In this article you will find information about debt consolidation financing, debt consolidation and credit management, Debt consolidation and reduction

Debt consolidation financing

Summary: The total debt of Hungarian local governments accumulated during the 2002–2008 period was consolidated in full by the government between 2011 and 2014. Most of the debt assumed by the central budget was denominated in foreign currency, which involved high exchange risk and, therefore, financial instability for both the central and the local subsystems of public finances. According to some economists, the bailout of local governments by the state is another manifestation of the soft budget limit, showing that the Hungarian market economy is unable to break with the bad culture of centrally planned economy. The present study – buil ding on primary research – presents the process that led to the indebtedness of local governments, as well as the theoretical and practical background of consolidation. The author believes it is unwarranted to enforce a hard budget limit for the local governments at any price.

The new Hungarian state reorganised from 2010 carried out successful financial consolidation by 2013. Large international corporations and banks were made to contribute more to public dues, while the corporate income tax for mostly Hungarianowned companies with lower revenues, and the personal income tax for wage earners in households were reduced1 and a wide range of social measures were introduced. The expansion of solvent demand re sulted in an increase in domestic consumption as well as the willingness to invest. As a result of comprehensive fiscal measures, Hungary was removed from the countries that were under the excessive deficit procedure of the European Union. Instead of an automatic, normative en forcement of the European Union’s principles of monetary policy, in March 2013 Hungary began to reshape the tools of the National Bank of Hungary in order to ensure economic expan sion and macroeconomic stabilisation. The au dits of the State Audit Office of Hungary have contributed to defining the directions of fiscal consolidation and the assessment of loans taken out for bailout.

Debt consolidation and credit management

In the period after the summer of 2010, the first round of measures focused on the mitigation of payment costs in the central budget and then in the social security system. National bankruptcy in Hungary in the period of 2008–2013, which would have re sulted in a total failure in the operation of the national economy, can be typified in five ways and in terms of five categories on the basis of a systemic approach:

• the central budget becomes inoperable, the operation of the state becomes impos sible, state public services and debt service fail,


• the social security and especially the pen sion system accumulates a chronic deficit, the payment of pension allowances stalls and eventually fails,


• en masse bankruptcy of banks and compa nies, operative environment becoming un stable, state and household savings stuck, basic production functions eliminated, unemployment becoming unmanageable,


• en masse bankruptcy of local governments in the local system of public finances, so cial conflicts and problems in local public services generated,


• families with foreign currency loans be coming insolvent and facing eviction on a social scale.

Debt consolidation and reduction

In order to maintain the operation of market players, the Hungarian government assumed an active role to influence economic policy. The ruling idea of the neoliberal market econ omy model – which holds that market players are capable of selfregulation, sectoral regula tion and creating a balance – was replaced by the state playing an active part in the regula tion of the economy. It regulates and super vises the operation of market players. It breaks with the basic philosophy of the Washington Consensus.