Geert Bekaert and Campbell R. Harvey's


Chronology of Economic, Political and Financial Events in Emerging Markets




Major Political and Economic Events




Regulations concerning joint ventures were modified to stimulate inflows of direct investment capital. The profit tax rate for joint ventures in the production sphere and in the hotel building and hotel trade was reduced from the generally applied 40% to 20% in the first five years of operation and 30% thereafter. The reinvestment of profits was encouraged by a profit tax cut of 75% if all profit is reinvested, and 50% if one half is reinvested. Joint ventures in preferred lines of production were exempted from the profit tax for five years, and the tax rate thereafter was set at 20%. Customs duties on real assets brought into joint ventures can be deferred for five years. Legal procedures, statistical reporting, and accounting rules for joint ventures and their access to foreign trade rights were simplified.a3(first entry)


The government established a two-tiered banking system by separating the function of commercial banking from the National Bank through the creation of five state-owned commercial banks. a8


The BCE (the Budapest Commodity Exchange) was established as the Produce Exchange Co, a non-profit, self-governing organization.a8


The BCE began trading grains futures.a8


The BCE changed its name from the Produce Exchange to its current name.a8


The Budapest Stock Exchange (BSE) returned to operation.a8


The licensing requirement for joint ventures was abolished.a3


Banking crises (1991-1995). Causes: large non-performing portfolio from former monobanks; recession of real sector; demise of CMEA; lack of banking expertise and poor lending policies; and moral hazard due to repetitive bank bailouts. Overall change in macro policy: bank bailout and exchange rate overvaluation.a2


ADR effective date. (Company=FOTEX RT, Exchange=OTC)a11


Foreign currency futures were introduced with the Hungarian forint contracts written against deutschmarks and U.S. dollars to allow hedging of currency risk.a8


In the 2nd half of 1993, 8 banks (25% of financial system assets) were insolvent. Overall resolution cost is estimated to amount to 10% of GDP. Causes: (1) inheritance of largely non-performing portfolio from former monobanks; (2) impact of recession of real sector on economy: demise of CMEA; (3)lack of banking expertise and poor lending policies; (4)moral hazard due to repetitive bank bailouts. Cost of repeated recapitalization efforts was estmated at 10% of GDP up to 1995.


The BSE together with the National Bank of Hungary and the BCE (the Budapest Commodity Exchange), established a Central Clearing House and Depository (KELER) to provide timely settlement of securities market and derivatives transactions completed in Hungary, and provide safekeeping for securities primarily for financial institutions.a8


A Japanese yen contract was added to the foreign currency futures.a8


The introduction of the Insider Trading Laws.a4


The privatization of the banking sector began.


The first prosecution under the Insider Trading Laws.a4


Previous provisions requiring special prior government authorization for the establishment of banks and acquisition of shares by foreigners were abolished. Nonresident investors in the banking sector are granted treatment equivalent to that given domestic financial institutions.a8


Under the new foreign exchange law, some capital account restrictions were eliminated; foreigners were allowed to buy most Hungarian securities with maturities longer than one year without obtaining permission from the National Bank, and outward equity investment was permitted, provided that an equity share of over 10% is acquired.a3


Government approval requirement was lifted for foreign participation exceeding 10% of the equity of a bank.a3


The issue and private placement and introduction of (1)OECD government bonds and (2) bonds and shares of OECD-based enterprises with highest credit rating were liberalized. Residents may acquire these securities from abroad through resident brokerage firms.a3


The law on foreign exchange provided for the liberalization of the acquisition by nonresidents of domestic securities with remaining maturities of 1 year or more. That provision was changed to encompassed debt instruments with an original maturity of 1 year or more. Resident employees of subsidiaries of foreign enterprises may buy the shares of the parent enterprise, even if the latter is not OECD-based or does not have the highest credit rating.a3


BorisYeltsin's victory in Russian elections.


BSE council approved the introduction of futures trading in U.S. dollars, German marks, and the BUBOR, the Hungarian version of LIBOR.


