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WEEKLY NEWSLETTER
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Hungary
Index
In a centrally planned economy, an enterprise has three
sources of finance: the state budget, the banks, and the
enterprise's own resources. An enterprise cannot, however,
use
its after-tax profits to increase wages or to undertake
new
investment without government approval. Credit is
necessary to
provide enterprises with the financial means needed to pay
for
planned inventories and to finance operations during the
hiatus
between delivery and payment; credit also gives the
government an
additional means of controlling enterprise activity. A
single
bank performs both central and commercial banking
functions.
The reforms of the mid- to late 1980s significantly
altered
Hungary's financial institutions and practices. A number
of new
banks were created, and the government permitted foreign
investors to participate in the banking system. The credit
system
was liberalized, although decisions to extend credit
remained
unrelated to past economic performance. The government
also
created a series of new investment opportunities for
individuals
and enterprises. Finally, in 1986 Hungary enacted a
bankruptcy
law.
Data as of September 1989
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