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hungary

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  HUNGARY

REPUBLICAN REFERENCE

Area (sq.km)
93,200

Population
10,106,017

Capital
Budapest

Currency
Forint

President
Ferenc Madl

Private sector
% of GDP

60%

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Background:
Hungary was part of the polyglot Austro-Hungarian Empire, which collapsed during World War I. The country fell under communist rule following World War II. In 1956, a revolt and announced withdrawal from the Warsaw Pact were met with a massive military intervention by Moscow. In the more open GORBACHEV years, Hungary led the movement to dissolve the Warsaw Pact and steadily shifted toward multiparty democracy and a market-oriented economy. Following the collapse of the USSR in 1991, Hungary developed close political and economic ties to Western Europe. It joined NATO in 1999 and is a frontrunner in a future expansion of the EU.

Update No: 059

The Hungarians are facing parliamentary elections in April. There will be a first round on April 7th and a second on April 21st. The contest is between the present right-wing governing coalition, dominated by Fidesz, the Civic Party of Premier Victor Orban, and the opposition Hungarian Socialist Party, who governed in 1994-98.
The race is a close one. The population are naturally disenchanted with several aspects of the government's performance, but by no means with such short memories as to think it certain that the socialists would do a better job. In fact it is clear that in broad policy terms the two are in main agreement.
The key question is EU accession and the terms on which Hungary should enter. But privatisation and fiscal policy are also vital. "Being a small country, Hungary has to look to Brussels for directions," says Zoltan Raba, an analyst at CA1B Securities Rt. Or, as Peter Bihari, managing director of 7 Sigma Kft, a market analysis company which lists Budapest Bank Rt among its clients, "due to objective economic constraints, there is little room for a major change in economic policy. However, this present loose fiscal policy cannot be continued if Hungary wishes to meet the Maastricht requirements." These refer to the fiscal conditions needing to be met to enter Euroland. Inflation at 9.3% annually is still far too high for that.
A socialist government would ironically be more likely to introduce a stricter fiscal policy, while Fidesz would carry on going for growth, which has been in the 5% range for some years now. But both parties would be expected to lower taxes, something Fidesz promised but failed to do.
One area where the two parties genuinely do differ is agriculture. Fidesz favours the small farmers and the socialists the cooperatives. The real problem is that neither are efficient enough to compete in the EU. The former are too small and the latter insufficiently market-oriented. It is possible to defend them on ecological grounds and that is naturally what they both do themselves. Little change is likely here, with a covert protectionism continuing after EU entry.
Hungary's economic performance is certainly influenced by its government, but in a fundamental sense of more importance are the foreign investors, whose total stake now tops US$20bn. Hungary is following a path earlier set by Ireland. Let in the multinationals and modernise. It is something both leading parties know full well. That is why there is such a large measure of bipartisan agreement in Hungary.

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BANKING

AmEx to re-enter Hungarian market

American Express has announced that it will be active on the Hungarian charge card market once again despite its recent decision to pull out from its partnership deal with K&H Bank Rt. "It is absolutely our intention to issue cards in the local currency," Budapest Business Journal quoted Atalia Dasilva, public relations manager for AmEx's operations in Europe, as saying. According to her, AmEx will likely alter its plan and distribute charge cards by itself, not though a partner bank. The US bank has already introduced self-issued zloty-denominated charge cards in Poland.
"Am-Ex's basic plan is to expand with local currency cards in Central Europe," Dasilva said. However, she added that the bank has not set up a schedule for the Hungarian launch. AmEx's forint-based charge cards will be withdrawn by the end of March. Charge cards allow zero-interest use of funds if the money spent is repaid by a certain date of the month following the month-end settlement. 
A partnership agreement between KYH and AmEx was signed in 1998. K&H was the only Hungarian bank to distribute AmEx forint-based charge cards. Their deal will be terminated by the end of 2002.

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BONDS

OTP mortgage to sell 390m Euros in bonds

OTP Mortgage Bank Rt has announced that it will sell HUF 95bn (390m Euros) of mortgage bonds to re-subsidise new mortgage loans its grants in Hungary, BBJ quoted OTP Mortgage CEO, Zsolt Oszlanyi as saying. A member of the OTP Bank Group, OTP Mortgage will sell bonds in private placements, but it will also arrange a public issue by end-2002.
"It is a grand plan, but I think we will achieve it as the mortgage market will boom this year due to increased subsidies and falling interest rates," Oszlanyi was quoted as saying. According to the CEO, the initial series of OTP Mortgage bonds will be distributed by March 15th, with a nominal value of HUF 10bn.
"OTP Mortgage will sell the initial series in a private placement to three investors within the OTP group: OTP Fund Management Rt, OTP-Garancia Insurance Rt and OTP Pension Fund Rt," Oszlanyi said. "With a maturity of seven years the bonds will bear a variable interest rate and a premium to the benchmark yield of comparable government papers," he added. Once the initial issue is finalised, OTP's mortgage division will keep distributing more bonds based on a pre- determined schedule, BBJ reported.

