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Hungary Problems - The Facts

Economics / Euro-Zone Sep 19, 2006 - 04:10 PM GMT

By: Phillipa_Green


The violent demonstrations continue on the streets, in response to the recording of the Prime Minister Ferenc Gyurcsany admitting to lieing to the public in the run up to the last election on the dire condition of the hungarian economy.

In the 1990s Hungary was shown as a textbook example of a transition economy.

The most important part of its development was initiated by Europe's drive to pull the region on its own two feet. Due to the strategic support the United States gave, international aid kicked in. Inflation and unemployment were first lowered to single digits around 2000 and then to 6.7 percent at the end of 2004. Since the beginning of 2000 there has been foreign capital investment. Starting with the end of 2004, accumulated investment reached approximately 40 percent of the $150 billion GNP. Privatization undoubtedly carried this process.

Hungary's per capita income is currently $15,000, it exports $55 billion and imports $60 billion. Exports and imports have exceeded 30 percent of the GNP, and foreigners are responsible for all of this. However, Hungary's richest ten percent have five times the buying power as the poorest ten percent. Those living under the poverty line comprise five percent of the population. Therefore, the bottom group is not extremely large, but the distribution of income is quite uneven.

The current account deficit reached 89 percent of the GNP between 2003 and 2005, and became the main problem factor. Public debt reached 60 percent of the GNP in 2004, thus becoming the second warning signs. Currently, foreign debt is about $60 billion.

Thus the country has given over control of much over to foreign multi-nationals, creating social upheaval and the main reason behind the riots.

Many other eastern european countries are on a similar path, both inside and outside the EU and likely to experience similar social events.

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