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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: 069 - (28/01/03)

The Hungarians are being billed for a major role in the coming war in Iraq, or rather in its post-Saddam pacification (assuming all goes well). As part of NATO, Hungary is now seen as a convenient location by US army officials for training Iraqi opposition forces.

NATO neophyte
So far Hungary has not exactly covered itself with glory as a NATO recruit. Still, it played a decisive role in the conclusion of the Kosovo war in 1999 when it refused Russia air space rights to reinforce the 200 Russian troop contingent in Pristina, a naked attempt by Russian hardliners to establish a 'Russian Sector' in the province, that would have been a haven for the Serbs. Bulgaria and Romania also played their part here.

Iraqi opposition assembler
Now Hungary is being groomed as the site for the Iraqi opposition to train and prepare for action in Iraq. The Taszar air-field, 200km south of Budapest, is already a US base. It will host 3,000 Iraqi opposition troops after January 25th. They are being brought from secret assembly centres in the US and other Western countries. The call-up launches the biggest US effort to train Saddam's enemies since the passage of the 1998 Iraq Liberation Act, which called for his overthrow and authorised millions of dollars to train and equip his opponents.
The small town of Taszar in southern Hungary might seem an unlikely venue for forces readying themselves to topple Saddam. But construction is very much under way at the base, where 150 US military police arrived in early January.
The anti-Saddam forces are being screened for pro-Saddam agents. Hungary has made it a condition that the Iraqis will not receive 'combat training.' But both US and Hungarian officials admit that the Iraqis will receive training in "self-defence and the use of handguns." One senior Hungarian official told the Times: "We are training people that will help the Allied forces. They will be scouts, guides, liaison officers and they will go in with US and British troops."
The US general in charge at Taszar, Major-General David Barno, said that some of the trainees may have already received military training. Some of them, he added, could be used as "rear area security forces such as guards."
After completing their training in Hungary, the volunteers would be taken to an intermediate staging base before embarkation to Iraq. Locations are being still finalised.
Taszar has been used by the military since December 1995, when it transformed the Hungarian army and air force base, formerly part of the Warsaw Pact dispositions, into a logistics post for the NATO peacekeeping operation in Bosnia. Allowing the US to use Taszar in any Iraq operation is a bold departure for the Hungarian government, especially consisting, as it does, of ex-communists, says the head official: "Hungary is making a huge contribution to the Iraqi operation by saying 'yes' to this training. This is a quality contribution and not without risks. You cannot be more visible than by training the opposition, so let's not underestimate the magnitude of this."

FDI to the fore
Hungary is shaping up as friendly to Western interests in other ways too. It is welcoming to FDI in the main, even if there have been teething problems. FDI topped US$20bn early in the decade.
The ex-communists are curiously more keen to attract foreign investors than the previous government of Fidesz under former premier Viktor Orban, just as they are keener on Europe. The ex- communists want to see Hungary as a prime support of the EU as well as NATO.

The economy founders, but trade is booming
The economic climate is not conducive to optimism right now, whether in Hungary or its neighbours. Nobody is expecting strong growth in the EU this year and expectations for exporters are low. Unemployment and inflation are on the rise; and household economics confidence, according to Ecostat, has shrunk.
The current account deficit has soared from 920m Euro in first 11 months of 2001 to 3.179bn Euro in the same period of 2002. Imports rose by 16.3% year-on-year in November, while exports rose by 14.8%, an impressive performance, fuelled by multinational companies finally selling their wares abroad on a massive sale.
Hungary can finance its deficit by more FDI, having entered a virtuous circle of inward investments and export - led growth, even while imports soar even faster to feed the consumer boom. Basically, Hungary is on track to become a consumer society of a Western stamp in the course of the next few decades.

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AVIATION

Airport Business Park secures 3 new lease deals

AIG/Lincoln Kft, a US owned property developer, said it has clinched three new lease agreements for the Hungary-based Airport Business Park, New Europe reports. Airfreight agencies FBI Air Kft, Starways Kft and Zoll Ages Sped Kft will take an active role in the park's development. These new deals secured a near two thirds occupancy rate in the 8,000sq.m first phase of building C. "Although work on the part started only two years ago, it has been mainly completed, and the first three phases of the park have been almost fully let," AIG/Lincoln's Marketing Director, Adrienne Konthur, was quoted as saying. "Construction of the second phase of building C, with about 8,000sq.m, began early in 2003, and several tenants already operating in the park have shown interest in taking up space in the new facility," she added.

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DEFENCE & ARMAMENTS

Hungary announces winners of Army's vehicle tender

In the next 15 years, Ikarus, Iveco [owned by Fiat] and Raba [Iveco is owned by Fiat while the other two are Hungarian manufacturers] will supply the Hungarian Army's vehicles. The result of the tender has been announced, Hungarian Radio has reported. The army will purchase vehicles for 230bn-250bn forints over the next 15 years. 
Mark Kocsis for Hungarian Radio reported: The three firms which, according to the announcement have won the Hungarian Army's vehicle tender, undertook the supply of 8,000-10,000 vehicles. Ikarus will provide trade buses, Iveco will supply vehicles used on public roads while Raba will deliver military jeeps for 230bn-250bn forints... The winners promise to supply the most modern transport vehicles possible. 
Ferenc Dese, head of the army's purchasing section, said that so far decisions had been taken about specific orders totalling 7.2bn forints. This year and next, the suppliers will deliver some 400 vehicles and these will be commissioned as early as October this year... 
The three suppliers will cooperate with each other in a number of ways. For example, Iveco will supply Ikarus buses with motors and Raba with chassis.

