Transcript Committed to Capital Markets

Budapest Stock Exchange
Roadshow
June 2002, London
MR. CSABA LÁSZLÓ
MINISTER OF FINANCE
REPUBLIC OF HUNGARY
MINISTRY OF FINANCE
1
Where Are We Now?

Growth process bottoming out

Fiscal positions

External balance
MINISTRY OF FINANCE
2
Main Policy Principles

Predictability

Focusing on competitiveness

Increasing transparency
MINISTRY OF FINANCE
3
Towards the European Union

Negotiations to be finished in 2002

Judgement of Hungary’s performance
should not depend on others

Expected entry in 2004
MINISTRY OF FINANCE
4
Annual GDP Growth Rate
5,5
Percent
5,0
4,5
4,0
3,5
3,0
1998
1999
2000
2001
MINISTRY OF FINANCE
2002
2003
5
2004
General Government Deficit
(in % of GDP, ESA95 standard)
Percent
7
6
5
4
3
2
1
0
1998
1999
2000
2001
2002
MINISTRY OF FINANCE
2003
6
2004
Current Account Balance
(in % of GDP)
0
Percent
-1
-2
-3
-4
-5
-6
1998
1999
2000
2001
2002
MINISTRY OF FINANCE
2003
7
2004
Monetary Conditions

Inflation targeting

Substantial deceleration of inflation

Declining base rate

Towards the Eurozone
MINISTRY OF FINANCE
8
Consumer Price Index
120
118,3
118,4
115
114,3
band: +/- 15%
from May 2001
110
110,3
110,0
111,2
109,8
110,1
109,2
106,8
105,7
105
105,3
104,5
103,9
100
1997
1998
1999
2000
MINISTRY OF FINANCE
2001
2002
9
2003
Short-Term Policy Goals

Back to the growth potential

Substantially declining fiscal deficit from
2003

Further decreasing inflation
MINISTRY OF FINANCE
10
Short-Term Policy Steps
Fiscal policy:

Reduction of tax burden
 Entrepreneur-friendly tax administration
 Strengthening of tax enforcement
 More efficient use of government resources
MINISTRY OF FINANCE
11
Short-Term Policy Steps
Structural policy:

Supporting SMEs
 Shrinking gap between regions
 Promoting R&D activities
 Investor-friendly environment
MINISTRY OF FINANCE
12
Short-Term Policy Steps
Income policy:

Balanced income distribution

Operative framework for interest
reconciliation among economic actors
MINISTRY OF FINANCE
13
Policy Coordination

Greater role of fiscal policy in demand
management

Avoid substantial further appreciation in
real exchange rate of HUF

Policy rates declining in line with inflation
MINISTRY OF FINANCE
14
Reinventing the Budapest
Stock Exchange

Supporting local investor demand for shares

Providing attractive supply on the BSE
MINISTRY OF FINANCE
15
Supporting Demand

Towards a mature savings structure

The role of private pension funds

Creating liquidity
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16
Savings Structure
Developments

Gross financial assets of households below
50% of GDP
 9% of assets in investment funds, 2.5% in
shares
 Increasing role of life assurance and
pension funds (15% of assets)
MINISTRY OF FINANCE
17
The Role of Pension Funds

Dynamic growth helped by continuing
reform
 Contribution to be increased to 8% of gross
wages
 Compulsory participation to be reintroduced
 Less than 10% of portfolio in BSE traded
shares
MINISTRY OF FINANCE
18
Where is the Liquidity?

Liquidity suffers globally in bear markets

60% drop on BSE is comparable to regional
experience

Elimination of capital gains tax may help
MINISTRY OF FINANCE
19
Creating Supply

Re-starting privatisation via the BSE

Encourage private companies to list shares
MINISTRY OF FINANCE
20
The Last Wave of Privatisation

Government is committed to privatisation

Few evident short-term candidates for
listing

Regulatory risk is considerable
MINISTRY OF FINANCE
21
Private Companies: A Special
Situation

Privatisation and greenfield FDI brought
domination of strategic investors

2/3 of top 200 companies unlikely to be
listed

How to make the BSE more representative
of the economy?
MINISTRY OF FINANCE
22
Encouraging Private Listings

Analysing reasons is important

Government to ease the burden of listing

Psychological barriers hard to break
MINISTRY OF FINANCE
23
Where Do We Go?

Impressive performance in the past 5 years

Present minor anomalies to be corrected

Return to long-term sustainabe growth path

Convergence to European Union standards
MINISTRY OF FINANCE
24