Hungary: Partners Query Socialists' Reforming Zeal

BUDAPEST -- The commitment of the Hungarian Socialist Party to stick to the ambitious free-market reforms it has promised to carry out is already being questioned by both its junior coalition partner and the leader of its leftist labor confederation.


The Socialists, who won a landslide victory in last month's parliamentary elections, signed a binding economic and political pact Friday with the center-left Alliance of Free Democrats that is the basis of the new coalition government scheduled to take power in mid-July.


The pact commits the two parties to a "reinforcement of the market economy" that depends heavily, as one Free Democrat put it, on "a version of supply-side economics," using tax breaks and investment incentives for the private sector to cure Hungary's economic ills.


In the topsy-turvy economic world of post-Cold War Eastern Europe, it seems only fitting that the Socialists -- a party of former communists who now proclaim zeal for free-market values -- should promise to complete the dismantling of the deficit-ridden, state-run economy that many of them helped to construct 30 years ago.


Led by Prime Minister-to-be Gyula Horn, the Socialists have pledged to improve on the performance of the outgoing center-right Hungarian Democratic Forum government, leaving office with a $3-billion budget deficit, 20 percent inflation and 13 percent unemployment.


The Socialist-Free Democrat pact calls for an immediate cutback in government spending to reduce the deficit by $480 million; an increase in the value-added tax on consumer goods; the elimination of a 2 percent company turnover tax and of a 10 percent fee on currency deposits and capital gains earnings; and an end to subsidies for failing state enterprises. Commercial banks and many big state companies would be privatized or forced out of business.


This ambitious program, if implemented, is certain to raise the price of food and consumer goods and to wipe out the jobs of many state-sector employees. Yet during the spring election campaign, the Socialists promised voters that they would decrease unemployment and raise workers' pensions and wages.


The question now is whether the Socialists will still push for reforms when the going gets tough and their core constituencies, like the labor unions, balk.


Sandor Nagy, the head of Hungary's main labor confederation and one of 10 union leaders elected to Parliament on the Socialist ticket, said this week that he is worried about some of the concessions his party made in its coalition pact with the Free Democrats.