The government revised its GDP growth forecast from 2-3% to less than 1%. IT also revised inflation forecast to 23% from 20%.


The government announced its plans to sell 1.2 million shares of BorsodChem to foreign investors through a global depositary receipt issue. The board of directors of the State Privatization and Holding Agency (APV) and the Trade Minister were fired after the agency was accused of making illegal payments to a legal advisor. The government intended to devalue the forint by 1.2% per month through mid-1997.


The government increased household gas and electricity prices by 18.8% and 24.9% respectively, effective from January 1997. 


1997 GDP growth was forecasted at 3% while inflation target was 17%.


The currency basket for the Hungarian forint was weight-adjusted to give 30% to the U.S. dollar and 70% to the German mark. Previously, the two currencies had received equal weighing. 


The State Banking Supervision and the State Securities and Stock Exchange Supervision were merged to create the APTF (the State Banking and Capital Market Supervision) regulating the banking sector and reporting to the Finance Minister.a8


The issue and introduction of bonds with maturity of 1 year or more and shares of OECD-based enterprises with investment grade credit rating as well as depository receipts issued thereof as negotiable instruments were liberalized. Residents may acquire the above securities through any resident brokerage firm. Short-term lending to nonresidents by banks was limited to 50% of total foreign exchange liabilities. Futures and options transactions between 2 foreign currencies by banks were liberalized. a3


The stock market soared to new highs early in the first week of February. Current account deficit widened to $501 million in December from $53 million in November


Privatization of oil company MOL and pharmaceutical Ritcher Gedeon.


Asian Crisis affect Hungarian equities.


S&P raised Hungary's local and foreign sovereign debt outlook to "positive" from "stable."


(.Controls on capital and money market instruments) The issue through placing or public sale and the introduction on a recognized domestic securities market of shares or other securities of a participaing nature and bonds or other debt securities with a maturity of more than one year, denominated in foreign exchange and issued by OECD-based enterprises, irrespective of their credit rating by an international rating agency, have been liberalized. Residents may also purchase the above-mentioned securities and the depository receipts thereof, through resident brokerage companies, without a foreign exchange license. (Controls on credit operations) Residents may, without an authorization, undertake sureties, guaranties, or financial backup facilities or other financial obligations in favor of a resident's liability toward a nonresident, provided that the underlying transaction may also be concluded without authorization or prior reporting requirement. (Controls on direct investment) In addition to investment in joint ventures and fully foreign-owned enterprises, restrictions on investments in branches of foreign companies were eliminated. The requirements that the country of incorporation of a foreign company should be an OECD member country, and the existence of an investment protection agreement with the country of incorporation were also eliminated. (Controls on real estate transactions) Residents may require the ownership of real estate or build real estate situated abroad. However, the transaction has to be reported to the foreign exchange authority within eight days after the conclusion of the contract or the commencement of the construction activity.a3


Foreign banks were only allowed to establish in branch, unlike before when they could establish direct branches, bank subsidiaries, and joint venture banks. No foreign bank had established a direct branch as of Oct. 1998. There are no branching restrictions on foreign banks.a8


The State Privatization Agency projected it will bring 40 billion more forint in revenue beyond the 117 billion cash revenue targeted for 1998's central budget.


Opposition Party Young Democrats unseated the national elections.


Young Democrats reiterated commitment to economic reforms.


Economy grew by 5.1% and consumer demand rose by 17% in the second quarter. The current account showed an unexpected surplus in August of $110 million.


Shares in the BUX basket (the share index of the BSE) will be suspended for 10 minutes if prices fluctuate more than 8% and trading will be suspended for the remainder of the session if the price change reaches 15%. a8


(Provisions specific to institutional investors): The interest paid on all obligatory reserves placed at the NBH is 0%.a3


Hungarian drug producers lost $71 million of sales during September and October  because of non-payment by Russian companies after the devaluation of the ruble.


Moody’s rated Hungary's foreign currency debt as Baa2. 


Hungary’s annual inflation rate fell to its lowest level since December 1997 in November. S&P upgraded Hungary’s sovereign debt rating from BBB- to BBB due to Slowing inflation and economic growth of 5%.


