Hungary. Country Profile 2004

Transcription

1 Country Profile 2004 Hungary This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where its latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 15 Regent St London SW1Y 4LR United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2004 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author s and the publisher s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

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4 Country Profile The Economist Intelligence Unit Limited 2004

5 Hungary 1 Contents Hungary 3 Basic data 4 Politics 4 Political background 5 Recent political developments 8 Constitution, institutions and administration 9 Political forces 14 International relations and defence 17 Resources and infrastructure 17 Population 18 Education 19 Health 21 Natural resources and the environment 21 Transport, communications and the Internet 24 Energy provision 27 The economy 27 Economic structure 28 Economic policy 37 Economic performance 40 Regional trends 40 Economic sectors 40 Agriculture 42 Mining and semi-processing 42 Manufacturing 45 Construction 45 Financial services 47 Other services 48 The external sector 48 Trade in goods 50 Invisibles and the current account 52 Capital flows and foreign debt 52 Foreign reserves and the exchange rate 52 Regional overview 52 Membership of organisations 64 Appendices 64 Sources of information 65 Reference tables 65 Population 65 Labour force 66 Transport statistics 66 Structure of energy sources (production plus imports) The Economist Intelligence Unit Limited Country Profile 2004

6 2 Hungary 67 Central state budget (GFS accounting methodology) 67 Money supply 67 Gross domestic product 68 Gross domestic product by expenditure 68 Gross value added by sector 68 Prices and earnings 69 Volume indices of sales of agricultural products 69 Livestock numbers 69 Output of energy, minerals and mineral products 70 Industrial production by sector 70 Construction 70 Budapest Stock Exchange 71 Retail sales 71 Exports 71 Imports 72 Main trading partners 73 Balance of payments 74 External debt, World Bank estimates 74 Foreign reserves 75 Exchange rates Country Profile The Economist Intelligence Unit Limited 2004

7 Hungary 3 Hungary Basic data Total area Population Main towns 93,030 sq km, of which 70% agricultural, 18% forested 10,104,000 (end-may 2004 official estimate) Population in 000, January 1st 2003 estimate Budapest (capital) 1,719 Debrecen 206 Miskolc 180 Szeged 163 Pecs 159 Gyor 129 Nyiregyhaza 117 Kecskemet 107 Szekesfehervar 103 Climate Weather in Budapest (altitude 139 metres) Language Weights and measures Currency Fiscal year Time Public holidays Continental Hottest month, July, C (average daily minimum and maximum); coldest month, January, minus 1-4 C; driest month, September, 33 mm average rainfall; wettest month, May, 72 mm average rainfall Magyar (Hungarian) Metric system. A cadastral yoke (1 acre= cadastral yokes) is used for measuring land Forint (Ft)=100 filler. Fillers ceased to circulate in Average exchange rate for 2003: Ft224:US$1. Exchange rate on July 29th 2004: Ft205:US$1; Ft247: 1 January 1st-December 31st 1 hour ahead of GMT January 1st (New Year s Day), March 15th (Anniversary of the 1848 uprising), Easter Monday, Whit Monday, May 1st (Labour Day), August 20th (National Day-Feast of St Stephen), October 23rd (Republic Day), November 1st (All Saints Day) December 25th and 26th (Christmas), December 31st (New Year s Eve) The Economist Intelligence Unit Limited Country Profile 2004

8 4 Hungary Politics Hungary is a parliamentary democracy that has been led by alternating centreright and centre-left governments since the end of communist rule in The current centre-left coalition government, comprising the Hungarian Socialist Party (MSZP) and the liberal Alliance of Free Democrats, took office in May 2002, and is led by the prime minister, Peter Medgyessy, who was nominated by the Socialists but is not a member of any political party. The Socialists and Free Democrats also co-operated in government in and replaced a rightof-centre coalition, led by the Fidesz-Hungarian Civic Union (commonly referred to as Fidesz ). The head of state is the president, currently Ferenc Madl, who was elected by parliament for a five-year term on June 6th However, power rests mainly with parliament. Political background Early history Austro-Hungary Magyar tribes from the region between the Volga, Kama and Belaya rivers and the Ural mountains, now in Russia, settled in the Carpathian Basin towards the end of the ninth century. The date of settlement is traditionally commemorated as 896. The foundation of the Hungarian state is dated to 1000, when King (later Saint) Stephen also adopted Christianity. The medieval Hungarian kingdom suffered a catastrophic defeat at the hands of the Ottomans in the battle of Mohacs in 1526 and was partitioned between Austria, the Ottomans and a nominally independent Transylvania. The Austrians drove the Turks from Hungarian territory at the second battle of Mohacs in 1687, allowing Austria to take control of all of Hungary under the 1699 Treaty of Karlowitz. National and social tensions under Austrian rule led to a nationalist/liberal uprising as part of the pan-european 1848 revolutions. Lajos Kossuth established an independent national government, but this was crushed in 1849 with Russian help. However, the Compromise (Ausgleich) of 1867 reorganised the Habsburg empire as the Dual Monarchy of Austria and Hungary, allowing Magyar domination of Hungarian lands and German domination of Austrian lands, with Slav-inhabited areas divided between the two. The last quarter of the nineteenth century saw political stability, an economic boom and much social and infrastructural modernisation, with the newly unified Budapest acquiring many of its major public buildings. The military defeat of the Austro-Hungarian monarchy in 1918 led to a dramatic reduction in the area and population of Hungary. The 1920 Trianon Treaty reduced Hungary s territory from 288,000 sq km to 93,000 sq km, and the population from 18.2m to 7.6m, leaving sizeable Hungarian minorities in neighbouring Czechoslovakia, Romania and the future Yugoslavia. A communist-dominated revolutionary government in March-August 1919 gave way to a long period of conservative rule under the regency of Admiral Miklos Horthy. In the 1930s Hungary grew increasingly close to Germany, allying itself with the Nazi power in the hopes of regaining territory from Czechoslovakia, Romania and Yugoslavia. It allied itself with the German side in the second Country Profile The Economist Intelligence Unit Limited 2004

