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HUNGARY


 

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 82,805 65,843 51,900 41
         
GNI per capita
 US $ 6,330 5,280 4,830 67
Ranking is given out of 208 nations - (data from the World Bank)

Books on Hungary




Update No: 119 - (30/04/07)

In Hungary the government is unpopular and the PM is despised as a self-confessed liar. But it and him are likely to survive.

While he admits the economy is in a mess, with the highest public deficit in Europe at around 10% of GDP last year, the opposition do not appear to fancy clearing the mess up. Let its perpetrators do that, the ex-communist socialists, who went on irresponsible spending sprees, that got them re-elected last spring. 

Hungary to adopt the euro between 2010 and 2014: PM 
Mr Gyrucsany has made a priority of reforming Hungary's public finances, after the budget deficit ballooned under successive governments. With the economy growing strongly, the government this week cut its 2007 deficit target to 6.6 per cent, down from last year's 10.1 per cent. 

But it leaves the country with the highest deficit ratio in the European Union and far above the 3 per cent level required for joining the euro, which Hungary wants to do in 2010-14. Mr Gyurcsany said the budget needed further attention. "We need a very disciplined budget but we don't need any more austerity measures."

Hungary's prime minister told a monetary conference on April 19th that his country will be able to enter the euro zone by 2014, after it has met all targets of its newly submitted convergence plan.

Speaking at a "Path to the Euro" conference co-organized by the finance ministry and Hungary's Central Bank, Ferenc Gyurcsany was optimistic the country will switch to the euro currency between 2010 and 2014."It's in Hungary's interest to adopt the euro and it wants to adopt the euro," Gyurcsany said. "The convergence plan creates the opportunity (to do so) between 2010 and 2014."

Gyurcsany said that in past years meeting convergence targets and keeping economic balance and competitiveness had played only a secondary role in policy. In recent months, however, the premier underlined a change of his country's attitude.
"We see the end of the tunnel but have yet lots to do in order to get there," state news agency MTI quoted Gyurcsany as saying.

Gyurcsany also said he supported an independent budgetary department to work more effectively toward the euro-zone goal.
After posting the European Union's largest relative budget deficit in 2006, at 10.1 percent of gross domestic product, the government cut its 2007 budget gap from a targeted 6.8 percent to 6.6 percent. 

Finance Minister Janos Veres - also attending the conference - said earlier that adjustments were made based on "trends that were better than expected and more favourable than forecast." Veres said higher tax revenues, smaller interest expenses and higher pension payments have made the positive adjustments possible.

Experts have forecast Hungary would be unlikely to be ready to adopt the euro until 2015, due to its large public deficit and high inflation, expected to come near to 9 percent this year. The budget gap is planned to be cut to 4.3 percent of the GDP in 2008 and 3.2 percent in 2009, near the maximum level of 3 percent for countries using the euro.
May 1 will mark Hungary's three-years of EU membership.

Hungary moves closer to ending healthcare dispute 
Health care is a political minefield in Hungary; but it has to be tackled. Gyurcsany has pledged to end a long-running political dispute over controversial plans to reform healthcare financing and negotiate an acceptable package by the end of the year.
"I would like to reach a policy agreement in the first half of the year and finalise negotiations in the second half of the year," said Mr Gyurcsany in a meeting with journalists in London in April.

The Hungarian prime minister's difficulties mirror those faced by health reformers elsewhere in ex-Communist central Europe, where people are loathe to lose the free health services they enjoyed before 1989. 
Mr Gyurcsany's comments were addressed principally at his Socialist party, the leading force in the coalition government, and the Free Democrats, the liberal junior partner, which have been quarrelling for months over the reforms.

The Free Democrats want to end the state's near-monopoly of healthcare financing by introducing competition and permitting private insurance companies to manage health insurance contributions. But many Socialist party members are fighting to retain the state's dominant role, partly out of concern that privatising healthcare financing, even in part, could create a bigger gap in the health care provision between rich and poor.

