The Practice and Regulation of Municipal Loans and Bankruptcies in Hungary: The Challenges in 2011.

Since municipal sector spending represents almost 14% of Hungarian GDP, imbalances in municipal finance have a measurable effect at the macroeconomic level. The Hungarian government did not limit municipal borrowing until 1995, but in the early years of the decentralization process municipal loan activity was insignificant. In 1996, a new act—the Municipal Bankruptcy Act—came into force. The ex ante rules set by the law were not always followed by municipal borrowers, and the market was also inefficient when assessing the credit bearing ability of municipalities. The current government is setting new rules on local borrowing. With the rare two-thirds majority in parliament, it has the chance to introduce long awaited reforms, although they are likely to be met by intense opposition at the local level. The presentation gives an overview together with an evaluation of the current state of proposed reforms.