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Hungary FOREIGN TRADE
Hungary can compensate for its paucity of natural
resources
only by engaging in foreign trade, which, in the late
1980s,
accounted for about half the country's national income.
After the
Great Depression, commerce with Germany dominated
Hungary's
external trade, and agricultural products accounted for
most
Hungarian exports. After World War II, the communist
government
limited its economic contacts with the West, and the
Soviet Union
became the country's principal trading partner. Hungary
significantly increased trade with the West after the 1968
economic reforms when its economy could no longer grow
without
imports of technology and raw materials from the Western
nations.
It signed the General Agreement on Tariffs and Trade in
1973 and,
in the midst of a balance of payments crisis, joined the
World
Bank and the International Monetary Fund
(IMF--see Glossary) in
1982. Although in the late 1980s the Soviet Union remained
Hungary's principal trading partner, almost half of
Hungary's
trade was with Western countries. Production shortfalls
had
forced the Soviet Union to slow exports of oil and other
key raw
materials, forcing Hungary to strive to utilize raw
materials
more efficiently and increase exports to the West to pay
for
additional raw-material imports. The need to boost
efficiency and
make Hungarian goods competitive on Western markets also
prodded
the government to undertake economic reforms.
Ever-worsening terms of trade, increasing Western
protectionism, reduced access to foreign credit,
interest-rate
increases, and the generally slow response of Hungarian
enterprises to changing market conditions brought the
country
serious foreign-trade imbalances after 1987. The net
foreign hard
currency debt more than doubled from US$7 billion in 1981
to
US$15.5 billion in 1987, making its per capita foreign
debt the
highest among the communist states. Hungary had to spend
between
65 and 70 percent of its convertible-currency earnings to
service
its debt. Despite the fact that the economy did not meet
the
government's debt-reduction target in 1987, analysts
predicted
that the convertible-currency debt crisis would recede as
a
government austerity program began to take hold. The debt
and
current accounts deficit, which analysts estimated to be
US$1.2
billion in 1987, prompted Hungary to conclude a standby
credit
agreement with the IMF in 1988.
Data as of September 1989
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