In 1989, while the Berlin Wall was crumbling, CIPE was quietly laying the groundwork for a modest program in Hungary designed to encourage legal and regulatory reform. CIPE's program in Hungary was part of a regional initiative that included a small grants program and support to indigenous business organizations within Hungary and Central and Eastern Europe. With cautious support expressed by the Government of Hungary, CIPE and its Hungarian partners took the first steps toward building a long-term relationship.
Today, a decade later, CIPE's programs in Hungary are seen as an unqualified success and a model of cooperation in Central and Eastern Europe. H.E. Attila Chikan, Hungary's Minister of Economy, says he is "convinced that among the institutions which promoted Hungary's transition, CIPE has definitely been playing a major role from the very beginning. CIPE managed to find the key areas where meaningful and important debates and discussions could be held."
H.E. Peter Medgyessy, a former Minister of Finance and current Chairman of the Hungarian Economic Association, agrees: "The studies and related discussions prepared by CIPE were a tremendous contribution to Hungary's efforts to transform its economy and overcome the economic crisis."
Since 1989, CIPE has provided funding to more than 20 Hungarian organizations, enabling CIPE and its partners in Hungary to undertake over 35 projects in that country. These programs have affected thousands of decisionmakers in Hungary, slowly but surely changing perceptions and policies in ways that will be felt there for decades to come.
CIPE's work in Hungary is drawing to a close this year, and it is instructive to look back on a remarkably productive decade. This period can be divided into three basic phases, each of which is highlighted below.
Phase One: Legal and Regulatory Reform
(1989-1994)
With funding from the National Endowment for Democracy and
the U.S. Agency for International Development (USAID), CIPE initiated in the
late 1980s and early 1990s the Legal and Regulatory Reform in Hungary (LRRH)
project.Working with six partner
organizations in Hungary, the initial focus of the reform effort concentrated
on the financial sector, the informal sector, the real estate market,
privatization, tax policies, local government's role in private sector
development, and the impact of public opinion on reform.
The major objectives of the LRRH project included:
By 1993, with the Hungary programs solidly on track, CIPE opened an office in Budapest, its first office overseas. CIPE's Budapest office played an instrumental role in helping to coalesce Hungary's disparate analysts and policymakers into a single voice for economic reform.Opening a CIPE office in Hungary was a critical step in three ways: it brought CIPE and Hungary's reformers into direct, firsthand contact on a regular basis; it stimulated the formation of a solid policy community for economic reform; it reinforced the development of new advocacy techniques suitable for Hungary.
The following year, CIPE and its Hungarian partners produced a groundbreaking report, Crossed Paths: Straightening the Road to Private Sector Growth. The report served as a "road map" for Hungary's leading decisionmakers in the public and private sectors looking to achieve meaningful economic reform. Today, five years after the report was issued, nearly two-thirds of the report's 41 recommendations have been adopted by the Government of Hungary.Equally important, these reforms have proved to be successful and sustainable over time, with no indication that Hungary's leadership will roll back the reforms anytime soon.
One of the biggest success stories to grow out of the LRRH program has been the role played by CIPE and its partners in bringing about pension reform in Hungary. The pension reform program drew on CIPE's experiences in Chile and Argentina, where partner organizations were instrumental in reforming outmoded pension systems. This positioned CIPE as a resource and facilitator for pension reform in Hungary.Ý In particular, with support from USAID and the World Bank, CIPE was able to provide technical guidance, foreign expertise, and advice on mobilizing public support for such reform. Today, key pension reform laws are in place in Hungary and their implementation is proceeding according to schedule.
Phase Two: Small Business Development Project (1994 - 1996)
In October 1994, with the LRRH program firmly in place, CIPE
began developing Phase Two of its work in Hungary.With growing recognition
among Hungarian policymakers that it was
important to shift away from large state-owned companies toward small and
medium-sized enterprises (SMEs), CIPE was once again in a position to provide
business development expertise. Unlike the LRRH program, which focused on the
macroeconomic picture in Hungary, CIPE's Small Business Development Project
(SBDP) concentrated on strengthening the microeconomic environment in that
nation.
