Hungary is counting the cost of capitalism

Hungary followed the IMF’s advice after the fall of communism. The result? Economic collapse and a new IMF loan

BY Neil Clark LAST UPDATED AT 08:50 ON Tue 28 Oct 2008

It was the ex-communist country that did everything the West and its neo-liberal economic 'experts' said it should do. It privatised vast swathes of its economy. It allowed free and unhindered access to Western multinationals. It filed up obediently to join Nato and the EU and employed Goldman Sachs to give advice on privatisation.
 
Now, after 20 years of free-market 'reforms', Hungary, together with the Ukraine, sees the results of its policies: an IMF bail-out.
 
Hungary's economic collapse gives a lie to the dominant narrative that eastern European countries have thrived since the sweeping political changes of 1989.
 
I lived and worked in Hungary during the 1990s and saw at first hand the way that the economic 'reforms' insisted upon by the IMF, the World Bank and the EU adversely affected the majority of the population.
 
Ten years on, and times are even tougher. On a recent visit to Hungary I was shocked by the increase in street beggars and the number of old people I saw searching for scraps in trash cans.
 
Away from the swanky new Budapest bars around Liszt Ferenc Ter and Vaci Ut which cater for foreign businessmen and home-grown yuppies, the capital has a shabbier, poorer look than it did a decade ago. The fall in living standards became even more apparent when I visited other towns and cities in the country.
 
The statistics paint a depressing picture. Last year, real wages in Hungary fell by seven per cent. The UN's Food and Agriculture Organisation has reported that 200,000 people in Hungary, including 20,000 children, are under-fed. One in five children are being brought up in poverty, while campaigners predict that recent price hikes of electricity and gas could push a further 3m people into poverty.
 
The truth is that Hungary, like the Ukraine, has gone backwards, and not forwards since the fall of communism. Even Viktor Orban, the staunchly anti-communist leader of the main conservative opposition party Fidesz, has conceded that for the majority, life was easier in the relatively liberal 'goulash' communism era of the 1970s and 80s.
 
Despite the selling-off of millions of pounds worth of state assets in the government's mass privatisation programme, Hungary's public finances remain in a poor state. The scale of corruption has been mind-boggling: Prime Minister Ferenc Gyurcsany (above) - whose 'pro-reform' economic policies have been lauded in the West - has an estimated fortune of £10m, made from controversial privatisation deals in the early 1990s.
 
The new IMF loan, far from being the salvation that Hungary's political elite is claiming, is likely to make things even worse. The IMF is insisting the government pursues 'strong policies' to reduce its deficit - shorthand for yet more swingeing cuts in public spending. That would mean the final nail in the coffin for the country's chronically under-funded health service; my mother-in-law had to bring in her own toilet paper during a hospital stay this summer.
 
The IMF loan is also likely to mean the enforced privatisation of the few assets remaining in state ownership, regardless of widespread public opposition.
 
"What's the difference between communism and capitalism?" is the joke currently doing the rounds in Budapest. Answer: "Under communism we had a big government debt but we lived well. Under capitalism we have a big government debt but we don't live well." ·