ECONOMIC SPOTLIGHT - AUSTERITY MEASURES IN HUNGARY
Hungary is to embark on a new series of
austerity measures to tackle a budget deficit which tripled
last year after quadrupling in 1985.
    The target deficit in the 1987 budget approved by
Parliament last December was 43.8 billion forints.
    But Zoltan Boesze, chief of the Finance Ministry's budget
financing division, told Reuters the government now saw this as
too high and had decided "quite severe" measures were needed.
    "All the organizations of economic management have been
charged with elaborating further (savings) measures," he said.
    Asked if these measures were being taken under pressure
from the International Monetary Fund (IMF), Boesze said: "The
Fund suggested it would be good to improve monetary results,
and of course the Fund would support these efforts."
    IMF teams spent several weeks in Budapest late last year.
    Boesze said preliminary figures showed that Hungary's state
budget deficit rose to a preliminary 47 billion forints last
year from 15.8 billion in 1985 and 3.7 billion in 1984.
    The economy overshot a target deficit of 23 billion forints
because of poor performance by state firms, which needed
subsidies and tax incentives to export and earn hard currency.
    The exact extent and nature of savings are still under
discussion but subsidies to state enterprises -- the largest
budget item -- must definitely fall, Boesze said.
    Subsidies to state firms, including grants to maintain low
consumer prices, exceeded the plan by nine billion to reach 164
billion forints in 1986, up from 152.9 billion in 1985.
Parliament approved 1987 subsidies of 170 billion forints.
    "I think that in 1987 it is quite impossible to keep up the
former situation and we will be obliged to reduce subsidies,"
Boesze said. "The central administration must be hard. ... If we
are not hard then we will not be successful."
    Boesze said the budget could also make savings from reserve
provisions of two billion forints for central expenditure and
800 mln forints for transfers to local authorities. "I believe
these reserves should not be used at all," he said.
    Wage growth last year outstripped that of gross domestic
product, which expanded one pct instead of a planned 2.5 pct.
    The authorities had already signalled a small fall in real
wages for 1987, but Boesze said firms will suffer severe tax
penalties if they award nominal rises of over one or two pct.
    This would mean a severe cut in living standards, as retail
price inflation is forecast at seven pct after 5.3 pct in 1986.
    A four-month basic wage freeze expires on April 1.
    About 40 pct of the 1986 subsidies to state enterprises and
33 pct in 1985 were made to maintain low consumer prices.
    Boesze said pure economic policy would dictate significant
cuts in price subsidies, but that social considerations made
this difficult.
    But he added: "I think ultimately we will be able to make
curtailments in subsidies in this area as well."
    He said Hungary plans to introduce price reform at the
beginning of 1988 at the same time as personal taxation and
value added tax. The IMF supports these aims.
    Hungary introduced a bankrupcty law last September in an
attempt to shake out surplus labour from inefficient firms.
    Between 100,000 and 150,000 workers are expected to be
unemployed at least temporarily by 1990. Labour discipline is
being tightened and firms may fire workers more easily.
    Boesze said the per capita employment tax paid to the state
by firms was being raised this year to encourage enterprises to
shed labour. He gave no exact figures.
    Istvan Nagy, a senior Finance Ministry official responsible
for drafting the bankrupcy law, told Reuters last year he hoped
the law would cut state subsidies to enterprises by 50 pct.
    After subsidies to state enterprises, the largest single
budget items are social insurance (153 billion forints approved
for 1987) and transfers to local councils (80 billion).
    Interest payments on international debt are set to rise to
more than 10 billion forints in 1987 from between six and seven
billion in 1986, Boesze said.
    Hungary's net hard currency debt leapt by 54 pct last year
to 7.7 billion dlrs, according to provisional figures, while
trade with Western countries plunged into a deficit of more
than 400 mln dlrs from a 1.2 billion dlr surplus just two years
earlier.
    Boesze said last year's budget deficit was financed 90 pct
by credits from the National Bank, mostly from abroad, and 10
pct by the issue of domestic state bonds.
    Deputy Prime Minister Frigyes Berecz told Hungarian
economists in a speech this month that the country's economy
was in a "very difficult" situation, but not in crisis.
    There would have to be a turnround with tangible results
this year, however, and borrowing must be used more
effectively.
    "Any rise in our present loans may prove to be dangerous,"
Berecz said.
 REUTER
