Books on Hungary
% of GDP
Update No: 095 - (31/03/05)
A bit of history helps
Hungary played a very important part in the events of 1989. It was its refusal
to meet the demand of the East German government to prevent East Germans from
leaving Hungary for the West that lead straight to the downfall of the Berlin
By 1990, a multiparty political system with free elections had been established;
legislation was passed granting new political and economic reforms such as a
free press, freedom of assembly, and the right to own a private business. The
new premier, József Antall, a member of the conservative Hungarian Democratic
Forum who was elected in 1990, vowed to continue the drive toward a free-market
economy. The Soviet military presence in Hungary ended in the summer of 1991
with the departure of the final Soviet troops. Meanwhile, the government
embarked on the privatisation of Hungary's state enterprises.
Antall died in 1993 and was succeeded as prime minister by Péter Boross.
Parliamentary elections in 1994 returned the Socialists (former Communists) to
power. They formed a coalition government with the liberal Free Democrats, and
Socialist leader Gyula Horn became prime minister. Árpád Göncz was elected
president of Hungary in 1990 and re-elected in 1995.
In 1998, Viktor Orbán of the conservative Hungarian Civic party became prime
minister as head of a coalition government. Hungary became a member of the North
Atlantic Treaty Organization in 1999. Ference Mádl succeeded Göncz as
president in Aug., 2000. A 2001 law giving ethnic Hungarians in neighbouring
countries (but not worldwide) social and economic rights in Hungary was
criticized by Romania and Slovakia as an unacceptable extraterritorial exercise
of power. The following year, negotiations with Romania extended the rights to
all Romanian citizens, and in 2003 the benefits under the law were reduced. The
2002 elections brought the Socialists and the allies, the Free Democrats, back
into power; former finance minister Péter Medgyessy became prime minister.
In August, 2004, Medgyssey fired several cabinet members, angering the Free
Democrats and leading the Socialists to replace him. The following month Ferenc
Gyurcsány, the sports minister, became prime minister. Hungary became a member
of the European Union earlier in the year. A December, 2004, referendum on
granting citizenship to ethnic Hungarians in other countries passed, but it was
not legally binding because less than 25% of the Hungarian electorate voted for
Who is a Magyar?
Some people have no problem with their identity, for instance the Icelanders.
They occupy an island; and few, if any, want to go and live there in Iceland
save them, other than the odd chess genius in trouble, like Bobby Fischer,
granted Icelandic citizenship in late March. They can have their island to
The Hungarians are not so fortunate. Gypsies and Turks, amongst others, are
always trying to enter their territory, whose borders are porous and difficult
to guard. Many can more or less legitimately claim Magyar descent, that is from
the turbulent nomadic race who descended on this part of Central Europe in the
The persistence of the minorities problem in this area of Eastern Europe is
illustrated by the referendum that was held in Hungary on December 5th on
whether to grant dual citizenship to ethnic Hungarians living outside their
homeland. Of all the successor states to the Austro-Hungarian Empire, Hungary
suffered the most in the redrawing of boundaries, losing two-thirds of its
territory and 60 percent of its population to Romania, Czechoslovakia and
Yugoslavia in the 1920 Treaty of Trianon. Today, 2.5 million ethnic Hungarians
live in neighbouring states, 1.4 million of them in Romania, 560,000 in
Slovakia, 300,000 in Serbia and 150,000 in Ukraine. Especially in Romania,
Serbia and Ukraine, which are not EU members as Slovakia and Hungary are, ethnic
Hungarians suffer prejudice and disadvantages, and are less prosperous than
their kin in Hungary.
Ever since the World War I settlement, that confirmed the dismemberment of the
Austro-Hungarian Empire at the Treaty of Trianon, Hungarian nationalism inside
and outside the homeland has had as its foundation the recovery of the full
Hungarian nation, either through the territorial restoration of "Greater
Hungary," by force if necessary, or by securing political and cultural
autonomy for ethnic Hungarians in neighbouring states. Given the constraints
imposed by the E.U., the option of achieving a Greater Hungary is off the table.
The project of a "nation above borders" remains alive and actuated the
The diaspora disdained
There was hope among ethnic Hungarians living outside Hungary, the modern
diaspora, that the referendum on December 5th would enable them to have
Hungarian citizenship once again. But their dreams were shattered when election
officials said the referendum was invalid because most voters stayed away from
Results showed that the "yes" votes slightly edged out those against.
