The balance of economic transition in Hungary (1988-1998)

Abstract

Economic transition in Hungary was coupled by the adoption of the “Companies Act” in October 1988, which made it possible to state enterprises to convert themselves either into private company or public limited liability company. This led to the collapse of the socialised sector and paved the way towards the creation of a free market economy. Liberalisation programme started on 1 January 1989, which abolished all restrictions on wages and prices. Measures were also introduced for liberalising import. The first wave of privatization was uncontrolled, which was placed under the direct supervision of the state in the autumn of 1990 by the government coalition of the Hungarian Democratic Forum. The main objective of the conservative cabinet was to promote the emergence of a new Hungarian entrepreneur stratum. From 1994 privatization strategy changed under the Social-Liberal government, which encouraged bigger participation of foreign investors in the process and the simplification of sale procedure. As result of economic transition both the industrial and agricultural production declined, whereas unemployment rate rose to more than 12 percent in 1993. Because of unfavourable external conditions (the collapse of Comecon) the Hungarian economy was hit by depression. Another negative outcome of the transformation process was that gross government debt and inflation rose to an unprecedented level. The objective of my study is to evaluate the impacts of economic transition in Hungary between 1988 and 1998. I will focus on analysing the process of privatization and the macroeconomic consequences of the change of regime. Because of length constraints, I will not highlight the changes made in the political system after 1990.