% of GDP
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
Update No: 076 - (28/08/03)
In late June the Hungarian Central Bank was forced to make a modest devaluation of the forint, the Hungarian currency. A modest change in the mid-point forint-trading band, intended as a re-assurance to exporters that there would be no excessive appreciation, precipitated a plunge in the currency instead. Currency dealers across Central Europe began to sell forints heavily and a financial crisis had emerged. Hitherto the forint had been one of the most stable currencies in the region.
The Prime Minister, Peter Medgyessy, proceeded in July to commit Hungary to joining the Euroland on January 1st 2008. There will be an election before then, however, probably in 2006, and his socialist Party is very likely to lose to the opposition party, Fidesz, led by former premier, Victor Orban, which put up a very good performance in the last elections, almost hanging on to power, an unheard of thing in the post-communist world. The economy is in trouble and the ruling party is naturally getting the blame.
The three large economies of the region, those of the three main Visegrad powers, Poland, the Czech Republic and Hungary, are suffering from a painful combination of slower economic growth, rising budget deficits and, most seriously of all, a decline in interest by foreign investors. The last development is readily understandable because of the continental-wide slowdown in the EU. Now is not the time to buy in the Visegrad countries, nor to invest there, however promising their long-term prospects remain.
But the countries concerned, and notably Hungary, have aggravated the situation by raising wages and going on a spending spree, lashing out on huge public works, highways, bridges and the like, when less money has been available domestically and less has been coming in from abroad. In the longer run the public works are a very good idea that can only increase the appeal of Hungary to all investors, Hungarian or foreign. But at the moment even the Hungarian capitalists are seeking foreign pastures. More is flowing out of the country than is going in, according to the central bank.
The worrying statistic for the Hungarians, which has led Fitch's to downgrade its outlook on the country to "negative," is that the budget deficit is 9% of GDP. This is the first step to downgrading its credit-rating for Hungary altogether.
The key is the combination of the budget deficit, the highest in Europe, and the devaluation of the forint, which has started jitters throughout the zone. Charles Robinson, an economist who specialises in Central Europe in ING in London, said that the sell-off of Hungary's currency was a warning by the market to the government: "If you don't sort out your budget, and you go for the Euro in 2008, you ain't seen nothing yet."
Hungarian agriculture will be ready for EU accession, official says
The last six years, that is a period spanning the tenure of three governments, was not enough for completing the medium-term plan of agriculture policy. Today is a turning point, for Gyula Meszaros, administrative state secretary, has said that Hungarian agriculture will be ready on time for EU accession, Kossuth Radio has reported. Andras Tothfalusi reported for the radio:
The Agriculture Ministry, jointly with the Agricultural Research Institute, is to publish its survey analysing the situation and condition of certain agricultural branches prior to EU accession, the abridged version of which will be put in front of the government.
Meszaros said: "It must not be forgotten that the national regional development programme has been completed, approved by the government and sent to Brussels already, which will finance regional development with several millions of forints every year."
In reply to the question about when the Agriculture Ministry will make up for the delay in institutional development, also criticized by the State Audit Office, Meszaros said: "The institution's composite systems are developed enough so that the Hungarian farmers should be able to obtain European Union recourses. This work still has a few risks but now, as administrative state secretary of the Agriculture Ministry, I dare to state that I see a realistic chance that claiming the subsidies will not meet any obstacles."
Tothfalusi asked when this medium-term plan would be published.
Meszaros answered "We still have to clarify quite a few questions with the EU, but there will be no reason why we could not submit this to parliament sometime in the spring of 2004."
OTP to acquire Bulgaria's Banka DSK
Hungary's financial supervisory authority PSZAF approved recently the plan of the country's largest bank, OTP, to acquire Bulgaria's Banka DSK, Interfax News Agency reported. PSZAF lays down a series of conditions for the purchase, mainly reporting requirements.
OTP must notify PSZAF within five days regarding its actual acquisition of DSK shares and any important changes in data relating to DSK's operations and of any other factors that substantially increase the risk of OTP's investment - as well as the steps OTP is taking to manage those risks. OTP signed the purchase agreement for DSK in late May, according to which it will acquire the bank for €311m.
The transaction will be completed after all authorities in Hungary and Bulgaria have given the necessary permissions for the deal to go forward.
Fitch Ratings places K&H Bank on Negative Rating Watch
International rating agency Fitch Ratings placed the 'D' individual rating of K&H Bank on Rating Watch Negative, Interfax News Agency reported. The bank's long-term and short-term ratings have been affirmed at 'A-' and 'F2', respectively and are constrained by the sovereign ceiling for Hungary. The support rating is affirmed at '3', and the outlook on the long-term rating is stable.
The rating action reflects the current investigation-taking place at K&H Bank's affiliate, K&H Equities, which is 49.9% held by K&H Bank and 50.1% by ABN AMRO. The investigation surrounds an individual broker charged with the fraudulent mismanagement of client funds for personal use, and which may result in a large loss for K&H Equities. The extent of the loss has not yet been quantified. K&H Equities has stated that it will compensate its clients for their lost funds.
K&H is 59.09% held by Belgium's KBC and 40.23% by the Dutch Bank ABN AMRO. Its long-term and short-term ratings are based on the extremely high probability that support will be provided by KBC and ABN AMRO. The two main shareholders are likely to support K&H Equities' clients.
MOL and INA could provide outlet for Russian oil worldwide
Although the market's initial reaction to the news of MOL's US$505m offer for a 25% stake in Croatian oil company INA was negative - the share price dropped 2.7% on the news to HUF 5200 - analysts believe the price may be justified by the higher synergies available to MOL, as well as strategic considerations, Interfax News Agency reported. "The price seems a little high, as it is above the top price expected by the Croatian government. But there are a lot of synergies," said Jozsef Miro, chief analyst at Cashline Securities.