Mr Gyurcsany avoided committing himself to a particular form of healthcare finance, saying different approaches worked in Europe, ranging from Sweden's state-dominated model to the market-oriented Dutch system. However, he said the question was important to the Free Democrats and he understood their arguments.

The Free Democrats are preparing for another push on the issue by putting forward Agnes Horvath, a reform-advocate, as health minister, following the resignation two weeks ago of Lajos Molnar, who quit over Mr Gyurcsany's refusal to support a competitive multi-player insurance system. The Free Democrats said they would remain committed to this option, though Ms Horvath has signalled a willingness to compromise.

In health care, the government has this year faced down opposition and introduced charges for doctors' visits and prescription medicines and cut drug subsidies.
Healthcare reform remains a political minefield in the ex-Communist states of central Europe. Reformers want to avoid the experience of Slovakia where the centre-right government of Mikulas Dzurinda implemented rapid changes in 2003-4 - including the introduction of charges and private health insurers - only to lose last year's parliamentary elections. 

The new centre-left administration has since partly rolled back the reforms. In Poland too, wholesale reforms in healthcare financing pushed through in 1999-2001 were later revised and diluted. Mr Gyurscany's insistence on negotiation and compromise shows that he too is intensely aware of the political dangers of healthcare reforms.

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CONSTRUCTION

Baumit plans to increase revenues 3-5% in 2007

One of Hungary's largest construction material companies, but Austrian-owned, Baumit is planning to boost sales revenues by three to five per cent this year, as a slowdown in Hungarian new home construction is offset by an ongoing home renovation boom, Managing Director, Gabor Debreczeni, said, Interfax News Agency reported.
"We are seeing three to five per cent growth on the construction material market, and we will be able to match that," Debreczeni said, adding: "New construction permits in Hungary are down because state policies are not new-home-friendly, but home renovation subsidies are presenting an opportunity of growth."
Baumit, owned by Austria's Wopfinger Beteiligungs GmbH Schmid & Co, recorded sales revenues of 10.2 billion forints in 2006, up from 8.2 billion forints in 2005.
The company's main product line is plaster, mortar and building insulation materials, which Debreczeni said is increasing demand, as homeowners are eligible for state subsidies to renovate apartments in Socialist-era concrete housing blocks, which currently have very low energy efficiency. The company also supplies special plaster used in restoring facades of classic city buildings, many of which are now being turned into office complexes.
At the same time, Baumit has suffered from the gradual tightening of state subsidies on housing loans in recent years, which has resulted in an 18 per cent year-on-year drop in new home completions last year, along with a 13 per cent drop in new building permits.
For this reason, even as a home renovation boom is underway, Baumit is unlikely to build new manufacturing capacities in Hungary in addition to its three existing facilities.
"The current rate of market expansion does not necessitate additional capacities," Debreczeni was quoted as saying, adding: "Because prices in these product categories are dirt cheap, we're not making that much profit and therefore need to be cautious in deciding whether to invest."
Debreczeni declined to disclose profit figures for Baumit, noting only that the profitability of the Hungarian unit was not as strong as that of other subsidiaries across the region. Profitability has also been depressed by an "extreme rise" in cement prices recently, which the company may not be able to fully pass on to customers, Debreczeni added.
Baumit employed 168 workers at the end of 2006, and has invested five billion forints in Hungary since its foundation in 1990.

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CREDIT RATINGS

Moody's lowers debt and deposit ratings of 44 banks

Following the refinement of its bank rating methodology, financial investors service Moody's has lowered the debt and deposit ratings of 44 banks, including three Hungarian financial institutions, the agency recently announced, Interfax News Agency reported.
Among downgraded banks were Hungary's largest bank OTP, whose ratings were lowered by two notches, along with its mortgage arm OTP Jelzalogbank, while the bank's Slovakian unit OTP Banka Slovensko saw its ratings cut by one notch. As a result, OTP Bank's and OTP Jelzalogbank's ratings were lowered to Aa3 from Aa1, and OTP Banka Slovensko's ratings were cut to A2 from A1. 
The other two affected Hungarian banks were GE Capital's Budapest Bank, whose ratings were lowered by one notch from Aa3 to A1, while Belgian KBC's local unit K&H Bank suffered a two-notch downgrade from Aa1 to Aa3. Moody's said the refined ratings methodology incorporates joint default analysis (JDA). The refined methodology reduces the level of external support incorporated into bank deposit and debt ratings in order to give greater weight to intrinsic financial strength.