The Central Statistics Office of Hungary revealed a 7.8% unemployment rate in 1998, down 0.3 % points from 1997.


(Provisions specific to institutional investors) Commercial bank liabilities to nonresidents with a maturity of less than one year are subject to the system of reserve requirements, initially with a reserve ratio of zero. Obligatory reserves held against liabilities to nonresidents will be remunerated at the same rate as reserve held against liabilities to residents.a3


The newly released data showed that the current account deficit widened to a more-than-expected $660 million in December, compared  with $159 million in the previous month.


The budget deficit grew by 46% in the first two months of 1999, 45% of the overall target for the year.


The central bank lowered the benchmark two-week deposit rate twice in April to 15.25%.  


The government examined National Bank of Hungary monetary policy, which was viewed as an attack against the central bank governor, Gyorgy Suranyi.


Profit declines bottomed out and Richter Gedeon, Hungary's largest drugmaker, surged as demand from Russia rebounded.


The central bank cut the two-week lending rate by 25 basis point.


(Controls on credit operations) Residents were allowed to extend credits with a maturity of more than one year to nonresidents of OECD member countries. (Provisions specific to commercial banks and other credit institutions) Long- and medium-term lending in foreign exchange to nonresidents from OECD member countries became free.a3


Option trading was introduced on three blue chip companies and Graphisoft, a successful software maker, announced it would switch its German listing to Budapest.


Investment inflow decreased by US$80 million and portfolio outflow increased.


Real GDP posted a strong increase of 6.2% in the first quarter.


The parliament approved Ferenc Madl to be Hungary's next president, and the government announced it would maintain its crawling exchange-rate mechanism until inflation is below 5%.


The sale or issue by nonresidents or the purchase by residents of collective investment securities was liberalized once a few preconditions are satisfied.a3


The government controlled oil price and froze drug prices.


Corruption allegations tainted the government. Several senior members resigned or were dismissed. For the first time in two years, the National Bank of Hungary set lower interest rate. Hungarian investment companies gained control over small and mid-cap companies: Arago bought a sizable stake in Pick, the Hungarian meat processor; and Wallis announced control over Graboplast.


Finance Minister Zsigmond Jarai was nominated as the next governor of the National Bank of Hungary.


The Hungarian Stock Exchange was admitted as an associate member in the Federation of European Stock Exchanges. President Fidesz introduced new anti-inflationary economic policies.


Industrial output dropped 1.2%, the first decline in output since August 1996. Interest rates remained unchanged.


The local currency dropped to 258 forint per euro, the lowest level since May.


Matav, the leading Hungarian telecommunications service provider, completed a 100% acquisition of Westel. The 63% stake in Czech group Unipetrol was awarded to Agrofert.


The Monetary Council of the National Bank of Hungary (MNB) cut the central bank base rate by 50 basis points, to 8.50%. The cut is the third this year, following a 25 basis points reduction effective from 8 January and a 50 basis points cut effective from 22 January.


Inflation in Hungary slowed to a 15-year low in February, driven by cheaper clothing and consumer goods, to 6.5%. b1


Peter Medgyessy forms new centre-left coalition government in which the Socialist Party partners the liberal Free Democrats. b6


PM Medgyessy admits to having worked as a counterintelligence officer for the secret service in the late 1970s and early 1980s. However, he denies ever having collaborated with the KGB and says he worked to steer Hungary toward IMF membership without Moscow's knowledge. b6


A new anti-money laundering law is set to radically alter the provision of bureaux-de-change facilities across Hungary.


Zoltan Pokorni, president and parliamentary group head of opposition party Fidesz, resigned after confirming that his father was a Communist informer. b6


Hungary's government this week accepted amendments to its Privatization Act.


The Hungarian parliament has approved amendments to tax laws. Under new tax rules the threshold for personal income tax rates will rise so that 20% is levied on incomes up to HFT650,000 (US$2,700), 30% on salaries up to HFT1.35m and 40% for top earners.b1


EU summit in Copenhagen formally invites Hungary to join in 2004.


