Layash Bokrash: Lukashenko may induce political change

Ugric economic reformers in an exclusive interview to talk about the Hungarian "shock therapy", the Belarusian and the collapse of the Chinese experience.

Layash Bokrash (Lajos Bokros, cum. 1954) — Hungarian economist and politician. As Finance Minister in 1995-1996. introduced a program of fiscal austerity, known in Hungary under the name "package Bokrasha." The Reform program Bokrasha that hurt reduced real wages and social spending and government devalued the forint, has given a tangible result of the reduction of the budget deficit and the trade deficit of the country. Reforms Bokrasha got mixed assessment in his country. Some believe that the reform of the Hungarian economy Bokrasha saved from collapse and default. Others argue that there is no collapse of the Hungarian economy in the mid-1990s did not threaten, and measures Bokrasha led mainly to the impoverishment of a large part of the population.

Layash Bokrash, who was also director of the National Bank and the head of the State Property Fund of Hungary, and held senior positions in the International Bank for Reconstruction and Development from 2009 is a member of the European Parliament for the Hungarian Democratic Forum. It also continues an academic career as a professor at the Central European University in Budapest. In the elections of 2010 in Hungary, was nominated by his party candidate for prime minister.

Hungarian stabilization packages

Maksimyuk: Mr. Bokrash, as you probably know, Belarus has recently found itself in a very difficult financial situation. But before I ask you about the evaluation of this situation, I would like to go back to the mid-1990s in Hungary, if you, as Minister of Finance, was carried out violent actions, known as "packet Bokrasha." Or you could tell the audience of Liberty, why did you do it and what was the nature of your reforms?

Bokrash: At that time, in 1994-1995., Hungary was on the side of a financial collapse. We had not only the highest level of government debt per head of population, but also a very high external debt. We had no other choice but to seek help from the International Monetary Fund, as otherwise the country would be bankrupt. In the so-called "hard measures" or "stabilization package" were four elements.

The first — the devaluation of the Hungarian currency. But what was more important in this case, we have introduced the devaluation of "creeping type," so that entrepreneurs and economic actors knew what it would cost forint for many years to come. It was very important for the calculation of costs and revenues in the economy.

The second step consisted in the introduction of the so-called "import surcharge", which immediately gave substantial revenues to the budget. But it was also important that people know in advance which way this tax will be phased out. So that entrepreneurs can calculate the related tax rates for a year and a half, when it existed.

In 1995-1996 the people agreed with the decrease of their real wages in double digits with no strikes and demonstrations.

The third step was to contraction, after a very intensive negotiations with employers and workers, real wages Ugric to make the labor market more competitive. We managed to do. In 1995-1996 the people agreed with the decrease of their real wages in double digits with no strikes and demonstrations.

The last point was the introduction of some of the structural measures, the task of which was to provide specific incentives to improve the efficiency of the system of social services. For example, we have introduced tuition fees in Hungarian universities. It was the first such step in Central and Eastern Europe. We canceled the financial assistance of the state for 10 percent of the richest families. We also have limited opportunities to local governments to borrow to keep better financial discipline.

As a result of these measures, the situation has got better: in the next five years, the economy began to grow significantly, and the government was able to return the financial balance.

What is shock therapy?

Maksimyuk: Judging by the standards of the socialist economic model, it was pretty drastic measures. Some in Hungary, speaking of your reforms, use the term "shock therapy", which is generally used for the reforms in Poland Leszek Balcerowicz in the early 1990s. Or do you agree with such a name for your actions? And what really is the word "shock" in this context — the courage economic plan, which provides the government or to the public reaction to such a plan?

The term "shock therapy" was born a little later than the processes that he came to call.

Bokrash: Do not agree. The term "shock therapy" was born a little later than the processes that he came to call. It means implementing a few steps very quickly at the beginning of the reform and in a very short time.

Balcerowicz Plan was different from what we were doing, as it included a very extensive liberalization of the economy in Hungary was held much earlier. Thus, we did not have to liberalize the economy, as the Hungarian economy even before the year 1995 was much better suited to the new conditions. Our stabilization program was intended solely to stabilize rather than stabilization, liberalization and privatization. Balcerowicz Plan, which included the liberalization and privatization have been more extensive.

In our case, in Hungary, the liberalization was carried out before, and privatization has never been considered as one of the steps of the "shock therapy" because we have decided to introduce changes gradually. We have never had a mass privatization, we chose the traditional method of buying and selling. We would like to attract more foreign direct investment. So we sold the company at a time.