9 Hungary 5 world war. Germany occupied Hungary from March 1944 until the Soviet Red Army pushed out its troops in early The communist takeover End of the communist era A free election in November 1945 resulted in a majority for the Smallholders Party, but another!this time flawed!election in 1947 gave the largest vote share to the Communist Party, which established one-party rule and nationalised property. Stalinism dominated Hungary until A revolution began in Budapest on October 23rd The reform communist prime minister, Imre Nagy, declared Hungary s neutrality and withdrawal from the Warsaw Pact, prompting a Soviet Red Army invasion on November 4th. By mid- December all resistance had been crushed and Janos Kadar, the general secretary of the restyled Hungarian Socialist Workers Party (MSZMP), began the task of political consolidation. The regime relaxed its political stance somewhat from the early 1960s onwards, with a final amnesty for the revolutionaries declared in March In 1968 Hungary introduced the New Economic Mechanism, a reform package designed to increase enterprise autonomy and the role of markets in economic decision-making. The more liberal system resulted in a boom in agricultural and consumer goods production, but income inequality increased and global recessions following the 1973 and 1979 oil price shocks undermined the reform efforts. Worsening terms of trade, combined with excessive imports of Western technology and consumption goods, increased the country s foreign debt to almost US$11bn by the early 1980s. Signs of social difficulties appeared, such as the start of population decline on the back of high death and low birth rates. When the 13th Congress of the MSZMP in 1985 failed to bring substantial changes in policy, unrest among reformers within the party and state apparatus began to increase. Karoly Grosz replaced Mr Kadar as general secretary of the MSZMP in May 1988, and reformists (led by Imre Pozsgay and the architect of the 1968 economic reform, Rezso Nyers) gained control of the party in The prime minister, Miklos Nemeth, also enacted political liberalisation. In a dramatic break with the past, Imre Nagy, who had been secretly executed following the 1956 revolution, was given a public funeral and reburial in June The MSZMP joined with opposition groups in national roundtable negotiations about establishing democracy and, in October 1989, transformed itself into the Hungarian Socialist Party (MSZP). Recent political developments Post-communist Hungary Post-communist Hungary has benefited from a high level of political stability. Despite often bitter conflict between government and opposition, democratic procedures have become accepted, and transfers of power have been in the main smooth and orderly. The four democratic parliamentary elections since 1990 have brought an alternation between centre-right and centre-left, with all three previous governments retaining a working majority and serving out their four-year term. The current Socialist-liberal coalition looks likely to do the same. Party politics have also been relatively stable, with all four parties in the current parliament present in the legislature since 1990, although several other parties The Economist Intelligence Unit Limited Country Profile 2004

