Hungary Gets a ‘Big Board’--Well, Sort Of

This East European nation took a major step along the capitalist road Thursday with a splashy reopening of the Budapest Stock Exchange, where the “big board” can display only five listings and where Hungarian buyers, who have no checkbooks, pay with satchels full of cash.

The rebirth of Western-style trading after a 42-year shutdown was highlighted by listing of the state-owned Ibusz travel network, the first major Hungarian enterprise to begin privatization with a public share issue.

Ibusz, one of Hungary’s most profitable companies, with good prospects amid a boom in East European travel, was heavily oversubscribed, propelling its shares from their opening at 4,900 forints ($75) to 7,200 ($110) by the end of the first trading day.

The reopening of the exchange--the first in post-Communist Eastern Europe--was mostly symbolic, as Hungarian traders have been gathering three times a week during the past two years to buy and sell bonds in a small room on the second floor of the International Trade Center.

But brokers, consultants and financial luminaries from the world over flocked to the event to celebrate Hungary’s reentry into one of capitalism’s most sacred rituals. Richard C. Breeden, chairman of the U.S. Securities and Exchange Commission, hailed it as a “triumphant time” in Hungary’s financial development.

The day marked the start of trading along the lines of American and European markets, instead of the Hungarians’ former “call-over” practice of running through a list of securities to ask for offers, then calling it a day after about 90 minutes when each listing had been floated once.

But the backward nature of finance in Hungary will take years to overcome. Few Hungarians have bank accounts, and the concept of writing a check for goods or services is unheard of even for large transactions. When Hungarians want to buy stock, they hand over bags full of forints to their brokers.

There is also little to trade at the moment, Ibusz being the only stock offered on the opening day, aside from a handful of government bonds.

“This symbolic plunge into capitalism is a tremendous feat after . . . years of communism,” said Jonathan Miller of London’s Garside & Miller consultant firm. “But at present it has very limited trading force. It will have to be substantially expanded.”

The Ibusz offer may herald the start of what the new Budapest government has promised will be a rapid transition from state to private ownership, with as many as 400 enterprises expected to be sold off over the next five years.

By offering shares in attractive firms such as Ibusz, the Hungarians hope to generate interest that will benefit sales of the more numerous and grossly inefficient state-owned factories that the government would like to wash its hands of.

Like all nations of the East European Comecon trading bloc, Hungary’s industry is concentrated in large enterprises that gobble resources and produce goods that cannot compete on Western markets. Moreover, the traditional outlet for much of its production--the Soviet Union--is contracting because of the Kremlin’s own economic crisis.

Hungary has led the pack of emerging democracies in reorganizing its banking and financial institutions to accommodate the transition to a market economy. But it is saddled with the highest per-capita foreign debt in the region, owing $20 billion, mostly to commercial creditors. Galloping annual inflation of nearly 30% also aggravates economic recovery.

Most of the Ibusz shares were bought by foreigners, and the likelihood of Hungarians being squeezed out of their own market has upset some of them.

“It’s like the government coming to you and saying, ‘We’ll sell you your house, but Austrians can bid on it too,’ ” complained Geza Toth, a Haverford, Pa., lawyer of Hungarian origin who has set up a practice in Budapest. “People here can’t buy because they have no money, because they’ve already been robbed by the government that is now selling their assets.”

Western analysts have concluded that Hungarian citizens are so strapped for cash that they could afford to buy only about 1% of the state’s assets each year, if foreign investors were excluded.

The Budapest Stock Exchange, which operated successfully from 1864 until the Communists closed it in 1948, has already outgrown its quarters above a bank and across from the Lufthansa airline office at the International Trade Center, despite having only 30 traders and less than 20% of Hungary’s total securities turnover.

Administrators plan to move the exchange next year to its own marble and glass-domed hall in the Art Deco splendor of the Budapest Bank building.