Maksimyuk: But you gave up the post of Minister of Finance in February 1996, when there was a year since the introduction of your hard measures. Why? Not because some of your reforms failed?

Bokrash: I am pleased to hear that you are well informed in this regard. In fact, I left the post of the Minister of Finance through the part-year stay on it. But it was not because of our actions were not successful. On the contrary, they were very successful. However, I would like to go further. I wanted to start a financial reform, especially reform of the health system and the reform of the pension system. At that time, we were able to prepare a pension reform and, as you well know, Hungary and Poland were able to start a pension reform in 1998, introducing a mandatory pension system, "second pillar" — the private pension funds. But the Prime Minister did not support my proposals in the areas of health, which I believed, and continue to believe is one of the most important areas for structural reform, because in all the former socialist countries, the health system is very low quality. On the one hand, this system is financed by social security contributions, and they do not pay hundreds of thousands of people who are actually enjoying it undeserved. On the other hand, if people want to have the best service they are many underpaid doctors in private, in effect giving a bribe. It is a farce, but it still continues. Nowhere is there any attempt to improve health care, with the exception of Slovakia.

You know, I did not want to stay in office only because to be a minister of finance. And I did not go because I was not able to promote further reforms.

Morals in Politics

Maksimyuk: In connection with this, that you said, I would like to ask you about the price that has to be in the public life of paying politicians responsible for unpopular economic policies. Once you leave government, you worked in the International Bank for Reconstruction and Development and the continued academic careers. Or are you eager to return to the Hungarian politics? Most likely — yes, as your party in last year's parliamentary election have put forward as a candidate for the post of prime minister. Do you think that your relatives are ready again to accept Layasha Bokrasha, this time as head of the government, in spite of the painful treatment, which he attributed to them 16 years ago?

Bokrash: The famous question. First, if you have already decided to go into politics, you have to be prepared for the fact that sometimes you have to make very difficult choices. And if you want to serve your country, you will often have to do unpopular things. I would say that this is a moral issue. If you really want to serve your country, your personal popularity is not a must for you to be critical for the future of the country.

In the event of any reform appear first negative side effects, and the positive results come later.

But at the same time — this is a very difficult question, because the structural reforms necessary skill to "sell" the people in a democratic environment. So marketing is not as important as the very essence of appeals. And here it is important to convince the electorate that is what you want to exercise a right. With that in general there are problems, because in the case of any reform appear first negative side effects, and the positive results come later. In the meantime, you personally have to survive as a politician. If this fails and you need to leave, you can try to return later.

Now I can only say that because many of the reforms that I wanted to spend, were never carried out, and as for the last 10-12 years, our government nagruvastsiv huge public debt and started to do some stabilization measures, people began to say, Bokrash was right. So here we have a relationship with the cyclical pattern of behavior.

Of course, you have to go, if you feel you can not continue to serve your country. But such a move does not preclude you from the game forever. You never know how things will turn on, judging by what happened and is happening in other countries. In Hungary, may be similar.

Maksimyuk: In any case, you as a politician is not going to go to retire?

Bokrash: I'm not going because I — Member of the European Parliament and at the same time — a professor at several universities.


Maksimyuk: So good. Let us look not only to your practical political experience, but also to your known as a professor of economics, and talk a little bit about Belarus. Belarus, as you know, has a significant budget deficit and trade deficit and huge foreign debt. It also appears that Belarus urgently needs foreign loans to service the debt. In your opinion, Belarus needs shock therapy or radical economic reforms? If so, what steps should I do first?

Bokrash: It looks so requires. I can not say this with absolute certainty, because I do not know the economic situation in Belarus is very deep, though watching it very carefully, because the future of Belarus is extremely important for all of us, including the European Union.

Why do I say "like"? Because, unfortunately, mainly in Belarus have on the economy, which is owned by the state and managed by the state, the economy is very inflexible and stubborn, and that it should be emphasized — unproductive and uncompetitive, which will always create a budget deficit. In such a situation, not only to financial stabilization, and should revive the productive base of the economy so that it can become more competitive. In other words, the measures for the financial stabilization of the economy is necessary and inevitable, but it seems that they are not

Your economy will never have enough jobs, enough income to people and, as a consequence, sufficient revenue from taxes.

sufficient. After all, if you make only the measures for financial stabilization in the economy, which is "not moving", it will do nothing, and you will have to repeat the action indefinitely. After all, your economy will never have enough jobs, enough income to people and, as a consequence, sufficient revenue from taxes. So the yield and the most important task, in all probability, is to restart economic growth by opening up to investors, both foreign and Fire. We must encourage and support the private sector, to improve the environment for businesses to change the law so that it has become a reliable and predictable for entrepreneurs. Basically, your economic policies must be approved by the people, so that investors can start investing and thus the economy out of recession and the debt spiral, where it is now.

