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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: 067 - (19/11/02)

The Hungarians have joined NATO and are expecting to join the EU shortly. But the realities of the process are only beginning to dawn upon them.
In May they elected a new government consisting of the ex-communists, the Socialist Party, which, however, has only a bare majority in parliament over the ex-ruling party, Fidesz. They were last in power in 1998, when for four years they had applied harsh Thatcherite policies. They have the kudos of being the hardliners with the caring reputation of the far left, a strong combination in electoral terms in Hungary, but only just strong enough to win, with 188 seats to the 178 of Fidesz.

Harsh NATO baptism
The new government has been left in no doubt about the need for renewal of its defence policy. Two days after becoming Hungary's defence minister in May, Ferenc Juhasz made a routine call at NATO's headquarters in Brussels. He was delivered a broadside by Secretary-General George Robertson, who told him bluntly to fulfil Hungary's pledges to modernise and better equip its forces.
Hungary is, indeed, in many ways a weak link in NATO's European extension. "Hungary is not a military nation," says a Western diplomat from an allied country. "They haven't won a battle since around 1456. And there's very little support for military spending." 
The new government came in with promises to raise the military budget, which at present are about US$1.08bn yearly, or 1.75% of GDP which is not unusual in European terms. But much of it is misspent, officials say. For instance, the previous government spent large sums of money on studies about how to create a maritime transport capability, hardly a top priority in a landlocked country, despite Lake Balaton and the Danube passing through.
When Hungary joined NATO in 1999 things at first went reasonably well. Hungary opened up its airspace for the use of NATO forces in their aerial campaign against Serbia over the Kosovo conflict. But since then, Juhasz admits, "we are treated like an unreliable partner."
For instance, when the US was looking for allies to take part in the war against terrorism in Afghanistan there were two, and only two NATO countries that did not participate - one was Iceland, which does not have an army, and the other was Hungary. 
Juhasz blames Hungary's previous government for remiss conduct in its failure to fulfil pledges to restructure the military. For its four years of office (1998-2002) there were no significant purchases of new equipment so that "technological backwardness is huge." The army has no protective gear against chemical or biological weapons. Its communications systems are out-of-date and reductions in manpower have left whole units non-operational. The Magyars, once the dread of Europe in the ninth and tenth centuries, are no longer a military people.

The EU beckons
It is doubtful if this really matters, contrary to Lord Robertson. What each country of the European family needs to do is to contribute to the common good where its patrimony makes it among the strongest.
In Hungary's case, this is in inventive flair and general cultural acumen. There has been a series of brilliant inventors and intellectuals emanating from Hungary in recent times, including von Neumann, Lakatos, Lukacs and Kaldor, respectively a physicist and mathematician, a philosopher of mathematics and science, a philosopher of history and literary criticism and an economist. These are the fields in which Magyars these days excel, not to mention a line of outstanding poets, Petofi, Oddy and Atilla Josef, virtually unknown outside the non-Magyar speaking community.
The last arena of excellence is the most pertinent to EU membership, economics. In the Austro-Hungarian Hapsburg empire, Budapest was the banking and financial capital with a relationship to Vienna analogous to that of New York to Washington DC.
Hungary's economy has been doing reasonably well, especially compared with the EU's dismal recent record of an average 0.7% rise in GDP. For its GDP has grown by about five per cent per annum for the last ten years, albeit from an exiguous base.
The last years of communism in Hungary were enlivened by the novel politics of Janos Kadar, the suppressor of the 1956 revolt who made himself over in the 1960s, becoming a beacon of renewal and market reform; 'goulash communism' was the result.

The skeleton in the cupboard
The present government, led by Premier Peter Medgessey, are his spiritual heirs. But the very fact that Hungary had a relatively progressive regime since 1961 (before that Kadar was absolutely brutal in putting down opposition) has given its communist heritage a certain ambiguity and opacity. 
Medgessy, for instance, turns out to have been an informer for the police in communist times. This would have killed off the political hopes of any aspirant to power in most ex-communist countries, but not in Hungary, with its comparative liberalism under Kadar. Also with the exception of the newest and youngest politicians, there are many in public life who have personal histories to regret.
Yet Medgessey made one signal mistake. At first he denied his involvement with the communist secret police in parliament and then under pressure admitted it; Fidesz, under the brilliant leadership of ex-premier Viktor Orban, are not likely to let him forget it. He is not only a self-confessed police informer, but a confessional liar and deceiver of the public at large. 

