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HUNGARY

 

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 65,843 51,900 46,600 45
         
GNI per capita
 US $ 5,280 4,830 4,710 69
Ranking is given out of 208 nations - (data from the World Bank)

REPUBLICAN REFERENCE

Area (sq.km)
93,200

Population 
10,106,017

Capital 
Budapest

Currency 
Forint 

President 
Ferenc Madl

Private sector 
% of GDP
 
60%

  

Background:
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 EU. 

Update No: 081 - (01/02/04)

Map of Magyar politics
The political situation in Hungary is complex, but worth bearing in mind. At the moment there are ten major parties in the country, some of which have mass popular appeal and some of which represent special interest groups.
The Communist Party of Hungary was brought down by the activism and reforms pressured for by the Hungarian Democratic Forum and the FIDESZ or Young Democratic Party, led by a very young Viktor Orban. While the Democratic Forum was thought to be a rightist, if not a nationalistic, party, the selection of Josef Antall, who came from a prominent anti-Nazi family, allayed many of these concerns. 
The Hungarian Socialist Party (MSZP), on the other hand, is a reformed Communist Party, and one of the more successful transition stories in Eastern Europe. When they won office in 1994 many analysts feared a return to Communist economic and social system, yet it was the reformed Communist party that made the difficult economic reforms passed on by the former government, reforms that awarded Hungary an International Monetary Fund loan and reaffirmed Hungary's economic growth.
The final party of note is the Hungarian Justice and Life Party, founded in 1993. It is the radical right in Hungarian politics and the party's vice-president was recently censored for anti-Semitic views espoused in public 
The 2002 elections reaffirmed a trend in Hungarian politics which shows the consolidation of major left/right parties and the periphilisation of smaller parties. The FIDESZ and MSZP together amassed 92% of the total (Socialists 48/Young Democrats 42) of the votes in the first round of parliamentary elections. After a 71% voter turnout in the runoff elections, the MSZP took 198 seats in the Parliament and the incumbent FIDESZ took 188; yet FIDESZ won the popular vote 49/46. 
While some have criticisised this development as a loss of democratic ethos, others note that radical parties like the MIEP have been marginalized (receiving only 3% of the vote) as has their message, meaning that the FIDESZ or Democratic Forums could not utilise them as a coalition partner, something Viktor Orban may have thought of doing only if in dire straits to be re-elected.

Further economic crisis
Yet another currency crisis has struck Hungary. The florint went into jitters on the exchanges during the summer and foreign investment was frightened off. Now it is happening again.
In early December the florint fell further, despite a 3% rise in interest rates. The economy is not faring too well, with a massive budget deficit and a host of other problems. Since September foreign bond investors have withdrawn nearly $700 million due to worries about the high budget deficit, reaching a record 9.6% of GDP, and the growing current account deficit.
The financial panic will abate. But the crisis threatens, not Hungary's entry into the EU, certain in May, but its entry into Euroland in 2008. Still there is a lot of time for things to be put right by then.

Preparing for the EU
The Hungarians are somewhat apprehensive at the prospect of joining the ERU, due in June. It is by no means clear that the country may not be a net payer into the Brussels exchequer. Such was the non-committal response of Jurgen Kopper, the EU ambassador in Budapest.
Hungary is due 39.2 billion HUF for regional aid and 76 billion HUF under the CAP. But its arrangements to receive the inflows are not up to scratch, implied the ambassador. In agriculture the paying agency has been set up, but its administrative procedures were submitted to parliament only on November 4th. It is doubtful the agency can be ready in time for the deadline of May 1st.
As regards regional aid, the agency required to process payments from the structural and cohesion funds of the EU has not been fully set up. This endangers some 220 million Ecu in expected payments.
Hungary has still got things to do to comply with EU legislation. It needs to take action, not just on farm subsidies, but on hygiene standards at food-processing plants and rural development programmes.

Following the Irish lead
The government, composed of the ex-communists, led by premier Peter Medgyessy, is unpopular, as would probably be any government at the moment in Hungary. But despite lagging badly in the polls behind the opposition party, Fidesz, led by former prime minister, Viktor Orban, the government is not despairing. Medyessy has a plan.
He is convinced the devaluation of the florint is a blessing in disguise. Previously growth had been led by domestic consumption, not by exports. Now it can be the other way round. 
Hungary's entry to the EU should give it an added attraction to foreign investors on top of the more competitive exchange-rate.
The Hungarians can see what EU membership can do for a country when they look at Ireland, which has now assumed the EU presidency, taking over from Italy in January. The Irish joined with the UK in 1973. Unlike the British, they have made a great success of membership, becoming 'The Celtic Tiger' in the process.
From being the poor relation back then, they now have a higher standard of living than the English. The multinationals came in droves to Ireland, English-speaking, with low wages at the time and a huge Diaspora in the US, the small and compact island was seen as an excellent base of operations for doing business throughout Europe. Two-thirds of its exports are made by the multinationals, while the Irish farmers have done well out of Brussels subsidies.
The Hungarians can hope to emulate the Irish and become the Magyar Tiger, indeed, are well on the way already. Budapest can aspire to be the natural capital of the region, more cosmopolitan than Prague and much younger and livelier than Vienna.

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AVIATION

Hungarian airlines gets state funds to boost its capital


The owners voted for a capital injection of 10bn forints [one dollar is about 220 forints] at the company's extraordinary AGM [Malev is state owned], Hungarian TV2 satellite service has reported. The company is to be granted 7bn forints from this before the end of the year and a further 3bn forints will be granted in 2004. The leadership of Malev, appointed six months ago, promises to make the airline profitable with this money.
In the past ten years Malev has amassed losses of almost 40bn forints. This year's deficit was close to 9bn forints. The airline has lost most of its basic capital. Now, this has been replenished by issuing new shares to the tune of almost 3.5bn forints from the 7bn forints given by the State Assets Management Company, and the rest will be deposited as capital reserves.
The company can count on the next instalment of 3bn forints next year. The company reckons that through cost cutting measures it can save more than 7bn forints next year, and this could result in a robust profit in the second half of the year.

