The following is an archived copy of a message sent to a Discussion List run by the Campaign Against Sanctions on Iraq.

Views expressed in this archived message are those of the author, not of the Campaign Against Sanctions on Iraq.

[Main archive index/search] [List information] [Campaign Against Sanctions on Iraq Homepage]

[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]

[casi] OT - Dispossession of Hungary under IMF Guidance in the 1990's

Dear All,

I totally agree with Riverbend who writes,

> being financially indebted to America, the IMF and the
> World Bank somehow has the appeal of selling ones soul
> to the devil.

The story of how Hungary was dispossessed of her wealth under the false name
of privatisation has at last been written by economist Pongrac Nagy. His book,
_From Command to Market Economy in Hungary under the Guidance of the IMF_ was
published (in English) this summer.

George Monbiot's article appeared in the Guardian.

Stealing Nations

The International Monetary Fund does not make its "mistakes" by accident.
By George Monbiot. Published in the Guardian 19th August 2003

For how much longer should we give those who run the global economy the
benefit of the doubt? The International Monetary Fund has made the same
"mistake" so many times that only one explanation appears to remain: it is
engineering disaster.

The crises over which it has presided in Thailand, South Korea, Russia and
Argentina are well documented, by Joseph Stiglitz, the former chief economist
of the World Bank, among others.1 But we have, until now, lacked a
comprehensive description of the way it worked in eastern Europe. A new book
by the economist Pongrac Nagy shows for the first time how the IMF smashed

Communist economic management was hopeless: coercive, unaccountable,
incompetent and wasteful. So when Hungary began to democratise in the late
1980s, it was plain that a new economic system was required. There were a
number of options for transition. But before anyone had considered them,
Hungary's naďve and trusting new government was persuaded by the western
powers that it had no alternative but to turn to the IMF.

Unless a country's economic policy is approved by the Fund, it cannot obtain
foreign capital. Post-communist Hungary needed foreign capital for just one
purpose: to help repay its enormous external debt. It could have applied, as
many other countries had done, for debt relief, but the Fund, in the face of
substantial evidence, told it that this would deter foreign investors. The
only option was to implement the policies the IMF recommended.

It has just one set of policies. Governments must impose restraints upon the
supply of money and credit, open the door to foreign capital, privatise state
assets and cut public spending. It justifies these demands by persuading them
that they are suffering from unmanageable debt and galloping inflation.

So in 1990 the Fund told Hungary that it was undergoing an inflationary
crisis. Prices, it pointed out, had risen by 17% in 1989. In truth this rise
was caused not by inflation (demand outstripping supply), but mainly by policy
changes, such as the introduction of VAT and the abolition of subsidies. The
IMF insisted on pretending that it was caused by excess demand.3

The best way of reducing demand, the Fund maintained, was to restrict the
amount of money the banks could lend. So between 1990 and 1996, the central
bank ensured that the credit made available to businesses halved. The
immediate and predictable result was that interest rates soared (to 50%), and
businesses all over Hungary collapsed. As workers were sacked and wages were
cut, consumer demand crashed. The IMF, Nagy writes, had "artificially plunged
the Hungarian economy into its greatest ever depression in peacetime".4
Between 1990 and 1993, Hungary's gross domestic product fell by 18%.

Far from curing inflation, this treatment caused it. Between 1993 and 1996,
prices rose by 130%. This was not because demand was rising, but simply
because it wasn't falling as fast as supply. But the IMF, once more, treated
this new problem as if it was caused by runaway demand. It insisted on further
economic restriction, which, predictably enough, pushed Hungary further into

To ensure that Hungary serviced its debt, the Fund demanded that it cut every
possible public service, and privatise every possible state asset. Entire
economic sectors were flogged swiftly and cheaply, with the result that
foreign corporations acquired complete market control. To ensure, in the
government's words, "the desirable reallocation of income ... towards the
business sector",5 Hungary was then obliged to introduce one of the most
regressive tax policies in the world: 43% of government revenue came from
taxes on consumption, but just 20% from income tax and 14% from business

All this was carried out, as all IMF programmes are, in conditions of total
secrecy and institutional deceit. The lie the Fund tells is that it simply
approves the "letter of intent" written by a government, in which the new
economic policies are contained. This story relieves it of all responsibility
for what happens. But the letter of intent is actually written by the IMF, and
simply signed by the government. It is massive and detailed, and guides the
economic and political life of the nation for between one and three years. It
is entirely confidential. The only sight the people of Hungary have ever
received of IMF policy was a leaked letter from a senior Fund official to the
finance minister.6 His demands precisely matched the policies the government
was implementing.

One and a half million people (almost 30% of the workforce) lost their jobs.
The incomes of those who stayed in work declined by 24%; pensions fell by 31%.
By 1996, most people were living on or around subsistence levels. Public
services shrivelled. Between 1989 and 1998, the crime rate rose by 166%. This,
we must remember, was the result of a process almost universally described as
"the triumph of capitalism".

Then, in 1996, suddenly, without announcement or explanation, the policy
changed. The banks were permitted to start issuing credit again and the
recession, as a result, came to an immediate end. Over the next four years,
industrial production climbed by 45% and gross domestic product by 21%. Wages
and pensions began to rise again.

The experiment, in other words, could not have had a clearer outcome. You
apply the IMF's medicine and the economy collapses. You stop, and the economy
recovers. It has been repeated often enough for us to trust the results. In
Thailand, South Korea, Indonesia, Russia and Argentina, the IMF's financial
liberalisation and forced restrictions led to economic crisis, which was
relieved only as those restrictions were lifted. Those nations which refused
to take the medicine, even though they were confronting almost identical
conditions (Malaysia, China, Poland) prospered while their neighbours

So why, knowing what the results will be, does the IMF keep applying the same
formula for disaster? It has been imposed so often that this cannot possibly
be a mistake. And the results happen to suit its sponsors very well. While the
Fund works mainly in poor nations, it is controlled, through its one-dollar,
one-vote system, entirely by the rich. As a result, as Stiglitz says, its
programmes reflect "the interests and ideology of the Western financial

Desmond Tutu once remarked that "when the missionaries came to Africa, they
had the Bible and we had the land. They said 'let us close our eyes and pray'.
When we opened them, we had the Bible, and they had the land". The Hungarians
were handed the Bible of economic orthodoxy by its missionaries. Through
deceit and secrecy, the IMF ensured that their eyes were shut. By the time
they opened them, foreign banks and corporations owned the economy; the public
sector was giving way to foreign capital; structural unemployment had produced
a pliant and desperate workforce. The IMF, in other words, had engineered the
theft of an entire nation. How many more times does this need to happen before
we can see what the game is?


1. Joseph Stiglitz, 2002. Globalization and its Discontents. Penguin/Allen
Lane, London.

2. Pongrac Nagy, 2003. From Command to Market Economy in Hungary under the
Guidance of the IMF. Akademiai Kiado, Budapest.

3. ibid

4. ibid

5. Government of the Republic of Hungary, September 1995. Medium-term economic
strategy of the Hungarian Government, cited in Nagy, ibid.

6. Letter from Massimo Russon, Director of the Europe I Department of the IMF
to Lajos Bokros, Hungarian Finance Minister, 1995, reproduced in Nagy, ibid.

7. Stiglitz, ibid.

19th August 2003

Sent via the discussion list of the Campaign Against Sanctions on Iraq.
To unsubscribe, visit
To contact the list manager, email
All postings are archived on CASI's website:

[Campaign Against Sanctions on Iraq Homepage]