10 6 Hungary have disappeared from mainstream politics. Political stability has been reinforced by NATO membership since March 1999 and EU accession in In the 1990 parliamentary election the opposition Hungarian Democratic Forum (MDF), the most popular party, formed a coalition government with two other conservative parties, the Independent Smallholders Party and the Christian Democratic People s Party. The liberal Alliance of Free Democrats and Federation of Young Democrats (Fidesz), joined the Socialists in opposition. Jozsef Antall, the president of the MDF, became the prime minister and made a post-election deal with the Free Democrats that increased his powers and eliminated the two-thirds majority requirement on most legislation. Although the MDF government set some institutional reforms in motion, in it pursued an undisciplined spending programme that left the budget in severe deficit and had a negative effect on the current account. Power alternates between centre-right and centre-left Election politicises society in 2002 The May 1994 election returned the MSZP to power. Despite having an absolute majority, the Socialists formed a coalition government with the Free Democrats. The government introduced an austerity programme (the Bokros Package ) in March 1995, designed to curb the government deficit and external account imbalances. Economic growth decelerated and real wages fell sharply, but by 1997 the government s policies began to yield results, with real GDP growth hitting a post-communist high. However, economic recovery came too late for the Socialist-led government, which was punished by voters for the effects of its earlier austerity measures. Fidesz!which by this time had added the Hungarian Civic Party to its official name and transformed itself into a conservative party!emerged the clear winner in the 1998 parliamentary election and formed a new coalition government with two other right-wing opposition parties, the MDF and the Independent Smallholders Party. Like both its predecessors, this government served out its four-year term, and continued with its own programme of economic reform. The April 2002 parliamentary election resulted in another change in government, but only after an emotional and often negative campaign!dominated by the MSZP and Fidesz!divided the country sharply between left and right. The MSZP and the Free Democrats, which had formed an election alliance to unseat Fidesz, emerged after the second and final round of the election with a slim, ten-seat majority in Hungary s 386-seat parliament. Fidesz and the MDF went into opposition, and no other party won more than 5% of the vote, the threshold for parliamentary representation. Hungarian society remained highly politicised for most of But despite controversies, including anti-socialist demonstrations that turned into violent clashes with police, and revelations that the new prime minister, Peter Medgyessy, had been a counter-intelligence officer in the secret service of the former communist regime, the MSZP achieved a landslide victory in the October 2002 local elections. This, along with the successful completion of EU accession negotiations in December, strengthened the government and sent the opposition into disarray. Country Profile The Economist Intelligence Unit Limited 2004

11 Hungary 7 By mid-2004, however, the tables had turned again. Public dissatisfaction with the government was high, as pay rises implemented immediately after the 2002 election were forgotten. Economic policy was also in disarray by the end of 2003, as half-hearted attempts to rein in budget spending were insufficient to curb the fiscal deficit. The National Bank of Hungary (NBH, the central bank) compounded the damage by making repeated missteps in monetary policy and communication, sending the local currency, the forint, on a rollercoaster ride in Despite the pomp surrounding Hungary s long-awaited accession to the EU in May 2004, Fidesz won an overwhelming victory in Hungary s first election to the European Parliament in June 2004, as Socialist popularity fell substantially. Nevertheless, the Socialist-liberal government looks likely to serve out its term, which runs until mid-2006, despite its slim parliamentary majority and low popular support at mid-term. Important recent events March 1999 Hungary, the Czech Republic and Poland join NATO. January 2001 Industrial trade with the EU becomes fully liberalised. October 2001 The forint becomes fully convertible. April 2002 The Hungarian Socialist Party wins the general election and forms a centre-left coalition government under Peter Medgyessy. December 2002 Hungary completes accession negotiations with the EU and receives a formal invitation to join at the EU s Copenhagen summit. March 2003 The government permits US-led coalition forces to use Hungarian airspace and airbases as part of the war in Iraq. June 2003 All four parliamentary parties vote to send a transport contingent of 300 troops to Iraq to support the US-led stabilisation effort. The original six-month mandate is later extended to the end of May 2004 Hungary becomes a member of the EU, along with seven other countries in eastern and central Europe, as well as Malta and Cyprus. June 2004 Fidesz-Hungarian Civic Union, the main opposition party, scores a significant victory in Hungary s first election to the European Parliament. The Economist Intelligence Unit Limited Country Profile 2004

12 8 Hungary Constitution, institutions and administration The constitution is a heavily amended version of the communist constitution introduced in Multiparty attempts to draft a new document in failed, and amendments have also been difficult to pass in recent years, owing to divisions between parties and within the government. There is no state religion, but recognised religions receive state funding. Hungary is a parliamentary democracy with a single-chamber National Assembly. The electoral system is complex, combining elements of majority and proportional voting. Of the 386 seats in the National Assembly, 176 are elected from individual electoral constituencies, where voters cast two votes in the first round, one for the local MP by name, and one for the local party list. An absolute majority is required for election to an individual district in the first round. The top three candidates, or all candidates achieving more than 15% in the first round, advance to the second round of voting, where a plurality suffices for victory. Candidates are not required to reside in the district in which they run. The remaining 210 seats are distributed proportionally after the first round according to the party-list vote!a maximum of 152 seats on the basis of local party lists, with a national list (for which citizens do not vote) operating as a top-up mechanism. In 1990 there was a 4% minimum threshold (of the partylist vote) for parties to enter parliament. The threshold was raised to 5% before the 1994 election. The president and judiciary The president, elected by parliament for a five-year term, has few formal powers. The position is responsible for the nomination of certain posts, and, significantly, the president may refuse to sign approved bills into law by sending them to the Constitutional Court for review. However, apart from this, the position is largely ceremonial. The current president, Ferenc Madl, took office in August The constitution permits a maximum of two terms, but the current Socialist-liberal government is not expected to support another term of office for Mr Madl. Hungary has a four-tier judiciary system, involving local courts, county courts, the Supreme Court and the Constitutional Court. A 1997 constitutional amendment added regional courts of appeal, but it was not until June 2002 that the present government actually established five regional appellate courts, which will hear appeals to county court decisions and thus reduce the case backlog for the Supreme Court. Three regional courts of appeal began operating in July 2003, and a further two, in Gyor and Debrecen, will begin work in January The Constitutional Court is modelled on the powerful German model, and has been highly activist. It has the power to review and invalidate parliamentary acts. Reform of the legal system has generally been based on West European norms, with a view to preparing the judiciary for EU entry. In its progress reports on Hungary, the European Commission has noted that although the judiciary functions satisfactorily and the training of judges in EU law has progressed, there are still several problem areas, including a continuing lack of budgetary resources and a lack of clear standards for selecting and promoting judges, Country Profile The Economist Intelligence Unit Limited 2004

