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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%

  

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: 075 - (28/07/03)

New initiative on gypsies
The new ex-communist government in Hungary is taking an initiative, along with Hungarian-born US financier George Soros and the World Bank, to improve the living standards of the Roma gypsies of Central Europe.
Gypsies in Hungary are actually better off than elsewhere in Central Europe. But 40% of them live below the poverty line, defined as US$4.30 per day. Verily the World Bank president, James Wolfensohn, is right when he avers: "The conditions in which most Roma now live are unconscionable."
The Hungarian premier, Peter Medgyssey, has set up a task force to attain development targets to be met between 2005 and 2015. It is well understood that the task will have to be long term and is a daunting one. The prejudices against Roma are every bit as great as anti - semitism ever was. More Roma died in the Holocaust as a proportion of their total numbers than Jews. The irony is that the Jews were resented for being too successful, the Roma for being too unsuccessful; yet both for being different and plainly the Other.
The initiative marked the culmination of Roma in an Expanding Europe, a three-day conference involving Roma groups, politicians and government officials from the region, the European Union and international organisations, including the World Bank.
As part of the plan, the World Bank has proposed a Roma education fund designed to attack the problems of poor schooling and subsequent unemployment. Medgyessy said the "extraordinary level of commitment" from all participants at the conference gave him full confidence of success for the new proposals.
The task is daunting. Expansion of the European Union will bring an estimated 5m more Roma into the Union, making them the largest ethnic minority in the EU and creating a huge challenge for the authorities, Anna Diamantopoulou, the EU employment commissioner, said.
Ms Diamantopoulou promised the strongest possible EU support for the new initiatives but said that while the EU was committed to assisting Roma to achieve a dignified and decent living standard, Roma too must expect change in some sensitive cultural areas.
"When fundamental human rights and certain traditions or practices collide, then it is the traditions that must adapt, and the human rights principles that must prevail. It will no longer be acceptable to treat children as adults, denying them the education and training they will need in order to help build a better future," she said.
Roma participants, some of whom detailed harrowing stories of depravation and human rights abuses by the authorities, cautiously welcomed the initiatives.
"This is a start but Roma should be more involved in the mechanisms for themselves," said Dezideriu Gergely, a Romanian Roma activist.
The countries involved in the task force are Hungary, Romania, Slovakia, Bulgaria, Croatia, Serbia and Montenegro and Macedonia.

The economy recovers
The Hungarian economy is bucking the general European trend in that it is actually growing, by about four per cent annually in the 2000s. But this is to be expected coming as it is from a low base.
In terms of structure and financial dispositions the economy is already on a par with the EU, which Hungary joins in May next year. It is just a matter of time before it catches up and in the process offers foreign investors a golden opportunity to cash in. More than US$20bn of FDI has already come in, which is some US$2,000 per capita, one of the highest levels in the world.
Nevertheless, unemployment remains high, particularly outside of the capital Budapest, where it is about 10%. Over 20% in many rural areas - and Hungary is an agricultural country - this reflects the inability of the economy to create new jobs for those losing farm jobs in the face of increased mechanisation and rationalisation.
It is also a sobering thought that 13 years after the end of communism, state employees - teachers and doctors included, regard themselves as substantially worse off than they were under communism - not to speak of the pensioners, the biggest losers in the new market economy.

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AGRICULTURE

Hungarian farmers' body says 100bn forints instant aid needed to handle crisis

The agricultural interest representations consider that as a first step, an instant 100bn-forints aid is needed to handle the crisis which is affecting the sector, Kossuth Radio, Budapest, has reported.
The Hungarian Agricultural Chamber and the Alliance of Hungarian Agriculture Cooperatives and Producers formulated their proposal in a statement which, amongst other things, urges the expansion of preferential loans.
The organizations have proposed that the government finance the crisis by issuing state bonds for 15 years and that the sums gained this way should be put at the disposal of agriculture enterprises together with subsidized interest rates.

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BANKING

Banking sector records higher assets and taxes

The Hungarian banking sector's combined pre-tax profit rose 40.4 per cent in the first quarter of this year to HUF 58.7 billion, according to the quarterly report on financial sectors of the State Supervision of Financial Institutions (PSZAF), Interfax News Agency has reported. The sector's profitability shows no signs of the overall slowing of the Hungarian economy, PSZAF official, Gyorgy Szepesi, told reporters.
Although approaching European Union accession lowers the overall liquidity of the banking sector in the long term, the liquidity of the sector grew significantly in January, according to the report. This was due to the speculative attack against the currency system, when several billion euros entered the sector. Direct foreign ownership amounted to 79.5 per cent of registered capital in the banking sector in the first quarter. Profitability of financial enterprises more than doubled.
Total assets of financial enterprises rose by 10.6 per cent in the first quarter since the end of last year, but 52.5 per cent compared to the same period of 2002. Concentration of the sector is still high, with the largest 20 companies, representing 10 per cent of all firms, accounting for 70.5 per cent of the combined total assets of the sector. Leasing and factoring firms rose faster than the average in the period.

