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hungary

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  HUNGARY

REPUBLICAN REFERENCE

Area (sq.km)
93,200

Population
10,300,000

Capital
Budapest

Currency
Forint

President
Arpad Goncz

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 January 2002

The Hungarians are in the vanguard in entering the EU among Central European nations. They have completed 23 of the 30 'chapters' or preconditions of entry, laid out in the acquisition communitaire. These include ones on justice and home affairs, of especial importance after 9:11.
The Belgian presidency of the EU is responsible for negotiating the competition, taxation, environment, company law and justice and home affairs chapters. The Belgian ambassador to the EU, Frans Van Daele who chaired the accession negotiations, said Hungary had set a precedent for other entrants who had to introduce visas for external borders well ahead of time.
Hungary's ability to meet EU requirements before the others, Poland having been a particular laggard, for instance, is not so surprising. It has about the most successful transition economy of all. Its reformers were already modernising both economy and society even under communism. A series of reform governments since have turned it into the 'Pannonian tiger' a success story comparable to Ireland's, the 'Celtic tiger.'
One very good reason for that is the large influx of foreign investment, over US$20bn, or more than US$2,000 per capita. Budapest has long had a cosmopolitan feel and is in an excellent location on the Danube, making it the obvious headquarters for many multinationals' Central European operations.
One problem is that the FDI is concentrated in Budapest and has had less impact in the regions, particularly to the east. But one good development here is recovery under way in neighbouring Ukraine. The whole zone is promising to pick up together in an contracyclical manner to that of the ailing EU economies right now. Growth of GDP, however, is 4% in 2001, down on 2000's 5.5%.
Even Ireland's rapid growth has slowed down, but Hungary still has scope for massive growth, having started out a decade later and having come from a lower base.
The Fidesz government of Premier Viktor Orban is conducting affairs efficiently and expeditiously, as with the EU talks. Inflation in nearly double figures needs to be reduced if the next ambition is to be realised, entry into Euroland. Hungary is really coming back into the European family of nations.

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AUTOMOBILES

Raba to assemble Mercedes trucks, bid in army tenders


At the unveiling of a new military vehicle developed jointly with Germany's Daimler-Chrysler, Hungarian vehicle manufacturer Raba Rt announced the formation of a joint venture between the two companies to develop further vehicles to be manufactured in Hungary, the Budapest Business Journal has reported.
The first vehicle to be jointly developed is a twin-axled military truck, with a payload of six tons and a power output of 280 hp. Production is planned to start in the third quarter of 2004, with around 2000 units a year planned in the initial production phase. While Mercedes will provide the engines and gearboxes, Raba will manufacture the chassis and other major components. The trucks will be assembled by Raba in Hungary and will be sold on world markets with the Mercedes badge, except on the Hungarian market, where they will be marketed under the Raha logo.
The new company with does not yet have a name, will be a Kft (limited liability company), with registered capital of "over €10m," Raba CEO Lazlo Steiner said. He added that the joint venture, which will be 30% owned by Raba and 70% by DaimlerChrysler, will have a development budget of €30m, and will have the task of developing a new range of vehicles to be jointly manufactured in the future.
The special vehicles division of Raba will take over from the bus assembly division, as part of the company's streamlining programme. The former bus assembly division will, however, continue to make bus chassis for Ikarus Custom-made Bus Factory Kft, which now in the possession of IrisBus-owned IkarusBus Rt.
Steiner also said that Raba plans to sell off the Gyor city-centre premises of the division, either for residential or commercial development. The special vehicles division will eventually move to refurbished hangars at a disused airport near Gyor, where the chassis manufacturing operation is already located. The airport was built during World War II specifically for use by Raba, which at the time also assembled aircraft.
The co-operation between Raba and DaimlerChrysler started in November last year, when the two companies agreed to jointly enter a tender to supply the Hungary military with vehicles. The results of the tender have yet to be announced. Steiner said that while the tender is important from the point of view of orders for the new truck, the joint venture is not dependent on winning the government order.
Hans-Jurgen Wischhof, vice president of DaimlerChrysler's Unimog division, said that the consortium is also bidding in a British tender to supply 9,000 military vehicles and has been invited to bid in a similar Belgian tender.
Raba is 105 years old and has supplied the Hungarian military with vehicles since 1916, when it received an order for 400 units of its V-Type transportation and haulage vehicle. The change of political system in 1989 caused Raba to lose its Soviet Union market and the company is still undergoing restructuring. A major part of this reorganisation, announced earlier this year, is to elevate the company's special vehicles division - responsible for the new vehicle - to core activity status, along with two other divisions: chassis and component manufacture.
Steiner said that according to plans, special vehicles will account for around 30% of Raba's revenue by 2005. In early November Raba reported third-quarter profits down 63% as US clients cut orders amid slowing economic growth. The company's sales fell 27% to Ft11.5bn (US$40m) in the first nine months of 2001.

