Random Country Report: Part 3 - Hungary

One of the interesting aspects about today’s country in the Random Country Report is its youth; the country abandoned communism less than twenty years ago. Hungary, like many of neighbors, is a relatively young republic, and while many countries have had centuries to adapt to capitalism, Hungary has had about eighteen years to acclimate to a free market. Considering that with the fall of communism, Hungary lost — seemingly overnight — access to about ¾ of its export market, one has to be impressed with the strides that the country’s economy has taken.

Hungary, now firmly a “second-world country,” is a member of European Union (since 2004) and the World Trade Organization. It is on track to have access to the Euro by 2012, slowly approaching the conditions of the Maastricht Treaty. Their current currency, the Forint, trades at around 144 Forints to 1 US Dollar, demonstrating the importance of adopting the Euro (a much stronger currency). Though the currency was pegged (in the 1990’s) to a basket of various currencies, the Forint is now a floating currency. Having experienced tremendous growth for years, Hungarian GDP has slowed recently, yet is expected to pick up soon.

While Hungary, like many countries emerging from the Soviet Bloc, relied on IMF funds for some time, they have paid off all of their debts to the Fund. The country is very attractive to foreign investors, given its location (situated between Central and Eastern Europe), its educated and skilled workforce, and its exchange rate, among other factors. As a member of the European Union, there are also significant advantages for foreign investors.

The outlook for Hungary is unclear. While membership to the EU is a positive step, the country needs to make significant improvements in order to be able to use the Euro. In order to meet the rigid standards, Hungary might have to make unpleasant decisions relating to its economy. For example, they might have to attack inflation aggressively in the obligatory attempt to halve it within the coming years; this could facilitate poor growth. Still, I am guardedly optimistic about Hungary’s long-term prospects as many of their strengths are areas unlikely to change, such as foreign investment, tourism, and political dedication to pursuing free-market policies.

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