Privatization in Hungary

Abstract

Privatization is one of the key policy problems for the new Central and Eastern European governments seeking to bring about the transition to market-type economies. Broadly interpreted, the topic includes both the transfer of existing state firms into private hands, and steps to encourage new business formation and the creation of an entirely new private sector. The three countries studied in this paper have all made a start with their privatization programmes, Hungary choosing an approach based on conventional asset sales, Czechoslovakia and Poland paying more attention to the possibility of distributing freely to the population a substantial fraction of their company shares. Both approaches are likely to encounter serious problems. In Hungary''s case, it may simply prove impossible to find enough buyers, while for the other countries the difficulties have more to do with the sheer administrative complexity of what is planned. Nevertheless, all three countries agree that rapid privatization must form an essential element of their reform strategies. Early experience also indicates that reforms in other spheres, such as the financial markets and the tax system, must also be carried out if existing privatization plans are to be successful