But the result is not binding on the Socialist-led government because less than
the required 25-percent of Hungary's eight million eligible voters supported it.
Hungarian Prime Minister Ferenc Gyurcsany, who voted against granting
citizenship and discouraged people from participating in the referendum, said he
was pleased with the outcome. In his words Hungary had shown it "does not
confuse nationalism with responsible patriotism." Mr. Gyurcsany's
government had expressed concern that at least hundreds of thousands of
beneficiaries of citizenship would come to Hungary to receive social benefits,
costing the country up to three billion dollars annually. Prime Minister
Gyurcsany also said it could destabilize the region.
The leader of the country's conservative opposition, former Prime Minister
Viktor Orbán insisted that the vote was valid. Orbán's camp was campaigning
for the approval of both motions. "The 'yes' votes won, the 'no' votes
lost. The referendum was valid," he said. He blamed the prevailing
existential problems for the low turnout and called on the government to support
dual citizenship despite the vote.
Leaders of the estimated three million ethnic Hungarians in neighbouring
countries criticized Hungary's government for not supporting the referendum and
a "yes" vote. Joining the chorus of critics is Andras Agoston, the
chairman of the Democratic Party of Vojvodina, a Serbian province with an
estimated 300,000 ethnic Hungarians. Mr Agoston suggests the Budapest government
has betrayed his Hungarian community.
Hungary to join the euro soon
Being a full-fledged member of the EU probably means living with the more
sedate growth of the Union's mature economies. For all the doubts about the
euro, that is a trade-off new members are still willing to make because the
currency will give them an anchor they have not had since the Communist era.
In 2003, Hungary got a reminder of the risks of going it alone, when the central
bank modestly devalued the forint, and traders promptly dumped the currency. The
forint has traded up and down widely since then, which has unnerved Hungarian
exporters and government officials. ."Hungary can no longer afford to have
its own funny money," said Peter Akos Bod, a former central bank president.
"Hungary is already the last of the lot to join the euro. If we wait any
longer, we'll have a problem."
Hungary focuses on farmers' interests in EU
Hungary's Ministry of Agriculture and Rural Development (FVM) has signed a
cooperation agreement with the four leading agricultural associations in Hungary
concerning the joint representation of Hungarian farmers' interests in the
European Union, Budapest Sun Online reported recently.
The agreement was signed in the FVM building by political State Secretary,
Andras Pasztohy; Miklos Csikai, chairman of the Hungarian Chamber of Agriculture
(Agrarkamara); Tamas Nagy, chairman of the national Association of Agricultural
Cooperatives and Producers (MOSZ); Istvan Jakab, chairman of the Association of
Smallholders' Circles and Farmers (Magosz); and Bela Szeremley, chairman of the
Association of Hungarian Producers, Distributors and Services (Hangya).
Pasztohy said that he had met the representatives in order to promote their
joint interests. "We can only be successful in achieving anything in
Brussels if we represent a joint national agricultural policy," he said. In
an earlier interview, Pasztohy said that the delay in making subsidy payments to
farmers this year was partly because some of the farmers had
"oversubscribed" their subsidy quota, requesting production on
territory bigger than their actual farmland.
"FVM is already over loaded with work and now we are compelled to also
adjust these requests," Pasztohy was quoted as saying.
He reminded farmers that as much as 40 per cent of subsidies eligible for animal
husbandry and farmland size-based subsidy requests had been paid out before
Hungary's EU accession, explaining that of the 208,000 applicants, 120,000 had
already received money.
He explained that payouts were continuously ongoing and claimed that all farmers
would receive their money before April.
"So far farmers have received as much as HUF 230bn (US$1.23bn)," he
said. Pasztohy said that the FVM had made full access of the HUF 64bn Special
Accession programme for Agriculture and Rural Development (SAPARD), of which the
government has already handed out HUF 16bn. Pasztohy added that this year the
FVM has a budget of HUF 330bn of which HUF 170bn is from EU contributions.
Swift production in Hungary
The new Suzuki Swift unveiled at the end of the 2004 Paris Motor Show is the
group's new vision for the compact - car genre, Budapest Sun Online reported.