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ENERGY

Russian Yukos oil company signs 10-year contract on oil delivery to Hungary

Mol Rt [Hungarian oil and gas company with subsidiaries in neighbouring countries] and Yukos [Russian oil company] have signed a contract on mineral oil delivery in the presence of the Russian and Hungarian foreign ministers in Budapest, Kossuth Radio has reported. 
According to the 10-year contract, the second largest oil company will deliver 7.2m tonnes of oil per year to the Hungarian company, to Hungary and Slovakia. Due to the contract, which will become effective next year, the oil to be delivered will supply enough oil for 55-60 per cent of Mol's refinery capacity. The current fixed-price accounting will be replaced by a system based on world market prices.

Mol clinches 600m Euro credit with Bank syndicate

Mol, the Hungarian oil and gas concern, has signed a new 600m Euro multi-currency revolving facility agreement with a syndicate of international banks, Interfax News Agency has reported. The 600m Euro commercial bank facility has a maturity of five years with bullet repayment and carries an interest rate of Euribor plus 47.5 to 65 basis points, subject to a margin grid based on the net debt to EBITDA ratio. The proceeds of the facility will be used for general corporate purposes.
The transaction is the largest recorded bank facility in Hungary to date, as well as the largest recorded unsecured bank facility in the oil and gas sector in Central and Eastern Europe, Mol said, citing data from Loanware.
The amount increased from 500m Euro due to the heavy over subscription in the syndication process, according to Mol. The company intends to conclude its future financing deals with the same documentary conditions included in the present syndicated facility.
The current facility is considered part of a planned major 750m Euro financing package to be concluded this summer. "The size and terms achieved in the new syndicated loan facility clearly show the strong support of Mol's partner banks and their high level of commitment towards the company's strategy in Hungary and in the region," the company statement said.
Authorised lead arrangers of the loan are BNP Paribas, ING Bank NV and JPMorgan Chase Bank.

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INFORMATION TECHNOLOGY

IBM, ING open financial centres

Following similar moves earlier by beverages maker Diageo Plc and General Electric, both IBM Corp and ING NV announced plans recently to make Budapest a centre for their financial back-office operations.
Hans Ulrich Maerki, chairman of IBM's operations in Europe, Middle East and Africa, opened IBM's global financial services centre in Budapest.
"From July 1st, the centre will handle accounts payable to IBM in every country," said Ildiko Radocz, communications and marketing manager for IBM Hungary Kft.
IBM was attracted by the high-level of expertise available, according to Radocz. The next stage is to offer global outsourcing services to other companies, she added. "We are now ready to share e-business experience with other companies," she said. The centre employs over 100 workers, but new jobs are expected as business expands.
Recently, ING NV, Europe's fifth-largest financial services company, was reported to be planning to open an administrative centre in Hungary to handle corporate payment traffic for 11 European cities.
According to a Bloomberg News report, the centre is intended to reduce costs and improve service. The Hungarian operation centre will employ about 250 workers, mainly computer services employees.

Internet on tap

Rajiv Kapoor and Gabriella Pljesovszky believe access to the internet should be as easy as plugging in your TV, the Budapest Business Journal reported.
They are two of the entrepreneurs behind JB Kft, a venture touting the latest gadget that enables users - provided they have one internet connection - to channel it onto multiple terminals through existing electricity lines.
This provides a convenient way to provide internet access throughout an office, an apartment, a housing block or even a monastery, they say. It removes the need to drill holes through walls or walk through a dense tangle of cables.
"The technology is not entirely new, but it is new in the sense it works properly," says Pljesovszky, managing director and also a part owner of JB.
JB holds the exclusive Hungarian distribution rights for Ethernet adapter Corinex Intelligent PowerNet, which comes from Canadian innovator Corinex.
Pljesovszky explains that the company is focusing mainly on small-scale retail sales.
"It's the easiest way to network up your home. We have connected two people's apartments, while an ISP can rig up complete blocks," she says. 
Corinex PowerNet works like a traditional LAN (Local Area Network) for computers and uses an apartment's already existing electrical wiring as a medium for communication, with no wiring required between the computers. It also enables network sharing and does not require expensive installations of base stations.
Two boxes are required that cost Ft 25,900 (€98.7) each, including tax. On top of that, a router costing around US$40 will allow a user to connect multiple computers using two devices, according to Kapoor, a native New Yorker and majority-owner of JB.
At a speed of 14 Mbps, Corinex operates at about 30 times the speed of an average ADSL, Plesovszky explains. It is also fully encrypted, snuffing out the danger of hackers, she says.
She adds that users do not have to access the internet at only one given point, which is currently the case with most high-speed internet services, but can do it practically anywhere up to 200 metres from the device. The technology has the advantage over wireless of being faster in certain instances and more reliable, she says.
The product is only just hitting the market. Some early customers include Pannonhalma Monastery in Western Hungary and ceramics importer, Mediterranean Keramia Kft, Pljesovszky says.
Interest has come from individuals, small businesses, ISPs, hotels, local municipal offices in the Danube Bend area, and the administrators of a number of historical buildings.
The product is particularly suited to historical buildings as no new lines have to be installed and there are no wires required to run between computers, Pljesovszky notes.
JB also offers PCI cards and USB adapters, also from Corinex, that perform the same function.
Kapoor says JB aims to gain a lead over bigger rivals with this technology - and any others that Corinex may soon develop.
"Corinex has the necessary certification to sell the product across Europe, and on a worldwide scale there are a lot of companies that haven't got approval to sell similar products here. By the time they get approval we'll have new products at our disposal," Kapoor says.
"Corinex is already working on bigger devices for a larger amount of users," Pljesovszky says, giving an example of the new products the Canadian company may bring out.
She added that each building is different and that new solutions will make connectivity more powerful. These solutions will also work on wireless access points and integrate powerline technology with wireless.
The pair came across Corinex a few months ago, thanks to a friend who scans the world market for ideas. The twosome then contacted Corinex and struck a distribution agreement.
Ultimately, JB is hoping to sell Corinex devices in Hungary through retailers such as Qwerty Computer Kft as well as other chains.
"First we plan to sell this in Hungary, but it's in the back of our minds to do the same in other countries," Kapoor says.
Kapoor and Pljesovszky believe they can carve out a niche for themselves by bringing new internet technology to the market ahead of the rest of the field. "Our aim is to introduce tech products before they become a commodity," Kapoor says.

