nald M. BLINKEN
embassy: V. Szabadsag Ter 12, Budapest
mailing address: American Embassy Budapest, Department of State,
Washington, DC 20521-5270
telephone : [36] (1) 267-4400, 269-9331
FAX: [36] (1) 269-9326

Flag description: three equal horizontal bands of red (top), white,
and green

Economy

Economy - overview: Hungary probably had the most Western-oriented
economy in East Europe before the transition to a market system began
in 1990, and Budapest made good progress in the initial years of
transition. The reform process slowed in 1993-94, however, in part
because of the May 1994 elections and the resulting change in
government. By 1994 the privatization of state firms had ground to a
halt, while both the budget and current account deficits soared to
unsustainable levels - about 8% and 10% of GDP, respectively. The
situation improved sharply in 1995: an austerity program introduced in
March reduced both deficits; and a renewed privatization effort later
in the year resulted in more than $3 billion worth of sales of state
firms to foreign investors - money used mostly to reduce Hungary's
large foreign debt. Real GDP increased 2.9% in 1994 - following
several years of steep decline - and about 1.5% in 1995 and only 0.5%
in 1996. Unemployment reached 14% in early 1993 before gradually
falling back to 11% in 1996. Inflation has oscillated; it reached 40%
in mid-1991, dropped to 17% in early 1994, jumped back to 31% by
mid-1995, and settled at 20% in 1996. Prospects for 1997 and 1998 are
good compared with the situation earlier. Most forecasters expect 2%
to 3% GDP growth in 1997 and slightly higher growth in 1998. Inflation
and unemployment are edging down. With the government still committed
to reform, both the budget and current account deficits are at IMF
target levels - about 4% of GDP. Budapest also is making good progress
in restructuring the pension, health, tax, education, and other
systems as part of the effort to decrease the role of government. This
dramatic shift in economic policy was rewarded in 1996 by the IMF,
which finally signed the standby agreement Budapest had sought, and by
the OECD, which welcomed Hungary as a member.

GDP: purchasing power parity - $74.7 billion (1996 est.)

GDP - real growth rate: 0.5% (1996 est.)

GDP - per capita: purchasing power parity - $7,500 (1996 est.)

GDP - composition by sector:
agriculture: 7.3%
industry : 31.9%
services: 60.8% (1994)

Inflation rate -