13 Hungary 9 which leads to arbitrary decisions. The EU also noted that case backlogs are dropping, helped by the regional courts of appeal, and that the proportion of court cases that are terminated within one year had risen to 86%. Pay levels are also improving, as are information systems. A new law on legal assistants will mean that judges are able to devote more attention to case work; previously, up to 70% of judges time was spent on administration. Central and local government Despite extensive formal decentralisation to the local level, the central government retains strong powers. Local governments are small and fragmented, numbering over 3,000. The 19 county governments (and the Budapest city government) are directly elected but lack most important policymaking and fund-raising powers. Although they remain heavily dependent on the central government for funds, their situation is better than that of their counterparts in other new EU member states in the region, as local governments in Hungary have greater autonomy, as well as legal guarantees that the centre may not force them to take unfinanced mandates. There are also seven regional bodies set up to participate in EU structural fund programmes, but these are purely administrative, lack independent funds and consist of government appointees and local delegates. Under the 1993 minority rights law, there are national and, where relevant, local governments for ethnic minorities. The national government centres on a powerful position of prime minister. The prime minister can be replaced only by a so-called positive vote of no confidence, which requires the naming of an alternative candidate at the time of the vote. Individual ministers in the government are not subject to parliamentary votes of confidence, but only to the prime minister s authority. Ministries can be powerful through the use of orders and decrees to implement policy. The traditionally conservative Ministry of Finance is regarded as first among equals among the ministries. The use of close personal networks in policymaking and administration is common and probably inevitable in a country with such a small elite. Government is still seen to some extent as an opportunity for patronage. The various ombudsmen and the State Audit Office have achieved a reputation for independence. Political forces Political polarisation Hungarian public life is strongly polarised around a historically and culturally rooted split between the left and the right, now dominated by the Hungarian Socialist Party (MSZP) and the Fidesz-Hungarian Civic Union (Fidesz), respectively. In the Hungarian context, the liberal Free Democrats are, in effect, on the left, because of their internationalist outlook!and perhaps more importantly because they decided to form a coalition government with the MSZP in , a move that was heavily criticised and is still not forgotten by Fidesz, another former anti-communist opposition force. Governmentopposition conflict is often bitter, but opposition parties have sometimes been willing to co-operate over more technical issues of bipartisan concern. Under normal circumstances, the need for a two-thirds majority to amend a large number of laws can give the opposition some leverage. The Economist Intelligence Unit Limited Country Profile 2004

14 10 Hungary Hungarian Socialist Party Fidesz-Hungarian Civic Union The Hungarian Socialist Party, the name the ruling MSZMP adopted in October 1989 after agreeing to democratic politics, has steadily transformed itself into a traditional social-democratic party. The party received only 11% of the proportional vote in the 1990 election and went into opposition. After the election the former foreign minister, Gyula Horn, became party chairman and united the party s various factions: liberal economists who sought radical reform of the state-centred economy, social democrats, trade unionists and middle- and lower-level officials from the previous regime. Mr Horn led the Socialists to victory in the 1994 election. Austerity measures implemented by the Socialist-led government provoked popular dissatisfaction with the party, dooming it to defeat in the 1998 election. Mr Horn retired as party president, and was replaced by his protégé, Laszlo Kovacs (the foreign minister in both the previous and the current Socialist-led governments). Unable to expand the Socialists appeal among voters, Mr Kovacs remained as party leader but stepped aside in June 2001 to allow Peter Medgyessy to be nominated as the party s compromise candidate for the post of prime minister. Mr Medgyessy, who was a finance minister for part of the administration and is not even a member of the party, led the Socialists to victory partly by moving their policies ever closer to the centre. After repeated postponement of his plans to step down as party president, Mr Kovacs will now bow to pressure from within the party and hand over leadership at an October 2004 party congress. Among the reported contenders for the post, Istvan Hiller, now minister of culture, and Ferenc Gyurcsany, minister of youth and sport, are tipped as front-runners. The Fidesz-Hungarian Civic Union (commonly known as Fidesz), the senior government party in , is the main right-wing force in Hungary. It was formed in 1988 by students in the law faculty at Budapest s Eotvos University. During the conservative government of , Fidesz espoused a liberal ideology and often co-operated with the Free Democrats in opposition. Under the leadership of Viktor Orban, Fidesz began to transform itself into a conservative party, which resulted in the departure of its more liberal leaders in In an effort to change its image from that of a youth movement, the party dropped its upper age limit of 35 and officially excised Federation of Young Democrats from its name, although it kept its Hungarian acronym Fidesz. Fidesz added Hungarian Civic Party to its name in 1995, with Party changed to Union in Mr Orban served as prime minister in , but his abrasive style of governing and campaigning alienated voters in the centre, and this helped the Socialists to a surprise election victory in Fidesz fell into disarray after its narrow defeat, and Mr Orban himself was conspicuously absent from public life. However, the government s errors in economic policy in 2003 created the opportunity for a strong rebound in support for Fidesz. The party gave itself a facelift at its 2003 congress, changing its name to Fidesz-Hungarian Civic Union, a move designed to signal a shift from a strictly political organisation to a grassroots movement uniting people with conservative and national values. Although nominally widening the base of Fidesz membership, the changes also concentrated more power in the hands of Mr Orban and the party presidency, which was given the authority to decide on the identity of local Country Profile The Economist Intelligence Unit Limited 2004

