Property and credit in post-socialist Europe: The Hungarian and Czech experiences (1989-1998)

The Hungarian and Czech privatization programs launched in the early 1990s involved banks, firms and the state as owners. This share-holding structure apparently did not lead to an efficient allocation of credit; nor did it p rovide lasting support for investment in the post-Communist institutional c ontext. Given the increase in nonperforming loans, these two countries have reacted alike. Hungary financially restructured banks and firms in 1993-19 94, and thus opened the way to their privatization in 1995-1997. In 1997, t he Czech Republic started reforming its financial institutions and privatiz ing major banks. In both cases, these measures have modified thr structure of capital and share-holding by "sorting out" the property relations betwee n banks, state and industries and by making banks adopt a more prudent loan management practice. However, these two experiences seem to suggest that o wnership is not the only determinant of an efficient allocation of credit.