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AVIATION

Malev to purchase Boeing 737 New Generation aircraft


Hungarian flagship carrier, Malev, has announced that it will lease 10 Boeing 737 New Generation aircraft within the next two to three years as existing leases expire, MIT-Econonews New agency has reported.
The carrier also has the right to engage another six aircraft. With this agreement, the carrier will be permitted to switch its 15 Boeing 737 Classic airplanes and run one of the most state-of-the-art fleets by 2004, MTI-Econews wrote.
International Lease Finance Corp, and Malev inked the agreement in Los Angeles. This agreement will also cut the Hungarian carrier's leasing spending from current levels. The new aircraft highlight better fuel consumption and need less maintenance.

Malev Northwest Airlines sign co-operation agreement

Hungarian flagship carrier, Malev, has signed a co-operation agreement with the US-based Northwest Airlines, New Europe has reported. With this deal, the two airliners will be able to offer "smoother" connections via Budapest's Ferihegy airport and Schiphol I Amersterdam for Malev's 38 European and Northwest's 214 North American destinations, according to Hungary AM. Travellers will now have the luxury of checking in their baggage directly to their destination because of the jointly run flights.
This existing contact is contingent on a co-operation framework deal inked between Malev and Dutch airline, KLM and could be the key for a further closer partnership, Malev was quoted as saying.

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BANKING

MKB trims operations abroad


The chief executive of the Hungarian Foreign Trade Bank Rt (MKB) said recently that the bank plans to sell its 100% stake in Convest Banka d.d. in Croatia, following the purchase of Croatia's third biggest bank, Ruijecka Banka, by MKB's majority owner, Bayerische Landesbank Girozentrale, Budapest Business Journal has reported.
MKB President-CEO, Tamas Erdei, made the announcement when presenting the bank's nine-month results in Budapest in late November.
Meanwhile, executives of MKB, Hungary's third largest bank in terms of total balance sheet, said it will close down its representative office in Bratislava early next year.
Concerning MKB's Croatian subsidiary, MKB's marketing and communications director, Janos Muller, said several financial institutions have expressed an interest and the bank will be sold sometime next year. But he added that talks are at a very early stage.
MKB and its German parent bank said they agreed that it does not make sense to have two separate banks in the same country, according to Muller. He said that the German bank also considered merging the two Croatia banks, but decided that this would take longer than simply selling Convest Banka, given that Rijecka Banka has several different shareholders.
Bayerische Landesbank owns a 51% stake in Rijecka Banka, while the rest is held by the Croatian state and some other small shareholders.
Convest Banka, which focuses on corporate clients is one of the smallest banks in Croatia, with total assets of 139.41 million Croatian kuna (US$16.82m) at the end of September. The bank posted pre-tax profit of 2.7m kuna at the end of September. MKB acquired a 33.33% stake in Convest Banka in March 1998 and the remaining stake in December 2000.
"The bank is profitable, but too small," said a Zagreb-based banking consultant who declined to be named. "Purchasing the bank would effectively mean just buying an operation licence."
Explaining the MKB's decision to close down its six-year-old representative office in Bratislava, Muller said the office's business can be executed by the bank's branch offices in Hungry, such as the one in Gyor, which has developed contacts with Slovak corporations.

