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Hungary’s economic plight, the result of imperfect politics

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  1. Introduction.
  2. Understanding where the current economic problems come from.
  3. Hungary's imperfect political system.
  4. The cyclical pattern of Hungarian politics.
  5. Hungary's twin budget crisis today.

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. [...]

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