conditions from which this economic trans¬
formation is being launched.
The specificity of Hungary is that it came to this watershed with an
already well-developed tradition ofeconomic reform. Hungary had been mov¬
ing away from central planning since 1964 and some problems characteristic
ofcentrally-planned economies, such as monetary overhang, were not found in
Hungary during the 1980s. A number of the key building-blocks of a market
economy, such as a coherent tax system, a company law, and a two-tier
banking system, were put in place prior to 1989. Thus in 1989 Hungary did
not depart totally from its economic past as did some central and eastern
European countries, but rather began to broaden significantly the scope of
economic reform and to implement previously initiated policies more
effectively.
The Hungarian approach to economic reform in the period prior to 1989
has been labelled "gradualism". The pace of reform has undoubtedly quick¬
ened since, and so this description is no longer quite accurate. But in the
following two senses the legacy of gradualism remains relevant. First, policy
has been based on a case by case response to conflicting social pressures or to
breakdowns in the system, rather than on adherence to any absolute priorities.