A new Bokros “package”: Not likely
Lajos Bokros is one of the leading economists in Hungary. He was minister of finance from March 1, 1995, to February 29, 1996, when he resigned. Apparently he had threatened to resign before; every time his advice was not taken his inclination was to step down. Just to give an idea of his mercurial temperament: in 1990 it took him only two months as a member of parliament to be fed up with politics. He resigned.
A brief summary of his career: He was born in Budapest in 1954. He studied at the Karl Marx University of Economics, graduating in 1978. Two years later, in 1980, he received his Ph.D. and became a research fellow at the Financial Research Institute of the Hungarian Ministry of Finance, where he served as Chief of the Public Finance Division in 1986. From 1987 he was Deputy General Manager and then from 1989, Managing Director of the Hungarian National Bank. In the first half of the 1990s his positions included Chairman and CEO of the Budapest Bank, Chairman of the Budapest Stock Exchange, and Director of the State Property Agency. After his short stint as minister of finance he worked for the International Bank of Reconstruction and Development (World Bank) and currently is a professor at the Central European University attached to the Department of Public Policy. In addition to his administrative duties he teaches one course: Macroeconomics and Public Finance.
The country's economic situation was disastrous in 1995. But Prime Minister Gyula Horn was loath to introduce an austerity program of the magnitude that seemed necessary. For eight months he did nothing while his first minister of finance, László Békesi, proclaimed the end of the world every second day. Hungary had fallen into the abyss, he said, but he couldn't convince Horn to allow him to introduce the necessary changes. He therefore resigned in January 1995, though his resignation took effect only on March 1. Meanwhile for two solid months Horn interviewed prospective candidates for the post, including Zsigmond Járai, later Viktor Orbán's minister of finance of decidedly right-wing political views. At last Lajos Bokros was named on March 1 and twelve days later came the cold shower: an unprecedentedly severe austerity program later to be known as the "Bokros package."
What was the situation at the time Lajos Bokros took over? From 1990 to 1993 the GDP had shrunk by more than 20%, industrial production by 35%, and agricultural production by 40%. Consumption that had already dropped prior to 1990 further shrank by 10%. In 1994 the value of real wages was 22-23% less than in 1989. Unemployment was 2% in 1990; by 1993 it was 13%. Between 1990 and 1994 1.4 million jobs disappeared. Inflation was more than 25%.
Bokros achieved what seemed to be a miracle: by 1997-98 the Hungarian economy was on the right track. The greatest beneficiary of this was Viktor Orbán and his government that took over the reins of government that year. Perhaps one day I will detail the remedies Bokros used, some of which turned out to be unconstitutional and had to be withdrawn. Among other things, social services were curtailed and public outcry was great.
Bokros has for some time been trying to sell a second "Bokros package," but there doesn't seem to be taker at the moment. His latest laundry list was published last Thursday in Élet és Irodalom. It is a lengthy essay of about 30 typed pages. The suggestions, perhaps economically sound, are politically unacceptable. No government can possibly follow Bokros's advice. Even if Gyurcsány and his economic team were willing to listen to Lajos Bokros, the fact is that today's political situation is in no way comparable to that in 1994-1996. Then the government had more than a 75% majority in parliament. The right-wing parties–Christian Democrats, MDF, and Smallholders–were weak and ineffectual. Fidesz was the smallest party and barely got into parliament. Orbán and his friends were not quite sure whether they were a liberal or a conservative party. Today they are very strong and their attitude has hardened. They refuse to cooperate with the government in anything, and they certainly would do their utmost to torpedo each and every one of Bokros's latest ideas.
Let's see what Bokros suggests. (1) Compulsory private insurers in healthcare. If you recall the Fidesz-initiated referendum killed that already. (2) Competition among healthcare facilities. (3) Every person over eighteen years must pay health insurance. Right now students and pensioners do not. (4) Change in pension policies that would include individual record keeping of amounts paid. (5) No more thirteenth month pension or salary. (5) Fewer but bigger schools because small village schools cannot provide high quality education. (6) Instead of 77 accredited colleges and universities, keep only 20-25 institutions. Close the rest. (7) These institutions would have governing boards. (8) Competition among high schools. (8) Four to five villages should share one local governmental structure. (9) Widen the number of taxpayers. (10) Taxes should be paid even on minimal wages. They should pay a tax rate of least 10%. (11) Exceptions should be abolished. (12) Real estate taxes based on value. (13) Abolish EVA, a simplified taxation system for freelancers with a lower rate. (14) Abolish the tax free status of small businessmen.
I'm sure that some of his suggestions would do a world of good for the Hungarian economy but I can't see how Bokros's ideas could possibly be introduced. The opposition would launch another referendum, and hundreds of petitions would be sent to the Constitutional Court that, given its composition, would undoubtedly kill half of the proposals.
The Gyurcsány government, confronted with the country's own economic problems, compounded by the world economic crisis, will have to do something. But it can't try to shore up the budget by collecting health insurance from pensioners and students. Or, unless it wants to commit political suicide, by abolishing the thirteenth month pay of all public employees and 3.5 million pensioners. Or by introducing private health insurers when once a couple with the help of Fidesz managed to get more than 200,000 signatures to hold a referendum against the introduction of private insurers. The Constitutional Court only recently announced that real estate taxes based on property values are unconstitutional. So what are we left with? It seems to me that Bokros, whose policies were so instrumental in righting the economy in the mid 1990s, can no longer offer realistic proposals to the government under very different political circumstances.