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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: 107 - (28/04/06)

Electoral cliff-hanger resolved
In Hungary, the second round of parliamentary elections on 23rd April decided the fate of the current social-liberal government coalition, which secured a slight majority after the first round. It was successful in the second round too, only just - but enough so for it to be the first time since the fall of communism that a government in Hungary has managed to get itself re-elected. 
The irony is rich in that the dominant party in the coalition, the Socialist Party, is the heir to the Communist Party no less. But then to make it richer still they are led by one of the wealthiest men in Hungary, a mega-tycoon, Ferenc Gyurcsany, who made his money in the early years by staying on the fence, opting for the new mantra of democracy and capitalism, while remaining close to the former communist power apparatus. Post-communist Hungary is an outré Alice-in-Wonderland world, not ruled by the White Queen, but in which Humpty-Dumpty is king.

Socialists Win Hungary's Elections
The ruling left-wing coalition then won the country's first parliamentary elections since it joined the European Union in 2004. The Hungarian Socialist Party and its liberal ally beat the centre-right opposition. There were naturally scenes of great celebration at the packed Budapest headquarters of the ruling Hungarian Socialist Party, which has made history. 
For the first time since the demise of Communism in 1989 a Hungarian government has been re-elected. Election officials said the Socialists and its liberal coalition partner Alliance of Free Democrats are expected to have around 210 seats in the 386-member parliament. 
The main centre-right opposition party Fidesz and the smaller right-wing Hungarian Democratic Forum Party reportedly have 175. As soon as the results became known, Fidesz leader Viktor Orban acknowledged defeat and congratulated the Socialist Prime Minister on his victory. A victory of Fidesz seemed increasingly unlikely from the moment that their leader Orbán withdrew his candidature for the post of prime minister. 

The putative post-electoral Socialist future
Mr. Gyurcsany told his supporters that his administration would create a more equal society amid concerns over social tensions in Hungary, which joined the European Union two years ago. "I believe in Hungary. I believe that we can build up a Hungary that will be open for everyone and where it doesn't matter where you are born in a small village or a town," he says. "We want to create a country where it is worthwhile to work and where you can get rich by using your talents and hard work." 
The 44-year old Mr. Gyurcsany, a former Communist who became a self-made millionaire before returning to politics, considers British Prime Minister Tony Blair his political mentor. Mr. Gyurcsany's left-wing coalition has made clear it wants to embrace globalisation and free market reforms while fighting for social justice.

Western concerns
While Western investors welcome the pro-business rhetoric of the Socialists, there is growing concern over the ballooning budget deficit which stood at around six per cent of gross domestic product in 2006. 
The deficit is the highest within the European Union and is a threat to Hungary's plans to meet the requirements to introduce the euro currency in 2010. 
The celebrations were expected to be short-lived as some officials have already spoken of massive lay-offs among state workers and other tough social measures to reduce both the budget deficit and improve Hungary's competitiveness.

The problems are ahead
Whether the Socialists or Fidesz won, it was always going to be the same question - the winner would face the daunting task of strengthening the financial reputation of Hungary, damaged by the large budget deficit (6% higher than allowed under the EU convergence criteria). 
This in turn will determine the country's future introduction of the euro. Hungary's accession to the euro zone is initially scheduled for 2010, but may possibly be shifted to 2014, if the unstable economic situation prevails.