15 Hungary 11 party leaders. Fidesz recorded an overwhelming victory at the European election in June 2004, which came almost precisely at mid-term in the domestic political cycle. In the long term, Fidesz s heavy reliance on Mr Orban as the party s dominant personality is a strategic weakness for Fidesz s future as a viable political party, although Mr Orban is still young and will presumably be a major figure over the course of many political cycles to come. Alliance of Free Democrats Hungarian Democratic Forum The Alliance of Free Democrats is the country s main liberal party. It has its roots in the dissident democratic opposition of the 1980s, which was prominent in the political transformation of In the 1990 election the Free Democrats finished a strong second to the Hungarian Democratic Forum (MDF). In 1994 the Free Democrats again finished second, but entered what turned out to be a difficult coalition with the Socialists, who did not need the liberals support to stay in government. By the 1998 election the party s support had dropped substantially and has subsequently failed to recover, although it has remained above the 5% threshold needed for parliamentary representation. Some voters, especially those with ties to the dissident movement under the previous regime, have never forgiven the Free Democrats for entering into government in 1994 with a party descended from the communists. However, in current political circumstances, the MSZP remains the party s natural partner, and the two have once again formed a ruling coalition, although this time the liberals carry considerably more weight than in the coalition, when the MSZP enjoyed a parliamentary majority on its own. The Free Democrats draw their main support from more prosperous, well-educated urban voters, which explains their hold on the Budapest mayoralty, with Gabor Demszky in the post since Once the leading force in government, but now a minor partner of Fidesz on the right, the Hungarian Democratic Forum (MDF) was formed in 1987 by a group of populist-oriented intellectuals and cultural figures. As prime minister and party leader, Jozsef Antall consolidated control over the party and moved it away from its more populist roots and towards a more conservative and Christian Democratic profile. This change angered many radicals within the Democratic Forum, which had difficulty regaining unity after the expulsion of one of its founders, the ultra-nationalist Istvan Csurka, and the subsequent death of Mr Antall. After a heavy defeat in the 1994 election, many moderates left to form their own party. The MDF s political viability is now dependent on its alliance with Fidesz. Without Fidesz co-operation the party would not have secured a presence in parliament in either 1998 or The party abandoned all hope of achieving parliamentary representation alone in 2002, and in effect merged with Fidesz for electoral purposes, as the two parties stood on the first joint lists in Hungary s post-communist electoral history. The MDF s president, Ibolya David, continues to reject Fidesz s attempts at a full consolidation of the two parties, instead positioning her party as a true conservative alternative to the more populist Fidesz. This strategic gamble has apparently paid off in the short term, as the MDF defied expectations and just achieved the 5% threshold needed in the recent European election. The Economist Intelligence Unit Limited Country Profile 2004

