The Hungarian economy prior to WWII was primarily oriented toward agriculture and small-scale manufacturing. Hungary’s strategic position in Europe and its relative lack of natural resources also have dictated a traditional reliance on foreign trade. In the early 1950s, the communist government forced rapid industrialization after the standard Stalinist pattern in an effort to encourage more self-sufficient economy. Most economic activity was conducted by enterprises or cooperatives and state farms. In 1968, Stalinist self-sufficiency was replaced by the “New Economic Mechanism,” which reopened Hungary to foreign trade, gave limited freedom to the workings of the market, and allowed a limited number of small businesses to operate in the service sector citation needed .Although Hungary enjoyed one of the most liberal economies and economically advanced of the former Eastern bloc, both agriculture and industry began to suffer from a lack of investment in the years 1970 and Hungary’s net foreign debt rose significantly – from 1 billion dollar in 1973 to 15 billion dollars in 1993 largely thanks to consumer subsidies and unprofitable state companies. Faced with economic stagnation, Hungary opted to try further liberalization by passing a joint venture law, instating a tax on income, and joining the International Monetary Fund (IMF) and World Bank. By 1988, Hungary had developed a two-tier banking system and had enacted significant corporate legislation which paved the way for market-oriented reforms ambitious post-communist years.The Antall government of 1990-94 began market reforms with measures of trade and price liberalization, fiscal rules renovated, and a banking system based on the nascent market. By 1994, however, excessive government spending and dubious privatization had become clearly visible. Cuts in consumer subsidies led to increases in the price of food, medicine, transportation services, and energy. Reduced exports to former Soviet bloc and shrinking industrial output contributed to a sharp decline in GDP. Unemployment rose rapidly – to about 12 in 1993. The external debt burden, one of the highest in Europe, totaling 250 of annual export earnings, while the budget and current account deficits came to 10 of GDP.In March 1995 the government of Prime Minister Gyula Horn implemented an austerity program, connected with aggressive privatization of state owned enterprises and an oil change regime that promotes exports, reduce debt, cut the current account deficit , and shrink government spending. Towards the end of 1997 the consolidated public sector deficit decreased to 4.6 of GDP – with public sector spending falling from 62 of GDP to below 50 deficit-the current account was reduced to 2 of GDP, and debt (income) was paid to public account 94 of export earnings per year citation needed . In 1995 the money from Hungary, Forint (HUF), became convertible for all current account transactions, and subsequent to the OECD in 1996, for almost all transactions in equity account as well.Since 1995, Hungary has pegged the forint against a basket of currencies (in which the dollar is 30 ), and the central rate against the basket is devalued at a preannounced price, currently set at 0.8 per month. The government’s privatization program was completed on schedule in 1998: 80 of GDP is now produced by the private sector, and foreign owners control 70 of financial institutions, 66 industry, 90 of telecommunications, and 50 of the commercial sector citation needed . After Hungary’s GDP declined about 18 from 1990 to 1993 and grew only 1 -1.5 up on 1996, the strong export performance has boosted GDP growth to 4.4 in 1997, with other macroeconomic indicators similarly improved.These successes allowed the government to focus on 1996 and 1997 in major structural reforms such as the completion of a fully funded pension system, reform of higher education and the creation of a national treasury. The remaining economic challenges include reducing fiscal deficits and inflation (expected to fall to 13 by the end of 1998), maintaining stable external balances, and completing structural reforms of the tax system, health care, and financing of municipal administration.