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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: 110 - (27/07/06)
The Magyar political scene
In August 2004, Socialist Prime Minister Peter Medgyessy tendered his
resignation after a cabinet dispute.
The Hungarian Socialist Party (MSZP) chose businessman and sports minister
Gyurcsany as the new head of government.
Hungarian voters renewed their National Assembly on April 9 and April 23. The
MSZP and the Alliance of Free Democrats (SZDSZ) secured 210 of the legislative
branch's 386 seats, securing a full term for Gyurcsany.
Economy in trouble
With populists coming to power in Slovakia and Poland and a political stalemate
in the Czech Republic, the Visegrad countries are causing anxiety to Western
governments, institutions and investors alike at the moment. Hungary is no
exception here.
Despite Hungarian Prime Minister Ferenc Gyurcsany's new austerity package --
aimed at knocking the country's finances into shape -- there are concerns that
Hungary still risks being held hostage to a soaring public deficit and a sinking
national currency for some time to come.
In 2004, Hungary's fiscal deficit was 5.3 per cent of the country's Gross
Domestic Product (GDP). The European Central Bank has set a fiscal deficit limit
of 3.0 per cent to allow countries to adopt the single European currency.
Severe Drop for PM Gyurcsany in Hungary
Gyurcsany introduced a fiscal "austerity package" of state subsidy
reductions and tax increases, aimed at lowering the country's fiscal deficit. On
July 1, the prime minister declared, "Hungary will understand very soon
that what the left-wing does is not for itself but for the country. Our
adversary is the lack of courage. The world is our measure."
Slipping popularity of Gyurcsany
With all these problems it is not surprising that the government's approval
ratings, and the premier's are on the slide.
Fewer Hungarians are satisfied with the performance of their prime minister,
according to a poll by Gallup Hungary. 42 per cent of respondents rate the
performance of Ferenc Gyurcsany as good or very good, down 10 points since May.
A rival of the premier's is finding a new role, however.
Medgyessy lined up for EU top foreign post - paper
Hungary's roving ambassador Peter Medgyessy, a former Socialist prime minister,
has been lined up to take over from Javier Solana as the European Union's top
foreign policy representative, Hungarian daily Magyar Hirlap reported on July
25.
The paper said Solana is under increasing pressure in Brussels to quit amid
growing disappointment with his performance.
Medgyessy, who was ousted as prime minister by Ferenc Gyurcsany amid discontent
over his performance, said he had no knowledge of any changes as regards
Solana's post and declined to comment to Magyar Hirlap.
Solana is seen in some quarters as being erratic and has been criticised over
his handling of the Lebanon-Israel crisis, said the paper, citing the latest
issue of Der Spiegel.
France's former foreign minister Michel Barnier is also being considered for the
post. Medgyessy is viewed favourably for his proficiency in French, though his
English is poor, the paper said.
An official at Hungary's Foreign Ministry told Magyar Hirlap Medgyessy's
candidacy would be supported if the post became available.
Budapest appalled at Slota's anti-Hungarian statements
Populism has a way of unleashing ethnic tension. Gypsies and Hungarians are
at particular risk in Slovakia.
The Hungarian government is shocked by anti-Hungarian statements by Jan Slota,
leader of the Slovak National Party (SNS), now a coalition member, which he made
for the Saturday (July 22) edition of the Czech daily Lidove noviny, Hungarian
Foreign Minister Kinga Goencz said at a meeting of diplomats on July 24.
Slota said that Slovaks were oppressed by ethnic Hungarians in southern
Slovakia. The SNS is a junior partner in Fico's three-party government arising
from the June general elections.
"We were shocked by Slota's weekend interview," Goencz said, adding
that Hungary had hoped that the tone of Slota's statements would change after
his party joined the governing coalition.
Slota said he wondered why no one abroad or Slovak senior officials resented the
activities of the Hungarian Coalition Party (SMK) in Slovakia that questioned
the borders delineated after World War One, and the Benes decrees, which
sanctioned the deportation of Germans from Czechoslovakia after World War Two,
and sought the cancellation of the 1920 Trianon treaty, one of the fundaments of
Czechoslovakia's emergence.
Slota said that the SNS did not want to oppress anyone or to ban the use of
their mother tongue. "We are only struggling against those SMK officials
who as a minority oppress the majority nation on its sovereign territory, on the
territory of Slovakia," Slota said.
Slota said he envied Czechs for having been able to deport ethnic Germans from
the former Czechoslovakia.
There are some 500,000 ethnic Hungarians, who make up about ten percent of
Slovakia's population. They mostly inhabit southern Slovakia alongside the
border with Hungary.
"It is apparent that such statements... are not consistent with European
norms," Goencz said. "There is undoubtedly space for the Slovak
government to comment on the statements," she added. She said that if the
Slovak government does not disavow Slota's words, Hungary would officially ask
it to do so.
