While the international community, business leaders and politicians may have known the degree of Hungary's economic crisis, it wasn't until mid-September, 2006, with the leaking of MSzP (Hungarian Socialist Party) Prime Minister Ferenc Gyurcsány's confession of lying "morning, evening and night" about the economy to win the election, that the people of Hungary were brought up to date. The opposition parties, the major one being Fidesz (the Civic Party, formally the Alliance of Young Democrats), backed by thousands of anti-government protestors called for his resignation, an appeal Gyurcsány was quick to dismiss. Instead he dramatically shifted his rhetoric from the rosy and largely fanciful pictures painted during the election towards an apparently determined reformist agenda aimed at fighting the government's colossal budget deficit (about 10.1% GDP at years' end). It was probably the first time that Hungarians were hearing their politicians speaking the truth, that the government's current level of spending is unsustainable and delaying is no longer an option.
[...] In terms of healthcare, despite a comprehensive insurance- type system the “health status of the Hungarian population has remained Hungary spends about of GDP on pharmaceuticals alone, accounting for 30% of total healthcare expenditures; and hospital care, the most acutely problematic area, remains backward due to a severe lack of competition (as they are all administered locally) and a poor incentives structure (Abiad, p. 31). In terms of education the student-teacher ratio is significantly below international standards. Having lost some 200,000 enrolled students, the ratio has dropped from 12.2 in 1990 to 10.1 in 2005. [...]
[...] Short term political goals repeatedly trumped the long-term needs of the nation, as unrealistic spending and foreign borrowing increased, leading to the crisis today where a painful break from past policies must be replaced by a move toward total economic pragmatism. However, international analysts have not given up hope, though, in a presentation by Keith Church of Oxford Economics, several slides are titled “Healthy Growth [in Central Europe] to Continue Except Hungary” (Church, 24-7). Investors were highly skeptical of Gyurcsány's election promises of “reform without austerity,” which raised questions about the government's will to follow through on the reforms the international community could so clearly see were needed (Bremmer, para. [...]
[...] In foreign analyses of the situation, this remains the largest concern, that Gyurcsány and his government will retreat from the reforms that are so needed, namely cuts in public administration, state pensions, the welfare program and state subsidies, in favor of increased taxes and risky revenue ventures. In his study of post- communist voting patterns Brown and Regional Economic Voting,” Joshua A. Tucker illustrates that in situations where economic conditions are worse in former Soviet countries the electorates have tended to vote for the communist successor and socialist parties (controlling for incumbency) (Tucker, p. [...]
[...] I hope to illustrate that the solution to the situation today calls for Hungary to make a cleaner break with its past then it has, to shed the remnants of its unsustainable socialistic economic policies and fully embrace the political reality of modern Europe. To understand where the current economic problems come from it is important to look at Hungary's unique gradualist approach to market and political reform. Thanks to Janos Kádár's “goulash communism” program that included a limited opening up of Hungary to Foreign Direct Investment and an increased government effort in the consumer sector, in 1989 Hungary was the only Soviet bloc country with a degree of market infrastructure already in place. [...]
[...] Altogether the picture painted by the report is one of imperfect post-'89 reform. Since they were able to pay for it at the time, due to foreign loans and investment, the reformers didn't reform it, or, as Aslund writes, effect, Hungary did as little as it could get away with” (Aslund, p. 200). But the problem with foreign loans is that you will eventually have to pay them back, which Hungary will now struggle to do. The overspending practices that were never satisfactorily addressed continued through and beyond the ‘90's, and are largely responsible for the huge budget deficit today. [...]
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