Investing in Hungary
A welcoming attitude toward foreign investment, well-made law, and the
government's need to service heavy debts have combined ta make Hungary the
foreign direct investment capital of Eastern Europe. At a recent Global Finance
roundtable in Budapest, National Bank governor Gyorgy Suranyi and leading
bankers and compally executives examined Hungary's future prospects.
GLOBAL FININCE: Since 1989 Hungary has had the highest rate of percapita foreign direct investment in the region. Why?
ELEMER TERTAK, president, Daewoo Bank Hungary: One of the main factors is that the intellectual infrastructure was one of the best in the region. Thanks to early reforms, Hungary had quite early the ability to receive foreign investments, as there was already an appropriate legal framework, including double-taxation treaties and investment protection agreements with most of the OECD.
CSAA BERCZ, representative, Koves Clifford Chance: The transformation of the old regime's legal system into a modern market-based legal infrastructure occurred rapidly. In the mid-1990s the parliament started to make the laws more sophisticated, drawing upon the experiences of the European Union.
RAY STEWART, CFO, Matav: Hungary was number one on the list with Matv, because of the legal structure and the talent of the people. And then, we felt the regulatory framework was adequate and that there were a lot of growth opportunities. We put a team together back in 1991 and looked at what it would take to build the telephone network up in Hungary. The Matv privatization was completed in December 1993.
MICHAEL CARTer, managing director, First Hungarian Fund: The First Hungarian Fund, which opened for business here in 1989, was the first institutional fund in Central Europe. It was helped, in addition to infrastructure, by several factors, including the fact that several Hungarians, among them George Soros and Andrew Sarlos, moved to America and were very successful. They felt that the time was right to reinvest in the country of their birth. But the other factor was that [National Bank governor Gyorgy] Suranyi's predecessor put together an agreement with the fund that made it possible to invest at a time when nobody else was investing behind the Iron Curtain.
IVAN GA, deputy managing director, Unicbank: Our bank was the third joint venture bank in Hungary, set up in 1986. Even then, the central bank was encouraging foreign investors to come to Hungary. Citibank has been here since 1985, and Central European International Bank (CIB) started operations back in 1979.
LASZLO URBAN chief economist, Hungarian Credit Bank: Hungary, due to the relatively heavy indebtedness at the start of the transformation in the late 1980s. was also forced to attract foreign investment to help service the already accumulated debt.
GYORGY SURANYI, president, National Bank of Hungary: Perhaps there is one more aspect. We have not opted for mass privatization but direct sales. There are real owners, responsible owners, in areas such as public utilities. Paradoxically, much of the demand came from publicly owned foreign entities. GF: In 1995 more than $90 billion went into foreign direct investment in emerging markets. Hungary competes with many other countries for its share. What should it do to keep attracting FDI?
BERNARD DELOMENIE, managing partner, Coopers Sr Lybrand: There are still quite a few privatizations to be completed. And maybe the tax regime should be softened. I think Hungary could also attract a lot of investment through the stock exchange if regulations were strengthened.
JANOS EROS, CEO, Commercial Credit Bank: The successful management of national debt throughout Hungary's modern history is also important.
TERTAK: One of the most needed reforms is the reform of the government budget and the transformation of the pension system, issues more developed countries such as Germany are also facing. …