MaksimyukIf we talk about the most urgent fiscal measures, which would you recommend to do the Belarusian government? The same as you did in Hungary in the mid-1990s?

BokrashNo, most likely — not. After all, we must not forget that while Hungary had a much more open and flexible economy than Belarus, and that the economy was already half privatized. And we must not forget that Hungary began many structural reforms even before the political turning point in 1989. We started the banking reform in 1987, in 1988 we secured a modern tax system by introducing value added tax and personal income tax. We have opened the country to foreign direct investment, we at the time had a huge amount of foreign investment, it is possible that among the post-socialist countries, Hungary was in first place, with regard to foreign investment. Hungary has never declared a default with respect to its domestic or foreign debt. We wanted to avoid such a situation.

I'm not sure that Belarus is able to repeat what we did.

I'm not sure that Belarus is able to repeat what we did. So once again — financial stabilization measures are very important for Belarus, but not sufficient.


Maksimyuk: Are there any potential foreign lenders Belarus should link economic issues with political? In other words, if you were the head of the IMF, or would have given Lukashenko credit only on the basis of the economic reform program, which he would present? Or are you from it would not demand to release political prisoners before they enter into negotiations on the loan and the economic reforms?

Bokrash: Unfortunately, the International Monetary Fund does not impose such requirements. But, of course, this may require the participating countries the IMF. They can send a very clear signal to Minsk that the IMF will not be able to help, if not there will be some political reforms. The signal should not go directly to the IMF, and to go from Washington, London, Paris and Brussels. When the major shareholders of the Fund will give Mr Lukashenko is clear that without a minimum shift towards political reforms, even the IMF will not be able to support Belarus in their debts, then I think there is an opportunity to create a more or less optimal mix of political demands and economic support.


Maksimyuk: In conclusion I would like to put to you the question of a more general nature. All generally agree that in Belarus there is an authoritarian political system. Some even say it is a dictatorship. Some even argue that in an authoritarian political system, there is, so to speak, is much more favorable political environment for the implementation of hard and painful economic appeals. Based on its knowledge of economic processes in the world, or you could file a successful example of radical economic reform in the authoritarian political system?

Bokrash: In this context may be the best example of China. So, most of all, most people have in mind China if he wants to prove the thesis that economic reform is not only possible, but also more successful in an authoritarian system. As for my personal opinion, I will tell you the truth, this is not the case.

China — this is a very special case. We must not forget that the liberalization of the Chinese economy began more than 30 years, even under Deng Xiaoping, who really wanted to open up the country to the outside world. Over the 30 years, China was able to integrate into the world economy and a step-by-step achieved economic growth. China now has a full-fledged market economy in an authoritarian political system, but it can be said that even dictatorial system.

But it is impossible to replicate in Belarus. I would say that it's too late for that, as President Lukashenko had never thought about opening the country would never allow entry of foreign direct investment, has never supported the development of local small and medium-sized businesses, and the economy is now actually fallen. In this situation, a much more limited range. Or do you go bankrupt and there is complete change in the system, as happened in Russia, Ukraine, Poland, Hungary and many other Eastern and Central countries, or you are tightening the screws again, trying to keep the dictatorial regime. But it is the latter means that the economic situation will become worse, and your country will be poorer every time. This is impossible in a small country with a population of 10 million on the edge of Europe, where people can travel and if something

In the history of events can happen gradual economic reforms in an authoritarian system, but I want to emphasize that Belarus has no such choice.

What people see in the West, is of great importance for the Belarusian population. From the point of view of the Belarus, Poland — this is a Western country. Belarusians, arrived in Warsaw, may themselves make what we have achieved Poles for more than 20 consecutive years of reform and sound economic policies. So, while agreeing with you that can happen in the history of cases of gradual economic reforms in an authoritarian system, I want to emphasize that Belarus has no such choice.

Maksimyuk: Thank you very much for the interview.

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