ABSTRACT
A dwindling labor pool, declining productivity, and mounting deficits fay state-owned enterprises led to the promulgation of Communist Hungary's and Eastern Europe's first bankruptcy law. There were three possible stages in a Hungarian bankruptcy case: arbitration, reorganization attempts, and finally liquidation. If arbitration was unsuccessful, the case was to go before the Reorganization Committee of the Finance Ministry. Hungarians were accustomed to their wages being based on the number of children in the family, drunken husbands, and parents rather than on their Droductivity. The Hungarian banking reforms that went into effect on January 1, 1987, gave the banks more freedom and responsibility. The groundwork had been laid for foreign banks to lend money to the new commercial banks in Hungary, which would free the state budget from payment obligations. By separating the money supply function from the commercial lending function, the bank reform resolved a major contradiction inherent in one-tier banking systems.
