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Books on Hungary
REPUBLICAN REFERENCE
Area (sq.km)
93,030
Population
10,032,375
Capital
Budapest
Currency
Forint
President
Ferenc Madl
Private sector
% of GDP
60%
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Update No: 099 - (26/07/05)
Hungary in the doldrums
Politics in Hungary is as if in a state of suspension. New parliamentary
elections are due in April 2006. The election is far too close to call, opinion
polls putting the rival parties on a knife edge.
According to a recent opinion poll, Premier Gyurcsany's alliance of the
Socialists and the Liberals has the support of 47 per cent of Hungarian voters,
and the main opposition Fidesz, 48 per cent. The opposition, led by an energetic
Thatcherite, Viktor Orban, the former premier, already has the advantage.
There was a change of premier by the Social Democrats in October 2004. But it is
not likely to avail them in the forthcoming contest. The newly-elected Prime
Minister Ferenc Gyurcsany, a politically young man at 43, says his government
will represent "true Social Democratic" values.
This is precisely the problem for many voters. The Social Democrats are the
heirs to the Communists. That means pure stodge, and impure sludge, to most
Hungarians. Tedious politicking and corrupt outcomes have been their diet for
too long.
At this juncture a bit of history helps
This, if ever, is the time to take the long view. 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 Wall.
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 (Fidesz) became
prime minister as head of a coalition government. Hungary became a member of
NATO in 1999. Ference Mádl succeeded Göncz as president in August 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
it.
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 lonely
island to themselves.
The Hungarians are not so fortunate. Gypsies and Turks, amongst others, have
always been 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 ninth century.
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 E.U. members such 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 Greater Hungary is off the table. The project
of a "nation above borders" remains alive and actuated the referendum.
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
the polls.
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. There can be little doubt
that the neighbouring governments' would have regarded this measure as de-stabilising
their citizens.
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 improves to 37th in IMD competitiveness rankings
There is good news already on the way for all that. Hungary's economy ranks
the 37th most competitive among 60 countries surveyed, based on over 300
criteria of the World Competitiveness Yearbook of Swiss research institute IMD
World, Interfax News Agency reported. Hungary moved up five places on the list
since last year.
Hungary currently ranks 11 places behind Estonia and one place behind the Czech
Republic among central and eastern European countries, and is followed closely
by Slovakia in 40th place. Hungary now outranks EU15 members Spain, Portugal,
Greece and Italy, following steep drops in the rankings by the former two.
The survey's four major categories are infrastructure (the availability of
technological, scientific and human resources for business), macroeconomic
performance, government efficiency (the extent to which government policies are
conducive to competitiveness) and business efficiency (the extent to which
businesses are performing in an innovative, profitable and responsible manner).
The first three positions in the overall survey were held by the US, Hong Kong
and Singapore - the US retained its position while Hong Kong improved from sixth
place last year.
Hungary is among the world's most globally integrated economies, according to
the annual Globalisation Index report of AT Kearney and the Foreign Policy
magazine. Hungary ranks sixth among 62 nations in the category of "economic
integration," mostly on account of the large volume of foreign trade as a
proportion of the size of the economy. Hungary was ranked 23rd overall, up three
places compared to last year. Among CEE peers, Hungary was outranked by the
Czech Republic, Croatia and Slovenia, all of which scored significantly better
in the "personal integration" category - this measures international
travel and tourism, international telephone traffic, and remittances and
personal money transfers.
Hungary trims rates, more cuts expected
Hungary's central bank announced recently that it was trimming interest
rates by 25 basis points with analysts expecting further monetary easings as
inflation declines. The widely expected decision, brought the benchmark rate for
the new European Union (EU) member state down to seven percent with the bank
having cut rates by a combined 250 basis points since the start of the year.
A recent meeting of the bank's monetary council set the stage for the regular
round of monthly meetings by central banks in the key new EU member nations -
Poland, Czech Republic and Slovakia.