Hungary's banking system has traditionally catered to "low risk" state-owned enterprises, which put SMEs at a great disadvantage because they could not access badly needed credit and capital. Financial Research, an indigenous non-partisan research institute and CIPE partner organization, played an instrumental role in helping to turn this situation around. By 1996, some two-thirds of the SMEs working with CIPE and its other partner organizations were able to secure loans.
Through wide-ranging economic policy reforms as well as one-to-one counseling of aspiring entrepreneurs, CIPE's Small Business Development Project has helped to build a better informed entrepreneurial base and enhanced the ability of SMEs to provide services within the Hungarian economy.
Another success in CIPE's efforts to assist SMEs in Hungary was the establishment of the Carpathian Border Region Economic Development Association. This project, initiated in January 1995, concentrated on uniting entrepreneurs in bordering areas of Hungary, Slovakia, and Ukraine. Public and private sector leaders in the Carpathian region recognized the importance of transborder communications and trade flows, and the Zemplen Regional Development Association represented a major step forward in inter-regional cooperation.
CIPE funds were used to create a database of regional entrepreneurs, provide commercial expertise, hold regional meetings to discuss trade opportunities and impediments, generate exposure for the region through a range of media, and take important steps toward establishing a free trade zone. In Hungary, the area has been designated until 2008 as a Special Enterprise Zone, a status that brings critical investment incentives to an economically depressed area.
Phase Three: Promoting Public Policy Debate and Institutionalizing Business Associations (1996 - 1999)
1. Roundtables
Economic Policy Roundtables have been the highlight of CIPE's third and final phase of programs in Hungary. During the past three years, 19 roundtables were held as forums for high-level debate among public and private sector leaders. These discussions represent a remarkable contribution to Hungary's economic development and policy reform process. (See inset box on page 7 for a list of these roundtables.)
The final roundtable conference, held in early June, concentrated on growth and investment. It traced the remarkable journey that CIPE and Hungary have made during the past decade, with particular emphasis on partnerships, transparency, the development of SMEs and business associations, financial markets, and regional development.
Well over 100 people attended the roundtable, including policy-makers, Hungarian government representatives, representatives from international organizations, business leaders, and journalists. Dr. John Sullivan, CIPE's Executive Director, attended the final roundtable, delivering an address on "Investing in Partnerships for Policy."The opening address was delivered by H. E. Arpad Goncz, the President of Hungary, and the Economics Minister, H.E. Attila Chikan, kicked off the second day of sessions with a speech on " Economic Strategies and Prospects." President Goncz, in his welcoming address, stressed that creating an adequate regulatory framework for the economy takes many years and must continuously be fine-tuned. He also acknowledged CIPE's efforts to support Hungary's progress toward a market economy.
2. Institutionalizing Business Associations
Business association management training has become a hallmark of CIPE's programs around the world, and few have been more successful than the four sessions held in Hungary in 1996 and 1998, respectively. The objectives of the training programs included:
In Hungary and around the region, there is growing recognition of the important role played by women in business. At the business association management training program held in Hungary last year, more than one-third of the participants were women entrepreneurs and/or association leaders. Another positive outgrowth of CIPE's advanced training program was the initiative shown by the training participants in forming their own "Club of Association Leaders."
An even better example of the growing role that Hungarian women play in business, perhaps, was the June 4 & 5 workshop in Budapest of the Central European Business Women Academy. CEBAW was founded in September 1997 in conjunction with CIPE's "Organizing for Success" conference in Washington, D.C.
The June event brought together women from six countries: Hungary, Poland, Slovakia, Czech Republic, Croatia, and Ukraine. Each nation was represented by a non-governmental organization (NGO) leader, a trade expert, a media representative, and at least one businesswoman.
The gathering, coordinated by the Business Basics Foundation, focused on three core activities: establishing linkages for market expansion, exchanging commercial data on each nation, and networking.Ý The workshop was highly successful, prompting one participant to note, "This has been a wonderful experience and an important step for bringing Central European businesswomen into ongoing contact with one another.Ý CIPE has helped us to plant the seeds.Ý Now it's up to us to make this institution grow."
CIPE in Hungary: Next Steps
CIPE's partnership with Hungary over the past decade has
helped to bring about some remarkable changes. Funding for CIPE's activities in
Hungary is drawing to a close, but CIPE's partner organizations will continue
to work on behalf of market-oriented economic reforms and enduring democracy.