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The following is an independent assessment made between the two rounds of the elections:-

Hungary struggles to compete 
Hungary's ruling Socialists and the conservative opposition Fidesz are locked in a close parliamentary election race, in which the role of smaller parties may prove crucial. 
It is the first such battle since the country joined the European Union in 2004. 
The BBC's Europe analyst, Jan Repa, examines how Hungary has fared in the EU compared with its neighbours. 
When Communist rule ended in 1990 - the result, as in Poland, of a negotiated transfer of power - Hungary enjoyed certain advantages. It had a cadre of economic bureaucrats, many of whom had had training in the West. They understood how banks and other financial elements of a market economy were supposed to function. 
Much was made of the country's historic links with the German-speaking countries - which were seen as a source of new investment and diplomatic support. 
Domestic politics, however, revolved between two poles: a Western, liberal one, based in Budapest; and a populist-national one, which emphasised Hungary's distinctive traditions. 
The latter trend gave much publicity to the large Hungarian minorities living in neighbouring Romania, Slovakia, Serbia and Ukraine: a relic of the time, before 1918, when Hungary comprised one half of the Austro-Hungarian Empire. 

Budget woes 
What all recent Hungarian governments have felt obliged to do is to feed public expectations. This has produced recurring cycles of overspending, followed by financial retrenchment and austerity. 
The current election campaign has been no different - with the Socialists and Fidesz both making promises of jobs, lower taxes and more state subsidies. 
But they have not said what they will do about the budget deficit, which now stands at over 6%, and may soon reach 8%. 
Some foreign experts have suggested that Hungary will not be ready to adopt the euro before 2014. The Socialists' target date is 2010. 
While Hungary's annual growth rate of 4-5% is comparable with Poland it lags behind the 6-7% currently enjoyed by the Czech Republic and Slovakia. 
Hungary's finances, however, are in worse shape than any of its Central European neighbours. 

Structural weaknesses 
In fact, Hungary's economy - focused as it is on consumer goods and agriculture - is quite vulnerable. 
It lacks the size and internal market dynamism of Poland. Its reputation as a manufacturing centre is not as well established as that of the Czech Republic. 
Hungary's tax incentives are not as generous as those now being offered by Slovakia. 
A number of foreign companies, which moved into Hungary in the 1990s, seeing it as a fairly cheap assembly point close to the West European market, have pulled out and taken their business to South Asia and other even cheaper locations. 
Regional disparities persist in Hungary, with western areas, between Budapest and the Austrian border, enjoying higher living standards than eastern areas, closer to Romania and Ukraine. 
Given their reputation for cleverness and effervescence, Hungarians have maintained a surprisingly low profile in the European Union: unlike the Poles, for instance, who have been accused of throwing their weight around in a manner more usually associated with countries like France. 
Size may be a factor. So may be a historical propensity to compromise and seek a way through the conflicting ambitions of larger states. 
Hungary may also be suffering from the after-effects of some rather clumsy diplomacy in the run-up to EU membership, when it threatened several times to put obstacles in the way of other EU-aspirant countries over the status of Hungarian minorities. 
These tactics did not go down well in Brussels, with the Hungarians being told the EU did not like to get involved in bilateral disputes between members or would-be members. 

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BANKING

Hungary's central bank holds rates at 6% 

Hungary's central bank recently held the interest rate at six per cent for the sixth month in a row, in line with analysts' expectations. The bank's monetary council said that although January tax cuts - the 25 per cent VAT rate was reduced to 20 per cent - didn't cut prices as much as expected, medium-term inflation prospects remained favourable, Deutsche Presse-Agentur (dpa) reported. 
It added, however, that indication of tighter monetary conditions had become more evident in developed markets, which - via a drop in risk appetite - put pressure on emerging markets. The bank, however, hinted it would consider a rate hike if Hungary's budget deficit is not addressed. "If changes in international capital markets or the domestic equilibrium situation exerts a persistent impact on processes determining the inflation outlook, we will take this into consideration," the monetary council said in a statement. 

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ENERGY

MOL sells treasury shares to Magnolia 

Hungarian oil and gas company, MOL, announced recently the sale of more than six million treasury shares to Magnolia Finance Ltd. Magnolia, registered in the British channel island of Jersey, would acquire 5.58 per cent of voting rights on completion of the transaction, worth around US$560 million, according to a MOL statement, New Europe reported.
The statement further said that Magnolia would issue perpetual exchangeable capital securities to international financial investors. These would be exchangeable into MOL shares between 2011 and 2016. According to the MOL management, the sale was intended to finance expansion, though did not provide any detailed outline.

