欧共体给匈牙利经济的礼物

Hungary has come a long way in developing a market-oriented economy. Although the bulk of industry is still state owned, even state-owned enterprises have learned to respond to market signals. The private sector is growing by leaps and bounds, and foreign enterprises find the environment congenial to doing business. The economy gave proof of its flexibility last year when exports to the Soviet Union were cut by 24% while exports to hard currency countries rose by 18%, yielding an overall surplus in the balance of trade of $1 billion. This performance exceeded the most optimistic expectations.

The government is following a responsible if uninspired economic policy. Tough decisions had to be taken in order to reduce the budget deficit for 1991 to about $1 billion—a figure acceptable to the IMF. The international monetary institutions in turn are extending about $2 billion in credit, which should be sufficient to enable Hungary to absorb the economic shocks resulting from the dissolution of Comecon and the collapse of the Soviet economy.

Nevertheless, the country is on the verge of economic and political breakdown. The standard of living, which has been falling for several years, is taking another severe drubbing as a result of the elimination of subsidies. Come next fall, many people will find that their bills for housing, heating and electricity will jump by as much as 150%. Some will be simply unable to pay. A few hundred people may be dispossessed with impunity but if 10,000 people fail to pay, a serious economic and political problem may arise. The inflation rate is hovering between 35% and 40%. There is a danger that it may accelerate if the budget deficit exceeds the target. In the worst case there could be social unrest. An unfortunate precedent was created in October 1990 when a sudden jump in gasoline prices precipitated a nationwide rebellion that forced a partial recision of the price hike.

The main source of difficulties is the heavy burden of debt that Hungary is carrying: $22 billion for a population of ten million makes Hungary one of the most highly indebted countries in the world. The debt is the legacy of the preceding reform communist governments but—in contrast to Poland and Bulgaria, which have defaulted—Hungary is still paying in full. It is the only country in the world with such a heavy debt-load to remain current on its obligations. The effect is felt primarily in inflation and in declining living standards because the export earnings that are used to pay the interest are not available to satisfy domestic demand. At the same time, the export surplus is not sufficient to service the debt, so the total amount outstanding is still growing faster than the economy. That means that there is no relief in sight.

Lenders are of course aware of Hungary’s predicament and disinclined to increase their exposure. The incremental lending is coming mainly from international monetary institutions, and it is only with the greatest difficulty that the maturing debt can be rolled over.

Paradoxically, Hungary finds itself heavily penalized for trying to live up to its obligations. Not only does it have to bear the full cost of the debt, but it cannot even raise the issue of relief because it would undermine its already shaky credit standing. Doing so would also interfere with its efforts to attract equity capital even though the debt problem has become a serious disincentive for foreign investors. The Japanese, who hold the second largest stake m Hungary’s debt, are particularly leery of also taking equity stakes.

What is to be done? Hungary needs debt relief just as much as Poland did, even though it cannot ask for it. Indeed, the problem is more acute because the effect is felt in the present whereas in the case of Poland debt relief was needed to clarify the future. But it would be a serious error to blot Hungary’s unblemished record by penalizing the creditors. Relief must take a different form.

I propose that the European Community, with the help of Japan and other interested parties, should guarantee a long-term loan of 10 billion ecus ($8.3 billion) for Hungary and make a gift of the interest on that loan for the first three years. This course of action would immediately re-establish Hungary’s credit standing and provide a much needed breathing space for the Hungarian economy. It would enable Hungary to bring inflation under control both by allowing the budget to be balanced—the interest forgiveness is roughly equal to the budget deficit—and by providing a powerful incentive to abide by the IMF agreement. The gift of the interest would of course be subject to Hungary fulfilling the conditions of its IMF program.

It is true that the current commercial creditors of Hungary would also benefit from the EC’s generosity because the quality of their loans would improve, but that should not be held against the scheme. Commercial banks will be required to take substantial write-offs both in Poland and in Bulgaria They will be in a better position to do so if they receive some benefit in Hungary.

The proposal should be seen in the context of an overall settlement for the region. Each country needs some support from the West because the already difficult problems of transition have been compounded by the collapse of the Soviet economy, but each country needs a different kind of support. In the case of Czechoslovakia, the main need is for structural adjustment.

The proposed scheme would have a tremendous impact on Hungary. It would open the prospect of a better future ahead. Yet the cost to the EC would be surprisingly small. The gift of interest would merely replace loans whose chances of repayment cannot be rated high. The cost of the guarantee on the long-term loan can be offset against Hungary’s prospect of joining the EC. If Hungary defaulted, it would lose the chance of joining and the EC would probably come out ahead on the bargain.

Eastern Europe is poised on a knife’s edge. It would require only a modicum of imagination and political will to swing the balance in favor of success.