Documents and Readings in the History of Europe Since 1918


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The League Commissioner’s Report on the Financial Reconstruction of Hungary, 1926 (Extracts)


To the Council of the League of Nations:

I have the honour to submit to the Council of the League of Nations my Twenty-fifth and final Report. Owing to my attendance at the meeting of the Council in Geneva during the period when the monthly report for May ordinarily would have been prepared, this report covers the months of both May and June 1926.


The fiscal year of the Hungarian Government ended on June 30th, and provisional accounts show a budget surplus for the year of approximately 62 million gold crowns. Closed accounts may be expected to show a somewhat larger surplus.

Since the reconstruction plan came into operation on May 1st, 1924, the Hungarian Government has completed two full financial years, each with a substantial budget surplus. As this result had long been foreseen, the Council of the League of Nations, at its meeting held in Geneva on June 10th, after hearing the report of the Financial Committee of the Council, declared: "that, the financial stability of Hungary being assured, the functions of the Commissioner-General shall be brought to an end on June 30th, 1926, in pursuance of para. 10 of Article VI of Protocol II."

As Article VI of Protocol II established the control of the budget and the general supervision of the execution of the reconstruction programme by a Commissioner-General, the termination of his duties puts an end to any such control and supervision, and Hungary now assumes full responsibility for the management of its own finances. While the level of the budget is somewhat higher than that contemplated in the original programme of reconstruction, there seems no substantial reason to doubt that it can be maintained permanently at the present level. Whether it is so maintained or not is merely a question of capable administration, and depends, under ordinary circumstances, upon two factors. One of these is the continuance of a sound and conservative policy by the National Bank in the maintenance of the currency; the other is reasonably prudent management of the budget.

The management of the Hungarian National Bank has been sound and prudent; it has ample reserves of foreign exchange, and there is every reason to believe that the present policy will be continued.

Undoubtedly great pressure will be brought to bear upon the Government to increase the level of expenditure for all sorts of purposes, but strong reasons of a practical nature exist which should prevent the budget from again becoming unbalanced. In case a deficit should be created through excessive expenditure, recourse cannot well be had to foreign borrowing to cover this deficit, for the practical reason that the Peace Treaty prevents Hungary from giving security for any foreign loan without the consent of the Reparation Commission, which is not likely to be obtained for such purpose, and, without security, foreign loans would be difficult, if not impossible, to obtain; recourse can no longer be had to inflation, because the National Bank has the sole monopoly of note issue, is divorced from Government control and is forbidden by its Statutes to lend money to the Government except against adequate security. Under existing conditions, it would be difficult, if not impossible to issue a domestic loan (which must rank after reparations as a charge on the assets of the Hungarian State) for the purpose of raising funds to cover a budget deficit. Possibly Treasury bills might be issued to local financial institutions, but this resource is extremely limited in extent. Therefore, if the budget should again become unbalanced, the only recourse open to the Government is to raise taxes, and the unpopularity of such a measure should prove a strong practical deterrent from engaging in unwise and excessive expenditure.

While the control of the budget and the general supervision of the execution of the reconstruction plan are terminated by the discharge of the Commissioner-General, two questions still remained to be dealt with, the details of which were settled by the decision of the Council. One of these questions is the management of the revenues assigned as security for the Reconstruction Loan, which is governed by the terms of the original Protocol; the other question is not governed by the Protocol and concerns the disposition of the unexpended balance of the Reconstruction Loan. In these two cases the Council adopted the following procedure, which is the same as that previously established in the case of Austria:

(a) Under the terms of Protocol II (Art. XI, 1), the Trustees of the Reconstruction Loan succeed to the duties of the Commissioner-General in the control of the special account of the revenues pledged for the security of the Reconstruction Loan, and, after retaining the amounts necessary to meet the service of the Loan, are to transfer the balance to the Hungarian Government.

(b) The Reconstruction Loan issued in 1924 produced a net amount of approximately 253 million gold crowns, which was to be used for the purpose of meeting budget deficits during a period of two and a-half years, which it was contemplated might be necessary to balance the budget. About 70 million gold crowns was used for this purpose for the budget year ending June 30th, 1924, and none of the Reconstruction Loan has been used for a similar purpose since that date. From time to time, the expenditure of 100 million gold crowns additional from the Reconstruction Loan has been authorised by the Council of the League of Nations, on the recommendation of the Financial Committee, for capital investments by the Hungarian Government, of which 50 million gold crowns was to be spent during the budget year ended June 30th, 1926, and 50 million gold crowns was authorised in December 1925 for the budget year July 1st, 1926-June 30th, 1927. The balance remaining—approximately 81 million gold crowns—is to be retained in liquid form in a separate account managed by a person to be appointed by the Financial Committee, except in so far as it is released for expenditure within the budget for such purposes as the Council, on the recommendation of the Financial Committee, may from time to time approve, and for this purpose the Financial Committee has appointed M. ter Meulen, who will have the assistance of an agent residing at Budapest. Inasmuch as the capital investment programme of the Hungarian Government has been fully provided for up to July 1st, 1927, it was deemed unnecessary at this stage to authorise any releases beyond that date.

