EVEN 10 years ago, food and consumer goods were available in
Budapest in greater quantities than elsewhere in the Soviet bloc.
With its "goulash communism," Hungary was for years well in
advance of its partners in the now-defunct Council for Mutual
Economic Assistance (Comecon).
Even so, two years after the country's first truly democratic
elections, the change on Budapest's streets is palpable. Where
Communist Party slogans once predominated, there are advertisements
for Western firms. Gas stations sport BP and Shell insignia. Three
McDonald's restaurants do a booming business and the only line a
reporter saw during a recent week-long visit to the Hungarian
capital was outside the just-opened Pizza Hut.
The feeling of bustle is everywhere, from new hotel and business
construction in the center of Pest, to the brisk transactions being
written in the lobby of the Thermal Hotel Aquincum on the Buda side
of the Danube.
But the picture is far from entirely rosy. Like elsewhere in the
former Comecon counties, a wide disparity is opening up between the
well-off and those at the bottom of the economic scale.
Unemployment has become a new fact of life for many who are not yet
used to the idea. More economic disruption is in the offing as the
government tackles the privatization of heavy-industry dinosaurs.
"The biggest problem in general is a very big drop in the
domestic market," says Balazs Botos, undersecretary of state at the
Ministry of Industry and Trade. "It's a problem of competitiveness
and the general level of Hungarians' purchasing power," he says.
"The majority of people can't afford to buy what they did two years
Hungary's gross domestic product dropped about 8 percent last
year, while consumption fell 6 to 7 percent. Industrial output
dropped 21.5 percent, but the volume of private firms and
cooperatives rose 50 percent.
A new challenge
Unemployment is currently about 8 percent, or 500,000 people.
"This is not too high relatively, but for Hungarian society, in
which unemployment has been unknown, it is a social shock," Mr.
Botos says. Government officials and Western diplomats agree that
unemployment could rise to 12 or 13 percent by the end of this year
as the government continues to privatize state-run heavy industry
or as some factories simply go belly up under a new bankruptcy law.
Botos is optimistic about the future, however. He predicts that
inflation will fall from last year's level of 35 percent to the 20
to 25 percent range in 1992. In addition, a senior Western diplomat
says there is "a reasonable chance" that Hungary's economy will
grow a bit in 1992.
Botos says that by 1993 there may be enough growth to begin
reducing unemployment. "We have to have entrepreneurs and
enterprises able to create new jobs," he says. "That is the first
priority." So far, things appear to be going well. Registered
private firms jumped 76 percent in 1991 to almost 52,000. More than
500,000 people work in the private sector.
The government's privatization program is another key element in
Hungary's economic future.
The government's critics, here and in the West, charge that the
State Property Agency (SPA) has proceeded too slowly in selling off
state-run enterprises. After two years, 85 percent of the economy
is still state-owned. The government is trying to give new impetus
to the process. "A quick pace is natural in the first two years,
when we could privatize the best enterprises," Botos says. "Now we
must privatize the mediocre ones; there is not as much interest
The government's goal is to reduce state ownership to below 50
percent by the end of 1994. Botos notes that foreign capital is
essential to the process, since Hungary does not have enough
domestic capital to privatize on its own. What Hungary does not
want, he says, is to privatize without capital, as has been done
elsewhere in Eastern Europe. …