MINISTRY OF FINANCE1 Budapest Stock Exchange Roadshow June 2002, London MR. CSABA LÁSZLÓ MINISTER...

MINISTRY OF FINANCE 1

Budapest Stock Exchange Budapest Stock Exchange RoadshowRoadshow

June 2002, LondonJune 2002, London

MR. CSABA LÁSZLÓ

MINISTER OF FINANCE

REPUBLIC OF HUNGARY


Where Are We Now?Where Are We Now?

Growth process bottoming out

Fiscal positions

External balance


Main Policy PrinciplesMain Policy Principles

Predictability

Focusing on competitiveness

Increasing transparency


Towards the European UnionTowards the European Union

Negotiations to be finished in 2002

Judgement of Hungary’s performance should not depend on others

Expected entry in 2004


Annual GDP Growth RateAnnual GDP Growth Rate

3,0

3,5

4,0

4,5

5,0

5,5

1998 1999 2000 2001 2002 2003 2004

Per

cen

t


General Government DeficitGeneral Government Deficit(in % of GDP, ESA95 standard)(in % of GDP, ESA95 standard)

0

1

2

3

4

5

6

7

1998 1999 2000 2001 2002 2003 2004

Per

cen

t


Current Account BalanceCurrent Account Balance(in % of GDP)(in % of GDP)

-6

-5

-4

-3

-2

-1

0

1998 1999 2000 2001 2002 2003 2004

Per

cen

t


Monetary ConditionsMonetary Conditions

Inflation targeting

Substantial deceleration of inflation

Declining base rate

Towards the Eurozone


Consumer Price IndexConsumer Price Index

100

105

110

115

120

1997 1998 1999 2000 2001 2002 2003

118,3

105,7

109,2

109,8110,0

114,3

104,5

118,4

110,3

111,2

110,1

106,8

105,3

103,9

band: +/- 15%from May 2001


Short-Term Policy GoalsShort-Term Policy Goals

Back to the growth potential

Substantially declining fiscal deficit from 2003

Further decreasing inflation


Short-Term Policy StepsShort-Term Policy Steps

Fiscal policy:

Reduction of tax burdenEntrepreneur-friendly tax administrationStrengthening of tax enforcementMore efficient use of government resources



Structural policy:

Supporting SMEsShrinking gap between regionsPromoting R&D activitiesInvestor-friendly environment



Income policy:

Balanced income distribution

Operative framework for interest reconciliation among economic actors


Policy CoordinationPolicy 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


ReReinventinginventing the Budapest the Budapest Stock ExchangeStock Exchange

Supporting local investor demand for shares

Providing attractive supply on the BSE


Supporting DemandSupporting Demand

Towards a mature savings structure

The role of private pension funds

Creating liquidity


Savings SSavings Structure tructure DevelopmentsDevelopments

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)


The Role of Pension FundsThe Role of Pension Funds

Dynamic growth helped by continuing reform

Contribution to be increased to 8% of gross wages

Compulsory participation to be reintroducedLess than 10% of portfolio in BSE traded

shares


Where is the Liquidity?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


Creating SupplyCreating Supply

Re-starting privatisation via the BSE

Encourage private companies to list shares


The Last Wave of PrivatisationThe Last Wave of Privatisation

Government is committed to privatisation

Few evident short-term candidates for listing

Regulatory risk is considerable


Private Companies: A Special Private Companies: A Special SituationSituation

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?


Encouraging Private ListingsEncouraging Private Listings

Analysing reasons is important

Government to ease the burden of listing

Psychological barriers hard to break


Where Do We Go?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 FINANCE1 Budapest Stock Exchange Roadshow June 2002, London MR. CSABA LÁSZLÓ MINISTER...

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