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Restructuring of large state owned enterprises in Hungary 1988-1993

Restructuring is defined in this paper as a series of specific actions, aimed at the survival of firms and rescue them from liquidation. In this context, categories of direct state actions, corporate actions or actions implemented through intermediaries will be distinguished, according to the level of decisions and sources of financing. Restructuring will be further classified according to methods, such as organizational or financial, and according to timing, such as before, parallel with or after privatization.
Along these dimensions the most critical dilemmas of restructuring can be outlined. The first question is if restructuring can be or should be implemented before privatization or if it should be rather left to the new owners. The second dilemma concerns the question: who should be responsible and pay for restructuring. Is it sure that these measures have to be taken by the state and if yes, which bodies of the state: the government, the state owned lenders, the organizations representing the state as a shareholder, or any specific restructuring departments? Alternatively, is it possible to establish an environment where the SOEs themselves are willing and able to implement the restructuring process?
In Hungary the initial bottom-up approach was replaced first by centrally controlled privatization when restructuring was overshadowed and then by centrally controlled restructuring. Following a brief review of initial conditions, the paper will present the methods according to the different phases of privatization policy, describing the motivations and methods of organizational and financial restructuring. The last section offers a summary of the pros and cons of the different types of restructuring together with some conclusions.

Paper prepared for the United Nations Economic Commission for Europe, December 1993

An attempt to speed up privatization in Hungary: Experiences with the E-loan

The Hungarian government introduced several preferential methods in the last years in order to accelerate privatization and to promote the creation of a wide, strong proprietary middle-class. The paper summarizes the empirical experiences with the first and most widespread privatization credit, the so called Existence Loan. It describes the key features and modification of the scheme, the role of the E-loan in the growth of private business and in the privatization process. Thereafter the different types of borrowers and the emerging ownership pattern are reviewed. Finally, the macro and micro economic effects of the E-loan are analyzed, together with the general preconditions supporting or obstructing the use of preferential credit facilities in changing the ownership structure.
The paper argues that some effects of the E-loan are undoubtedly favorable. It has supported the speeding up of privatization as well as the growth of private business through the expansion of existing organizations and especially the emergence of new ones. On the other hand, however, the E-loan scheme is a threat from the point of view of both the companies concerned and the economy as a whole. The problems with the E-loan concern three critical issues: the biased preference of privatization, separating this action from the general economic environment, the credit form of encouraging demand and the risk allocation in the economy.

Paper presented at the workshop "Output decline in Eastern Europe - prospects for recovery?" Laxemburg, November 1993

Spontaneous Privatization in Hungary: Preconditions and Real Issues

One of the most significant changes in Hungarian economy's last three years was the rapid growth in number of market actors. The new units were established mainly in company form. It means that new owners appeared on the scene. Who are these new owners? What were their motivations to create companies? Does this process indicate the privatization of state assets? By trying to answer these questions on the basis of an empirical research the analysis will focus on the industrial sector and within that the big state enterprises.

In: Privatization in the Transition to a Market Economy, John Earl, Roman Frydman, Andrzej Rapaczynski eds., St.Martin's Press and Pinter Publishers 1993. 89-107.

Escaping from the state - escaping to the state

Managerial motivation and strategies in changing the ownership structure in Hungary

Managers of state enterprises are often considered as obstacles to privatization. In Central Europe, however, they are accused of the opposite attitude as well: they are too active in the process, wishing to preserve or to convert their former political power into economic power and "selling out" the state assets. Both statements can be verified by reasonable arguments and concrete examples. So presumably there is no general rule for describing the managerial attitudes towards changing the ownership structure. In order to understand the behavior of top management, we have to describe a set of criteria that accounts for the differences. This paper tries to give a dynamic explanation, based on experiences of the post-communist transition in Hungary between 1988 and 1992.
The paper will argue that the dominant form of managerial motivations and strategies has changed even during this short period. The tendency of escaping from the state has become an orientation of escaping to the state. According to our investigations, there are three main factors influencing managerial attitudes towards changing the ownership structure. First, the political and financial strength of the state as owner and regulator, second, the formal and informal alternatives available for managers and third, the methods of changing ownership, including the future proprietary structure of the given firm.

In: The Political Economy of the Transition Process in Eastern Europe, Laszló Somogyi ed., Edward Elgar, Aldershot, Brookfield 1993. 227-239.

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