Anna Barabas, a Hungarian pensioner, breaks down in tears in a Budapest subway station as she talks about her plight. When Hungary’s former Communist leaders were replaced in April by the first democratically elected government in 40 years, she was hopeful that her living standard would improve.
Instead, inflation is expected to reach 35% to 40% in 1991, on top of 30% this year, making it ever harder for her to survive on her $90-a-month government pension. Already, price increases in rent, heat and lighting leave her only $17 a month for food. She survives mainly on potatoes and onions, and food donations from her working daughter. “This government can’t solve Hungary’s economic problems,” she says.
The government’s ballooning budget deficits and plummeting popularity are complicating its efforts to dismantle an inefficient state-controlled economy and replace it with a free-market one.
Next year, the Hungarian economy probably will face $2 billion in shocks, mainly because of rising oil prices and the collapse of the East Bloc trading system. This could cause a $1.2-billion balance-of-payments deficit while gross domestic product drops for the fourth year in a row.
Unable to fully finance these shocks along with $4.1 billion in debt and interest payments due in 1991, Prime Minister Joszef Antall has little choice but to craft an austerity budget to win more credit from the International Monetary Fund and foreign lenders. He is asking Parliament to approve cuts in subsidies on consumer prices, agricultural exports and state enterprises. Inflation will double the real financial impact of those cuts.
The government plans to privatize and restructure more than half of Hungary’s state-run companies, but investment bankers will not have the first 40 firms ready for auction until late 1991. Many industrial companies, with sales in East Europe falling, will be hard to sell.
In a recent nationally televised speech to Parliament, Antall implored Hungarians to be patient. If they can hold on through one year of tribulation, their living standard could begin to improve as early as 1992, he said.
But many economists and local business leaders say there may be no recovery until 1993 or 1994. A one-year turnaround “is unrealistic,” says Ivan Illes, an economist and deputy director of Budapest’s Institute of Economic Policy.
The difficulty of moving to a market economy has shocked a skilled, educated population that prides itself in its Western outlook. For two decades, Hungary led the East Bloc in introducing gradual political and economic reforms under its former Communist leaders.
Despite a recent drop, Hungary’s living standards continue to be among the highest in Eastern Europe. Low-interest government loans have enabled 80% of the population to own their own home or apartment. And they have been spared the food shortages, energy blackouts and post-Communist political turmoil seen in neighboring nations.
These factors, along with liberal foreign-investment laws, have made Hungary a leading target for investors. Foreign companies have set up 2,500 joint ventures here in the past three years, pushing total foreign investment to $1 billion.
Still, Hungary remains an inefficient, centralized economy, says Gyorgy Szapary, head of the IMF’s Budapest office. The Communist leadership built up $21 billion in debt for a nation of 10 million--the highest per-capita debt in East Europe.
Hungarians’ debt-financed living standard and high expectations of the new government make them “poorly prepared to make sacrifices,” says Marton Tardos, an economist and member of Parliament with the opposition Free Democrats.
“Hungarians believe they deserve a higher living standard than the present one, but even the current living standard isn’t supported by the economy’s performance,” Tardos says.
The frustration with declining living standards was illustrated by a three-day blockade by taxi and truck drivers in October that was cheered by much of the populace. The blockade forced the government to cut in half a clumsily announced 65% hike in gas prices aimed at bringing them in line with world market prices.
The turnaround of Hungary’s economy will need time to bear fruit, but time is one thing Hungarians may not give Prime Minister Antall’s government. Janos Hegedus, who owns a private machine shop in Budapest, still supports the government. But he warns that unless the economy improves soon, “you could see a social explosion and strikes. That’s not good for Hungary or its world image.”