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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: 073 - (27/05/03)

Pro-US foreign policy
The Hungarians are taking an independent line on Iraq, which angers the French and other anti-war states. This the Hungarian government does not mind a bit. As far as they are concerned Chirac is trying to run Europe like Bush is the world, by being a bully.
Premier Peter Medgyessy did not appreciate being told to 'shut up' by Chirac, because he signed up to the pro-war round-robin letter organised by Blair and Aznar. Indeed Budapest had committed itself heavily to a pro-US position last year when it agreed to a military base in the south of the country being used by the US to train Iraq exiles for deployment in Iraq. The Hungarians were very much 'on-side' and they can expect to be highly welcome allies in Washington.
The role that the Hungarians and Poles (the other pro-US state in Central Europe) have been allotted in the US hardline scheme of things is to be squeaky-clean New Europe, as opposed to nefarious Old Europe. Actually as British foreign minister, Jack Straw, indicated, the UK, the closest ally of the US, is Old Europe as well, founded by the French in 1066, which rather bursts that balloon.

Emphatically Yes to Europe
The Hungarians showed that they feel themselves to be part of Old Europe on April 12th, when a referendum on EU entry was overwhelmingly in favour. The population is totally convinced that their future was with the EU.
Curiously, the government party is that of the ex-communists (Medgyessy was exposed as a secret police informer in communist times) and yet they are the pro-EU party, not the rightist grouping of Fidesz, led by former premier Victor Orban. Just as the conservative Vaclav Klaus, president of the Czech Republic, has doubts about the EU project as having something of a socialist feel about it, certainly an elitist one, so does Orban, echoing here perhaps their common ideological mentor, Thatcher.
The voting pattern is of interest in itself. The majority in favour was 83.76%; but only 50% bothered to turn up and vote! On such an historic occasion one would have expected more to do so. Why not?
It was all too much of a foregone conclusion. There were predictably effusive statements acclaiming the result from predictable quarters.
"By voting massively for EU membership, Hungarians voters made it clear that they want to build a future inside a strong and united Europe," the Commission said. "I expect a snowball effect as a result of the Hungarian referendum, which could guarantee a similar outcome for nations that are to vote after your country," EU Enlargement Commissioner Guenther Verheugen was quoted as telling the Hungarian paper Nepszava.
Roger Briesch, president of the European Economic and Social Committee, said: "I am delighted with the result of the referendum concerning the entry of Hungary into the European Union. The Hungarian people's vote in favour of EU membership indicates its strong sense of belonging to Europe."
There is no appreciation by these establishment figures that whatever may be the merits of the matter most people in the EU find the whole subject a mighty bore. There is a need for some figure of weight to regalvanise the issue.
It is striking that no politician of pro-European views has attempted to carry his case to a pan-European audience right across the continent. German chancellor Schmidt once addressed the British Labour Party (in impeccable English) on the need for the UK to join the EU back in 1975. Tony Blair has addressed the French Assembly (in rather more peccable French) on the need for European cooperation
Given the prevalence of English today virtually everywhere, it is surprising that an English-speaking politician of whatever nationality has not taken up the cudgels for EU enlargement across the continent. Perhaps the reason is that it would make it too clear how everyone is under the US shadow these days, although English is after all not American, but the language of its closest ally. There's the rub.

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AUTOMOBILES

Audi to invest 1bn Euro in plant


Hungary's largest exporter, Audi Hungaria Motor Kft, is planning to invest around €1bn in its Gyor plant over the next five years, while the future of the plant after the last TT Coupe rolls off the assembly line remains undecided, executives said recently, reports the Budapest Business Journal.
"Audi expects to invest €250m in its factory in Gyor this year, and will invest €200m in following years if conditions remain the same," Managing Director, Jurgen Lunemann, announced during a recent visit to the plant by Economy and Transport Minister, Istvan Csillag.
"These investments are aimed mainly at increasing capacity and introducing new manufacturing technologies," said company spokesman, Peter Lore. However, despite the large investment plan, the fate of the plant after the 2005 shutdown of the TT Coupe line has yet to be decided, he added.
"We don't know what kind of successor the Audi TT will have, nor where it will be manufactured," said Lore.
According to business daily Napi Gazdasag, the Hungarian company is striving for the opportunity to manufacture another model for its German parent.
Parallel with the investments, Audi is also proceeding to lure several of its own and the parent company's European suppliers to Hungary.
"We have just conducted a survey which shows that several companies are interested in moving here. We would like the first ones to settle within the next two years," said Lore.
Audi Hungaria, which is wholly owned by Audi AG, had after-tax profits of €280.8m in 2002 and €277m in 2001. Annual turnover rose 2.4% to €3.55bn last year as the company produced 1.28m engines, 4.9% more than in 2001. Audi has invested €1.51bn in Hungary since 1993.