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AUTOMOBILES

Foreign carmakers in the hunt for financing deals in Hungary

Japanese carmaker Toyota Motor Corp. and its rival French Renault SA hope to secure strong footholds in the Hungarian automotive market, according to Budapest Business Journal. The two companies recently set up Hungarian car financing units to generate higher profits in the former communist state. But officials at independent car financing companies are wary about their success. According to them, the Hungarian market is "already very competitive" and foreign companies will have to shell out a lot of funds to boost their market share.
Toyota's Hungarian financial unit, Toyota Financial Services Hungary Rt, was launched in July and anticipates it will secure more than a third of the domestic market within the next five years, Toyota Financial CEO, Gabor Nagy, was quoted as saying. "Toyota Financial has already clinched some 15% of the Toyota car financing market in the first three months of its operation," he added. "We have already been able to sign deals with a number of the country's Toyota dealerships."
Renault Credit Car Financing and Leasing RT, which opened its doors in late spring hopes to increase sales of new Renault vehicles through offering favourable financing opportunities, Laszlo Ktszegi, sales and marketing director at Renault Credit, as saying. "Renault Credit hopes to draw in small and medium-sized enterprises, and it plans to sign agreements on at least 1,300 car financing deals by the year's end," he added. "We expect to finance 15% of all new Renault sales in Hungary by the end of this year and reach a 31% market share in the medium term."
Ktszegi noted Renault Credit provides credit denominated in either Euro or Hungarian forints. It also provides financing leasing to its clients.
The Renault subsidiary has a framework agreement with Hungary's 42 Renault dealerships on financing new Renault sales. However, not all of them have finalised car financing agreements with Renault Credit.
Both carmakers are collaborating with leasing affiliates of local commercial banks to share risks with domestic investors. The two groups have also set up car financing units in the form of joint ventures. Toyota Financial Services controls 51%, while MKB-Euroleasing RT, owned by the Hungarian Foreign Trade Bank Rt, holds the remaining share. France's Renault Credit Internationale teamed up with Raiffeisen Leasing Rt and the two companies have 50:50 control of the financing unit

General Motors opens regional HQ in Hungarian capital

General Motors [GM] has opened its Central and East European regional headquarters in Hungary, Hungarian Radio has reported. The new headquarters in Budaoers on the outskirts of Budapest, will control GM's business activities in 15 countries of the region, Chris Lacey, the firm's general manager in charge of the region, said. 
He added that Daewoo's Central and East European distribution firm would also operate in Budaoers in the future. Economic Affairs Minister Istvan Csillag said, in this regard, that the government, with its transparent economic policy, had regained the trust of the investors. In the past 10 years, General Motors invested almost 500m euros in Hungary.

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AVIATION

Budapest Solar to invest in Szeged airport development


Budapest Solar, a member of British Petroleum, has announced that it will spend HUF 13bn to build an airport in Szeged, according to the Budapest Business Journal (BBJ). The subsidiary said the plan is part of a complex project comprising a golf course and a hotel in the town. Ferenc Miskolczi, chief of the strategic planning office at the Szeged municipality, disclosed the information. 
The new airport will benefit Boeing planes. Under the plan, the municipality will transfer the construction site to BP Solar at no cost, BBJ said. Miskolczi said Irish budget airline Ryanair could be part of the airport's regular clientele. The Irish company has announced it would like to begin flying to Hungary once the country gains EU membership, Miskolczi said.

Ferhigy airport's terminal upgrade

The departure level of Terminal 2A at Budapest's Ferihegy Airport will be rebuilt by the end of December. The project will be handled by Budapest Airport Rt, which is going to invest HUF 1-1.5bn to create a system whereby planes from Schengen Treaty member states will use Terminal 2B and other countries will use Terminal 2A, according to the Budapest Business Journal. Meanwhile, another HUF 4bn reconstruction project, handled by Lufthansa Technik Budapest Kft, has been finalised. The facility at Ferihegy, expected to develop into the company's regional overhaul centre, will service planes at the onset.

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ENERGY

JP Morgan Chase sells MOL shares

JP Morgan Chase Bank gave up 3.27% control of MOL Rt, a Hungarian oil and gas company. The bank's stake will now stand at 19.77%, according to custodian HVB Hungary Rt, JP Morgan is the number two stakeholder in the Hungarian company, after the State Privatisation and Holding Rt group, Budapest Business Journal reported. In other developments, the Hungarian government supports a decision to sell its 25% stake in MOL, Economy Minister, Istvan Csillag said in a statement

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ENVIRONMENT

Report on waste management 

A debate between the government and the opposition on a waste management plan, the drawing up of which has been stipulated by a law adopted in 2000, is continuing... Hungarian Radio reported.
Bela Turi-Kovacs, chairman of the parliamentary environmental protection committee told the radio programme: "On the basis of the plan some 2,300 previous and currently existing waste dumps in the country must be eliminated - it is also part of our undertaking to Brussels - which are, in effect, waste garbage dumps, not protected in technical terms at all." 
The waste disposal problems of Hajdu-Bihar County in eastern Hungary will be fully solved by the waste dump built with Ispa [EU structural fund] assistance... A comprehensive, regional waste recycle centre will be built in Debrecen, Hajduboeszoermeny and Berettyoujfalu... The total cost is 2.5bn-3bn forints... 
The problems of Zala County and the areas immediately around it will be solved by the giant project which is expected to begin at the end of 2003 and will be completed by 2005. Half of the 8.1bn-forint cost will be paid for by the EU and 40 per cent of it by the Hungarian state. The remaining 10 per cent will have to be paid by the some 300 affected cities, towns and villages... The project will solve, for the next 30 years at least, the safe processing of the 150,000 cubic metres of annual waste... 
Selective waste collection so far restricted to packaging material but covering the entire city began in Gyoer in western Hungary, in April 2001- the first such process in Hungary... Waste disposal islands were set up to collect metal, food and beverage boxes, glass and plastic bottles and paper waste... 
It is planned to operate for 50 years. It will process 2m cubic metres of waste not just from the seat of Nograd County but also 25 villages around it... Selective rubbish collection has not so far proved a success... It could be said Salgotarjan and its region have the means to receive selected rubbish in a European manner but a good method is missing so far and so is, perhaps, the will among the city's residents.

