The Slovak people lived mainly in Upper Hungary, northern parts of the Kingdom of Hungary. Due to post-Ottoman resettlements, the regions of Vojvodina, Banat and Bks county received bigger Slovak communities in the 18th century. After WWII a major population exchange with Czechoslovakia was carried out: about 73,000 Slovaks were transferred to Slovakia, replaced by an incomparable number of Hungarians.
After the fall of communism, the former Eastern Bloc had to transition from a one-party, centrally planned economy to a market economy with a multi-party political system. With the collapse of the Soviet Union, the Eastern Bloc countries suffered a significant loss in both markets for goods, and subsidizing from the Soviet Union. Hungary, for example, "lost nearly 70% of its export markets in Eastern and Central Europe." The loss of external markets in Hungary left "800,000 unemployed people because all the unprofitable and unsalvageable factories had been closed." Another form of Soviet subsidizing that greatly affected Hungary after the fall of communism was the loss of social welfare programs. Because of the lack of subsidies and a need to reduce expenditures, many social programs in Hungary had to be cut in an attempt to lower spending. As a result, many people in Hungary suffered incredible hardships during the transition to a market economy. Following privatization and tax reductions on Hungarian businesses, unemployment suddenly rose to 12% in 1991 (it was 1.7% in 1990 ), gradually decreasing until 2001. Economic growth, after a fall in 1991 to 11.9%, gradually grew until the end of the 1990s at an average annual rate of 4.2%. With the stabilization of the new market economy, Hungary has experienced growth in foreign investment with a "cumulative foreign direct investment totaling more than $60 billion since 1989."
The Antall government of 199094 began market reforms with price and trade liberation measures, a revamped tax system, and a nascent market-based banking system. By 1994, however, the costs of government overspending and hesitant 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 the 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, reached 250% of annual export earnings, while the budget and current account deficits approached 10% of GDP. The devaluation of the currency (in order to support exports), without effective stabilization measures, such as indexation of wages, provoked an extremely high inflation rate, that in 1991 reached 35% and slightly decreased until 1994, growing again in 1995. In March 1995, the government of Prime Minister Gyula Horn implemented an austerity program, coupled with aggressive privatization of state-owned enterprises and an export-promoting exchange raw regime, to reduce indebtedness, cut the current account deficit, and shrink public spending. By the end of 1997 the consolidated public sector deficit decreased to 4.6% of GDPwith public sector spending falling from 62% of GDP to below 50%the current account deficit was reduced to 2% of GDP, and government debt was paid down to 94% of annual export earnings.
The Government of Hungary no longer requires IMF financial assistance and has repaid all of its debt to the fund. Consequently, Hungary enjoys favorable borrowing terms. Hungary's sovereign foreign currency debt issuance carries investment-grade ratings from all major credit-rating agencies, although recently the country was downgraded by Moody's, S&P and remains on negative outlook at Fitch. In 1995 Hungary's currency, the Forint (HUF), became convertible for all current account transactions, and subsequent to OECD membership in 1996, for almost all capital account transactions as well. Since 1995, Hungary has pegged the forint against a basket of currencies (in which the U.S. dollar is 30%), and the central rate against the basket is devalued at a preannounced rate, originally set at 0.8% per month, the Forint is now an entirely free-floating currency. The government privatization program ended on schedule in 1998: 80% of GDP is now produced by the private sector, and foreign owners control 70% of financial institutions, 66% of industry, 90% of telecommunications, and 50% of the trading sector.
After Hungary's GDP declined about 18% from 1990 to 1993 and grew only 1%1.5% up to 1996, strong export performance has propelled GDP growth to 4.4% in 1997, with other macroeconomic indicators similarly improving. These successes allowed the government to concentrate in 1996 and 1997 on major structural reforms such as the implementation of a fully funded pension system (partly modelled after Chile's pension system with major modifications), reform of higher education, and the creation of a national treasury. Remaining economic challenges include reducing fiscal deficits and inflation, maintaining stable external balances, and completing structural reforms of the tax system, health care, and local government financing. Recently, the overriding goal of Hungarian economic policy has been to prepare the country for entry into the European Union, which it joined in late 2004.
Prior to the change of regime in 1989, 65% of Hungary's trade was with Comecon countries. By the end of 1997, Hungary had shifted much of its trade to the West. Trade with EU countries and the OECD now comprises over 70% and 80% of the total, respectively. Germany is Hungary's single most important trading partner. The US has become Hungary's sixth-largest export market, while Hungary is ranked as the 72nd largest export market for the U.S. Bilateral trade between the two countries increased 46% in 1997 to more than $1 billion. The U.S. has extended to Hungary most-favored-nation status, the Generalized System of Preferences, Overseas Private Investment Corporation insurance, and access to the Export-Import Bank.
With about $18 billion in foreign direct investment (FDI) since 1989, Hungary has attracted over one-third of all FDI in central and eastern Europe, including the former Soviet Union. Of this, about $6 billion came from American companies. Foreign capital is attracted by skilled and relatively inexpensive labor, tax incentives, modern infrastructure, and a good telecommunications system.
By 2006 Hungarys economic outlook had deteriorated. Wage growth had kept up with other nations in the region; however, this growth has largely been driven by increased government spending. This has resulted in the budget deficit ballooning to over 10% of GDP and inflation rates predicted to exceed 6%. This prompted Nouriel Roubini, a White House economist in the Clinton administration, to state that "Hungary is an accident waiting to happen."