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CREDIT RATINGS
S&P cuts Hungary's debt rating
Standard & Poor's cut Hungary's credit ratings recently because of concern
that the government's plan to reduce its budget deficit might not be
sustainable, the International Herald Tribune reported.
Lower ratings may increase Hungary's borrowing costs, adding to the government's
difficulty in reducing the shortfall. The prime minister, Ferenc Gyurcsany,
plans to cut the deficit to 3 per cent of gross domestic product by 2008 from a
revised target of 8 per cent this year.
Gyurcsany unveiled a plan to cut the deficit by 350bn forint, or US$1.6bn, this
year to reach the new target and to cut it by a further one trillion forint in
each of the next two years. The program relied too heavily on higher taxes
instead of cutting spending, S&P said.
"The very strong focus on the revenue side fails to address persistent
expenditure-side pressures that are at the heart of Hungary's budget woes,"
Kai Stukenbrock, an S&P analyst, wrote in the statement.
The forint fell as low as 273.45 a Euro, and was at 273.17 a Euro in late
Budapest trading, its lowest point since December 2003, from 270.16.
The forint has lost 6.6 per cent against the Euro this year, the third worst
performance by a European currency behind the Icelandic krona and the Turkish
lira.
The yield on the benchmark 10-year Hungarian bond rose 0.19 percentage point to
7.26 per cent, the biggest gain since late January. The price, which moves
inversely to the yield, fell 1.19, or 119 forint per 10,000 forint face amount,
to 88.04.
Stock prices pared gains on the Budapest stock exchange. Its benchmark BUX fell.
Hungary's long-term currency rating was cut to BBB+, the third-lowest investment
grade, from A-, S&P's outlook for the rating is negative, which means the
company is more likely to reduce it than to raise it or hold it. The agency left
its a-2 short-term rating for Hungary unchanged.
S&P raised the rating to A- on December 19th 2000.
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ENERGY
Hungary and Gazprom agree on extending Blue Stream
Hungarian oil and gas firm MOL recently signed a deal with Russian gas monopoly
Gazprom on extending the Blue Stream gas pipeline from Turkey to Europe. As part
of the deal, Gazprom will also investigate the possibility of building a huge
gas reserve in Hungary, Deutsche-Presse-Agentur (dpa) reported.
Economy Minister, Janos Koka, said Gazprom and Hungary's Prime Minster, Ferenc
Gyurcsany, held talks before the agreement was signed and said that the deal
would make Hungary's gas supplies more secure.
Hungary was one of the many European nations to suffer a significant drop in gas
supplies earlier this year after a dispute between Gazprom and transit country
Ukraine.
Deutsche-Presse-Agentur (dpa) quoted Koka as saying the pipeline and the
potential 10 billion-cubic-metre storage facility would make Hungary a major
distribution centre for southern and south-west Europe. The pipeline route and
the location of the storage facility have yet to be decided, but Koka said the
pipeline would be completed within five years at a cost of five billion Euro.
MOL and Gazprom will now begin a study, which they are expected to hand over to
their respective governments in a year's time.
Hungary's Economics Ministry said it still backs the competing Nabucco pipeline,
which would deliver gas from Azerbaijan, and Hungary is expected to sign a deal
on this pipeline in Vienna. However, Koka said signing this agreement would not
amount to a commitment, but would simply allow the government to assess how much
EU funding would be available for construction.
The Nabucco pipeline would run from the Caspian region to Central Europe via
Turkey, Bulgaria, Romania, Hungary and Austria.
Koka also said Hungary is still interested in a liquefied natural gas (LNG)
reserve and pipeline in Croatia. Gyurcsany and Croatian Prime Minister, Ivo
Sanader, played up this possibility in the wake of Gazprom's delivery problems
in January. This plan foresees a terminal on Croatia's Adriatic coast for
liquefied natural gas imported from North Africa, to be piped through to a
storage facility in Hungary and possibly beyond.
Mol Rt. signs exploration agreement
Hungary's largest energy company, Mol Rt., said it signed an exploration and
production sharing agreement for a natural-gas and condensate field in Oman, to
expand in the Middle East, news agency bbj.hu reported.
The company said in a statement published on the Budapest Stock Exchange on June
28th that Budapest-based Mol signed the agreement for Block 43 in northeast
Oman, which has gas and condensate reservoirs at depths between 2,000 and 4,000
metres.
Mol has a budget of between US$ eight million and US$10 million for a two-year
exploration programme, and may spend an additional US$14 million to US$16
million should it drill an optional exploratory well, the Hungarian company
said. Mol is shifting its focus to crude oil and gas production after spending
more than US$ one billion in five years buying filling stations and refineries
in Eastern Europe.
The company earned 81 billion forints (US$363.4 million) from the sale of its
gas storage and wholesale units to E.ON AG in March. Mol said this would be
spent. "This new concession underlines our commitment to the Middle East,
which is one of our core strategic growth regions. We regard Oman as a
bridgehead for further expansion in this region," Zoltan Aldott, the head
of Mol's exploration and production division, said in the statement.