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ENERGY

Energy agency calls on Hungary to diversify gas supplies 

Claude Mandil, the head of the International Energy Agency, on April 3rd called for Hungary to diversify its sources of gas, which currently come largely from Russia. Hungary, which receives 80 per cent of its gas from its former overlord, was one of the countries most affected by the gas outages in January 2006, which occurred when Russian gas deliveries through Ukraine were disrupted. Since then, the government has been pursuing three different routes to ensure there is no repeat of such events, and Mandil said that it would be wise to continue down this path, Deutsche-Presse-Agentur (dpa) reported. 
One of the options has proven to be controversial, however, drawing fire from the EU and domestic sources alike. 
Hungary's gas behemoth MOL has agreed to team up with Russia's Gazprom on extending the Blue Stream pipeline, which carries gas across the Black Sea to Turkey. 
If the plan is carried out, the pipeline would extend into Europe. MOL has also agreed to cooperate on building a 10-billion-cubic-metre storage facility in Hungary. 
However, the Blue Stream pipeline is seen as a rival to the EU-backed Nabucco pipeline, which aims to cut the dependence on Russian gas by bringing in Middle Eastern gas through Turkey. 
Hungarian Prime Minister, Ferenc Gyurcsany, has faced accusations of undermining the Nabucco pipeline by backing the Blue Stream project. 
At home, the leader of the main opposition party Fidesz has accused Gyurcsany of inviting the nation's former communist rulers back into the country. 
MOL and Gyurcsany have refused to rule out the possibility of buying into both pipelines, although both have criticised the Nabucco project for taking too long to get underway. 
There has also been talk of building a pipeline from Croatia to bring gas in from a Liquefied Natural Gas terminal set up on the shores of the Adriatic.

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FOREIGN COOPERATION

Papoulias visits Hungary, discusses bilateral ties

Greek President, Karolos Papoulias, paid a three-day visit to Hungary recently, New Europe reported.
Papoulias, who was accompanied by Defence Minister, Evangelos Meimarakis, and Deputy Foreign Minister, Evripidis Stylianidis, was welcomed by local residents, whom he said "we are pleased because you have also overcome one of the most tragic pages in modern Greek history." Papoulias also visited the National Gallery in Budapest and met with representatives of Hungarian opposition parties, while on the third and last day of his visit he is due to tour the Lake Balaton region. Meanwhile, Stylianidis inaugurated a Greek-Hungarian business forum on March 28th.

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FOREIGN INVESTMENT

Plans to open more investment to South Korean firms

Hungarian Foreign Minister, Kinga Goencz, was cited as saying in Seoul recently that the country is due to create more investment opportunities for South Korean firms, Deutsche Presse-Agentur (dpa) reported. 
Goencz assured South Korean President, Roh Moo Hyun, that South Korea was a "key partner" for Hungary in Asia, Roh's office reported. Budapest in addition had an interest in supporting the exchange of people from both countries. For his part, Roh said the steps that the Hungarian government had already taken to enable Korean companies to expand in Hungary were "instrumental in improving substantive collaboration." According to South Korean news agency Yonhap, the estimated volume of investment of South Korean firms in Hungary is currently at around US$ eight billion. Roh also noted that Goencz after her arrival for a three-day visit last week was the first foreign minister of a third country to visit the inner-Korean industrial part in the North Korean border city of Kaesong. The Kaesong visit contributed to peace and stability on the Korean peninsula, Roh was cited as saying.

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