Like Audi's TT and Roadster, Hungary will be the only country to produce it. The
company said that they have developed a car for what they call "a clean
European focus." The model is a development of the earlier Concept-S,
unveiled at the 2002 Paris Motor Show, and the Concept-S2, unveiled at the 2003
Frankfurt Motor Show. Eiji Mochizuki, Vehicle Line Executive at Suzuki's Super
Minicar Engineering Division, said that it was high time the company rolled out
a new compact car based on a fresh approach to deliver the driver and passenger
an experience that puts the car in a class of its own.
Hungary issues new bonds
Hungary launched and priced its new US$1.5bn bond transaction on January 26th,
the Government Debt Management Agency announced recently, New Europe reported.
The proceeds will be used to re-finance public debt maturing in 2005. The size
of the originally planned US$500m bond was increased to US$1.5bn due to large
investor interest. The 10-year bond, priced at 57 basis points about November
2014 US Treasury, pays a fix coupon of 4.75 per cent per annum. The bonds mature
on February 3rd, 2015, while the spread is equivalent to 19bps about ISD
mid-swap rates. The deal was lead managed by Deutsche Bank and Morgan Stanley.
The new transaction is an "important step to widen Hungary's investor base
in the US and Asia," the AKK said. Due to the significant oversubscribed
book, the bond was priced at the tighter end of the price guidance. Hungary
mandated the same banks for a US$100m two-year floating rate issue, which took
place in late December 2004.
MOL makes financial provisions
Oil and gas company MOL Rt announced recently that it set aside total provisions
of Ft 35bn (4143m) on its 2004 earnings, Budapest Business Journal reported
The provisions are to cover the impact of a change to the company's severance
pay system and possible lost revenues from a joint venture with Russian fuel
giant OAO Yukos.
Though analysts said the move could impact MOL's bottom line, they forecast
another stellar performance for the fourth quarter of 2004.
The bulk of the provisions relate to MOL altering its severance policy, offering
some staff early payouts to lower overall costs.
"The collective bargaining agreements of MOL companies provide for higher
severance payments than customary," MOL said in its official statement to
Peter Tordai, head of research at K&H Equities Rt, said that one positive
aspect of the move is that it will create a more motivated and streamlined
workforce. On the downside is the one-off cost, he added.
"MOL expects 80%-90% of its employees to accept the (severance) offer this
year, which would be an approximate Ft 25bn one-off expense," he said.
Tordai added that if MOL's intention is to upgrade the quality of the workforce
by laying off uncooperative employees and replacing them with better quality
staff, then it should be implemented as soon as possible.
"This move will allow the company more scope to manage the quality of its
workforce at a reasonable cost," he concluded.
The other Ft 10bn in provisions MOL has set aside stems from the 50/50 joint
venture that MOL operated with the bankrupt Yukos. The venture was a Siberian
oil field that sold its crude through the Russian company.
Tordai said the overdue receivables are not expected to exceed the stated Ft
10bn. He predicted that MOL would do everything it can to collect - if not in
cash, then possibly in the form of crude oil.
"In the worst case, MOL would suffer a Ft10bn loss, which would be
accounted for in 2004 and have no impact on 2005 results," he said.
"However, we believe it is much more likely MOL will be able to recover the
vast majority of this claim in 2005. If so, this would be written back in the
Objectively, he added, the provisioning can be seen as a profit-smoothing
mechanism, and should not have any impact on fair share price value.
Tamas Pletser, who covers MOL for Erste Bank Investments Rt, agreed there is a
chance some of the liabilities can still be recovered.
"We have a feeling MOL is trying to hide some profit, as 2004 was an
extraordinary year after strong refining margins. The company is under attack by
Slovak officials due to high profit and high fuel prices," he noted.
Commenting on the upcoming fourth-quarter flash report, Tordai forecast earnings
will be strong, and that he maintains a "buy" recommendation on MOL.
"Consensus estimates are around Ft 35bn-Ft 50bn in net profit for the final
quarter, and it's likely to be at the top end of that bracket," he said.
E.OM to power up MAV railways
E.ON Energiakereskedo, the trading arm of German-owned power utility E.ON
Hungaria, won a tender to supply certain regional operations of Hungarian state
railways MAV with 380 GWh of electricity in 2005, according to business news
portal portfolio.hu recently.
Following the signing of the contract, MAV will be one of the biggest customers
enlisted by E.ON since the Hungarian electricity market was partially
liberalised for business users in early 2003. The agreement comes after E.ON
lost oil and gas concern MOL as its major customer at the end of 2004; MOL went
on to contract MVM Partner as its supplier on the liberalised market. Reports
suggest MAV may save up to HUF 800m (US$4.2m) annually through buying energy on
the open market.