Suzuki boosts Hungarian production

Recently Magyar Suzuki Rt discontinued production of its popular Swift automobile model, and launched production of the new Ignis in its place. It also revealed plans to manufacture two new models.
"Between 2003 and 2005, Ft 60bn (€244m) will be invested in the Esztergom plant," announced Osamu Suzuki, chairman and CEO of parent Suzuki Motor Corp, speaking at a press conference held in Budapest, the Budapest Business Journal reported. "The Esztergom plant's production capacity will increase from 85,000 to 200,000 units in the next five years," he added.
The Ignis is a compact car developed by Suzuki in cooperation with General Motors Corp. Suzuki has invested Ft 20bn in the project, and this year plans to sell 20,000 units of the new model on the domestic market and export 35,000.
Magyar Suzuki will also start manufacturing another model, the Suzuki Concept S model by autumn 2004, Suzuki said.
In a separate development, Osuma Suzuki and Giancarlo Boschetti, president-CEO of Fiat Auto SpA, met in Budapest to sign a joint agreement for production of another future model, a medium category car. "We plan to start production in the last quarter of 2005," Suzuki said.
This latter car will be manufactured in Suzuki's Esztergom plant, while Fiat will co-finance its development and supply diesel engines for the cars, Suzuki said.
"Fiat doesn't have much experience in the SUV (sport utility vehicle) business sector, so this chance to work with Suzuki is really great for us," said Boschetti. "On our own, we could never reach an economic position allowing us to take such steps."
The plant will manufacture 60,000 of the new SUVs in 2005, 40,000 of which will bear the Suzuki mark, with the rest going to Fiat.
The new SUVs will be produced in a five-door version and in diesel and petrol models. No financial figures regarding the project were made public.
Both parties stressed that the new vehicles will have a distinctive styling differentiation. Fiat and Suzuki will distribute the new vehicles independently through their own dealership networks.
Magyar Suzuki is a firm leader on the Hungarian car market. In 2002, it sold 35,951 new cars in Hungary, giving the brand a market share of 20.9%. This year's export target is 52,000 units.
Although Swift models will no longer be manufactured here, completed vehicles will remain available for sale on the Hungarian market.
"We hope that the last Swift will be sold from car dealerships in the first six months of this year," Tamas Tihanyi, marketing director for Magyar Suzuki, said.

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AVIATION

Malev secures loan guarantees

The government has decided to provide loan guarantees for the purchase of four Bombardier planes by the state-owned national airline Malev Hungarian Airlines Rt, government spokesman, Zoltan J Gal, announced after a cabinet meeting recently, reports Budapest Business Journal.
The European Investment Bank (EIB) has granted a credit line of €100m to purchase a total of ten planes and the current guarantee applies for the first four, Gal said. 
According to the airline's acting CEO, Geza Fehervary, the manufacturer has already delivered two aircraft. Two more are to be delivered this year, and there is an option for a further six by 2006.
Fehervary held the position of acting CEO from April 1st up until Malev's AGM on May 5th, in the wake of the dismissal of Jozsef Varadi as CEO on March 31st. At the same time, the entire board - which included Varadi - resigned at the request of the owner, the State Privatisation and Holding Rt (APV).
Malev needs additional funds to finance its operation because of revenue losses due to the Iraq war, Fehervary said at a press conference recently. This will require a further government decision, which rather than providing direct central budget funding, will take the form of a government guarantee, he said.
Malev's crisis plan for the contingency of war in Iraq includes a cost-cutting program of approximately Ft 1bn (€4.06m), Fehervary said. This will mainly mean cutting back on investment and developments, he added.
Malev projects a 20% decline in passenger numbers for the duration of the Iraq war, Fehervary said, adding that capacities would not be reduced, as that would weaken the quality of the products offered by Malev and thus the airline's competitiveness. At most, the company might suspend flights operating below cost level during the war, he said.
Neither Malev's privatisation nor its joining of an airline alliance is expected in the near future, Fehervary said. Privatisation could take place next year at the earliest, partly due to the situation in the industry.
While talks on joining an alliance are still under way with other groups, the most likely option is joining SkyTeam, he added.

