In a centrally planned economy, an enterprise has three sources of finance: the state budget, the banks, and the enterprise's own resources. An enterprise cannot, however, use its after-tax profits to increase wages or to undertake new investment without government approval. Credit is necessary to provide enterprises with the financial means needed to pay for planned inventories and to finance operations during the hiatus between delivery and payment; credit also gives the government an additional means of controlling enterprise activity. A single bank performs both central and commercial banking functions.
The reforms of the mid- to late 1980s significantly altered Hungary's financial institutions and practices. A number of new banks were created, and the government permitted foreign investors to participate in the banking system. The credit system was liberalized, although decisions to extend credit remained unrelated to past economic performance. The government also created a series of new investment opportunities for individuals and enterprises. Finally, in 1986 Hungary enacted a bankruptcy law.
Data as of September 1989