On making his final report, the Commissioner-General takes this occasion to express his thanks to the Council of the League and its competent organisations, and especially the Financial Committee, for the support, advice and assistance which he has constantly received from them, and, further, to express his gratitude to the Hungarian Government and the Hungarian people for the uniform kindness and courtesy with which he has been treated by all with whom he has come in contact. Without the co-operation of both the Government and the people, it would have been impossible to make any satisfactory progress with the reconstruction plan, and this has been completely given at every stage of the work.


The causes which made it necessary for Hungary to ask the League of Nations for assistance in 1923 have been admirably stated in the preface to the documents relating to the reconstruction plan, which were issued by the League of Nations in April 1924. Briefly summarised, they are as follows:

Disorganisation caused by the war and consequent loss of territory, political difficulties, internal and external, which followed the Armistice, the undetermined liability for reparations and the difficulty of reorganising a political and commercial establishment designed for a much larger country presented obstacles which could not be overcome. The budget became unbalanced, current expense was met from note inflation, which produced a continually increasing depreciation of the currency, and the only means of arresting it became a foreign loan to meet the budget deficit during the period necessary for financial reorganisation. The League entrusted the preparation of a suitable plan to its Financial Committee. The entire success of this experiment depended upon the preparation of the plan and too much praise cannot be given to the Financial Committee of the League for the ability shown in this task. The Committee had the wisdom and courage to prepare a plan based upon sound financial principles which had been tested under normal conditions. Many people doubted the efficacy of such a plan under the abnormal conditions which prevailed at that time in Hungary, but the Committee rejected many of the theories which were then being put forward as necessary to correct abnormal conditions and preferred to rely upon principles which had stood the test of time. The result has vindicated the judgment of the Committee.

The principal features of the plan were:

(1) Definite settlement of the reparation liability for 20 years, which was obtained through a decision of the Reparation Commission, fixing annual payments on account of reparations until 1944, at an average rate of 10 million gold crowns a year.

(2) The stoppage of inflation through the creation of a central bank of issue, with the exclusive privilege of issuing banknotes, divorced from political control and forbidden to loan money to the State or any of its subdivisions without adequate security. The ultimate adoption of the free exchange of notes for gold is contemplated by this plan.

(3) The issue of an international loan, secured on some of the most productive revenues of the State, for the purpose of covering budget deficits until June 30th, 1926, when it was expected that the budget would be in a state of permanent equilibrium.

(4) The preparation of a budget covering the period up to June 30th, 1926, and the appointment of a Commissioner-General to supervise the execution of the whole programme and to control the expenditure of the proceeds of the Loan as well as the revenues pledged to secure the service of the Loan, with power to regulate expenditure and revenue in case the Government should fall behind the reconstruction programme.

(5) The adoption of a centralised system of Treasury receipts and disbursements, which would give exact knowledge of the cash position of the Treasury at all times.

The execution of the plan has proved even more successful than anticipated. As was expected, there was a large deficit for the financial year ending June 30th, 1924, which was met from the proceeds of the Reconstruction Loan. Since July 1st, 1924, the budget has been in a state of equilibrium, and it has been unnecessary to expend any of the proceeds of the Reconstruction Loan for budgetary deficits. This surprising result is not due to reductions in expenditure—for none was contemplated by the plan—but to unexpected increases in the estimated revenue of the State over the conservative estimates of the plan due to the stabilisation of the currency and the increased confidence which followed it. The currency has been stable since the National Bank was opened on June 24th, 1924, and the Bank has ample reserves for the maintenance of the currency.

It should not be forgotten that the Financial Committee of the League, in its original report pointed out that the problem which confronted Hungary was a double one: financial and budgetary on the one hand and economic on the other. It further pointed out that the responsibility of the League should be expressly limited to remedying the budgetary and financial position. "The necessary economic adaptation must be effected by Hungary itself; the essential contribution (of the League) is to give a stable basis on which this adaptation can take place." The League has now done all that it undertook to do—i.e., to create a sound budgetary and financial position, which is necessary to establish a firm foundation for the future upon which the complete economic recovery of Hungary can take place. Economic conditions have slowly and steadily improved since the plan became effective, and if the present position is maintained by Hungary itself, the economic conditions should continue to improve until they reach at least the normal pre-war conditions.

. . . . .

27 From the Twenty-Fifth (Final) Report by the Commissioner-General of the League of Nations for Hungary, May 1st-June 30th, 1926, in League of Nations, Official Journal 1926, pp. 1176–1178.


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Chicago: "The League Commissioner’s Report on the Financial Reconstruction of Hungary, 1926 (Extracts)," Documents and Readings in the History of Europe Since 1918 in Documents and Readings in the History of Europe Since 1918, ed. Walter Consuelo Langsam and James Michael Egan (Chicage: Lippincott, 1951), 122–127. Original Sources, accessed October 4, 2022,

MLA: . "The League Commissioner’s Report on the Financial Reconstruction of Hungary, 1926 (Extracts)." Documents and Readings in the History of Europe Since 1918, in Documents and Readings in the History of Europe Since 1918, edited by Walter Consuelo Langsam and James Michael Egan, Chicage, Lippincott, 1951, pp. 122–127. Original Sources. 4 Oct. 2022.

Harvard: , 'The League Commissioner’s Report on the Financial Reconstruction of Hungary, 1926 (Extracts)' in Documents and Readings in the History of Europe Since 1918. cited in 1951, Documents and Readings in the History of Europe Since 1918, ed. , Lippincott, Chicage, pp.122–127. Original Sources, retrieved 4 October 2022, from