16 12 Hungary Parliamentary election results Individual Seats in % vote for districts won parliament % of seats party list % vote for party list Individual districts won Seats in parliament % of seats Alliance of Free Democrats Fidesz-Hungarian Civic Union (Fidesz)a Hungarian Democratic Foruma Hungarian Justice and Life Party Hungarian Socialist Party Independent Smallholders Party Other parties Independent candidates Total Memorandum item Total votes cast 4,547, ,616, a Fidesz and Democratic Forum ran 78 joint candidates in 1998 and all joint lists and candidates in Fidesz now holds 164 seats, the Democratic Forum 24. Source: National Election Office Main political figures Peter Medgyessy A minister in the last years of communist rule and the last finance minister of the government led by the Hungarian Socialist Party (MSZP) in In the latter role, he presided over the pension reform and the improvements in growth, inflation and external accounts that followed the implementation of his predecessor s Bokros Package. He held senior posts in the private financial sector and worked as a consultant after 1998, before returning to the political stage after being chosen as the MSZP s prime ministerial candidate in He is not a member of parliament or the party. His liberal economic record and business links helped his emergence as a compromise candidate for the party s nomination, especially as it appeared increasingly likely that the Socialists would need a repeat partnership with the liberal Alliance of Free Democrats in order to govern again. Although Mr Medgyessy and his government survived an early controversy in 2002 regarding his activities as a counter-intelligence officer under the communist regime, the prime minister s popularity among the rank and file of the MSZP cannot be taken for granted. Unless popular support for the party and the government recovers significantly in 2005 from its current mid-term low, the possibility that the new MSZP leadership will select another prime ministerial candidate in 2006 cannot be ruled out. Viktor Orban Prime minister in the last conservative government ( ), and president and dominant political figure of the Fidesz-Hungarian Civic Union (Fidesz). From the fiery speech at the reburial of Imre Nagy in 1989 demanding the withdrawal of Soviet troops with which he first made his mark, Mr Orban has often courted controversy with outspoken rhetoric. Under his unchallenged leadership since 1993, Fidesz has shed its liberal political identity and moved steadily to the right. He was an energetic prime minister, but his imperious style alienated many. After his party s narrow defeat in the April 2002 election, Mr Orban receded from party and parliamentary politics, only to return in 2003 as the party transformed itself once again, at once adopting a much wider, grassroots membership and further Country Profile The Economist Intelligence Unit Limited 2004

17 Hungary 13 centralising real political control in the hands of the party president. As part of his continuing efforts to consolidate the right, he has actively encouraged supporters to organise into small local groups, called civic circles, to be mobilised for street rallies and demonstrations. In mid-2002 Mr Orban adopted a more Eurosceptic tone, and later an anti-us stance, including open criticism of the government s support for the US s war effort in Iraq. His rhetoric, however, tends to be much more radical than the actions of his party in parliament. Laszlo Kovacs The most senior Socialist in the government is the foreign minister and party s president. A high-ranking member of the communist party before the transition, Mr Kovacs has remained a key figure throughout the transition period, also serving as foreign minister in the MSZP-led administration. After failing to follow through on earlier promises to step down as party president while he was serving as foreign minister, Mr Kovacs will finally hand over the party s leadership at an MSZP congress in October The move is expected to bring in a younger, more charismatic party president, who is capable of measuring up to Fidesz s Mr Orban in rhetoric, dynamism and popularity. Among the many potential candidates to replace Mr Kovacs, the front-runners are believed to be Istvan Hiller, the minister of culture, and Ferenc Gyurcsany, the minister of youth and sport and a successful businessman. Tibor Draskovics At first glance, Mr Draskovics, Hungary s finance minister since February 2004, seems to possess a similar CV to that of his predecessor, Csaba Laszlo. Both began their careers with long stints at the Ministry of Finance, and both ended up as administrative state secretaries (the highest position possible for career civil servants). Both men later left the ministry to take up executive positions at ABN AMRO (Magyar) Bank!the same financial institution that was led until 1998 by Zsigmond Jarai, who was later finance minister in the centre-right government and is now governor of the National Bank of Hungary (NBH, the central bank). Both Mr Laszlo and Mr Draskovics became deputy chief executive officers (CEOs) at an expanded Kereskedelmi es Hitelbank (K&H Bank), Hungary s second-largest financial institution, after its merger with ABN AMRO in Finally, both took positions within the current MSZP-led government after the 2002 parliamentary election, Mr Laszlo as finance minister, and Mr Draskovics as chief-of-staff to the prime minister, Mr Medgyessy, who had been both men s boss in previous stints as finance minister. Despite the similarities between Mr Draskovics and Mr Laszlo, there are important differences. Mr Draskovics was a lawyer for a brief period, and is much more comfortable with the political aspects of government than his predecessor. This is a quality that he has great need of in the current situation, as he seeks to consolidate public finances through an administrative overhaul, while at the same time trying to avoid any suggestion of austerity measures in order to keep the Socialist party s chances alive for the election in Although more politically savvy than his predecessor, Mr Draskovics, like Mr Medgyessy, is not a member of the MSZP. He has committed to consultations with a working group of Socialist MPs before reaching significant decisions!a move that could provide political cover for making the necessary cuts to a bloated state bureaucracy. However, it also carries the risk of neutralising any efforts at reform. The Economist Intelligence Unit Limited Country Profile 2004

