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HUNGARY


 

 

In-depth Business Intelligence

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

REPUBLICAN REFERENCE

Area (sq.km)
93,030

Population 
10,032,375

Capital 
Budapest

Currency 
Forint 

President 
Ferenc Madl

Private sector 
% of GDP
 
60%




Update No: 106 - (23/03/06)

Putin reaches out to Hungary over revolt
Russian President Vladimir Putin has acknowledged Moscow's moral responsibility for the brutal Soviet suppression of the 1956 Hungarian uprising. Putin was on the first day of a visit to Hungary -- only the second by a Russian leader since the collapse of the Soviet Union -- amid signs that Russia is seeking a bigger economic role in a region Moscow once dominated. 
President Laszlo Solyom and an honour guard welcomed the Russian leader at the presidential residence perched high above the Danube River before closed-door meetings between Putin and Hungarian officials. Putin later joined Prime Minister, Ferenc Gyurcsany, and other officials at parliament. 
Although energy issues dominated talks during Putin's two-day visit (see below), the main event was the formal return of a trove of priceless, centuries-old books seized by the Soviet Army during World War II and taken to Russia. Budapest has long demanded them, and Gyurcsany played up the event as the final "spiritual gesture" in normalizing the two countries' relations. 
Yet, other divisive issues lurk below the surface, including the anniversary later this year of the 1956 uprising that was suppressed by Soviet tanks. 
Speaking to reporters after nearly an hour of talks with Solyom, Putin noted that his predecessor, Boris Yeltsin, had come to Hungary in 1992 and condemned the Soviet role in crushing the revolt. "Of course, modern Russia is not the Soviet Union, but we can still feel some sort of moral responsibility for these events," he said. "Our task is not to forget the past and to think about the future," Putin said. 
The two heads of state hailed an ongoing thaw after years of cool relations following the Soviet break-up. Hungary's prime minister said during his talks with Putin that the time had come to heal wounds from the Soviet period, and he said Hungarian policies toward Russia would be driven by less ideology. "With this visit, the past has come to a close," Gyurcsany said. 
Budapest has moved more slowly through its post-communist reform process, compared with Poland, for example, which, while stoking its economy, has also angered Moscow with strident pro-Western orientation. 
Hungary has, though, swiftly integrated itself into Western alliances and trade blocs, joining the EU two years ago and NATO in 1999. The country also sent troops to Iraq as part of the US-led coalition there. 
Putin and Gyurcsany oversaw the signing of more than a half-dozen agreements on telecommunications, migration, cultural ties and debt repayment

On the brink of elections, Fidesz first, Socialists second 
The opposition Citizens Party (Fidesz) could become the top political force in Hungary's legislative branch. According to a poll by Marketing Centrum. 44 per cent of respondents would vote for Fidesz in April's elections.
The governing Hungarian Socialist Party (MSZP) is second with 41 per cent, followed by the Alliance of Free Democrats (SZDSZ) with six per cent, and the Hungarian Democratic Forum (MDF) with four per cent.
In August 2004, Socialist prime minister, Peter Medgyessy, tendered his resignation after a cabinet dispute. The Socialists chose businessman and sports minister Ferenc Gyurcsany as the new head of government. Former prime minister Viktor Orban is the leader of Fidesz.
The legislative elections have been scheduled for Apr. 9 and Apr. 23. Hungary's electoral system calls for a first round, where a shortlist of all the candidates who receive more than 15 per cent of the vote is created. In the second round, the actual winner is chosen from these candidates. Also, the national transfer list allocates seats for every party that surpasses the five per cent threshold.
Discussions about the format of televised debates have dominated the campaign for the past few days. Gyurcsany has proposed to hold two meetings on April 3rd and April 5th. All four party leaders would participate in the first meeting, and only Gyurcsany and Orban would attend the second meeting.
MDF's leader vice-chairman Zoltan Hock criticized the plan, saying that all parties with a candidate for prime minister should be represented in both debates.
One encouraging thing for Gyurcsany is that he is continuing to be more popular than his party. Public support for him remains stable, according to a poll by Gallup. 47 per cent of respondents have a positive opinion of the prime minister's performance, up one point since January.
On March 5th, Fidesz published a series of letters calling on six government members to participate in issue-oriented debates. A statement issued by the MSZP said the party was adamant on publishing its platform, and would not initiate "a debate about the issue of debates." 