Synergon meets Q4 with positive surprise
Hungarian IT company Synergon reported better-then-expected figures for the
fourth quarter of 2004, providing a positive surprise for the first time in a
long time, after regular disappointments, Interfax News Agency reported.
While fourth quarter revenues, at HUF6.9bn, came in under the HUF8.1bn consensus
forecast of online publication Portfolio, the fourth quarter net income of
HUF242m is high above the consensus expectation of HUF44m.
Operating profit totalled HUF223m in the fourth quarter, also more than the
average of expectations (HUF183m). The strong fourth quarter alone was able to
put the company's full year back in the black, bringing 2004 net income to
HUF156m, well above the firm's target of HUF80-120m.
"Fourth quarter was better than expected due to more projects realised, a
higher service content, and managing to keep costs under control,"
Chairman, Ferenc Czako, said. "In addition we met all of our targets for
2004," he noted. The targets of boosting revenues, increasing the service
content, while cutting sales and other operating costs, were all met. "We
also managed to make a 9 per cent increase in the gross margin and come through
on the most important goal - returning to profitability," Czako declared.
The good figures for the past year were the result of strict cost control, as
the company's revenues hardly rose in 2004, while they actually dropped by more
than 7 per cent in the last quarter alone. However, operating costs were down by
10 per cent in HUF terms in 2004, and they dropped by almost 26 per cent in the
fourth quarter alone. Cost-cutting also included a reduction in headcount, with
the firm's employee roll declining by 4 per cent in 2004.
Czako said that in 2005, a slight headcount increase is planned in order to keep
up with the planned rise in revenues, but this will not compromise efficiency
and optimisation measures. Of the company's subsidiaries the Hungarian units
performed above average, while foreign subsidiaries provided disappointing
Synergon Rt, the parent company, saw positive changes in 2004. Although its
revenues only rose by 8 per cent, it posted a HUF178m operating profit after the
operating losses of HUF625m recorded in 2003. The parent company generates 68
per cent of sales revenues, it said.
Value added division, Fibex, closed a strong year, boosting its revenues by 55
per cent and operating profits by 218 per cent in 2004. Synergon reorganised
Fibex's operations which improved its efficiency and lowered operating costs.
The division accounted for 7 per cent of the group's revenues.
Meanwhile, the Czech subsidiary Infinity was rather disappointing in 2004, with
sales down by 10 per cent, and operating profit plummeting 90 per cent to
HUF17m. Infinity's share within group revenues also dropped to 23 per cent form
26 per cent a year earlier.
MINERALS & METALS
Dunaferr deals with Azovimpex
Hungary's largest steel manufacturer Dunaferr announced it signed a €7m
contract with Ukrainian Azovimpex to carry out final renovation works on a coke
production facility at the plant, Interfax News Agency reported recently.
The project, due to be completed by the end of the third quarter of 2005, will
more than double Dunaferr's coke production capacity, to 800,000 tonnes per
year. Of this, almost 300,000 tonnes of excess production will find its way onto
the market, meaning Dunaferr will become a net seller rather than a purchaser of
coke. Work on half of the facility was finished in 2003. The total cost of
renovation works, including the present agreement, is estimated at around
€18m. The Dunaujvaros-based Dunaferr was taken over by Ukrainian-Swiss
consortium Donbass and Duferco in the second half of 2004. Azovimpex is a member
of the Donbass group.
Euroweb launches new service
Telecom provider Euroweb recently announced it launched a new voice over IP
phone service in Hungary, Interfax News Agency reported.
"NeoPhone X" allows customers to initiate and receive calls via
broadband internet connections. Per minute fees are "significantly lower
than the market average," as international calls to the US or Canada cost
just HUF 5.2 per minute, while domestic fixed-line or mobile numbers may be
called for a per minute tariff of HUF 6.6-8.0. Calling Hungary from abroad costs
HUF 4.4-8.0 per minute depending on the time of the call, Euroweb said.
Potential clients could register and download the required software free of
charge starting February 4th. Each customer receives a 6-digit "IP phone
number" after registration. Users need a headset or a telephone attached to
the computer to use the service, and may pay for the service online or with
their Neophone cards. Euroweb plans to launch the service in Slovakia and
Romania as well after the Hungarian start, according to the statement.