18 14 Hungary Zsigmond Jarai Appointed governor of the National Bank of Hungary (NBH, the central bank) for a six-year term in March 2001, after serving almost three years as finance minister in the Orban administration. His tenure as finance minister followed a career in senior private- and public-sector finance posts!including as CEO of ABN AMRO (Magyar) Bank and its pre-privatisation predecessor. His previous association with the Fidesz-led government probably explains his often contentious relations with the current government, which contributed to a disastrous year for monetary and exchange-rate policy in Before the Socialists returned to power, Mr Jarai saw the adoption of a new central bank act that enhanced its independence and enshrined price stability as its overriding goal. Mr Jarai has received ample criticism for policy and communication errors that damaged the central bank s credibility in Ferenc Madl Mr Madl began his first five-year presidential term in August After a career as an academic lawyer, he ran previously as the right s candidate for the post in He was nominated again in 2000 as a compromise candidate intended to bridge a rift between Fidesz and a junior coalition partner, the Independent Smallholders Party. However, Mr Madl is not expected to be re-selected by the current Socialistliberal government when his term expires in 2005, although no successor has been proposed. International relations and defence Minorities and neighbours The presence of large Hungarian minorities in neighbouring countries has been a source of problems for Hungary since the 1920 Treaty of Trianon, which reallocated more than two-thirds of the country s pre-first world war territory (mostly to Romania, Czechoslovakia and Yugoslavia, with smaller portions going to Austria and Ukraine). Since the collapse of communist rule, Hungarian governments have sought to balance the need to build constructive relations with neighbours with the wish to extend greater support to Hungarian minorities in these countries. There are over 2.4m ethnic Hungarians in neighbouring states, according to the Government Office for Hungarian Minorities abroad, including some 1.4m in Romania and around 520,000 in Slovakia. Generally, the Hungarian left has prioritised state-to-state relations, whereas the right has given greater weight to the claims of the minorities. Relations with Romania and Slovakia, in particular, improved steadily under the Socialist-led regime!basic treaties were signed guaranteeing existing borders as well as minority rights!but were again put under severe strain by the so-called Status Law, passed by the Hungarian parliament in June The legislation offered Hungarians living in Hungary s neighbouring states the opportunity to apply for a Hungarian identity card that would entitle them to education, healthcare, travel and cultural discounts, and short-term work opportunities in Hungary. Romania and Slovakia, however, regarded the Status Law as discriminatory and extra-territorial and feared that quasi-citizenship among Hungarian minorities could lead to territorial claims in the future. Under international pressure from the EU and elsewhere, the available benefits under the law were limited mainly to cultural support measures!a Country Profile The Economist Intelligence Unit Limited 2004

19 Hungary 15 development bemoaned by the political right, which was in opposition when final agreement was reached. Fidesz has since come out strongly in favour of granting dual citizenship to Hungarian minorities abroad, a move that is also opposed by Hungary s neighbours. International integration culminates in EU membership Defence Hungary joined the EU in May 1st 2004, completing a process of progressive integration into international economic and political structures that began well before the 1991 dissolution of the Warsaw Pact and the Council for Mutual Economic Assistance (CMEA, or Comecon). It joined the UN in 1955, and the IMF and the World Bank in Entry into the General Agreement on Tariffs and Trade (GATT) in 1973 allowed it to become a founding member of the World Trade Organisation (WTO). Hungary signed a trade and co-operation agreement with the European Community in 1988 and was a founding member of the European Bank for Reconstruction and Development (EBRD) in In 1991 Hungary, Poland and Czechoslovakia formed the Central European Free- Trade Agreement (CEFTA, membership in which was terminated upon EU accession). Hungary joined the OECD in 1996, and joined the International Energy Agency (IEA) in Admission talks with NATO began in September 1997, and Hungary formally joined the alliance, along with Poland and the Czech Republic, on March 12th Close co-operation between NATO and Hungarian armed forces was fostered by Hungary s participation in the NATO-led Stabilisation Force (SFOR) and the earlier Implementation Force (IFOR) in Bosnia and Hercegovina (BiH). Hungary also served as a forward base for both operations. Hungary s early experience in NATO was not a completely happy one, however, as the country drew sharp criticism for its lack of material commitment to the alliance. In November 2002 Hungary s performance as a NATO ally was even held up as a warning signal against further NATO expansion, when an article in a US journal, Foreign Affairs, quoted allegations that Hungary was the most disappointing new member of NATO and would have already been expelled [from the alliance] if an expulsion were possible. In subsequent statements the defence minister, Ferenc Juhasz, confirmed that Lord Robertson, the NATO secretary-general at the time, had vehemently demanded that Hungary fulfil its pledges to modernise its forces. The government has sought to repair Hungary s relations with NATO through renewed commitments to strengthen its defence capabilities. A vital step was the passage of a constitutional amendment in November 2003 that allowed the government to decide whether to allow the use of Hungarian airspace and ground transport for transit to NATO allies. Previously, a two-thirds majority in parliament was necessary, causing substantial delays that increased the dissatisfaction of NATO allies. The country has also sought to repair relations with the US, and, in action independent of NATO channels, the government allowed the US to train members of the Iraqi opposition at the Taszar airbase in early 2003, and permitted coalition forces to use Hungary s airspace and airbases for the war in The Economist Intelligence Unit Limited Country Profile 2004