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BANKING

Three banks to be sold off this year - government

Postabank, the Land Credit and Mortgage Bank and Konzumbank will be privatised this year, the government has decided. Speaking after the cabinet meeting, Finance Minister, Csaba Laszlo, said that all state-owned assets in the three banks would be sold, Kossuth Radio has reported. 
The finance minister said that the target of a 200bn-forint privatisation revenue planned for this year could be delivered. The government is to use the money for infrastructural investments. He added that the basic issues of the budget policy were not affected by the revenue.

OTP bank to increase control in Bulgarian Banka DSK

Hungary's number one bank, OTP Bank Rt, expects to invest 600m Bulgarian levs (US$339m) to increase its stake in Banka DSK, a state-controlled Bulgarian bank, Bloomberg reported OTP's deputy chief executive as saying. OTP plans to spend another 400m levs on computer upgrades and other services, and 200m levs on real estate development from now until 2008, OTP's Deputy CEO, Laszlo Wolf, was quoted as saying

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ENVIRONMENT

Waste incinerator overhaul begins

Recently German-owned environmental services provider Lurgi Energie und Entsorgung GmbH began reconstruction of one of Central Europe's largest waste incinerators in Rakospalota, in Budapest's district 15, the Budapest Business Journal reported.
The €60m project, which is scheduled for completion by the end of 2005, includes reconstruction the incinerator's four furnaces and equipping them with smoke filters.
"This project is the first for our firm in Hungary, but we plan to look for other opportunities later on," Gerhard Lohe, director of sale for Lurgi, said recently at a joint press conference with the plant's Hungarian operator, Budapest Public Area Maintenance Rt (FKF).
Lurgi Energie und Entsorgung is a company belonging to Lurgi Lenjes AG, a leading group of companies operating worldwide in the field of process engineering and plant contracting. It forms, together with Lurgi Ag, Zimmer AG and Gea AG, the engineering sector of the mg technologies group, which had sales revenue of €8.6bn last year.
Lurgi won the right to reconstruct the plant in an open international tender last October. The plant handles 60% of Budapest's communal waste. "We currently look at Hungary as a spot market, but we expect to have more similar projects when Hungary joins the EU, because the EU promotes the use of waste energy," Lohe said.
According to plans, the first two furnaces of the plant will be finished and put back in operation by April next year. Until that time, FKF will transport communal waste from several districts to two waste disposal sites: in Dunakeszi, 12 kilometres wet of the city.
Both facilities are owned and operated by FKF, which itself is held by the Budapest Municipality.
While incineration at the Rakospalota plant halted at the end of March, FKF hopes to resume operation of two furnaces later in April, city officials said.
"We appealed a recent decision by the Budapest Municipal Court to close down the plant until its furnaces are renovated, and the court proceeding will take place in the near future," Budapest Deputy Mayor, pal Vajda, said.
In a recent decision, the Budapest Municipal Court ordered the complete closure of the plant, citing a high level of air pollution. The decision came despite the fact that two of the four furnaces were closed down last April, reducing the pollution to 65% of the earlier amount. "We consider the complete closure of the plant unfounded from an environmental point of view, so we decided to appeal the court decision," Vajda said.
The four units of the incinerator in the Rakospalota were built before 1979. After the reconstruction, the plant will be able to burn 420,000 tons of waste a year, and its pollution level will be 20% below the permitted level, Vajda added.

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FINANCIAL NEWS

Hungarian exports fall by 4.7 per cent in first three months of 2003

Hungarian exports fell by 4.7 per cent in the first three months of this year, compared to the same period last year. Imports have practically not changed. According to the Central Statistical Office's fast report on the first quarter, the foreign trade deficit was 1,175m euros[in the first three months of this year, while the deficit was 751m euros in the first three months of 2002, Kossuth Radio, Budapest has reported.