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CHEMICAL INDUSTRY

TVK, BorsodChem sign 10-year ethylene supply contract


TVK and BorsodChem, the two leading chemical groups in Hungary, have inked a 10-year deal for the supply of ethylene, ISI-Intellinews cited the Hungarian daily 'Magyar Nemzet' as saying.
Talks between the two companies were long-drawn out and extensive. The deal must be given the green light by TVK shareholders at the next general meeting, scheduled for April 26th 2002. This contract was significant for both parties because TVK hopes to boosts its capacity and BorsodChem aims to open a new facility, which will require continuous an ethylene supply to keep running.

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ENERGY

MOL unveils new refinery, environment important


Hungarian oil and gas company, MOL, has unveiled its new refinery located at Szazhalombatta. Istvan Stumpf, the head of the prime minister's office conducted the inauguration.
According to MOL President and CEO, Zsolt Hernadi, the HUF 60 billion facility will play a key role in the country's environmental investment because it will permit the company to refine some end products, which are high in sulphur. MOL will also be able to convert the waste into petrol, MTI News Agency reported.
The oil and gas group also raised its production of petrol and diesel thanks to the green investments at the Szazhalombatta locale for the last four years. 

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FINANCIAL NEWS

GERMAN Arag to offer services in Hungary


Arag Rt, a Hungarian litigation insurer and subsidiary of German Arag International was given the green light by financial market watchdog, PszAF to open its doors in Hungary, MTI-Econews News Agency quoted Managing Director Atilla Borbely, as saying. The company's operation will begin in December.
Arag's registered capital of HUF 250 million should cover start-up costs for the next four years as the subsidiary anticipates it will report a profit figure in 2005. Costs will be maintained at a low level, as Arag's staff will total only six. Although the subsidiary did not discount future collaboration with other regional insurers, Arag's distribution channels would be comprised of insurance agents and agencies. At the start of operations the Hungarian subsidiary will offer only litigation insurance attached to third-party car insurance.

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FOOD & DRINK

Eurofood to invest in canning plant


Eurofood 2000 Bt, a food processing group, plans to inject HUF 150 million in the construction of a canning facility in the Bekescsaba-based Almaskert Industrial Park, Eurofood 2000 head, Tibor Fodor, said.
Eurofood 2000 will transfer its tinned liver paste production line to Bekescsaba from its Ujkigvos plant. April 2002 is the anticipated date when the construction will begin and the company should begin operating six months later. 

Globus Konzervipari clinches deal with Unilever

Globus Konzervipari Rt, a Hungarian canned food maker, has secured a preliminary contact with Unilever Magyarorszag Kftto to acquire freezer equipment at the Baja-based Uniliver facility, in addition to a licence to produce goods with the Iglo trademark.
Both companies will sign a final agreement by the end of December, MTI-Econonews News Agency quoted Globus board member, Jehn Jozsef as saying. No additional information on the purchase price or when the Iglo brand licence will be valid was disclosed. Globus will expand its capacity to 17,000 tonnes of frozen food from 15,000 tonnes, the company said in a statement. Globus also said it would assume agreements with producers and customers at the Baja facility.
Globus Group estimates that 2002 net revenue will grow 21 per cent and pre-tax profit will rise 25-30 per cent.

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TRANSPORT

MAV calls for loan for locomotives


Hungarian State Railways Rt (MAV) and regional railways GySEV Rt signed a Ft 12 billion (US$41.8m) loan agreement at the end of November, the Budapest Business Journal has reported.
MAV will spend Ft 8 billion of the loan to purchase ten two-system locomotives and GYSEV will buy five two-system locomotives using the remaining Ft 4 billion.
The loan from German state-owned development bank, Kreditanstalt fur Wiederaufbau (Kfw), has a maturity of 15 years and is guaranteed by the Hungarian state. Also present at the signing of the loan agreement was Minister of Transport and Water Management Janos Fonagy, who emphasised that as Hungary prepares for EU accession in 2004, the ministry has given priority to technical development in the transport sector.
Hungary will be able to use the two-system locomotives abroad when EU railway lines are opened to the country after its accession.
Germany's Siemens AG will deliver all the 15 locomotives by December 2002. The first ones can start running as early as April 2002.

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