Hungarians increasingly test capitalist waters by buying bonds

Laszlone Santa smiles nervously, and hands over an envelope full of money to the cashier at the State Development Bank. In return, she receives a piece of paper - a bond. ``It's the first I've ever bought,'' says the 55-year-old high school teacher.

Since Hungary became the first Soviet-bloc country to open a bond market three years ago, more and more Hungarians are putting their money into these capitalist certificates. Their growing numbers illustrate the successes and limitations of Hungary's economic experimentation, which aims to make businesses less dependent on central planning and more responsive to market demands.

Until bonds were introduced, the state maintained direct control over investment decisions. When the communists assumed power in 1947, they turned the once-thriving stock exchange into TV studios. A central-planning office was established where bureaucrats distributed capital by fiat. The system proved slow in getting money to where it was needed.

Hungary's need to get money fast to its best companies has become more acute recently. Economic production dropped nearly 1 percent in 1985 and has remained stagnant this year. The foreign debt has reached almost $11 billion, the highest per capita figure in Eastern Europe. The only solution, economists say, is to use scarce resources more efficiently.

``Money-losing factories must be closed,'' says a high-ranking official who wishes to remain anonymous, ``and investments channeled to the most efficient companies.''

Bonds help. ``They put companies in direct contact with the investor and focus capital to the best, most profitable companies,'' says Zsigmond Jarai, director of the State Development Bank that runs the new bond market.

Bonds also tap previously unused private money. Before the market opened, Hungarians could only invest their money in savings accounts that paid interest rates below the annual inflation rate. Growing numbers of private entrepreneurs have tended to spend most of their money on conspicuous consumption.

Most bonds carry a fixed interest rate of 11 percent, at least three points over the inflation rate. Such returns have attracted nearly 60,000 Hungarians to oversubscribe all of the 143 available issues. ``We can't keep up with demand,'' says Mr. Jarai.

Nevertheless, the Hungarian market remains a baby compared to mature Western counterparts. Only about half of 1 percent of the 10 million Hungarians own securities, compared with 40 percent of the American population. The market is housed in a baroque room in the State Development Bank in the central Pest shopping district; no jobbers shout out prices and no stacks of paper lie on the floor. Prices are listed on a chalkboard attached to one wall.

Both ideological and practical problems hinder the market. Jarai says that many Hungarian companies, accustomed to receiving credit on demand, refuse to issue bonds. Unlike stock shares that confer co-ownership to the shareholder, bonds amount to no more than a fixed-period loan to a company, he adds, and do not violate any communist principles. Party ideologues snipe, however, that people have begun to live on the interest produced by the bonds - not exactly an ideal in a socialist society founded on the dignity of labor.

The bonds' perks cause even more resentment. For example, the post office issued certificates guaranteeing the purchaser a telephone within two years. Everyone else has to wait between five and 10 years.

Criticism aside, the bond experiment continues. Its success has encouraged the authorities to move ahead with other financial reforms. As of Jan. 1, the Hungarian National Bank's monopoly over borrowing and saving will be broken up and five new commercial banks, along with about 15 other savings banks, will open their doors.