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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: 105 - (30/01/06)

D-Day is in April
The next parliamentary ballot in Hungary is scheduled for April 2006. Nothing concentrates the mind better, said Dr Johnson, than the prospect of one's own demise.
Naturally Prime Minister Ferenc Gyurcsany is keen to assess the mood of the populus.
More Hungarians are satisfied with him, according to a poll by Gallup. 40 per cent of respondents have a positive opinion of the prime minister's performance, up three points since November.
Gyurcsany - a member of the Hungarian Socialist Party (MSZP) - became the European country's head of government in August 2004, following the resignation of Peter Medgyessy after a cabinet dispute. Gyurcsany had previously served as sports minister.
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.
 

Hungary PM Vows Extensive State Administration Reform After Polls 
Gyurcsany vowed on January 9 to launch extensive and dynamic state administration reforms after this spring's general elections. 
Gyurcsany has said previously that public administration, health care and education will be key reform targets. "The reform of the state administration is absolutely needed and our aim is to bring about the most intensive and dynamic phase of this process since the end of communism," Gyurcsany told a meeting of administrative state secretaries. 
The premier added that his government has already started preparations for the reforms in the past months. "Our aim is to ensure that the next government will only have to introduce these measures and finish the process by the end of 2006," Gyurcsany said. 
The prime minister pledged not to enter into any political bidding over reducing the number of employees working in state administration. "I don't believe it's fair or appropriate to demand the halving of the number of state administrative employees," Gyurcsany said. However he wasn't specific on what sort of financial or personnel cuts his government would seek. 
Administrative expenses at Hungary's ministries have decreased from 83 billion forints (US$403.4 million) in 2002 to HUF66 billion by 2006, which means that they'll have dropped 50% in real, or inflation-adjusted, terms, Gyurcsany said. "It's my firm belief that further reducing administrative costs is impossible under the current structure," Gyurcsany added. 
The ultimate aim of the reform is to introduce the best practices used in the business world into state administration, Gyurcsany added.

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CREDIT RATINGS

S&P issues Hungary warning

Leading credit rating agency, Standard & Poor's (S&P) issued Hungary with a final warning recently by placing its long-term debt rating of A- on a negative outlook. The agency cited mounting fiscal challenges as the reason for the change in its outlook, echoing similar concerns from other ratings agencies, Budapest Business Journal reported.
Across the board, macroeconomic analysts covering Hungary stated that the negative market reaction and the weakening of the forint against the Euro would be temporary, but stressed that a future downgrade post election is now looking more likely, and that the move should be taken as a clear stark warning to Hungary's next government.
"The outlook revision reflects the increasing downside risks to Hungary's public finances, as evidenced by high general government deficits and quickly rising government debt figures," wrote S&P credit analysts, Kai Stukenbrock. "Fiscal deficits also contribute to consistently high current account deficits, and together these pose a risk to macroeconomic stability," he added.
Hungary's December 2005 convergence program foresees a swift reduction in deficits to 3.4% of GDP by 2008, despite simultaneous cuts in taxes and social security contributions. However, an S&P statement noted that both the convergence program and the government's agenda lack concrete structural measures necessary to bring about the required swift decrease in the expenditure-to-GDP ratio.
General elections in Hungary scheduled for this April, and local elections in October, will delay progress in fiscal consolidation, and neither of the two main political parties has presented a coherent strategy to address budgetary imbalances following the elections, S&P continued. The rating agency said it expects the 2006 deficit to reach up to 10.7% of GDP, based on worsening fiscal fundamentals, but also including large one-off expenditure items. "The ratings are likely to be lowered if no signs of a significant and sustained deficit and debt reduction strategy energy after the general elections in April 2006," noted Stukenbrock.
The S&P press release went on to state that a lack of willingness to resolutely address structural budgetary problems is likely to keep deficits high, gradually declining to 5.5% by 2009. Gross general government debt levels will continue to increase rapidly, reaching 69% in 2009, from 60% in 2004, it added.
Accession to the euro zone is now unlikely to take place before 2014, according to S&P, which argued that unsustainable fiscal deficits and uncertain consolidation prospects risk fuelling external imbalances that leave the forint vulnerable, and undermine confidence in macroeconomic stability. Accordingly, S&P noted, this poses an increasing risk for growth and investment prospects, as well as for the inflation outlook.
"The negative outlook could revert to stable if comprehensive structural measures were to be implemented that would ensure the sustainable reversal of the upward trend in the government debt ratio," added Stukenbrock.