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ENERGY

Hungarian oil company reorganized to separate gas branch

Mol Rt [a major Hungarian oil and gas company] has reorganized its gas business branch in the form of subsidiaries, Kossuth Radio reported. This step has become necessary because of the stipulations of the law on gas supply. The reorganization is in line with EU principles and the law on gas supply passed in 2003, and it also ensures the transparent operation of gas businesses required by market liberalization, the Mol statement said.

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ENVIRONMENT

Budapest strikes EIB loan on wastewater infra plans

Three Hungarian cities will soon benefit from the ratified EIB loan on wastewater treatment projects. Finance Minister, Csaba Laszlo, and European Investment Bank (EIB) Vice President, Wolfgang Roth, recently signed a 50m Euro loan agreement concerning the finance of such projects, New Europe has reported.
The total project cost will be nearly 150m Euro, of which 88m Euro is in Debrecen, 39m Euro in Kecskemet, and 20m in Szombathely, Interfax News Agency reported. In addition to the EIB financing, 60 per cent of project costs will be financed by the EU's ISPA fund, with the remainder to be rounded out by local resources. The projects will be completed by 2008.
The loans will have an eight-year grace period and a maturity of 25 years. The facility will be granted on the same conditions as to other EU member states, Roth stressed, cited by Interfax.
It is recalled that prior to granting the present facility, the EIB has lent 360m Euro to finance public sector investments in Hungary this year - 190m Euro for road development and 170m Euro for railway projects.

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FOREIGN LOANS

Hungary to receive 3.2bn Euro from EU in 2004-2006

Hungary could receive a total of 3.2bn Euro in EU structural and cohesion financing in 2004-2006, following the finalisation of financing agreements between Hungary and the European Commission recently, state secretary, Etele Barath, announced. The financing agreements are based on Hungary's National Development Plan (NFT), a document outlining application programmes and projects in the coming years to absorb EU funding. The NFT, the drafting of which was overseen by the state secretariat headed by Barath, was submitted to the EU in March last year and approved in September. Financing from the EU's Structural Fund will be allocated through five "operational programmes" drawn up by the NFT, New Europe reported.

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MINERALS & METALS

Ukrainian-Swiss firm wins bid to buy Hungarian steelworks

The APV Rt [State Privatisation and Assets Management Joint-Stock Company] is likely to start negotiations for the sale of Dunaferr [Hungarian steelworks] with a Ukrainian-Swiss registered consortium. This was confirmed at a press briefing held by the organization, Kossuth Radio reported recently.
The APV Rt was expected to bring in a revenue of 163bn forints last year as opposed to the originally planned 196bn forints, it was said at the company's press briefing. The difference stems mostly from the postponement of the sale of shares of Mol [Rt, Hungarian oil and gas company].
The APV Rt reckons with a revenue of 334bn forints this year and 302bn forints in 2005. Practically speaking, by 2006, the state will run out of assets for sale. 
At an unscheduled APV Rt session, a decision was also taken on the identity of the party with whom negotiations on the sale of the state shares in Dunaferr Rt would be launched on the basis of bids. It was said at the briefing that the bid submitted by Donbass-Duferco, the Ukrainian-Swiss consortium, had been judged to be the best bid. The bids were strategically well-considered and serious and the decision was taken on the basis of the requirements set by the government in respect of jobs, investments and capital. 

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TRANSPORT

US firm signs contract on motorway linking Hungary and Romania

A contract on building a motorway linking Budapest and Bucharest has been signed by the Romanian Transport Ministry and the US firm Bechtel International in the Romanian government palace in Bucharest, Duna TV satellite service has reported. 
Under the contract, work on constructing the 415km-long stretch of the motorway between the Romanian border crossing station Bors, the village opposite Artand [on the Hungarian side of the border], and Brasso [Brasov, central Romania] will start in July and end in 2012. The investment will cost US$2.5bn. The motorway, joined by the other motorway between Bucharest and Brasso, will link Romania and its capital, Bucharest, with Central and Western Europe. The motorway will also go by Marosvasarhely, Kolozsvar and Nagyvarad [Tirgu Mures, Cluj and Oradea, respectively]. 
The Romanian government is to obtain a foreign loan of US$2.8bn to build the motorway. The Transport Ministry will be responsible for making repayments of the loan and for financing other expenditure in respect of the project. 
Under the contract, the US firm will construct the 415km-stretch Bors-Brasov by using Romanian building material and construction workers.

Hungarian capital to get funds for new metro line

The finance minister and the mayor of Budapest have agreed on the remaining open financial questions of the 4th metro line. After the meeting, the Budapest mayor's press officer said that it had become possible for Mayor Gabor Demszky and Prime Minister Peter Medgyessy to sign a joint statement on 22nd December, Kossuth Radio has reported. The agreement will then have to be approved by the government and the Budapest assembly in January. The finalized agreement on the 4th metro line can be signed only after this.
A new loan of 100m euros will also help to finance the construction of the 4th metro line in Budapest. Mayor Gabor Demszky signed an agreement on this in Budapest with a representative of an international bank consortium this morning. The mayor said that the seven-year loan would finance the metro, the widening of the lower embankment on the Buda side of the river Danube and the restoration of green areas in the capital. 
Gabor Demszky rejected the opposition charge that the loan meant the indebtedness of the capital. He said the flexible resource would pump new energy into the capital's development and the investment projects would create several thousand new jobs in Budapest.

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