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FINANCIAL NEWS

Two-thirds of top-100 firms owned by foreigners

The Hungarian economy is becoming concentrated, the Top-100 list prepared by the Ecostat economic research institute reveals. In 2001, the net production of the 100 largest Hungarian corporations amounted to 33.1 per cent of the performance of all leading firms with double book-keeping, or one-fourth of Hungary's GDP, Nepszabadsag web site has reported. 
Unlike the method applied in other, regularly published lists, Ecostat ranks corporations not according to the size of sales revenues, but based on the so-called added value (by deducting from the product value material costs, investments of a material character and other expenditures). 
The results indicate that the weight of large corporations has increased in the Hungarian economy: 14 firms had sales revenues of more than 100bn forints and the number of firms with sales revenues between 50bn and 100bn forints has increased to 32. [One dollar is about 240 forints.] The profits of the 100 firms added up to 552bn forints before taxes; this amount, however, includes a 43bn forint loss incurred by transportation and communication corporations among the Top-100. According to Ecostat calculations, the 100 leading firms produced 42 per cent of the pre-tax profits of the entire competitive sphere. 
Significant foreign capital is present in the Top-100 corporations; in two-thirds of the large corporations, the foreign share of the subscribed exchange capital exceeds 50 per cent. Thirty-nine of these corporations are wholly foreign-owned, and in 69 firms, the foreign ownership ratio exceeds 80 per cent. 

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FOREIGN INVESTMENT

Stanley Electric opens lighting plant in Hungary


Japanese producer of automotive lighting, Stanley Electric Co. Ltd., announced it has opened its European production plant in Gyongyos, northern Hungary. 
Under the agreement, Stanley Electric will make 300,000 lights at the beginning and expand that number to one million in three years' time, Bloomberg quoted Stanley Electric President Takanori Kitano as saying.
The Japanese firm will not pay local taxes for a three-year period and it has received HUF 100m in government subsidies to inject into the facility, worth HUF 2.3m. Sales should amount to HUF 2 billion in the group's first year of production.

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INFORMATION TECHNOLOGY

IBM announces closure, job cuts at Hungarian facility

Hungary and IBM, one of the world's top computer companies, recently talked about the closure of IBM's plant at Szikesfehirvar, Hungarian Economy and Transport minister, Istvan Csillag, was quoted as saying by Econews.
According to Csillag, the negotiations had failed to stop the closure and 3,400 workers will be made redundant. "They will receive generous severance packages," Csillag said. "The government and ITDH plant to find a new investor for the abandoned plant," Csillag noted. IBM recently disclosed plants to close its Hungarian unit despite its sixth position on the domestic market.

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PRIVATISATION 

Hungarian state agency to accelerate privatisation, start sell-off of banks


Some of the state's shares in Mol [Hungarian oil company] might be sold in 2003. The APV Rt [State Privatisation and Assets-Management Joint Stock Company], however, does not expect to privatise Richter [chemical and pharmaceutical company] next year. It was also said at the agency's news conference that preparations had not yet begun at any of the companies. The assets-management body expects privatisation in the next two years to be worth 500bn-600bn forints.
Gyoergyi Balla reported for Hungarian Radio: Privatisation will speed up in the future, Tamas Meszaros, chairman of the state assets-management joint stock company, said. The reason for this is that the losses of the state-owned companies had increased in recent years. It is therefore necessary to reconsider what must definitely be kept in state ownership.
Tamas Meszaros mentioned, by way of example, the Dunaferr [steel company] and Babolna [state farm] joint stock companies. The APV Rt will present its plans for the latter's privatisation to the government soon. The aim is for the privatisation to take place while keeping the company in tact, the chairman pointed out. He continued: "In the future the APV Rt must create the funds necessary for assets-management. This will no longer be supported by the budget..." 
The privatisation of banks is also to get under way. The APV Rt decided to sell the Postabank, the Konzumbank and the Foeldhitel es Jelzalog Bank [Land Loan and Mortgage Bank]. According to Deputy Managing-Director Marton Vagi, the market situation at present is favourable for the sale of banks. There is a lot of interest in the Postabank and more than 10 investors had contacted the APV Rt in this regard. In the case of the Foeldhitel es Jelzalog Bank, investors are expected who will increase the bank's capital before privatisation.

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