Hungarian National Bank follows ECB's lead with monetary easing, 50 basis points cut in its leading rate. b1


Prime Minister Peter Medgyessy has acted on his election pledge to substantially upgrade the country's motorway network by announcing a US$4.3 billion road construction package


Elemer Kiss, the minister for the office of the prime minister, has resigned following newspaper revelations that the law firm of which he is a senior partner won lucrative contracts with the state-owned Hungarian National Motorway Company and the national flag carrier Malevb1


Referendum overwhelmingly approves Hungary's membership of an enlarged EU. However, turnout is only 46%.


Parliament approves Hungarian 'Glass Pockets' law, allows the State Audit Office to investigate private businesses and also states that business confidentiality is not a valid reason to hide data on the use of public funds.b1


The Hungarian government has approved a new legislative package on public-private partnerships, which it envisages being used for the construction of transport, healthcare, education, defense, prison and sports facilities. Private partners will be chosen through competitive tender, and the state will lease both buildings and services from the companies involved.


The National Bank moved to an unexpected 200 basis point rise to 9.5%.


Parliament amends controversial Status Law on work, health and travel benefits for ethnic Hungarians in neighbouring countries which criticized it as interfering with their sovereignty and discriminating against other ethnic groups. b1


Hungarian Deputy State Secretary Gyorgy Hatvani has said that Hungary will fully liberalize its energy market by July 2007, in line with the provisions of the European Union (EU) directive.


The government is to proceed with a US$1.1bn-worth Eurobond issue. The global auction is the second this year, following a US$1.1bn-worth Eurobond issue denominated in 10-year maturities in January.b1


A government decision set a limit to the number of golden shares it can hold, which will bring it into line with stringent European Union (EU) guidelines.b1


New business-friendly tax regulations which will mean a reduction in the corporate taxation rate from the current 18% to 16% have now been approved by the Hungarian parliament.


The cabinet and Central Bank have agreed provisional changes to ensure the latter's independence, bringing Hungarian rules into line with European Union (EU) legislation.


The National Bank of Hungary has moved to raise interest rates by 300 basis points to 12.5% to contain recent Forint depreciation.


The Hungarian Financial Supervisory Authority (PSZÁF), is to undergo planned reform after parliament approved the measures. The government wanted to increase its oversight of the body as part of the law on protection of investors and depositors.b1


National Bank of Hungary abandons foreign exchange Targets.


Parliament has ratified changes to the armed forces that will reduce numbers by 40,000 by the end of 2006.


Hungary is one of 10 new states to join the EU. b6


The Bank lowered its policy base rate by 50 basis points, bringing it down to 11.5%.


Hungary plans to attract foreign capital with the help of investment subsidies


Opposition successful in Hungarian European parliament elections, but government stands by economic program.


Parties fail to concur on 2005 Hungarian tax plans.


Regulations on Foreign Investors


Restrictions: 1. 100% foreign shares are allowed, but any ownership over 50% requires approval of the State Securities Supervision Board and the National Bank of Hungary. 2. Foreign investors may not hold bearer shares for more than a year, and must register such shares in that period. 3. Dividends and capital gains may be converted into the currency of investment. 4. Foreign investors may repatriate profits, dividends and capital without restrictions. 5. Foreign investors are protected against the nationalization of companies, and are entitled to compensation with interest in such cases.

Taxation: 10-12% tax on individual dividends or capital gains, 18% tax on institution dividends or capital gains for companies without a physical presence in Hungary. Taxes are lower if investor's country has double taxation treaty with Hungary.a5(first entry)


No change through 2001.a5


Restrictions: 1. Foreigners may not purchase land. 2. The government restricts ownership of broadcasting and newspapers and continues to hold a “golden share” with power to veto sales in many privatized “strategic” enterprises. b3

Taxation: Corporate tax rate is dropped to 16%. Capital Gain tax is eliminated. b1


Restrictions: No change.

Taxation: VAT rates amend to 5%, 15% (preferential rate) and 23% (common rate). Exports will remain zero-rated. b1