The development of national debt then and now
In light of the news from July 2024, it is now common knowledge that Hungary has recently taken a one billion euro intergovernmental currency loan from China, meaning that a few years after the Covid crisis, our country has once again embarked on a path of indebtedness. According to the still vivid myth, the relatively welfare-oriented construct of consolidated socialism was financially viable for decades mainly by involving Western credit sources. However, based on research from recent years, it is much more likely that the widespread overtime work of the population in the golden age of the regime created the real economic foundations for the favorable standard of living. The middle society barely benefited from the external currency sources, as they served the interests of both sides of the Cold War institutional system. Is Hungary’s current debt trajectory also driven by underlying great power goals? The above question becomes extremely relevant in light of the fact that it came to light last September: North Macedonia, under the leadership of a Russian-oriented state leadership (i.e. indirectly also having a quasi-ally relationship with China), received a 500 million euro intergovernmental loan from our country immediately after Hungary withdrew the aforementioned 1 billion euro credit line from China.
During this period, the also pro-Russian Republika Srpska (which enjoys autonomy within Bosnia and Herzegovina) received a one hundred million euro credit source of Russian origin through Hungarian mediation, according to the relevant press reports of last December. This further lending practice was widely known and accepted in our country during the decades of state socialism, within the framework of which part of the credit resources drawn from the international money market (in principle for domestic use) were automatically transferred to the “friendly” socialist countries (e.g. Vietnam) by the then Hungarian economic leadership (obviously under pressure from the Soviet Union) in order to maintain their international solvency.
After the bloody suppression of the 1956 revolution, the Hungarian communist regime also enjoyed such a type of currency endowment within the Eastern state socialist bloc (namely mainly from Soviet and Chinese sources) in order to ensure the continuity of Western-originated imports that served the perceptible improvement of the living conditions of the population. Considering that the head of the economic department, Márton Nagy, visited China at the head of a ministerial delegation between August 31 and September 7 last year, during which official trip they were received by their Chinese partners for the fourth time within a year, the preparation of a possible – as yet undeclared – new credit package agreement can easily be assumed. At the same time, the budget of the Budapest-Belgrade freight railway line investment, which is also underway from Chinese credit sources (and at the same time is already several years behind schedule in terms of handover), has meanwhile increased from the originally calculated 400 billion forints to 750 billion. Within the EU, our country is forced to continuously bear the largest debt service burden in terms of GDP. The permanent nature of the budgetary interest burden, which has been running at well over three thousand billion annually for several years (accounting for the vast majority of the annual four thousand billion forint budget deficit), sheds light on the fact that Hungary has once again embarked on the path of economic development realized through indebtedness.
For this reason alone, it would be advisable for us to revive how this credit-led economic stimulus model actually developed and operated in the everyday life of previous generations in Hungary. During the examination of the distant past, we can also hope for an answer to whether our country is struggling in an almost constant debt trap with minor interruptions since the early seventies, which is a unique situation in our entire region, since since the ’80s, among others, Russia, Bulgaria, Romania, Poland and Serbia – partly with international aid – have emerged from the debt crisis that afflicted almost the entire post-communist region during the turnaround.
In recent years, ground-breaking research has been conducted for the purpose of accurately exploring the real economic conditions of the Kádár regime. As one of the most outstanding creators of this field of contemporary research, which is of primary importance from the point of view of our country’s recent history, Zsuzsanna Borvendég outlined in detail in several study volumes the economic activity of the foreign trade company network intertwined with the secret services – dominated by former ÁVH veterans. The subject of this study – although my writing is thematically aligned with the above economic historical results at many points – is not the exploration of the functioning mode of this power political system. Rather, my analysis focuses mainly on how the Hungarian external debt stock, which was a world leader per capita in the period of the regime change, came into being, and on the directions of use of this – surprisingly quickly developing – mass of debt. I argue that, similarly to today’s conditions, the mass of resources available through the regime-managed external currency resource involvement barely reached domestic households. For this reason, the creator of the relatively Kádárist welfare was the productivity of the domestic second economic sphere (producing 30-40 percent of the contemporary annual GDP) marked by the frameworks of backyard farming and side lines, as well as the GMK institution, and the Hungarian middle society operating it.
The extremely unfavorable physiological indicators of the older age groups of the domestic middle class in international (or even regional) comparison, in connection with this, the long-term lag of the expected life expectancy path from the Western trend, and the combination of the realized overtime work amount measurable with one of the highest working hours in our continent for two generations made the Kádár decades existentially acceptable for generations.
Despite the dynamic extensive expansion, the intervening external debt trajectory that still plagues the country today, the (indeed high in the Eastern camp) household consumption rate did not play a significant role in its emergence, and even in the era, as one of the pillars of the dynamic GDP (in addition to state investments), it rather continuously moderated it. It is a big question whether the investments to be launched in the near future will help to increase the value of GDP, and whether the European economy will recover?