Of Hungary in the Third Quarter of 1934
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[Communicated to the Council Official No. : c. 467. M. 201 . 1934. II. A. and the Members of the League.] [F. 1400.] Geneva, October 13th, 1934. LEAGUE OF NATIONS FINANCIAL POSITION OF HUNGARY IN THE THIRD QUARTER OF 1934 TWELFTH QUARTERLY REPORT By Mr. Royall Tyler, the Representative in HungaryI of the Financial Committee. CONTENTS. I. G e n e r a l : page 1. In tro d u c to ry ......................................................................................................................... 2 2. State Budget : (a) Administration Budget, 1934-35..................................................................... 2 (b) State Undertakings ............................................................................................ 3 (c) Situation of the T re a su ry ................................................................................... 5 (d) Debt Position........................................................................................................... 5 ( e) Reconstruction Loan and Assigned R e v e n u e s ......................................... 6 3. Budgets of the Local A u th o r itie s ................................................................................. 6 4. State Borrowing..................................................................................................................... 7 5. Monetary and Financial : (a) Position of the National B a n k .......................................................................... 7 (b) Foreign Exchange C o n t r o l ............................................................................... 7 (c) Foreign D ebts.......................................................................................................... S H. E c o n o m ic S it u a t i o n : 1. G e n e r a l................................................................................................................................... 9 2. T r a d e ........................................................................................................................................ 11 3. P ro d u ctio n .............................................................................................................................. 12 4. P r ic e s ........................................................................................................................................ 12 5. Stock Exchange..................................................................................................................... 12 6. Banking, Commercial and P r i v a t e ............................................................................... 12 7. Commercial Policy................................................................................................................ 13 HI. A p p e n d i c e s : I. Monthly (Quarterly) Results for the Year 1934-35 compared with the Results for the Year 1933-34.................................................................................... r4 II. 1. Economic Indices...................................................................................................... r 5 2. National B a n k ........................................................................................................... I ° III. x. Foreign Exchange : Sales and Purchases of the National Bank. I7 2. Foreign Exchange Control.................................................................................... Series of League of Nations Publication^ II. ECONOMIC AND FINANCIAL 1934. II. A. 22. I. GENERAL. i . I ntroductory . (1) The State’s financial position appears, in the light of provisional returns for the first quarter of the fiscal year that began on July ist last, to be stationary. There is no longer the marked improvement that was taking place at this time last year as compared with the corresponding period of the year before, nor is further progress to be expected without some economic revival. (2) Over the last two years, however, there has been a great change for the better, as may be appreciated when it is recalled that, for the fiscal year 1932-33, when the estimates balanced on paper, there was, in fact, a cash deficit of 88 million pengô, whilst, for 1933-34, results were within a very few million pengô of the estimates, allowances being made for reborrowings from the Foreign Creditors’ Fund, and the cash deficit had been reduced to 38 million pengô. Also, less recourse was had to internal borrowing. With expenditure and receipts on the present level, the cash deficit is caused entirely by the losses of the State Railways and Ironworks. (3) This improvement is due partly to the energy with which expenditure has been curtailed and receipts increased, and partly to the abundant harvest of 1933, which gave a badly needed impetus to trade, production and consumption. The relief in respect of interest charges granted by the State to the most heavily indebted farmers has no doubt also made it easier for the beneficiaries to pay their taxes. (4) It is doubtful whether the present level of expenditure can be fur ther lowered, except very gradually by reducing the numbers of civil servants—a process which can hardly bring about any considerable economy for years to come. In any case, expenditure cannot be allowed to start growing again without imperilling the improvement in the State’s finances which has been achieved at the price of considerable efforts on the part of both the Administration and the taxpayer. The fiscal burden which the country has now to bear is a heavy one, and it would probably do no good, at this stage, to attempt to increase taxation. (5) Fundamental economic conditions, generally speaking, show no improvement. There has been a sharp increase in inland grain prices, benefiting those farmers who have grain to sell ; but, in spite of attempts to raise the price of various commodities, other agricultural prices, some of them of prime importance, have remained stationary or have declined. The 1934 cereal crop is a light one. Some compensation will be found in maize and potatoes, which are well above the average. (6) In spite of the striking progress achieved in the direction of budgetary stability, the position is not assured. It demands both that a strict watch be kept to prevent any relaxation of the will to enforce economy, and that no effort be spared to make it easier for the taxpayer to discharge his obligations to the State. The measures taken to control expenditure of the city of Budapest are in the right direction. The taxpayer throughout the country would profit if the budgets of all the local authorities, and of their enterprises, could be adapted to the requirements of the present time. (7) The total volume of Hungary’s foreign trade has recently not been increasing as it did up to a few months ago. Imports are still showing an increase over the corresponding months of last year. Exports are falling off, both in volume and in value. (8) Repeated revision of clearing and other trade agreements has notably cut down the balances of free available foreign currencies of which the National Bank was formerly able to dispose. It is becoming increasingly difficult to meet requirements, even on the present greatly reduced basis. (9) I am indebetd to Mr. Henry J. Bruce, Adviser to the National Bank, for the data on which are based the sections of this report dealing with the Bank, exchange control and com pensation agreements, and clearing agreements. 2 . State Budget. (a) Administration Budget, 1934-35. Provisional results for the first three months of the fiscal year that began on July ist are very much the same as they were for the corresponding period last year. An importan difference, however, is that last year there was a marked improvement as compared with t year before. This is no longer the case at present. It will be recalled that the estimates voted by Parliament for 1934-35 were : Administration Undertakings (Millions of pengô) Estimated expenditure 746.6 404.0 Estimated receipts 740.6 343-9 Balance — 6.0 -6 0 .0 the total deficit being estimated at 66 million pengô. The pengô equivalent of the State’s entire foreign debt service is included in expenditure. The Government intends however to reborrow the equivalent of non-transferred debt service, except where arrangements are made with the creditors rendering deposit in pengô unnecessary. Part of the estimated deficit will be covered in this manner, the floating debt increasing correspondingly. Estimates in the preliminary monthly budgets (Administration) have been ■ 1934 July August September J uly-September (Millions of pengô) Estimated expenditure 60. 9 61.4 58.4 180.7 Estimated receipts 46. 6 66.8 57 0 170.4 Balance — 14-3 + 5 4 — 1.4 — 10.3 Actual results, last year’s figures being given as well for comparison July August September J uly-September 1934 1933 1934 J933 1934 1933 1934 1933 Actual budgetary (Millions of pengô) expenditure 60. 8 56.9 58.5 55-9 55 - 5 53 • 5 174-7 166.3 Actual budgetary receipts 52.3 49-5 68.9 67.7 58.6 58.2 179.8 175-3 Balance - 8-5 — 7-3 + 10.4 + 11 -7 + 3 1 + 4-6 + 5 i + 9 ° If expenditure outside the budget and deferred expenditure are included, and borrowing and refunds are shown in the receipts, for both Administration and Undertakings, the comparison is as follows : July ist to September 30th, Difference 1934 1933 for 1934 Expenditure : (Millions of pengô) Actual b u d g e ta ry ................... 174.7 1 6 6 .3 + 8.4 Deferred budgetary : Administration .. 5.5 12.4 — 6 .9 Undertakings (estimate) 1. 8 0.9 + 0 .9 Actual