1. MINISTRY OF FINANCE1 Budapest Stock Exchange Roadshow June 2002, London MR. CSABA LÁSZLÓ MINISTER OF FINANCE REPUBLIC OF HUNGARY

2. MINISTRY OF FINANCE2 Where Are We Now? Growth process bottoming out Fiscal positions External balance

3. MINISTRY OF FINANCE3 Main Policy Principles Predictability Focusing on competitiveness Increasing transparency

4. MINISTRY OF FINANCE4 Towards the European Union Negotiations to be finished in 2002 Judgement of Hungary’s performance should not depend on others Expected entry in 2004

5. MINISTRY OF FINANCE5 Annual GDP Growth Rate

6. MINISTRY OF FINANCE6 General Government Deficit (in % of GDP, ESA95 standard)

7. MINISTRY OF FINANCE7 Current Account Balance (in % of GDP)

8. MINISTRY OF FINANCE8 Monetary Conditions Inflation targeting Substantial deceleration of inflation Declining base rate Towards the Eurozone

9. MINISTRY OF FINANCE9 Consumer Price Index

10. MINISTRY OF FINANCE10 Short-Term Policy Goals Back to the growth potential Substantially declining fiscal deficit from 2003 Further decreasing inflation

11. MINISTRY OF FINANCE11 Short-Term Policy Steps Fiscal policy: Reduction of tax burden Entrepreneur-friendly tax administration Strengthening of tax enforcement More efficient use of government resources

12. MINISTRY OF FINANCE12 Short-Term Policy Steps Structural policy: Supporting SMEs Shrinking gap between regions Promoting R&D activities Investor-friendly environment

13. MINISTRY OF FINANCE13 Short-Term Policy Steps Income policy: Balanced income distribution Operative framework for interest reconciliation among economic actors

14. MINISTRY OF FINANCE14 Policy Coordination Greater role of fiscal policy in demand management Avoid substantial further appreciation in real exchange rate of HUF Policy rates declining in line with inflation

15. MINISTRY OF FINANCE15 Reinventing the Budapest Stock Exchange Supporting local investor demand for shares Providing attractive supply on the BSE

16. MINISTRY OF FINANCE16 Supporting Demand Towards a mature savings structure The role of private pension funds Creating liquidity

17. MINISTRY OF FINANCE17 Savings Structure Developments Gross financial assets of households below 50% of GDP 9% of assets in investment funds, 2.5% in shares Increasing role of life assurance and pension funds (15% of assets)

18. MINISTRY OF FINANCE18 The Role of Pension Funds Dynamic growth helped by continuing reform Contribution to be increased to 8% of gross wages Compulsory participation to be reintroduced Less than 10% of portfolio in BSE traded shares

19. MINISTRY OF FINANCE19 Where is the Liquidity? Liquidity suffers globally in bear markets 60% drop on BSE is comparable to regional experience Elimination of capital gains tax may help

20. MINISTRY OF FINANCE20 Creating Supply Re-starting privatisation via the BSE Encourage private companies to list shares

21. MINISTRY OF FINANCE21 The Last Wave of Privatisation Government is committed to privatisation Few evident short-term candidates for listing Regulatory risk is considerable

22. MINISTRY OF FINANCE22 Private Companies: A Special Situation Privatisation and greenfield FDI brought domination of strategic investors 2/3 of top 200 companies unlikely to be listed How to make the BSE more representative of the economy?

23. MINISTRY OF FINANCE23 Encouraging Private Listings Analysing reasons is important Government to ease the burden of listing Psychological barriers hard to break

24. MINISTRY OF FINANCE24 Where Do We Go? Impressive performance in the past 5 years Present minor anomalies to be corrected Return to long-term sustainabe growth path Convergence to European Union standards