Opposition MP says number of unemployed exceed quarter of a million

According to the Fidesz [the Hungarian Civic Party, opposition], instead of manufacturing concepts, the government should turn its energy to creating jobs. Deputy Csaba Eori has said that on the basis of the figures of the Central Statistics Office [KSH], in the last year the number of unemployed has grown by 30,000, Duna TV satellite service has reported. 
Fidesz Deputy, Csaba Eori, said that the number of jobless exceeded the psychological barrier of 250,000, thus increasing the unemployment rate from 5.6 per cent to 6.4 per cent in the past year. The opposition politician considers that the increase of unemployment is the result of the lack of economic policy on the part of the government. 
Csaba Eori said that the figures of the Central Statistics Office indicate that since the change of government, employment has been stagnating and the number of jobless grew by 30,000.
However, according to the employment minister, Sandor Burany , the opposition politician came to the wrong conclusion because he did not examine the KSH figures in their totality. He said that according to KSH figures, the number of people in employment has grown by 20,000 compared to last year. He should have also read the bit which says that the number of those who do not have a job but are not seeking one either has decreased by 60,000.

IMF warns Hungarian government to curb state spending

The International Monetary Fund advises the government to start adjusting its financial policy within the year, Kossuth Radio has reported. 
According to the report of the international financial institution, the increase of employment in the public sector should be curbed and expenditure on health, pensions and social allowances should be cut back. 
Amongst the reasons the IMF lists that the budget spending and the fast rate of wage increase have undermined Hungary's competitiveness and increased the current account deficit. According to the IMF's annual report, economic growth is expected to be lower, whilst inflation to be higher than planned in Hungary.

Hungarian government grants extra funds to underdeveloped counties

The Ministry of Economic Affairs will grant a total of 7b forints to the seven least underdeveloped counties in the next three years, Kossuth Radio has reported. 
Minister Istvan Csillag, has signed an agreement on this with the chairmen of the regional development councils of the counties. More than 3bn forints of this sum will have to be spent on small and medium-sized businesses, 2.5bn forints on incentives to investments and 600m forints on road construction.

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FOOD & DRINK

Nestle to assign regional roles to Hungarian subsidiaries

After a new top manager took over in early April, Nestle Hungary Kft, a subsidiary of Swiss food giant Nestle S.A have launched new products and developed a Central European competence centre for beverages in Budapest, the Budapest Business Journal reported.
The company's outgoing and incoming managing directors said Nestle is planning to assign a regional role to each of its existing local factories before Hungary joins the EU in May 2004.
"To prepare for EU accession, we are assigning key regional roles to the Hungarian operations. We are establishing a centre of competence for Nestle beverages, based on the know-how of the factory in Szerences (north-east Hungary)," said Bernard Meunier, who is leaving Nestle Hungary shortly. "Such competence centres are aimed at sharing best practice strategies on a regional level."
According to Laurent Frexe, who has replaced Meunier at Nestle Hungary, there are currently three competence centres under development in the Central and East European region: one each in Budapest, Prague and Warsaw. The Czech centre specialises in confectionery, while the Polish unit focuses on food products, he said.
However, the beverages operation is not the only Hungarian unit that can take on a regional role, Meunier said.
"There are five factories in Hungary. That is a large industrial base. I believe every Hungarian factory will have a clearly defined role in the European structure of Nestle after the country's EU accession," he said.
Meunier cited Nestle's hollow chocolate figure production plant in Diosgyor, north-east Hungary, which is the only such unit within the European group. "About 90% of its products are sold abroad," he noted

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FOREIGN LOANS

102m euro from Phare for Hungary

Hungary will collect €101.7m from the EU's Phare programme this year. The financing memorandum was inked by the EU ambassador to Hungary, Jurgen Koppen and Etele Barath, state secretary at the prime minister's office, Interfax News Agency reported. At least €18.2m of the €101.7m will be earmarked for the development of institutions, €22.5m for legal harmonisation and €61m for development projects to ensure economic and social cohesion. 
Another pact will administer Phare's Cross-Border Cooperation programme, backed by €19m this year. Hungary will co-subsidise a total of HUF 66.4m in 2003. "Essentially, this phase of the Phare programme is a trial run in preparation for receiving support from the structural funds," Koppen was quoted as saying. Taking part in the Phare programme has helped Hungary become strong to use the "benefits of full membership in the European Union," he said.