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ENERGY

AES Power gears up for retrofit project at Tisza II

AES Tisza Power Plant has clinched a 99m Euro financing deal, underwritten by Credit Lyonnais, AES said, cited by Interfax News Agency. The money will be spent on payments for the implementation of the retrofit project at the Tisza II power plant.
According to Interfax, the retrofit of the four generating blocks, with a combined capacity of 860 MW, will help extend the life of the facility by another 13 years. The retrofit meets EU environmental rules and a long-term power purchase agreement with MVM, the Hungarian power monopoly. A member of AES Corp, AES said the first generating unit will be taken off line next September.

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FOREIGN ECONOMIC RELATIONS

Hungarian premier praises "transparency" of deal with Russia

After several hours of bargaining, a deal on settling the Russian state debt was reached on 21st December. According to the document, Moscow undertakes to pay Hungary, within one month, US$90m - that is more than 21bn forints - of the accumulated debt. The prime minister, Peter Medgyessy, who was returning home from the Russian capital, said that a decent agreement was reached which would resolve the protracted affair without the use of mediators, Hungarian TV2 satellite service has reported. 
The prime minister did not bring the US$90m in his bag from Moscow, but according to the agreement, the Russian partners will transfer this to the state treasury within one month. The deal reached at dawn means that Moscow will settle its debts at an overall exchange-rate of 36 per cent. This is 5 per cent better than the previous offer. According to Peter Medgyessy, the agreement rules out a situation in which anyone makes a profit out of the payment. 
Medgyessy said: "The value of the agreement lies in its transparency. A state reached agreement with a state. There is no mediator of any type, no middleman, no private bank, nor are there cronies who might have mediated." 
Armoured combat vehicles also arrived in Hungary by way of payment for the Russian state debt which once stood at US$1.7bn. The governments obtained primarily military technology and vehicles in exchange for the debt. 
Approximately US$400m remains now of the debt; rail-buses will be delivered to MAV [Hungarian State Railways] fto cover US$100m of this. The fate of the sum which was not tied up was sorted out in Moscow.

Hungarian exports to Russia expected to increase 10-fold 

Hungarian exports to Russia could increase 10-fold within a few years, the economic affairs minister, Istvan Csillag, who held talks in Moscow as a member of a delegation led by Prime Minister Peter Medgyessy, has said, Hungarian Radio reported.
Istvan Csillag also reported that Hungarian companies would be involved in the renovation of a hospital in Moscow. Raba, vehicle manufacturer, could sell bus engines. The Russians would deliver natural gas, oil and electricity in exchange.

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INDUSTRY

Another multinational firm to relocate production from Hungary to China

Another multinational firm is planning to cut its production in Hungary, owing to high costs, Hungarian Radio has reported. 
According to the plans of Phillips, the production of picture tube monitors will soon end in Szombathely, in western Hungary, therefore 500 people will lose their jobs. According to the company's statement, the production will be relocated from Szombathely to China. The director of the Labour Centre in Vas county said that so far they had not received any official information from Phillips. 
According to information obtained by "Chronicle," the main news bulletins on Hungarian radio, production will not cease in Szombathely, therefore the plant will not close either; the measure applies only to the production of older type of monitors.

Mazugip clinches light machinery making deal

Mezugip Rt, an agriculture machinery producer, has announced that it has inked a deal to produce light machinery for the construction sector, according to Econonews. To kick off in the first six months of this year, production will help bring in an annual turnover of HUF 1.74bn, company spokesman, Attila Baudermann, was quoted as saying.
Mezugip reported net earnings of HUG 353m on sales revenues of HUF 12.83bn in the January-September 2002 period. Baudermann said, "The company will be able to fulfil the contract using its existing production capacity and no additional investment will be required." The deal is with Benford Ltd., a member of the US-based Terex Corp.

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INFORMATION TECHNOLOGY

Government focuses on bringing the net to people, SMEs

Hungary's IT and Telecommunications Ministry will spend HUF 29bn (US$127m) on certain development programmes this year, Interfax News Agency quoted IT and Telecoms Minister, Kalman Kovacs, as telling MTI. The minister added that Hungary will concentrate on increasing Internet penetration and access.
But Kovacs noted the ministry has yet to determine how the overall amount will be split between tendering procedures and cooperation programmes. The ministry's objective is to ensure that 25 per cent of the Hungarian population will be connected to the Net within two years' time, and for all educational institutions to have "quality Internet access." Apart from this, more possibilities for public Internet access should be expanded, and the number of small- and medium-sized enterprises (SMEs) "with an Internet connection should double," the minister was quoted as saying. "The ministry aims to have the number of persons employed through distance work or telecommuting reach three per cent of the workforce by 2005."
Where the ministry sees potential growth is in content development and the improvement of equal opportunities, the minister said. "These areas are so large and complex that they can only be accomplished through inter-ministerial cooperation," Kovacs said.

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TEXTILE INDUSTRY

Unless government helps Hungarian textile sector dies - industrialists

The National Federation of Entrepreneurs and Employers has said that if the government does not do something urgently, the textile industry in Hungary will become completely insolvent, threatening the livelihood of 150,000 people, Duna TV satellite service has reported. 
Andras Pinter, chairman of the federation's textile and clothing section, told the TV's Newsreel that the insolvency situation had been caused by the raising of the minimum wage and the gradual strengthening of the forint. The latter, for example, had caused a loss of 200m euros to the industry. 
As a result of all this, a number of clothing factories have either gone into bankruptcy or tried to improve their situation by sacking workers en masse in the recent period. 
He said that the industry plays an important role in the Hungarian economy because its annual exports amount to 1.5bn euros, 4.4 per cent of the entire annual Hungarian industrial sales abroad... He said that, so far, he had seen no sign of any government intention to treat the sector as a special case.

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