The economy - stupid
Much revolves around the troubled economy, as the Clinton camp understood well in 1992. 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. 
Gyurcsany has set specific tasks for this year, declaring, "Our aim today is (to adopt the euro) in 2010, for which we will have to do many things in 2006, 2007 and 2008." The prime minister also vowed to enact reforms in state administration, health care and local government in the first 100 days of a new mandate, should he obtain it. 
But this is all rather pedestrian stuff to convince voters to turn out for the incumbent party.

Hungary to be 'the energy hub' of Southern Europe 
That is where the real significance of the Putin visit lay, taking place at the beginning of the electoral campaign on February 28th - March 2nd. The two leaders emphasized oil and natural gas cooperation; Russian oil giant OAO Lukoil and the state-controlled gas monopoly OAO Gazprom have been eyeing Hungary's energy sector, including the country's largest gas and oil company, MOL Rt. 
Hungary relies on Russia for gas -- by as much as 90 per cent -- and in February, the country was rattled when a Siberian cold snap resulted in a significant drop in gas deliveries. A New Year's dispute with Ukraine -- through which most of Russia's European-bound gas travels -- resulted in shortfalls in several European countries and a round of criticism for the Kremlin. 
Putin touted Hungary's potential role as a hub for gas supplies to Southern Europe, and he sought to quell criticism about Russia's reliability as Europe's largest single gas supplier. "No one in Europe should ever have any doubts about the reliability of Russia gas to Europe. Never," Putin said. 
If Gyurcsany wins, he will owe a political debt to Putin.

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CREDIT RATINGS

Japanese agency downgrades Hungary's ratings 

The Japan Credit Rating Agency (JCR) recently jumped on the bandwagon of agencies reacting to Hungary's fiscal woes and downgraded the country's long-term debt rating to A from A+, New Europe reported.
"The revision reflects the prospect that the country's persistently large fiscal deficits are unlikely to narrow and that an increase in government debts seems unavoidable in the short run," JCR said in a statement. Hungary has struggled with its budget deficit in recent years. Last year's final deficit is estimated to be 6.1 per cent - far above the initial target of 3.6 per cent. The government is planning for 4.7 per cent this year, but many analysts have said it could balloon to around seven per cent. Hungary must reduce its deficit to below three per cent by 2008 to meet the Maastricht criteria to adopt the Euro currency in 2010.

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ENERGY

Budapest negotiates with Gazprom on gas deliveries 

Hungarian Finance Minister, Janos Veres, recently met with the chief executive of the Russian gas giant Gazprom, Alexei Miller, to discuss long-term cooperation in the oil and gas sector. The Hungarian side reportedly urged an extension of the contracts covering deliveries of Russian gas to the country to offset the soaring gas demand in the central European country. According to a Gazprom release, Miller and Veres also discussed prospects for building new gas transportation facilities in Hungary to increase gas deliveries to the country and gas transportation via Hungary to other European countries, New Europe reported.
They also discussed the potential participation of Gazprom in Hungary's plan to build a 1.2 billion cubic metre natural gas storage facility, as well as possible co-operation in other energy and petrochemical projects in Hungary. Gazprom reportedly saw a business opportunity in creating a regional natural gas hub in Hungary. The Hungarian parliament was scheduled to take a vote on writing out an international tender for the project. Experts noted that the winning of the tender by Gazprom to build a regional hub could be beneficial for MOL as it would definitely increase the amount of transmitted gas. "Moreover, it might increase Gazprom's interest in buying MOL's gas transmission assets, though, of course, such a move would require regulatory approval," noted Peter Tordai, analyst at K&H Equities, quoted on the portfolio.hu website.

Hungary brings forward gas reserve plan 

Hungary has brought forward its plans to build a strategic gas reserve by 2010, MTI News Agency reported, cited by Deutsche Presse-Agentur (dpa). 
The original deadline was set as 2012, but the Russia-Ukraine gas dispute - which prompted a drop in gas supplies to Hungary of around 40 per cent - prompted the government to take action. Deputy-Undersecretary at the Economy and Transport Ministry, Gyorgy Hatvani, told MTI that the new bill, passed by Parliament, detailed a 1.2 billion cubic metre reserve. The reserve would be capable of supplying a daily 20 million cubic metres of gas for 45 days to keep homes and public institutions supplied in the case of another crisis. Hungary has been looking for ways to reduce its dependence on Russia for gas, and recently opened talks with Croatia to run a gas pipeline up from the Adriatic. Hungarian gas firm MOL also has a stake in the planned Nabucco pipeline, which would run through Central Asia. Hungary currently exports 11.5 billion cubic metres of gas per year, 70 per cent of which comes from Russia.

