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Cries for Relief from the Hungarian Financial Crisis

posted by Jason Kilborn

ForintNo, not that Hungarian financial crisis. Now that the country seems to have more or less righted itself, its citizens are still struggling with their own debts. Reuters reports that the Managing Director of the National Bank of Hungary has called for the country to adopt a personal insolvency law, much as Ireland just did in the midst of its own crisis. The Director seems to envision an approach along the lines of an emerging European standard, a clean slate after a 4- to 5-year payment plan. The IMF agrees, noting in its latest annual report on Hungary (see p 15, para  25) that establishing a personal insolvency system would help the banking sector to clear out its portfolio of non-performing loans and get Hungarian productivity back on track.

So what's the holdup? "Resistance from the banks." Where have we NOT heard that before!? Of course the banks resist, because they want to continue to maintain the illusion that their non-performing loans are actually worth more than a few fillér on the forint (if not zero). A Hungarian economics ministry secretary reports in the Reuters story that they're in talks with the banks about a potential personal insolvency law, but it is "unlikely to be launched this year," as "there should be sufficient time to prepare for it." Time!? A full-blown and well-developed proposal for a new personal insolvency law was floated and commented on by, among others, me, beginning in the fall of  ... 2008!  Is five years not "sufficient time" for these banks? And why did the 2008-09 proposal fail?  "Resistance from the banks." Someone over there in Hungary needs to stand up to the banks and stop allowing the time-honored cry of "we need more time" to delay reasonable relief that complies with an international standard that has developed throughout Europe during the past 30 years.

Forint photo courtesy of Shutterstock.


Oh yes, Hungary has righted itself: far-righted. This "resistance from the banks" seems rather too pat. I suspect the banks are running interference for their government allies and providing cover for inactivity.

In other words, Hungary currently has no personal bankruptcy law? So what happens? Creditors just garnish consumers for life? Debtors' prisons or workhouses?

Frank, a surprising number of countries today lack any sort of personal insolvency system. Many likely have no need for one, since consumer debt and overindebtedness are rare there. Others, perhaps like China, may have no especially pressing need yet because the debt enforcement system works poorly or not at all. Others, like Hungary, seriously need to get with the program, but I'm not sure to what degree the need is especially pressing. In terms of mortgage problems and loss of homes, it's a problem in Hungary, but most personal insolvency systems do little or nothing for this problem. In terms of unsecured debt enforcement, my sense is that enforcement is simply unlimited in time--as you say, garnishment for life (or until the debtor flees to parts unknown or withdraws into the underground economy). I'm fairly certain that neither Hungary nor any other European country has debtor's prisons or workhouses in any real sense any longer.

Why don't you ask a Hungarian?

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