While consumer prices in Hungary came in at disappointing 3.6 per cent in May
(compared to 3.9 per cent in April), the nation's core inflation dipped to its
lowest level in a decade of 2.2 per cent. Inflation also has fallen to 3.6 per
cent from about 10 per cent in 2001 when the central bank launched an inflation
target with a relatively stable currency helping to underpin the decline in the
inflation rate.
"We achieved (the drop in inflation) without a significant downturn,"
said Gyorgy Barcza, economist with ING Bank in Budapest. He believes that rates
could fall to 6.5 per cent by the end of the year.
Strong currencies, slowing economic growth and modest inflation has helped to
lay the groundwork for central banks in the EU's new member states to cut the
cost of the money as part of the preparation for joining the Euro. In recent
months, Hungary's national bank has delivered a series of rapid-fire rate
reductions, trimming borrowing costs at every rate-setting meeting since the
start of the year with a weaker-than-expected 2.9 per cent first-quarter growth
also helping to give the bank room to lower rates.
Announcing the rate cut, the central bank's monetary council described the
inflation outlook as favourable, saying that "a low inflationary
environment is expected to persist and inflation targets are expected to be
achieved." The central bank has set an inflation target of 3.6 per cent by
the end of 2006. Hungary hopes to sign up for Europe's common currency by the
end of the decade. But a blow-out in the nation's current account and budget
deficits has cast a shadow over the country's economic outlook and led to
economists pushing back their forecasts for Hungary joining the Euro until the
early part of the next decade.
With the budget deficit having hit 6.3 per cent of GDP last year, Budapest has
launched a campaign to boost revenue, including an additional tax on the gaming
industry and measures to crack down on the grey economy so as to bring the
deficit down to the three percent required for Euro membership. But having
missed its budget deficit target for three consecutive years, most economists
are not expecting Budapest to reach this year's target of 4.6 per cent.
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AUTOMOBILES
Car prices exceed EU average
The sale of diesel cars has increased by over 40% in the last 12 months, while
sales figures in other categories and prices in general, stagnated, the Budapest
Business Journal reported, citing a recent market survey by
PricewaterhouseCoopers.
Car prices in Hungary are currently 3% above the European average. The overall
price level has hardly changed since a significant price increase 1.5 years ago,
but there have been differences between various market segments. While the price
of small cars fell, premium category cars became slightly more expensive. A 1.8%
decline in the price of diesel cars narrowed the price gap between cars running
on diesel and gas.
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AVIATION
More passengers fly Malev
While overall passenger numbers have remained stable compared to the same period
last year, Malev Hungarian Airlines registered growth in passenger traffic to
several destinations since 2004; among others the number of passengers rose by
33.8 per cent in Larnaca, 20 per cent in Warsaw, 19.6 per cent in Istanbul, 12.7
per cent in Tel Aviv, and 11.5 per cent in Kiev, Interfax News Agency reported
recently.
Malev was able to strengthen its market position by launching flights to new
destinations in 2005, such as Malaga, Gothenburg, Oslo, Cork, Burgas, Constanta,
as well as starting arranging flights between Dublin-Athens, Helsinki-Athens,
and Stuttgart-Fly Balaton (Sarmellek, west Hungary) later this summer,
spokesperson Adrien Krebsz told reporters.
Hungary invites bids for Budapest Airport sell-off
Bidders must submit their declarations of intent to take part in the
privatisation of a 75% minus one vote stake in Budapest Airport Rt (BA), the
operator of the Ferihegy international airport, according to the tender
invitation published by Hungarian privatisation agency APV recently, Interfax
News Agency reported.
The invitation also reveals that, if the necessary legal amendments are passed,
APV could sell its entire 100% stake in BA.
Currently, the privatisation act stipulates that a 25% plus one vote packet must
remain in permanent state ownership. APV's 100% stake is worth HUF 8.02bn
(US$39m) at face value, but observers estimate the eventual sales price could be
as high as US$750m to US$1bn, making it this year's biggest privatisation deal.
APV was advised by Credit Suisse First Boston on the transaction.
Intent to take part in the transaction closed on June 28th. After the
pre-qualification round, indicative price bids will have to be submitted by
August 9th, while final binding bids in the second round will be due on November
2nd. Bidders will also have to transfer HUF 500m in earnest money to PV's
accounts. APV said it intends to close the transaction before the end of this
year. The purchase price must be paid in one lump sum in cash.