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ENERGY

Bosnia rejects Mol/INA purchase offer 

According to a Reuters report the parliament of Bosnia's Muslim-Croat federation rejected a government decision to sell a majority stake in fuel retailer Energopetrol to the consortium of Hungary's Mol and Croatian INA on January 24th.
Energopetrol has 65 filling stations and a 15 per cent share of the Bosnian market. Federation Prime Minister, Ahmet Hadzipasic, said the government would continue talks with the Mol/INA consortium but was not optimistic. He said a bankruptcy procedure for Energopetrol would be launched at the end of February.
The Bosnian government chose a bid submitted by a consortium of Mol and Croatia's INA in a tender for a 67 per cent stake in Energopetrol in May last year. Negotiations stalled, however, in the summer after Mol and INA rejected the Bosnian government's proposal for the two oil companies to pay more up front, but eventually continued in October. 
In October the Bosnian government agreed with Mol and INA that the two may acquire 67 per cent of Energopetrol, if they invest 75 million Euro in the company, retain its 1,060 employees over the next three years and pay off Energopetrol's debts, which stand at 30 million Euro. 

MOL to expand oil production in Russia 

Hungarian oil and gas company MOL plans to expand its oil production business in Russia, and is not ruling out cooperating with RussNeft, which is already one of the company's partners, and also with LUKoil, MOL managing director, Sandor Fasimon, said, Interfax News Agency reported in Moscow. 
"Yes, we have plans for the Russian Federation, I do not rule out that this may be with RussNeft, with LUKoil. Let's see what opportunities there will be," he said. Fasimon said that the company's strategy is to work in other countries with local partners. He said that Russneft has been the company's partner in the Zapadno-Malobalykskoye oil production company in Khanty-Mansiisk autonomous district since last September, having acquired a 50 per cent stake from YUKOS. 
"We have established good, normal relations with RussNeft and are working together," he said. He said that the purchase of the Russneft stake is not being discussed. MOL PR director, Denis Mohorovic, told Interfax that no proposal has been received from RussNeft either to buy the MOL stake in the joint venture. Fasimon would not disclose the volume of investment in the joint venture planned for next year, but said that MOL has good financial possibilities. He also said that MOL has good business ties with Russia's LUKoil, and in particular has a long-term contract to supply oil. "Talks are being held with LUKoil, but we have not had talks about assets," he said. He said that the company's strategy until 2010 is to increase MOL's upstream sector, including in Russia. He said that at the moment Russia accounts for 50 per cent of the company's overall oil production. MOL also plans to take part in the consolidation of the oil refining and marketing sector in Central Europe. According to Mohorovic, MOL is interested in taking part in the privatisation of Serbia's Naftna Industrija Srbije (NIS). He said that the Serbian government has not yet announced the tender conditions and the stake that may be sold. The tender is expected to take place in 2006. LUKoil vice president, Leonid Fedoun, said earlier that LUKoil plans to take part in this tender together with its strategic partner ConocoPhillips.

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INDUSTRY

Electrolux makes Euro 25m expansion 

Swedish white goods maker Electrolux inaugurated a 25 million Euro expansion at its refrigerator plant in Nyiregyhaza in NorthEast Hungary on January 23rd, New Europe reported. 
With the investment of 65 million Euro Electrolux opened its plant just six months before and now makes the facility Electrolux's most modern, Camillio Fulvo, who oversees all of Electrolux's refrigerator production in Europe, said at the ceremony. As a result of the expansion, the plants output will rise from 280,000 units in 2005 to 650,000 units in 2006.

