MIDWAY IN THE TRANSITION

Arguably, Hungary is now halfway in the transition from central planni ng to a market economy. Following an overview of structural reforms an d macroeconomic developments during the past four years, the article e xplores the outlook for sustained growth in the medium term. The analy sis, illustrated with rough quantitative estimates, suggests that fisc al and quasi-fiscal wedges in the capital and labor markets impose maj or impediments to investment and employment, and thus to growth. The p aper outlines the tasks ahead in bank recapitalization and enterprise restructuring, reform of government finances, and social security refo rm. Significant progress in these areas, supported by a macroeconomic stabilization effort, would contribute to a reduction in the wedges an d to sustained growth.