Hungarian Steps to European Union Membership (1997 paper for the ISA. Précis)

Participation in EU enlargement requires a chain of connecting moves between the initial situation and the intended state of integration compatibility. Economy is the main concern.

1. The initial situation around 1989, apart from political moments came down to poor economic competitiveness and international performance. Out of which emerge the necessity of sustainable growth, market creation, working capital imports, relative macro-economic equilibrium and stability.

2. Some elements of the intended state of affairs are already present . First of all systemic changes: democratic government, private enterprises, major structural shifts, international reorientation, a practically convertible currency. These are in statu nascendi, but reached a point of no return. For example, the shift in foreign trade resulted in a fast actual market integration into Europe, and an important part of the working capital inflow into the region was directed here.

3. Up to recently important steps toward adjustment have been lacking. There remained unsolved monetary imbalances, a too high state redistribution ratio, major state budget deficits, insufficient and delayed devaluation moves, loose money supply. The shock of social transformation was mild at the beginning. This temporary advance have had to be paid up for recently.

4. Some failures or rather weaknesses: Current payments were balanced in ’91-’92 at the expense of growth. Consumer price index reached 35% in 1991 and oscillated above 23% afterwards reaching 28% in 1995 and 24% (expected) in 1996. While the excess money was supplied to the government, the access of the business sphere to credits was restricted. This way an inflation generated by deficit financing was complemented by a recession generated by credit allocation.

5. There was some delay or time lag in the impact of faults and failures. Several major faults were compensated for some time and to some degree by agricultural exports, capital imports and savings. In 1991-92 there existed some paradoxa in that currency was overvalued, export share was increasing and savings were accelerating during a two-digit inflation.

6. Major balance of payments troubles started at the very moment when growth recovery began. But the latter was not the main culprit of disequilibria. The so called ‘link’ effect had a minor impact on the state of affairs. The major influencing factors were the following: the agricultural performance grew poorer, for some time the foreign capital inflows were decreasing, saving propensity was weakening and the import boom was not balanced by exports.

7. A good deal of the failures was due to 1991- 1994 decision-making but the new government (in power from the middle of 1994) was too waiting for a whole year before addressing essential budget, trade and payments deficit problems and the reorganization of social security system. Its measures taken in 1995 poised at balancing the state budget and the payments situation were made at the expense of living standards. Nevertheless they succeeded in improving the monetary situation of the nation. Privatization has accelerated, foreign capital is pouring into the country, domestic savings are growing in real terms. But GDP is growing at a slow pace.

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One thought on “Hungarian Steps to European Union Membership (1997 paper for the ISA. Précis)

  1. A poszt megfelel a múltkori kijelentésednek: “Szakmai alapon bíráltam mind az Antall, mind a Horn kormány intézkedéseit, az IMF álláspontját, elismerve azt, amit a javaslatokból jogosnak tartottam.”

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