APV also noted that besides the purchase price, the winning bidder could also be
called upon to bear the burden of various transactions of BA with the
government. These include payments by BA to the State Asset Management
Directorate (KVI) pursuant to changes in the long-term asset management contract
in line with privatisation goals, as well as the purchase of personal estate
from KVI, pending the relevant legislative changes.
UK airport operator British Airport Authority has officially announced plans to
take part in the privatisation, while other potential applicants reportedly
include Copenhagen Airport CPH International A/S, Germany's Fraport AG, and
Spain's Ferrovial.
Bidding companies must meet three requirements: they must operate at least one
international airport with annual traffic of minimum 10 million passengers, have
at least a "BBB-" (Standard & Poor's) or "Baa3" (Moody's)
credit rating, and share capital of EUR 2bn. Commitments of bidders include the
mapping out of a "Master Plan" - a long-term development plan for the
airport, as well as for cargo and real estate services. Bidders will also have
to provide assurances regarding supply and infrastructure project management,
flight safety, security and environmental risk management, flight safety,
security and environmental risk management. Aims of the tender include the
improvement of the company's competitive position and its standard of service,
as well as maximising revenues and minimising risks and liabilities to the
government.
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BANKING
Commerzbank opens in Hungary
The Germany-based Commerzbank opened its first branch in Hungary recently,
Budapest Business Journal reported.
It is the first out of the 10 branches that Commerzbank plans to open in
Hungary. The bank will spend HUF 800m on building, incidental expenses and
marketing by the end of this year. Commerzbank will follow the new so-called
innobanking programme - the strategy initiated and implemented by the Hungarian
management and the subsidiary. The target market of innobanking will be small
and medium enterprises (SMEs) that have revenues between HUF 150m and HUF 1.5bn.
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CREDIT RATINGS
Moody's upgrades ratings for OTP and unit
International ratings agency Moody's Investors Service recently announced that
after a thorough review of both OTP Bank Rt and its subsidiary OTP Nortgage Bank
Rt, it raised its ratings for both institutions to A1, New Europe reported.
OTP Mortgage Bank's covered mortgage bonds in local currency remain on review
for a possible upgrade (pending new ratings methodology), while it's covered
bonds in foreign currency remain A1. Moody's said the upgrade reflects the OTP
Group's excellent profitability and achievement in transforming the retail
domestic bank into a regional group present in most financial segments, while
maintaining a moderate risk profile. Moody's identified OTP as one of the most
profitable banking and financial services groups in Europe. Commenting on
product lines, Moody's stated that despite some income diversification growth of
the lending portfolio has remained strong. "Another important factor
contributing to OTP's overall profitability is its relatively low level of
loan-loss provisions compared to operating income," Moody's said. On a
cautionary note, Moody's noted that further internal reorganisation and
streamlining of OTP's IT systems and processes is still needed. In addition, it
said the relative lack of investment in operating systems may hamper both the
consolidation of the bank's position in Hungary and the integration of its
foreign subsidiaries.
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ENERGY
MOL to construct thermo-energy plant in Zala
Hungarian gas and oil concern MOL Rt will build an eco-friendly geothermic power
plant near Iklodbordoce in Zala county, the Budapest Business Journal reported.
It will be the first one in Central Europe to generate electricity from
underground hot water, said Managing Director, Zoltan Aldott. Following
electricity generation the hot water will still be hot enough to provide
district heating supply, similar to other geothermal plants like in Husaviki,
Iceland. The multi-billion HUF investment will be completed in 2007 with
locating a suitable site taking up one year and construction itself another. The
company hopes to get the environmental permit they applied for in January from
the West Transdanubian green authority to come soon. The company expects a HUF
150 million income per megawatt per year, which would mean with the planned 2-5
megawatt capacity the plant will become profitable within 10 years.