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ENERGY

MOL shelves plan to sell 100% of natural gas unit for now

MOL, the leading oil and gas group in Hungary, announced it will postpone exclusive negotiations with the government on giving up control of its natural gas unit, New Europe reports. The result of this decision was government-related, said analysts, mainly due to the upcoming general elections on April 7th and 21st. The energy group is the top revenue collector in Hungary.
MOL said it was prepared to shelve selling off its 49% stake in the troubled natural gas unit to foreign investors. However, it did state that it has launched talks with MFB Bank, which is government owned.
MOL chose the only option it had; that is to withdraw from the unit as the government already controls one-quarter of the unit. The state also has a "golden share" in MOL and has rights to veto any other privatisation plan.
Concorde broker, Attila Vago, said the only way the Hungarian company could get out of this situation was to give up its controlling stake and sell it to the bank. Moreover, selling it to the bank ensures that the unit will be kept in domestic hands and not handed over to some foreign investor, the broker said. "This is the state interfering in the market, an effective renationalisation," Vago told reporters.
Jozsef Miro, analyst at Cashline, said there was no way the government would appreciate a foreign company investing in the gas unit. As it stands now, it is too soon to call the winner of the upcoming elections. The opposition Socialists are not in favour of the privatisation and have promised they would not interfere in the markets. Miro said MOL had probably hoped to see 100% of its gas operation sold, but chose to deal with MFB because the state offered the right price. MOL's gas unit value stands at HUF 150-250 billion (US$540-900m), excluding production, the analyst said. That figure could rise two-fold if production is included. The company said it would like to divest its entire gas operation to strengthen its position in the central European petrochemicals market. That market's main competition is Polish PKN Orlen and Austrian OMV.

MOL to issue bonds

Hungarian oil and gas company, Magyar Olaj-es Gazipari Rt, plans to raise 30 billion forints (4123.1m) with the issue of two bonds on March 5th, the company said in a statement, The Wall Street Journal Europe has reported.
One series will be a fixed-rate three-year bond, maturing on April 12th 2005, with an annual coupon of 7.75%. The other series, which will mature on March 6th 2003, is a discount bill. MOL will set the maximum yield for both series on March 4th. The issue is part of a 200bn forint bond issuance programme MOL announced earlier.

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FOREIGN ECONOMIC AFFAIRS

Hungary, Romania to boost economic ties, small businesses

Hungarian and Romanian business people are pleased with bilateral economic ties. Their optimism is shared by the two foreign ministers, who have attended an intergovernmental mixed committee meeting, Hungarian Radio has reported.
Bilateral political ties are excellent, there are no more matching economic partners in Europe such as these two countries, Romanian Foreign Minister, Mircea Geoana, said at a Hungarian-Romanian business forum. His Hungarian counterpart, Janos Martonyi, said he expected spectacular rise in bilateral economic ties, for which political conditions were also excellent... 
Mircea Geoana said that the Romanian Ministry of Foreign Trade would set up offices in several Transylvanian towns, first and foremost on Kolozsvar [Cluj- Napoca, in western Romania], to promote bilateral economic ties and a commercial attaché would start to work at the Romanian consulate in Szeged [southern Hungary]. The two governments would set up a joint guarantee fund to support investment by small and medium-sized businesses.

Hungary, Yugoslavia sign free trade agreement

The free trade agreement signed today with Yugoslavia will result in a significant reduction of customs duty, Hungarian Radio has reported.
The Hungarian-Yugoslav free trade agreement is an important event in the system of relations for both countries. This is how Foreign Minister Janos Martonyi characterised the agreement signed with Miroljub Labus, Yugoslav deputy prime minister and minister responsible for foreign trade. 
In accordance of the agreement, which is to come into force on 1st July and to remain in force until EU accession, 85-90 per cent of industrial products and one-third of agricultural products will be duty free, thus, temporarily granting certain unilateral advantages to the Yugoslav party...

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INTERNAL ECONOMIC AFFAIRS

Hungarian state-owned company to buy stakes in suppliers of large firms

The Ministry of Economic Affairs would like to inject capital into suppliers to large companies in Hungary, the Hungarian TV2 satellite service has reported. 
A state-owned investment company would buy stakes in the manufacturing and logistics companies which are about to be launched, and after this, it would also grant loans to them.

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