Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Hungary Plans to Speed Up Assets Sale

BUDAPEST -- For decades, they helped run Hungary's Communist economy with its five-year plans and state-owned enterprises.


Today, however, the revamped Socialists -- led by reform-Communists from the old era and set to take the reins of government next week -- have come up with a plan to improve and speed up the sale of those very same state-owned businesses.


While the details are still sketchy, business executives and bankers have given a tentative thumbs-up to the Socialist privatization strategy, saying it could be as good or even better than the outgoing conservative government's.


"It is difficult to judge right now," said Andras Hanak, head of the Squire, Sanders & Dempsey law office in Budapest. "But I think there is a chance privatization will go on under a more reasonable regime and significantly faster."


Under conservative rule over the past four years, Hungary has sold or liquidated over half of the nearly 2,000 enterprises it owned in 1990. Today, about half the country's gross domestic product is produced by the private sector, which employs about half the Hungarian workforce.


But many criticize the sale of state assets as painstakingly slow, with deals taking more than a year to be completed. No major commercial bank has been privatized yet, although the new government has made this a priority.


The plan adopted by the Socialists and their junior coalition partners, the Free Democrats, focuses on reducing bureaucracy in privatization decisions and luring more foreign investment to plug a current-account deficit.


It calls for combining the two privatization agencies -- the State Property Agency and state holding company AV Rt -- in an attempt to reduce costs and streamline the process.


Laszlo Bekesi, the Socialist candidate for finance minister, said private consultancy and management firms would be hired to run some of the state-owned companies and prepare them for sale.


The state would aim to have all privatizations completed by the end of 1996, said the Free Democrat member of parliament Marton Tardos in an interview with the daily Nepszabadsag. Tardos helped draft the new government's economic program.


The new government will also review the outgoing conservatives' policy of maintaining a state stake in a wide variety of enterprises deemed strategic, Bekesi said.


"The general thrust is toward reducing the (state's share), so that the scope of privatizations is increased," he said.


Having one, business-oriented privatization agency is a good idea, said Douglas Rediker, the vice president of Salomon Brothers in charge of East European investment banking.


"In the long run, it is probably a logical thing ... to have the entire privatization apparatus under one roof and one leadership," he said.


Hanak welcomed Tardos' proposal of wrapping up the sales of state-owned businesses by 1996. "This is promising and it would be good if it were accepted (as government policy)," he said. The most significant deals of the coming years are likely to be the sales of commercial banks and utilities, he added.


Before utilities can be privatized, however, Hungary must draw up a proper, stable regulatory framework to replace its haphazard, frequently changing set of rules, Rediker said.


In the end, however, the Socialists are bound to receive a short-term boost simply because the installation of a new government has removed the element of political uncertainty, Rediker said. "Now that the elections are over," he said, "we can all look forward to a great deal of economic activity, based on commercial concerns rather than political ones."