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FOOD & DRINK
Mineral water sales up
The retail sales volume of mineral water in Hungary reached 640m litres, and its
value HUF 30bn (US$160m) in the 12 months to May 2005, Interfax News Agency
reported recently, citing data published by market research firm ACNielsen.
The firm noted that while sales have increased dramatically in recent years,
this has come hand in hand with a decline in prices. In the past two years, the
average per litre price of carbonated water has dropped 16 per cent to HUF 46,
while the price of still water has fallen by 20 per cent to HUF 61. Carbonated
water remains dominant in Hungarian sales, accounting for 70 per cent of the
total, but still water is becoming more and more popular, now comprising 25 per
cent of all sales. In terms of retail outlets, 34 per cent of mineral water
sales are conducted at hypermarkets, and a further 29 per cent at discount
stores, ACNielsen said.
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INFORMATION TECHNOLOGY
Freesoft wins HUF 92.8m deal
Freesoft Rt, a Hungarian software developer, said on June 20 that it won an
order worth HUF 92.8m from the city of Batonyterenye, Hungary, the business
daily Napi Gazdasag reported.
The Budapest-based Freesoft will develop an e-government programme for the city
of Batonyterenye, 60 kilometres (37 miles) northwest of Budapest, the company
said in a stock-exchange statement. Freesoft will account revenue from the
contract in this year's books. The deal is Freesoft's third government order
this year, after signing an agreement on January 26 to upgrade Hungary's
criminal records database, as part of a group led by France's Bull SA, and a May
30 contract to develop regional public administration software for the town of
Marcali in southwest Hungary.
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MINERALS & METALS
Dunaferr in the black
Hungarian steel group Dunaferr was profitable in the first four months of the
year, and expects to close 2005 in the black as well, the company announced,
citing recent comments made by CEO, Sushil Trikha, at a workers' meeting,
Interfax News Agency reported.
Trikha noted that "the steel market boom is a thing of the past, and the
situation is now critical," with demand declining as a result of last
year's stockpiling by customers.
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PHARMACEUTICALS
Richter fears Russian decree
Hungarian drugmaker, Gedeon Richter Rt, said on June 6th that a Russian
government decree removing imports from a list of subsidised drugs will reduce
the Hungarian company's second half sales by US$20m, the Budapest Business
Journal reported.
"We will feel the impact of the decree on our sales in the second half of
the year when we will miss revenue of US$20m, according to our preliminary
calculations," the Budapest-based Richter said in a statement. Richter said
earlier that about 25% of the drugs it sold in Russia in the first quarter,
worth US$10m, were included on the list. While imports will remain on the list
of subsidised drugs until December 1st, those delivered in Russia after July 1st
will no longer be subsidised, Richter said.
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TRANSPORT
MAV awards major contract to Stadler Rail AG
The Hungarian state railways system (MAV) recently awarded another major
contract to Swiss company Stadler Rail AG despite the appeal of the only
competing bidder Bombardier, the Hungarian News Agency MTI reported.
In upholding a March 18th decision to award a contract valued at HUF 130bn
(US$629m) for the production of 30 high speed trains the state railway declared
Canadian-German concern Bombardier AG's bid invalid. According to information
from the Budapest online service index, Bombadier was disqualified because it
had offered certain maintenance activities free of charge. Such a prohibition
however does not exist according to Hungary's laws on tender offers. It was not
clear whether Bombardier would appeal against June 1st decision. Bombardier
appealed the March decision to the Hungarian Court of Arbitration for Public
procurement, which on May 2nd overturned the original award decision stating
that MAV had altered the award criteria for the benefit of Stadler.
Budapest invites carriages tender
The City of Budapest has called a tender to supply 37 carriages for its
underground lines, the office of the mayor said on June 17, the Budapest
Business Journal reported.
The winner of the tender will supply 15 driverless multiple units - rolling
stock without a cab, with a motor mounted under the floor of the passenger
compartment - for the capital's fourth underground line, still in the planning
stages, and 22 standard carriages for the number two line. The winner will also
have an option to supply a further 7 multiple units for line four. Line four
project manager Laszlo Gulyas said on June 17 that the order was worth tens of
billions of HUF, declining to offer a more specific figure.
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