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INFORMATION TECHNOLOGY

IBM group pushes ahead with services, slices manufacturing

Despite the withdrawal of much of its manufacturing presence, multinational IT products and services firm IBM Corp is looking to expand other areas of its business in Hungary beyond the realm of hardware, the Budapest Business Journal said recently.
"IBM is committed to Hungary and will continue its expansion in the Hungarian IT market in 2003. We showed revenue growth above the industry average in 2002," said Dietrich Rossner, managing director of one of the computer giant's local companies, IBM Hungary Kft.
"In future we will put even more focus on services and higher value-added activities," he said.
While much public attention has focused on IBM's axing of 3,700 jobs with the closing down last year of one factory of IBM Storage Products Kft, IBM Hungary has been in acquisitive mode in recent times.
At the end of 2001, it acquired 75% of ISC Hungaria Information Technology Kft from local power companies belonging to the German RWE group, with one of these companies, Emasz Rt, retaining a 25% stake.
A good part of IBM Hungary's recent revenue increase came from the acquisition of ISC, which offers IT services mostly to its former energy sector owners, Rossner said. He added that revenue will also be boosted by IBM's purchase of PricewaterhouseCoopers' consulting arm in November 2002, though this acquisition will only be consolidated in 2003.
The IBM Corp acquired PwC Consulting on a global level last year, and in Hungary the local PwC arm was merged into IBM Hungary's Business Consulting Services arm in November, transferring 120 employees to IBM. This unit is headed by Laszlo Homola. The unit is among the operations that were subsequently spun off into IBM Global Services Kft, becoming part of the international IBM Global Services arm. Homola said the unit is structured in such a way that each consultant specialises both in a particular service type and in a particular industry, developing a deep knowledge of both.
Its main services include customer relationship management (CRM), human resources management, financial management, supply chain management, e-business integration and strategic consultancy.
The main sectors the unit serves include telecom, manufacturing, distribution, government and finance, Homola added.
IBM Hungary's revenue does not include that of IBM Corp's production units in Hungary; nor those of IBM international Financial Centre, which fulfils mainly international orders from Hungary and employs 90; nor those of IBM Global Services Kft, which has 210 employees.
Meanwhile, IBM Hungary itself is increasingly focusing on e-learning, and on IT services such as consulting.

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TELECOMMUNICATIONS

Motorola eyes stronger presence in Hungary

Motorola Hungary, the Hungarian arm of the leading US mobile phone-making company Motorola, would like to strengthen its presence on the Hungarian market country manager, Jozsef Galambos said, Interfax News Agency reported. 
The group is ready to secure a contract to provide an emergency communications system in this former communist state and hopes to set up a software facility too. The factory would involve high value-added production, "significant exports" for the economy and bring a number of related suppliers and companies to Hungary as investors. Galambos said a government decision on the development of a terrestrial trunked radio (TETRA) system would be needed soon. "They need to have a network by 2004," he explained. 
The US company had offered TETRA systems for testing by police during the country's record floods three years ago. For Hungary to finally become a member of the European Union it will need to have an adequate emergency communications system in place. "In the past year, we have made significant new developments in the TETRA system," Galambos was quoted as saying. "Functionality has been increased by making it compatible with the Internet protocol, which allows fast and user-friendly connectivity to other equipment, providing cost advantages without compromising security," he added.

Vodafone clinches top spot in mobile market

The Hungarian Communication Authority (Hif) has announced that the number of active subscribers of Westel, a unit of telecom Matav, and the country's top mobile provider, dropped by about 12,000 in March compared to Febraury, according to Interfax News Agency.

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TRANSPORT

Hungarian government approves plan to build 4th Budapest metro line

The construction of the 4th metro line in Budapest will start this year, Hungarian TV2 satellite service has reported.
The new metro line, which is part of the government's Europe Plan, will stretch from Etele Square [in Buda] to Bosnyak Square [in Pest]. At the moment, however, the government has decided only to finance the first section, to Keleti [Eastern] Railway Station. According to Finance Minister Csaba Laszlo, although the investment - which is the country's largest public transport investment project - is expensive, its direct and indirect benefits are invaluable.
Laszlo said: "This metro section will be 2.3 km long with 10 stations. Its cost without VAT, calculated on 2003 price level, is estimated to be 195bn forints." [One dollar is about 230 forints.]
Three-thirds of the full cost will be financed by a loan from the European Investment Bank with 70 per cent of the costs to be paid by the state and 30 per cent by Budapest. 
The mayor of Budapest said that the construction of the section to Keleti Railway station was expected to be completed by the end of 2007 or the beginning of 2008. He hoped the work could then continue to Bosnyak Square. Surface-level construction will start this year. The first drilling machines will start working underground in a year. 
Primarily Hungarian companies are expected to take part in the metro's construction.

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