Budapest's world banking back in the black after '73 oil crunch
Ede Bako is proud of Hungary's switch from red to black in its international balance of payments. In 1981, recalled Mr. Bako, managing director of the National Bank of Hungary , the nation suffered a deficit of $700 million in its dealings with noncommunist nations. Last year it had a surplus of $100 million, its first black ink in 10 years. This year he hopes for a positive balance of $400 million.Skip to next paragraph
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''This is not a bad achievement, because we had to make quite a lot of painful sacrifices,'' he said. The nation restricted new capital investment; the standard of living stagnated; and imports have been restricted.
Hungary's financial troubles go back to the quadrupling of oil prices in 1973 -74. The government decided to cushion the economy against international inflation with a brief return to more centralized price controls, particularly of raw materials. This resulted in a deterioration of the nation's international payments position. The government helped finance that with loans from the West.
To remedy the situation, Budapest decided in 1978 to cut back capital investments and bring prices closer to those on world markets by decreasing subsidies.
Then came Poland's political and foreign-debt crisis, stirring up concern about the security of loans to all East European nations. More than $1 billion in short-term deposits with the National Bank of Hungary were withdrawn in the first quarter of 1982, Mr. Bako said.
Hungary needed financial help, and it got it from the West. The fact that Hungary was to become a member of the International Monetary Fund (IMF) and the World Bank in mid-1982 undoubtedly prompted special attention. The Bank for International Settlements, a sort of central bankers' bank in Basle, Switzerland , provided funds to get the nation by until a nearly $600 million loan from the IMF had been negotiated by the end of 1982.
''The atmosphere vis-a-vis the international banking community started to calm down,'' Mr. Bako noted.
This enabled the mid-European nation to get a $200 million medium-term loan last year from a group of international commercial banks and $70 million from the Long-Term Credit Bank of Japan. The World Bank also helped with approval of a development loan totaling $275 million, of which the bulk of the money came through co-financing arrangements with commercial banks.
A second, standby loan of $450 million from the IMF was granted Hungary in January. At that time the fund noted that because of the effect of a greater than expected deterioration in Hungary's terms of trade (the cost of what it imports vs. what it exports) and a severe drought hitting its farm exports, the improvement in Hungary's current-account balance in convertible currencies ''fell short of expectations'' last year. But it added that the turnabout in Hungary's international payments of some $1.1 billion since 1981 was the equivalent of 5 percent of national output.
Some of the IMF loan money has been used to increase the nation's reserves of foreign exchange - by $400 million last year. And Hungary just recently won approval of another World Bank loan of $103 million to explore for oil and gas and one for $285 million to restructure export industries, again involving co-financing by commercial banks.
At the end of 1983, Hungary was $8.2 billion in debt to foreigners. That is a large amount on a per capita basis. But Bako figures that after subtracting international reserves of some $1.57 billion, and other foreign financial assets , the net debt amounts to around $5 billion.
He says the government has sufficient undrawn lines for medium- and long-term financing for this year, and will not need to use short-term loans.
Perhaps more important, Hungary has regained a reputation for prudent financial management. Further, the government has indicated it will continue its policy of restraint, although possibly easing some of the import restraints.
''Our economic leadership is determined to retain the economic progress that we have made in the last two years,'' Bako said. This means, however, that economic growth will be slow - about 2 percent this year, according to the central banker. Investment will be down 2 percent, it is expected. And real wages are about the same as eight years ago.
One problem for Hungary, with a population of 10.7 million that is actually declining, is that the burden of pension costs is increasing. With retirement possible at 60 for men and 55 for women, more than one-fifth of the population gets a pension. Bako believes the government would be ''justified'' if it boosted the retirement age.
At the start of the year, the government once more lowered subsidies on such goods as meat, construction materials, and heating oil, pushing up the inflation rate. Bako reckoned that prices will rise 7 or 8 percent this year, compared with 7 percent last year.
Another sign of restraint is a surplus in the government budget of 10 billion forints ($222 million), compared with a deficit a few years ago of 15 billion forints. Total credit supplied by the banking system is also being tightly limited.