Hungary Faces Tough Choices On Economy

Post-communist government must make decisions on inflation and privatization

WITH Sunday's first round of elections over, and the democratic process on track, Hungarians must prepare to tackle its economic crisis. ``The time for truth has come,'' says Laszlo Csaba, a leading economist, who stresses the importance of any new government making some tough decisions quickly and without hesitating. ``Otherwise, a full year can be wasted.''

``But it won't be easy for a new government either,'' continues Mr. Csaba, who belongs to an informal group called the Bridge, which advises the Hungarian government about the economy. ``The situation is much worse than people think.''

The problems are numerous, internally as well as externally. The foreign debt is rising and totals $21 billion. Inflation is also going up and is now more than 22 percent, compared with 17 percent in 1987 and 5 percent in 1986. The gross domestic product declined last year. Production in many important sectors is falling. An increasing number of the country's 10.6 million people live below the poverty line. Many state enterprises would be ripe for bankruptcy, if it were not for government bailout. And unemployment is rising.

The first post-communist government in Hungary has many decisions to make to achieve quick improvements in the economy.

But it must also make some crucial long-range decisions, such as Hungary's foreign trade priorities in the wake of the collapse of trade with the Soviet Union. It must decide whether to make the country's currency convertible. Perhaps most important, it must establish the speed and manner of privatization of the Hungarian economy, adjusting it to the free-market system that the populace overwhelmingly supports.

Privatization is a key issue, and the political parties likely to form Hungary's new government differ on how to realize this goal.

The two leading parties in Sunday's elections - Democratic Forum and the Free Democrats - favor different approaches.

The Democratic Forum, which was the country's top vote-getter, urges caution and strict parliamentary control, while the Free Democrats push for fast and radical changes with practically no limits or control.

In the next few years, one-third of Hungary's business sector should be in private hands, according to the Free Democrats. The Forum thinks this is irresponsible, saying the Smallholders' demand that all land taken away from the farmers in 1947 should be given back. That's not feasible, the Forum says.

``The speed of privatization is not as important as sustaining the process of marketization,'' says Csaba.

Ivan Lipovecz, editor in chief of the economic weekly HVG, is pessimistic about the new government's ability to make the important decisions, especially necessary short-term changes.

``None of the political parties has a short-term, well-thought-out, and realistic economic program, which is acceptable to society and economically feasible. Tough measures are necessary, but who wants to be unpopular and risk conflicts and the loss of power? Instead, everyone is sitting back and waiting for the other to do something.''

``The No. 1 issue,'' says Mr. Lipovecz, ``is what will come first, democracy or the downfall of the economy?''

He doesn't know the answer.

For both young and old in Hungary, the situation is worrisome. Sixty-five percent of the country's pensioners with monthly incomes between 3,000 and 5,000 forints (between $48 and $79) now live below the poverty line.

``Politically, it is much better today,'' says a young woman who studies law, ``but the standard of living is rapidly declining. We are much poorer, and that's my big worry.''

For economists like Csaba from the Institute for Economic and Market Research here, a serious recession threatens Hungary if action is not taken. And these decisions are not a matter of reforming the existing model but creating a completely new one.

``But if we can't keep the inflation down, and it reaches 25 and 30 percent, then we can forget about any improvements.''

Still, Csaba doesn't see Hungary's problems in any way as serious as Poland's. Hungary's economy does not need a similar shock treatment, and he sees a chance for recovery. He thinks that reconstruction is feasible.

In Budapest, the economic crisis is hard to see at first glance. The stores are full. There are tourists and foreign businessmen everywhere. Twenty-five million foreigners visited Hungary last year, a 39 percent increase. And big companies like General Electric and General Motors have made hundred million dollar investments. Some North American investors have bought half a bank. All hotels are jammed.

THE big food market, by the Szabadsag Bridge on the Pest side in the center of the city has everything in abundance, from meat and chicken to fruit and vegetables. And nowhere is there a line, such as one finds in Poland, except outside the Addidas shop on the fancy Vaci Street, where youngsters patiently wait for hours every day to buy the latest sweatsuit or sneakers, or outside McDonald's, to buy a hamburger.

But behind the facade, many apartment buildings are almost falling down. The hardship of these categories of people has increased after income and sales taxes were introduced in 1988 and after food prices were liberalized this year to decrease the budget deficit. Many families below the poverty line now have to pay income tax, which can be as high as 17 percent on a personal yearly income of 55,000 forints. There is concern that as many as 3 million Hungarians can fall below the poverty line before the year is over.

The lack of an effective caretaker government in the months leading up to the elections, has undoubtedly aggravated Hungary's economic problems.

Drawn-out negotiations about the composition of new Hungarian government, following the elections, could further worsen the situation.