"Strategically, the price is not too high. Although there will probably be no added value for MOL shareholders in the short term, there are likely a couple of hundred million dollars in synergies that can be used," he said.
These include INA's high naphtha production, Miro noted, which could supply the TVK petrochemical plant after its current capacity expansion project is completed in 2005. Moreover, adding INA's refineries to the current MOL-Slovnaft capacities could increase the capacity at which all three firms' refineries operate - although a downside here is the high level of investment needed to bring INA's refineries up to current European standards.
Also, MOL and INA would together have a greater stake and higher influence in the Russian-led project to connect the Drushba and Adria pipelines to provide an export outlet for Russian oil to world markets, Miro said. INA also has good quality exploration concessions, for example in Angola.
Moreover, bringing INA into alliance with the MOL group would create a "strategic axis" ranging from southern Poland to the Adriatic, Miro noted.
"If anyone will want to expand in the region's oil industry in the future, they would not be able to do it without taking this triple alliance into account," he said.
OTP's Zsolt Kaposi agrees that higher synergies for MOL are likely the reason for the significant premium the company is offering compared to the US$420m offer of Austria's OMV.
"Its previous successful transaction says to me that MOL probably didn't offer too much," he added.
Yukos to up oil supplies
AO Yukos, Russia's biggest oil producer, agreed to sell US$10bn worth of oil to Hungary's Mol through to 2013, as the Russian company seeks to secure outlets for its crude as output increase, Budapest Business Journal has reported.
Mol, Hungary's oil and gas monopoly, will buy 7.2 million tons of oil a year from Yukos, Chairman and CEO, Zsolt Hernadi, announced recently. The ten-year contract covers 55%-60% of the oil processed at Mols's refineries in Hungary and Slovakia
In April, Yukos agreed to pay US$14.25bn in cash and shares for smaller rival OAO Sibneft, creating the world's sixth largest public traded oil producer. The company, which increased production by 22% in the first quarter, now pumps 2.3 million barrels of oil a day.
"Secure long-term agreements are a priority for our company's marketing policy," Yukos Vice President, Mikhail Brudno, said. The company recently signed a similar agreement with PKN Orlen SA, Poland's biggest refiner, for a "somewhat smaller amount," he said.
Mol increased the amount of oil it buys from Yukos primarily to supply the Bratislava refinery of Slovnaft AS, Slovakia's largest oil, company, said Laszlo Geszti, head of Mol's refining and trading division. Mol bought its Slovak peer in 2000.
Yukos and Mol last year agreed to spend US$350 million to develop a Siberian oilfield. The field has proven reserves of 20 million tons, and is producing 10,000 barrels a day, a figure that may rise to 55,000 barrels a day by 2005.
Hungary's foreign trade deficit increased by 1bn euro in first half of 2003
There was a deficit of 2,412,000,000 Euro in Hungary's foreign trade balance in the first half of the year, Kossuth Radio has reported.
This is 1bn euro more than in the first six months of last year. The Central Statistics Office's figures show that in the first six months, exports of machines and transport vehicles increased by 2 per cent, however, the exports of processed products, food, drinks and certain tobacco products have declined.
The imports of cars and fuel have considerably increased.
Hungary green-lights fixed-line phone number portability
Hungary ratified a decree on making fixed-line telephone numbers portable, government spokesman, Zoltan J. Gal said in a statement, cited by Interfax News Agency.
According to him, the government believes competition will rise on the market, which will stimulate a fall in prices and boost the quality of services. The government plans to offer financial support of HUF700-800m (US$3.1-3.6m) for the fixed line telecom providers to help them create conditions for number portability, IT Minister, Kalman Kovacs, was quoted as saying. "The ministry estimates that fixed line providers will have to invest some HUF2.5-3bn to create the conditions for number portability," the minister added.
The state's fresh draft Electronic Telecommunications Act will launch number portability for fixed line customers effective from 1st January 2004 and for mobile customers from May 1st 2004.
"New regulations would also penalise providers for not introducing number portability on schedule," the minister said.
Sofitel braves tough five-star market
Though newly launched on the market at a time when Budapest's five-star hotels are seeing a decline in guest numbers, the new Sofitel Atrium Budapest is enjoying great support from its owner, according to hotel director, Istvan Kovacs, Budapest Business Journal has reported.
"We felt the recession, just like other five-star hotels, but we are lucky that the owner is making developments connected to the name change and our product is being improved," said Kovacs, adding that another Sofitel hotel may be opened in Hungary in the medium to long term.
Previously the Hyatt Regency Budapest, the hotel was renamed and reopened from July 1st. Pannonia Hotels Rt, a member of the Accor group, terminated its franchise contract for the Hyatt name as of June 30th.
Hungarian government outlines motorway construction programme for 2004
According TO Peter Kiss, nine motorways will be under construction next year, which has been unprecedented so far in Hungary. The Chancellery minister outlined the government's motorway building programme in Balatonszarszo [western Hungary] and inspected a section of the M7 motorway, Hungarian TV2 satellite service has reported.
One of the government's economy boosting measures is the motorway building programme. Work has already started and tenders for new state contracts will be invited before the end of the year. By 2006 altogether 420 km of dual carriageway and motorway will be built.
Kiss said: "There will be 180bn forints extra funds for financing motorway construction which altogether means a some 300bn-forints fund for motorway and road building."
The M7 will be completed within the year around the southern part of Lake Balaton from the Zamardi to Balatonszentgyoergy. The 58 km will be built in three sections, the first was started in March this year and it will be finished in about two years.
Besides the M7, easy access to the border crossings is also important. The construction of the M70 is already under way, which will create speedy access to Slovenia.
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