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FOREIGN LOANS

Motorway company AAK gets 90bn forints bridge loan 

Hungary's state-owned motorway firm AAK recently announced the taking out of a bridge loan of 90 billion forints to finance motorway construction until it the realisation of a planned bond issue. AAK said in a statement that a consortium of banks led by Hungarian commercial bank MKB Bank would provide the variable-interest loan, "which has no state guarantee and which would expire on 30 June." "This way AAK has the necessary resources to ensure the financing of motorway construction ... until the bond issuance," AAK said, adding that it would pay back the loan from proceeds from the bonds. AAK announced earlier it was to issue Eurobonds worth 2.5 billion Euro to finance motorway construction, New Europe reported. 

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MINERALS & METALS

Ferrexpo IT to build HUF 75bn rolled steel plant 

Ukraine's Ferrexpo IT, one of the world's biggest makers of raw materials for steel, plans to build a HUF 75 billion (300 million Euro) rolled steel plant in Szabolcs-Szatmar-Bereg county in northeast Hungary, Deputy Chief Executive Officer, Konstantin Zhevago, announced during a break in negotiations in Nyiregyhaza on April 5th, New Europe reported. 
Ferrexpo plans to start building the plant in the second half of 2006 and start production by the end of 2008 or the beginning of 2009, Zhevago was reported as saying. The plant will have the capacity to produce 2.5 million tonnes of rolled steel a year, worth about one billion Euro and will employ some 1,000 workers. 
Depending on the plant's performance, Ferrexpo IT could decide to invest a further 200 million Euro in developments. Finance Minister, Janos Veres, who participated in the negotiations as the government's representative, said talks about the investment have been going on for a year, but have now entered into the final phase when a decision on the location for the plant is expected to be reached. Ferrexpo would choose between four possible sites in the county, he said. Zhevago said Ferrexpo would set up a joint venture with Vorsklasteel, owned by English and Swiss investors, to build the factory.

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RETAIL

Hungary retail sales jump 6.7per cent year-on-year in January 

Hungary's retail sales increased 6.7 per cent year-on-year in January, according to preliminary data adjusted for calendar effects, the Central Statistics Office (KSH) reported.
The December growth data was corrected upward to 5.3 per cent from 4.9 per cent. The month-on-month increase came to 0.7 per cent, according to figures adjusted seasonally and by calendar effects. The month-on-month increase in December was 0.3 per cent. Retail sales in 2005 increased 5.6 per cent year-on-year compared with 5.7 per cent year-on-year in 2004 and 8.9 per cent year-on-year in 2003. Eurostat, the statistics agency of the European Union, estimated that retail sales in the EU 25 countries increased 1.5 per cent year-on-year in January and by 0.9 per cent in the Euro zone from a year earlier, according to figures adjusted for calendar effects.

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TELECOMMUNICATIONS

Magyar Telekom acquires Dataplex 

Magyar Telekom Nyrt recently said it had closed the transaction to acquire information technology services company Dataplex Kft, New Europe reported.
The financial closing of this transaction was carried out after they obtained the approval from the competition office. On December 13th 2005 Magyar Telekom concluded an agreement to buy a 100 per cent stake in Dataplex for HUF 5.113 billion. No change was made in Dataplex's management or business operations in connection with the transaction, MTelekom was reported as saying.

PanTel to enter retail market 

Business communication firm PanTel Kft entered the retail telecommunication market in April, the company said recently, New Europe reported.
PanTel takes over 55,000 clients from Hungarotel Rt, with whom they are in the same HTCC Group. HTCC aims to create more competition in the market and increase its market shares from 10 per cent to 20 per cent. PanTel and Hungarotel are also both eager to introduce Internet based television (IPTV) services to Hungary. HTCC reported net revenue of US$110 million in 2005.


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