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TELECOMMUNICATIONS

Matav clinches contract with alternative provider

Hungary's dominant telecom, Matav, has signed an interconnection agreement with alternative provider eTel Hungary Kft, Matav said in a statement, Interfax News Agency has reported.
The agreement is based on Matav's reference interconnect offer (MARIO) approved by the Communications Authority in May this year, and creates the conditions for physical interconnection. The two companies signed a temporary interconnection agreement in May 2002, which enabled the companies to prepare and implement network interconnection before the approval of Matav's RIO without "having to undertake final commitments in respect of the contents of the interconnections agreements," Matav said.
The new agreement applies prices based on the long run incremental cost (LRIC) methodology, as required by law. Etel is the first company to sign an interconnection agreement with Matav based on the approved MARIO.

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TRANSPORT

Postabank sale revenue to pay for road expansion

The government intends to finance the expansion of the M5 motorway all the way to Szeged, southern Hungary, using the revenue it expects this year from the privatisation of state-owned Postabank Rt, Economy and Transport Minister, Istvan Csillag, announced recently, the Budapest Business Journal reported.
While Csillag declined to disclose the expected revenue from the bank's sale, he said the construction of the 40-kilometre highway section will cost Ft 60bn (€228m). He also said that the State Privatisation and Holding Rt (APV) expects approximately Ft 190bn revenue this year, of which the planned sale of Postabank and Konzumbank Rt would account for 50%.
Reporting on a cabinet decision taken recently, Csillag said National Motorway Rt (NA) is ready to continue building the motorway on its own if unable to reach an agreement with Alfold Concession Motorway Rt (AKA), the company that holds concession rights to the M5 motorway until the end of 2003.
According to Csillag, the government is in a good negotiating position, because AKA needs government approval to get refinancing for a loan it took earlier for the construction of the first section of the M5 motorway.
Talks about the refinancing transaction, which would give AKA more favourable payment terms, are currently going on between the European Bank for Reconstruction and Development (EBRD), AKA and the Hungarian state. According to Csillag, the EBRD would not agree to the deal without the government's approval.
In total, the government expects to spend Ft 270bn on highway construction between 2003 and 2006, Csillag announced.
In the near future, a new bridge in Szekszard, southern Hungary, and a new section of the M9 motorway linking highways No 6 and No 51 will be completed.
This spring the construction of a section of the M3 motorway between Polgar and Gorbehaza was resumed. Other projects launched at the same time included two sections of the M7 motorway - between Becsehely and Letenye - and a section of the M70 between Letenye and Tornyiszentmiklos. These projects are scheduled for completion by late next year and early 2005.
According to Csillag, the construction of one kilometre of motorway is expected to cost Ft 1.5bn

Construction of Bucharest-Budapest road to start 2004 - Romanian minister

The construction of the Bucharest-Budapest motorway will start in the spring of 2004, and it is to be finalized by 2009, Administration and Interior Minister, Ioan Rus, was quoted as saying by daily Economistul, Rompres News Agency has reported. 
Rus said that the memorandum referring to making the motorway was signed with the US company, Bechtel. The Administration and Interior Ministry is to postpone until the start of the works all the issues related to legislation, employment of construction workers and the terrain ownership. 
The motorway is to cross Romania through the cities of Brasov (centre), Targu Mures (centre) Cluj and Oradea (west). 
The estimated value of the investment amounts to 2.5 million Euros, a sum that will be ensured with help from several international financial institutions: Eximbank US and the European Investment Bank, with material collateral offered by the Romanian state.

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