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Hungary: A Giant Step Ahead


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HUNGARY: A GIANT STEP AHEAD

Hungary is still the brightest star in Eastern Europe-but don't expect Hungarians to agree. A gloomy national temperament keeps discontent high in public opinion polls. In a recent survey, 84% of the population believed conditions were worsening. Last year, goes one joke, there was a light at the end of the tunnel. This year, there's a tunnel at the end of the light.

But things aren't really so bad. Hungary is the most Westernized nation of the former East bloc, where outsiders feel most comfortable plunking down their money-about $700 million in 1990, more than half the total $1.2 billion invested in Eastern Europe. The center-right government is the most stable, and there are no serious ethnic, national, or religious conflicts. Two decades of tinkering with so-called goulash communism put it ahead of its neighbors in rebuilding a market economy. And Hungarians have enough cash to splurge on shopping trips to Vienna.

Now, Hungary is poised to catapult itself out of the no-man's-land between a command and a market economy. The nation has some of the worst features of each. Hungary has Europe's highest per-capita foreign debt. Inflation soared to 30% in 1990 as Budapest cut subsidies and freed prices, and this year it could inch up. Industrial production plunged 10% in 1990, and the decline will continue this year, economists say, before GNP turns up in 1992. Homelessness and crime are rising, and Hungarians fret over whether they'll ever match the prosperity of neighbors to the west.

BIG PUSH. To keep the momentum of reform going, the government of Prime Minister Jozsef Antall will have to break the back of inflation, the economy's No. 1 problem. Privatization, too, needs some oomph. Until now, the sell-off of state industry has been a somewhat angst-ridden experience, with some critics dubbing the state privatization agency "the state procrastination agency." One camp of officials is cautious, wary about selling assets too quickly and having them wind up in the hands of the former Communist Party fat cats and foreigners. Others think bloated state enterprises should be sold off quickly so they can be ruthlessly streamlined by private owners. More delays come from thousands of property disputes as Hungarians try to reclaim land, homes, and businesses seized 40 years ago.

But the push is on to speed things up. Rules are changing to encourage investors to bid for companies, including hostile takeovers. Lajos Csepi,

privatization chief, says he has received 60 bids to date for everything from the famous Gundel restaurant to the Budapest Hosiery Factory. He hopes to sell off 400 large state companies this year. And auctions for 16,000 state-owned shops and restaurants are also starting. "With a bit of poetic license, you could say the whole country is for sale," quips Csepi.

At the same time, hundreds of large enterprises dealing in autos and industrial equipment are squeezed for cash, largely the fallout from Soviet economic collapse. Exports to the Soviet Union are expected to be 14% of foreign trade this year, down from 30% in 1989. Estimates put bankruptcies of state companies at 280, about 7% of the economy. And despite years of attempts at banking reform, most financial institutions are still state-owned and locked into loans to loss-ridden state enterprises.

GRUDGING RESPECT. Still, some Hungarian companies are starting to prosper. A scramble to shift exports westward created a $950 million trade surplus in 1990. Hungary's exports go mainly to Western Europe, which buys processed foods, machinery, and some consumer goods. A new law spelling out foreigners' property rights should boost investment. And the country's tiny stock market was the first to reopen in Eastern Europe.

Prime Minister Antall, a 58-year-old former historian, gets a C+ in economic reform and a grudging respect from some of his critics. His demeanor is dour and his politics indecisive, and credit for much of the progress of the past year goes to a cadre of technocrats, who revved up reform before Antall was elected. But he's been in office a year, and many laud his dogged ability to survive. If he can keep the country from veering offtrack for one more year, Hungary may finally begin to move out of its economic limbo once and for all.Gail E. Schares and Ken Olsen in Budapest


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