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In this paper I have examined the major principles underlying the new economic mechanism in Hungary and the extent to which these have been applied in practice so far. The most important changes have been the discontinuation of plan directives to the firm, the use of profit incentives, increased freedom for the managers to make investment decisions, greater flexibility in prices, and the linking of domestic and foreign prices through the use of uniform conversion ratios. Against these achievements one should set the application of administrative measures in a variety of areas. Such measures have been described as "brakes" which the authorities applied in launching the new mechanism.
Various considerations explain the application of brakes. An important reason is the fear of inflation which has led to the use of direct measures in regard to wages, prices, material allocation, credit and foreign trade. There has further been a tendency to restrict the freedom of firm managers by limiting profits from exports, imposing a high profits tax, and maintaining the supervisory role of the industrial ministries. This has been done for conflicting reasons: it was feared that the managers would have difficulties in adjusting to the new mechanism, or that they might adjust only too well and their actions would create undesirable results for the national economy. Finally, social considerations have led the government to avoid taking measures that would create unemployment or give rise to very large disparities in personal incomes. [ABSTRACT FROM AUTHOR]

Market-oriented economic policies have been strongly linked to faster rates of economic growth. Foreign aid is often provided in part to encourage market-oriented reforms. We analyse the impact of aid on market-liberalizing policy reform, correcting for its potential endogeneity. Results indicate that higher aid slowed reform over the 1980–2000 period, as measured by a broad index of policies. Disaggregating policy into five areas, aid is associated with slower reform in some policy areas but not in others. Disaggregating by decade, the adverse impact of aid on policy reform is much more pronounced for the 1980s than for the 1990s. [ABSTRACT FROM AUTHOR]