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Eastern Europe’s First Stock Exchange Opens in Budapest

June 21, 1990

BUDAPEST, Hungary (AP) _ The first stock exchange in post-Communist Eastern Europe opened Thursday in Budapest, 42 years after it was closed by Communist authorities.

Officials hope the fledgling Budapest trading floor will boost market- oriente d economic reforms and become the stock exchange center for all of Eastern Europe.

On its first day, the exchange reported 58.1 million forints, more than $900,000, worth of trading in the 41 listed companies.

Prime Minister Jozsef Antall, in a telegram from West Germany where he is on an official visit, said the Budapest Stock Exchange as ″an important institution of a market economy.″

Richard C. Breeden, chairman of the U.S. Securities and Exchange Commission, presented the exchange with a new bell modeled after one used for years to open trading on the New York Stock Exchange.

Breeden also read a letter from President Bush that said in part: ″Free and competitive markets are an essential attribute of a free economy. They also represent an important element of a democratic society. The re- establishment of the Budapest Stock Exchange is thus a milestone in the continuation of democratic developments in Hungary, and it should encourage strong economic growth for the future.″

On sale to mark the opening was a special English-language edition of Toezsde Kurir (Stock Market Courier) that was launched earlier this year.

A stock exchange first opened in Hungary in 1864 but was closed in 1948 when Communists came to power after World War II.

″Until the ’80s it was heresy to even suggest anything of the sort,″ said Hungary’s interim president, Arpad Goencz, alluding to Communists’ description of a stock market as the ultimate symbol of capitalism.

Even before democratic change swept Eastern Europe last year, Hungary tended toward reform.

The Communist authorities set up a market for state-guaranteed bonds in 1983 and an embryonic stock market was created two years ago. That gave Hungarian financial experts training officials hope will make Budapest the best candidate as a center for a Eastern European exchange.

In March, a key government act on the stock exchange and securities took effect, giving the market a legal framework.

But financial experts said the stock exchange still has a long way to go before it establishes itself on the international market.

Finance Minister Ferenc Rabar said at the opening ceremony that the exchange ″does not in itself solve the problem of the liberalization of the economy.″ He said ″we have much to do yet in that regard.″

In a recent article in the economic weekly Heti Vilaggazdasag, the stock exchange executive president, Ilona Hardy, said the exchange will need to increase the number of listed companies.

″To operate well, there is a need for considerably more securities, especially publicly issued shares ... a working infrastructure, well-trained stock-market experts and ... a new type of investment-oriented attitude,″ she said.

″The situation in Hungary today and the present situation of the securities market are not optimal conditions for the development of a stock market, but at the same time the stock exchange can make a significant contribution to the development of the market,″ Hardy said.

The exchange’s main aim is to achieve reprivatization of the country’s inefficient, state-owned enterprises by allowing companies to sell shares to meet their capital needs.

At a trial exchange that met three times a week, volume was low, with 5 million forints to 20 million forints ($77,000 to $300,000) worth of shares trading hands.

Eva Farago, head of the exchange’s financial department, said one factor hindering the exchange is that the Hungarian currency cannot be converted freely into foreign currencies.

But she said the lack of convertibility is counterbalanced by guarantees that foreigners can repatriate their dividends in hard currency.

Rabar said Hungary wants to make the forint convertible by the end of 1991 or early 1992. That would mean a major devaluation of the Hungarian currency, which presently is pegged at 63 forints to the dollar.

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