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TELECOMMUNICATIONS

Rivals ponder Magyar Telekom's fixed-mobile offer

Magyar Telekom Rt has followed up on its earlier promise to better utilise the synergies between its fixed-line and mobile divisions with a new package that offers large discounts for calls between fixed and mobile phones, Budapest Business Journal reported recently.
As such offers are likely to be stepped up with the forthcoming merger of T-Mobile Hungary Rt into the operations of Magyar Telekom, the company's competitors are expressing hope that such offers abide by the law as they themselves consider a market response.
"We certainly believe in fixed-mobile convergence, and will explore all possibilities as to how this could be achieved on the Hungarian market," said Martin Lea, CEO of the country's number two fixed-line telecom, Invitel Rt. "Obviously, teaming with a mobile operator is one option. We're also aware that the opportunity for a fourth mobile licence will re-emerge at some stage," he added.
In the framework of Magyar Telekom's "OdaVissza" discount scheme launched on Jan 16th, up to four T-Mobile phone numbers selected by the subscriber or bill-payer can be called at Ft 0 per minute throughout the day from a T-com (fixed line) number, for a gross fee of Ft 990 per month. The selected T-Mobile numbers can call each other for a gross fee of Ft 990 per SIM card, at a rate of Ft 0 per minute, 24 hours a day. If requested, the customers of T-Com can also choose a supplementary option at Ft 790 per month, where two more T-Com fixed-line numbers can be called at the Ft 0 rate all day.
In addition, claims Magyar Telekom, administration will be easier for customers of the Magyar Telekom Group because a unified shop network will be developed with the integration of the Magyar Telekom and T-Mobile shops from mid-January.
Hungary's number two mobile provider, Pannon GSM Rt, responded cautiously to the developments.
"Our experts are currently evaluating the offer, its concord with the law, and its prospective market impact," said Dora Somlyai, Pannon's communications director.
A statement from the Competition Office (GVH), meanwhile, said that the authority intervenes in the conduct of market players only if they unjustifiably restrict competition, for example by abusing their dominant position.
"However, we must emphasise that there have been no allegations of abusive conduct so far regarding the first joint offer of T-Com and T-Mobile - the Oda-Vissza discount scheme - on the part of Magyar Telekom's competitors," said the statement.
Nevertheless, the GVH stressed that it is keeping a close watch on the behaviour of companies with significant market power in the electronic communications markets, and will start proceedings if it detects any violation of competition law.
"In the electronic communications market, it is the duty of the NHH (National Telecommunications Authority) to intervene using regulatory tools if there is a need to prevent possible future abusive behaviour ex ante, in order to introduce or promote competition on the market," it said.

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TOURISM

Chinese tourism on the rise in Hungary 

Data released from the Central Statistics Office (KSH) government tourism promotion company, Magyar Turizmus, said on January 24th that Hungary received nearly 60 per cent more tourists from China in January-November 2005 as compared to the same period in 2004, New Europe reported.
Air China opened an office in Budapest in 2003, and an agreement between Hungarian airlines, Malev, and Chinese airlines, Hainan, in 2004 boosted air travel with a code sharing agreement on flights between Budapest and Beijing, the promotion company said, noting that Hungary plans to keep air travel with China in the spotlight of tourism developments in the future.

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TRANSPORT

BKV signs tunnel tender for fourth line 

The Budapest Public Transportation Company (BKV) Rt signed a contract with a consortium led by France's Vinci including the Austrian, German and Hungarian units of Strabag, and Hungary's Hidepito Rt to drill two 7.3 kilometre tunnels side-by-side and build one station for Budapest's planned fourth underground line, New Europe reported.
Laszlo Gulyas, Project Manager for the new line said that drilling would start in the summer of 2006 and finish by the end of 2008. The consortium, under the name Bamco, was declared the winner of the tender to drill the tunnels with a bid of HUF 52.9 billion, excluding VAT, in December. The companies will drill and build the tunnels, as well as build a station at Gellert Square within 143 weeks.

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