Mol's Q4 results in line with analyst's expectations

Central and Eastern Europe's largest integrated oil and gas company, Mol Rt, recently announced that profit rose a slight 2% year-on-year to Ft 54.77 billion in 2005. Mol, the largest company by market capitalisation on the Budapest Stock Exchange Rt (BET), achieved financial results that were mostly in line with analyst projections, although increased profit from refining and exploration activity did not compensate for continued losses on Mol's natural gas business, the company stated, the Budapest Business Journal reported.
Mol's net sales in the fourth quarter totalled Ft 744.9 billion, up 23% year on year, with EBITDA up 15% to Ft 105.6bn from Oct-Dec 2004. Operating profit came in at Ft 67.73bn, representing a rise of 17% over the same period a year earlier. Net financial gain stood at Ft 8.9bn, compared with a net financial loss of Ft 7.9bn in Q4 2004.
According to the company, Mol is shifting its focus toward crude oil and natural gas production after spending more than US$1bn in five years buying filling stations and refineries in Eastern Europe. The company's exploration and production unit posted an operating profit of Ft 31.5bn in the fourth quarter of last year, compared to Ft 10.4bn a year earlier, owing mainly to increased output from its Siberian oil field.
Mol's Chief Executive Officer, Gyorgy Mosonyi, said in a press conference in Budapest that the company expects refinery margins to remain largely unchanged this year and the average price of Brent crude to amount to US$40-50 per barrel in 2006. The difference between the price of Brent and cheaper Ural crude, which Mol refines, could be around US$2-3 per barrel this year, Mosonyi added.
The refining and marketing division had operating profit of Ft 40.4bn in Q4, 8% down on 2004's results and owing mainly to the 5% cut in VAT on petrol and diesel as of October 1st 2005. In the petrochemical division, Mol recorded operating profit of Ft 5.6bn, compared to Ft 7.9bn in Q4 2004. Petrochemical margins narrowed on rising raw material prices, the company stated.
Meanwhile, the gas unit reported a Ft 15.4bn in operating losses after regulated price increased last year failed to compensate for the rising cost of gas imports, Mol revealed. By comparison, Mol posted a Ft 3.9bn operating profit in Q4 2004. In the whole of 2005, operating profit decreased by Ft 14.7bn to Ft 50.1bn.
Last year, Mol sold its natural gas business to Germany's E.ON AG, and expects its gas assets to be off the books by Q2 of this year.
Mosonyi said Mol is considering acquisitions abroad, including the purchase of Pakistan Petroleum Ltd. Mol may also raise its existing stake in Croatia's INA dd, and is interested in buying Serbian refinery, NIS, he said. In response to comments from Russia's OAO Lukoil over plans to expand in Europe through the acquisition of rival oil companies, Mosonyi asserted that neither Mol nor its capacities are up for sale.
Commenting on the results, Citigroup Inc analyst, James Neale, wrote: "Evidence continues to mount that the Mol investment case is in transition. Exploration and production is in decline domestically, and on a plateau in Russia. The gas business in Q1 2006 must endure its worst losses since its annus horribilis of 2001, and the refining cyclical trade must await a period of slack inventories before the expected pre-summer tightening."
Neale stated that the company remains a high-quality niche business, adding that he had upped his 2007 and 2008 expected net income forecasts by 4.8% and 3.4%, respectively, on a more optimistic view of unregulated gas transit profits.

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FOREIGN COOPERATION

Hungary to be "China's Gateway" to the EU 

Hungary will support all efforts to transform the nation into a gateway for Chinese goods coming into the European Union, a government official for the new EU member said recently, MTI news agency reported.
Andras Huszty, government commissioner in charge of Hungarian-Chinese relations, said recnelty that Chinese goods assembled in Hungary could enter the EU without customs duty, offering a way to bypass trade disputes. Speaking at a conference, Chinese Ambassador to Hungary, Zhu Zushon, said that Hungary was China's most important trade partner in the Central and Eastern European Region. Bilateral trade between Hungary and China has grown by almost 400 per cent over the past five years, reaching 3.1 billion Euro in 2005.

Hungary and Saudi Arabia look to strengthen links 

Hungarian and Saudi Arabian officials met in Budapest recently to discuss widening economic and trade cooperation. Gyorgy Gilyan, a state secretary at Hungary's Economy and Transport Ministry, said that trade between the two countries has grown dramatically, from US$110 million in 2004 to US$166 million last year, New Europe reported.
He said that he expected this figure to double in 2006. Ahmed Bin Saleh Al-Khalifa, state secretary at Saudi Arabia's Water and Electricity Ministry, said that his country was planning to invest US$90 million in energy and water over the next 20 years and Hungarian firms had a good chance of tapping into this money.


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