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Hungary THE SEVENTH FIVE-YEAR PLAN (1986-90)
In the Seventh Five-Year Plan period (1986-90), the
leadership expected the economy to supply consumers with a
greater assortment of foodstuffs, to improve the country's
balance of payments by raising exports, and to increase
productivity and profitability. Planners called for net
material
product to grow by 15 to 17 percent over the 1985 level.
The plan
also called for industrial production to rise by 14 to 16
percent
over the 1981-85 plan period; agricultural output to rise
7 to 10
percent; domestic consumption, 13 to 16 percent; real per
capita
income, 9 to 11 percent; and both imports and exports, 16
to 18
percent.
In 1986 Hungary's national income grew by only 0.5
percent,
far short of the planned 2.3 to 2.7 percent. Both
industrial
production, which rose 1.8 percent, and agricultural
production,
which increased 1 percent, were far short of planned
levels. At
the same time, domestic consumption jumped 3 percent,
consumer
prices increased 5.3 percent, and per capita real income
rose 0.7
percent. Investment grew by 5.1 percent, the maximum
envisaged in
the plan. Compared with the previous year, Hungary's
imports in
1986 rose by 2.5 percent, while exports fell by 2 percent.
In 1987 national income grew as planned by about 2
percent.
Industrial production rose by 3.7 percent, higher than the
planned 2 to 2.5 percent, but bad weather caused
agricultural
output to fall far short of the 1986-90 plan target. In
1987
investment grew by 6 percent, approximately six times the
planned
amount, while per capita income remained at the 1986
level. The
government increased prices on energy and foodstuffs
sharply in
1987 and increased prices on 53 percent of the items sold
in the
country in January 1988. The consumer price index for the
first
eight months of 1988 was 16 percent higher than for the
same
period in 1987, while the official inflation rate was 17.7
percent. The government also devalued the forint an
average of 13
percent against Western currencies in 1987.
Hungary has enjoyed favorable treatment from
international
capital markets despite disappointing growth and continued
deterioration in external accounts. At least one author
has
pointed out that Western banks have shown the greatest
confidence
in countries such as Hungary that have good debt-servicing
records, regardless of the countries' economic problems.
In the
latter half of the 1980s, Japanese banks increased their
loan
portfolio and sought to make low-risk loans to East
European
countries, particularly Hungary. Hungary took on loans to
restructure its industry, renovate power stations,
implement its
energy rationalization program, upgrade its
telecommunications
system, and finance foreign trade.
The current value of Hungarian exports declined between
1984
and 1986, and the country ran a US$548 million trade
deficit in
1986 followed by a US$390 million deficit in 1987. As a
result of
a deteriorating convertible-currency current account,
Hungary's
debt more than doubled in two years from US$8.6 billion in
1985
to US$18 billion in December 1987, and the country's ratio
of
debt to convertible-currency exports reached 338 percent
by 1986.
In May 1988, the government signed a US$350 million
standby
credit agreement with the IMF and announced strict
austerity
measures. In the first nine months of 1988, Hungary's
convertible-currency trade netted a US$200 million
surplus,
rebounding from the US$470 million deficit it showed in
the same
period in 1987. The surplus marked the first time since
1981 that
Hungary's foreign trade with developed countries was
balanced.
In 1989 the government sought to achieve large trade
surpluses with convertible-currency markets that would
enable the
country to repay its foreign debt and import raw materials
and
technology. Hungary could create those surpluses only by
importing more raw materials or using existing resources
more
efficiently. Hungary's major supplier, the Soviet Union,
was
experiencing shortfalls in oil and other raw-materials
production
that were forcing it to slow and even reduce exports.
Thus,
Hungary again was forced to turn to convertible-currency
markets
to secure additional raw materials. Because neither
Hungary nor
the Comecon countries generally had the technology and
know-how
that were necessary to improve efficiency and increase the
output
of products marketable in the West, Hungary also had to
turn to
the West for technology. The leadership understood that
realizing
the benefits of economic relations with the West required
significant further improvement of the economic system. At
the
Thirteenth Party Congress in March 1985, the leadership
reaffirmed its commitment to continue economic reforms
that
promised to improve efficiency and enhance the
competitiveness of
Hungary's exports. In the last years of the Kadar era, the
government had enacted many such reform measures, but the
implementation and enforcement of these measures were
uneven.
With the emergence of a new leadership under Karoly Grosz
in
1988, Hungary appeared poised to enact and implement more
dramatic reforms, including political changes, that could
radically alter the country's economic life in the 1990s.
* * *
Hungary's economic reforms proceeded so rapidly in the
1980s
that works on the country's economic system have become
outdated
shortly after appearing in print. The most comprehensive
description of Hungary's economic reforms available is
Paul
Marer's "Economic Reform in Hungary" in East European
Economies: Slow Growth in the 1980s, a publication of
the
United States Congress. Marer's East-West Technology
Transfer:
Study of Hungary also examines Hungary's economic
reforms and
provides detailed analyses of Hungary's major economic
sectors
and its trade with the Comecon countries and the West.
Janos
Kornai's article "The Hungarian Reform Process: Visions,
Hopes,
and Reality" provides a sober assessment of the reforms by
a
leading Hungarian economist. Also interesting are Paul
Hare's
"Industrial Development of Hungary since World War II" and
"The
Beginnings of Institutional Reform in Hungary." (For
further
information and complete citations,
see
Bibliography.)
Data as of September 1989
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