News Brief No. 95/14

News Brief: IMF, Hungary Continue Dialogue; Camdessus Welcomes Measures

June 6, 1995

Michel Camdessus, the Managing Director of the International Monetary Fund (IMF) met with Hungary's Prime Minister Horn on Monday, June 5, 1995 to continue the dialogue begun in Budapest last Autumn. The discussions covered worldwide economic and financial developments, the recent economic policy initiatives of the Government of Hungary, and the influences of both global developments and domestic policies on the economic prospects for Hungary.

Camdessus welcomed the measures adopted in March, and now being reflected in the supplementary budget, as courageous and substantive. This package, implemented as envisaged, will arrest an incipient widening of the budget deficit and contain external financing requirements. The March package was seen as the first phase of a government program aimed at achieving a noninflationary growth path with external viability.

In the months ahead--starting with a visit to Budapest later this month--IMF staff will be working closely with the Hungarian authorities on the next phase of this program, to be formulated in the context of the preparation of the 1996 budget. For the period through 1996, the five chief objectives will be as follows:

• A substantial reduction in the government deficit, aimed (in concert with monetary, exchange rate, and incomes policies) at securing the Government's objectives for inflation and the balance of payments.
• Monetary and wage policies targeted at a significant reduction of inflation and the maintenance of international competitiveness within the framework of the crawling-peg exchange rate policy.
• Structural reform of the public sector--that is, improved fiscal control mechanisms, a more efficient public administration, a broadening of revenue bases so as to reduce distortionary elements of the tax system, and adjustments in the social security system to safeguard its viability while providing adequate assistance to those in need.
• Structural reform of enterprises and banks to curtail the role of the State and increase the responsiveness of the economy to market signals--this will require primarily a renewed impetus to privatization.
• And an external current account balance consistent with no increase in foreign debt, without relying on exceptional inflows associated with privatization.

Camdessus said he would be prepared to recommend to the Executive Board that IMF financial support be provided for a government program that would realize these objectives.