20 16 Hungary Iraq. In June 2003, all four parliamentary parties supported a resolution to send a 300-strong transport contingent for the post-war stabilisation effort in Iraq. The mission s original mandate of six months was later extended to the end of In June 2004 the government finalised plans to eliminate conscription! Hungary s final conscripts will be discharged in November 2004, and Hungary s army will stabilise at approximately 30,000 troops thereafter, according to Mr Juhasz. Security risk Armed conflict Hungary faces few military security risks, especially since becoming a member of NATO, which two of its neighbours!slovenia and Slovakia!also joined in March The security situation in two other neighbours, Croatia and Serbia and Montenegro (formerly Yugoslavia), has improved markedly, and Ukraine has long tried to establish closer ties with European security organisations. Security along the borders with Croatia, Serbia and Ukraine was an issue in EU accession negotiations, and Hungary has taken several steps to bolster surveillance. Sizeable minorities of ethnic Hungarians in Slovakia, Romania and Serbia have been a source of tension in relations between Hungary and its neighbours in the past, but Hungarian authorities long ago gave up claims to Hungary s former lands. The risk of armed conflict is thus low. Terrorism Through its support for the US-led war on terror and the US-led stabilisation efforts in Iraq, Hungary has probably increased the risks of becoming a terrorist target itself. Although the likelihood of a terrorist attack remains low, the unpredictable nature of terrorist targeting make it impossible to rule out this threat. Civil unrest With the exception of the events of 1956, Hungary s post-war history had been free of significant civil strife until clashes between protesters and police in the months following the 2002 elections. Despite those brief events, the risk of violent civil or labour unrest is low, especially given Hungary s relatively homogenous society and lack of truly divisive issues. A majority of the population is satisfied with EU membership, and an overwhelming majority maintains a pro-western outlook. Violent crime Violent crime is not much of a problem in Hungary, although petty crime is a concern and has grown in frequency since the fall of communism. Tourists areas are especially the targets of petty criminals, pickpockets and scam artists. Theft of, and from, vehicles is also common. Although decreasing in number, incidents still sometimes occur in certain bars and restaurants in Budapest where tourists are charged exorbitant prices. Drug smuggling and organised crime The activities of organised crime in the country, particularly that of the Russian mafia, have decreased in recent years, as a result of improved stability brought by preparations for EU accession; close co-operation with the US Federal Bureau of Investigation (FBI), which maintains a training base in Budapest to fight organised crime; and tighter legislation on money-laundering. However, Hungary shares a Country Profile The Economist Intelligence Unit Limited 2004

21 Hungary 17 border with seven countries and its well-developed transportation network makes it a logical transit zone for smuggling. It is a transit point on one of the pathways for smuggling heroin to Western Europe from Afghanistan and other parts of Central Asia, and recent years have seen an upswing in cocaine trafficking. The authorities have tightened border controls, altering smuggling methods, but traffic nevertheless rose substantially in 2002, the latest year for which figures are available. Resources and infrastructure Population Population is small, homogeneous and ageing According to the most recent estimate by the Central Statistical Office (KSH), the population was 10,104,000 as of the end of May 2004, representing continuing slow decline from the February 2001 census figure of 10,198,315. The capital, Budapest, was home to nearly 17% of the population at the end of 2003, and the next eight largest cities account for approximately 12% of the population. The vast majority of Hungarians live in what are classified as urban areas. The age structure of the population is typical for Europe, with 16.1% below the age of 15 and 15.4% aged 65 or above in at the beginning of In ethnic terms, the population is homogeneous, relative to many other countries in the region. The 2001 census confirmed that previous population surveys had been undercounting ethnic minorities, which account for almost 8% of the population. The largest minority by far are the Roma (189,984), although the European Roma Rights Centre claims that there are more than half a million Roma in Hungary, or 5% of the population. Hungarian minorities in neighbouring countries are much larger, at over 2.4m, and thus have a higher political profile than domestic minorities, who are mostly assimilated. Political mobilisation by Hungary s Roma, however, has become increasingly visible. Population by age, Jan 1st 2003 estimate ( 000) Age group Males Females Total , , , , , , , , Total 4, , ,142.4 Source: Central Statistical Office (KSH), Statistical Yearbook. The population has been falling since 1981, when the death rate began to exceed the birth rate. As late as 1991, the birth rate stood at 12.3 per 1,000 population, but this had declined to 9.3 per 1,000 in The death rate peaked at 14.5 per 1,000 in 1993, before falling gradually to a preliminary 13.4 per 1,000 in The ageing population has placed an increasing strain on the traditionally generous system of pensions and early retirement, and will continue to do so for the foreseeable future. This is exacerbated by the implementation in 1998 of a public-private three-pillar pension system, which creates a more sustainable long-term pension structure, but puts a strain on the The Economist Intelligence Unit Limited Country Profile 2004