Infrastructure at Block 43 is well developed, Mol said, and it's located near a
main pipeline and two refineries. In this regard, a pipeline crossing the block
may help transport gas to a processing plant.
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PHARMACEUTICALS
Barr to pay US$2.2bn for Croatia drugmaker
Barr Pharmaceuticals agreed recently to buy Pliva, Eastern Europe's biggest
drugmaker, for US$2.2nb in cash, topping a bid from the Actavis Group of
Iceland, the International Herald Tribune reported on June 28th.
Barr offered 705 kuna, or US$122, a share for Pliva, which is based in Zagreb,
Croatia, 6 per cent more than its closing price, the companies said in a
statement. Actavis's last offer, of 630 kuna on April 20th, was rejected by
Pliva as too low.
The purchase will allow Barr, the largest US maker of birth control pills, to
expand in Europe, where it does not have major operations. Barr, which had
revenue of US$1.2bn in the year that ended March 31st, said its annual sales
would rise to US$2.5bn after the merger as it gained Pliva's established markets
in Russia, Britain, Germany, Spain and Italy. "Right now, Barr has
practically no presence in Central and Eastern Europe," said Vladimira
Urbankova, an analyst at Erste Bank in Prague. For Pliva, "the drugs they
have in the pipeline will be better marketed with Barr than without Barr."
Barr gets about two-thirds of its sales from generic medicines. The company
specialises in women's health products, selling the Plan B "morning
after" emergency contraceptive as well as the Seasonale birth control pill.
Shares of Barr were down US$1.27, or 2.6 per cent, at US$47.50 in afternoon
trading in New York. Pliva's global depositary receipts rose US$1.47 or 6.5 per
cent, to US$23.95 in London. Each GDR represents 20 per cent of a Pliva share.
The GDR's which have gained 78 per cent this year, are worth about 689.50 kuna,
compared with Pliva's record closing price of 685.01 kuna in Croatia.
Barr is developing about 50 generic medicines, while Pliva will bring an
additional 120, the companies said.
The transaction will leave Pliva's management in charge of European operations,
and the Pliva brand will continue to be used there, the company's chief
executive, Zelijko Covic, said at a news conference.
But analysts, including Urbankova, said that Barr may not want to keep Covic on
as the head of its European operations in the long term. Pliva had a US$75m net
loss in 2005 partly because the company abandoned its unprofitable proprietary
drug-making operations.
Under Covic, Pliva relied too much on royalty revenues from patented products
and paid too little attention to maximising profit from sales of generic
products, Urbankova said. Pliva has struggled to recover from the expiration of
the US patent on its azithromycin antibiotic. The medication generated nearly 25
per cent of Pliva's revenue for the first nine months of 2005.
Pliva's competitors, including Budapest-based Gideon Richter and Prague-based
Zentiva, have pre-tax profit margins on generic sales of about 20 per cent,
whereas Pliva's is about 10 per cent, she said. Still, "It may be that
Pliva is on the verge of major growth in generics, as the company has been
saying," said Frances Cloud, an analyst at Nomura Code in London.
An Actavis spokesman, Halldor Kristmannsson, declined to comment on the planned
deal. The offer is contingent on Barr's getting at least 50 per cent of Pliva's
shares, Covic said.
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TRANSPORT
TriGranit signs contract to build Belgrade station
The Serbian government recently announced that Hungary's TriGranit Zrt signed a
contract with Serbia's state-owned railway company Zeleznice Srbije to build a
170 million Euro railway station in Belgrade, news agency bbj.hu reported.
TriGranit, which is one of the biggest construction companies in the region,
will complete the construction of the Prokop station which was never completed
after commencing 30 years prior. TriGranit is currently building five other
railway stations in Europe, which is a guarantee that the work would be properly
done, Serbian Minister of Capital Investments Velimir Ilic was cited as saying.
TriGranit Executive Director, Todd Cowen, said the general contract envisages
that the company would complete the railway station and receive 128,000 square
metres of office space at the station for its own use. Cowen said he expects the
final contract to be signed by the end of September, when work on the station
should begin. He added that the construction, which would involve Serbian
subcontractors, should be completed in two years.
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TELECOMMUNICATIONS
Magyar Telekom buys local software developer
The Hungarian phone company controlled by Deutsche Telekom AG, Magyar Telekom
Nyrt, said it has bought local software developer KFKI Rt to tap demand for
information technology services, news agency bbj.hu reported.
The announcement came as shares of Hungary's incumbent telephony company fell to
a 2.5 year low at the Budapest Stock Exchange on June 16th. Budapest-based
Magyar Telekom would pay as much as 9.67 billion forints for 100 per cent of
KFKI, the company said in an e-mailed statement. KFKI also owns or controls
businesses in computer systems and networks. Magyar Telekom has spent US$ one
billion buying majority stakes in phone companies in Bulgaria, Montenegro and
Macedonia, as competitors such as Telenor ASA and Vodafone Group Plc cut into
its domestic market share.
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