Hungary's Open Secret

BUDAPEST: Only a decade ago, with its "goulash socialism" Hungary seemed the most prosperous communist economy. After communism collapsed, Hungarian leaders, and the Hungarian people, thought that their less restricitve system offered big advantages over other communist countries in the race to reform. Where others had to rush, Hungarians thought they could change more slowly. Today, that illusion is tattered.

Hungary's economy differs from other post-communist economies in two ways: the huge debts with which Hungary began the transition, and the open economy that these debts inspired. Although the debt burden decreased since 1993, it still retards growth. As a proportion of GDP Hungary remains one of the most indebted countries of Eastern Europe.

Unlike Poland, however, Hungary never rescheduled its debts. So to maintain creditworthiness, the country has been forced to adopt pragmatic economic policies that today deliver an unusual economic openness -- this, and not the ephemeral benefits of "goulash socialism" is the longterm hope for the Hungarian economy. For with this opening, Hungary absorbed the largest foreign direct investment (FDI) in the region.

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