COUNTRY PROFILE 2002 Hungary

Transcription

1 COUNTRY PROFILE 2002 Hungary This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is updated annually. The EIU s quarterly 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 EIU delivers its information in four ways: through our digital portfolio, where our 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) dantecantu@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 2002 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 EIU 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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5 Hungary 1 Contents 3 Basic data 4 Politics 4 Political development 7 Constitution, institutions and administration 8 Political forces 12 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 29 Economic policy 37 Economic performance 40 Regional trends 41 Economic sectors 41 Agriculture, forestry and fishing 42 Mining and semi-processing 43 Manufacturing 45 Construction 46 Financial services 48 Other services 49 The external sector 49 Trade in goods 51 Invisibles and the current account 52 Capital flows and foreign debt 54 Foreign reserves and the exchange rate 56 Appendices 56 Regional organisations 58 Sources of information 59 Reference tables 59 Population 60 Labour force 60 Transport statistics 60 Structure of energy sources (production plus imports) 61 Central state budget 61 Money supply 61 Gross domestic product 62 Gross domestic product by expenditure 62 Gross domestic product by sector 62 Prices 63 Volume indices of sales of agricultural products The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

6 2 Hungary 63 Livestock numbers 63 Output of energy, minerals and mineral products 64 Industrial production by sector 64 Construction 64 Budapest Stock Exchange 65 Retail sales 65 Exports 65 Imports 66 Main trading partners 67 Balance of payments, IMF series 68 External debt, World Bank estimates 68 Foreign reserves 69 Exchange rates EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002

7 Hungary 3 Hungary Basic data Total area Population Main towns 93,030 sq km, of which 70% agricultural, 18% forested 10,195,513 (February 1st 2001) Population in 000, January 1st 2000 Budapest (capital) 1,812 Debrecen 204 Miskolc 172 Szeged 158 Pecs 157 Gyor 127 Szekesfehervar 105 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 2001: Ft286.5:US$1. Exchange rate on March 15th 2001: Ft278.9:US$1; Ft245.8: 1 January 1st-December 31st 1 hour ahead of GMT January 1st, March 15th, Easter Sunday and Monday, Pentecost Monday, May 1st, August 20th, October 23rd, November 1st, December 25th and 26th The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

8 4 Hungary Politics The head of state is the president, currently Ferenc Madl, who was elected by parliament for a five-year term on June 5th 2000 after Arpad Goncz s term expired. A right-wing coalition government, consisting of the Federation of Young Democrats-Hungarian Civic Party (Fidesz-HCP, but commonly referred to as Fidesz ), the Smallholders Party (SP) and the Hungarian Democratic Forum (HDF) took office in July 1998, led by the Fidesz prime minister, Viktor Orban. Political development Early history Austro-Hungary Magyar tribes from the region between the Volga, Kama and Belaia 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. 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 about 325,000 sq km to 93,000 sq km, and the population from 20.9m to 7.8m, leaving sizeable Hungarian minorities in neighbouring Slovakia, Romania and the future Yugoslavia. A communistdominated 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 to regain territory from Slovakia, Romania and Yugoslavia. It took the German side in the second world war. Germany occupied Hungary from March 1944 until the Soviet Red Army pushed out its troops in early The communist takeover A free election in November 1945 resulted in a majority for the Smallholders Party (SP), 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 EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002

9 Hungary 5 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 (HSWP), began the task of political consolidation. The regime relaxed its political stance somewhat from the early 1960s, 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 decisionmaking. 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 more than 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. Burying the past Post-communist Hungary When the 13th Congress of the Hungarian Socialist Workers Party (HSWP) 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 HSWP 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, Nagy, who had been secretly executed following the 1956 revolution, was given a public funeral and reburial in June The HSWP joined with opposition groups in national roundtable negotiations about establishing democracy and, in October 1989, transformed itself into the Hungarian Socialist Party (HSP). 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. The three democratic parliamentary elections since 1990 each brought sharp changes in political direction, but all governments have retained a working majority and served out their four-year terms. Party politics has also been relatively stable, with five of the six parties represented in the parliament present in the legislature since Political stability has been reinforced by negotiations for EU membership since 1998 and accession to NATO in March In the March-April 1990 parliamentary election the opposition Hungarian Democratic Forum (HDF) emerged as the most popular party and formed a coalition government with two other conservative parties, the SP and the Christian Democratic People s Party (CDPP). The liberal parties, the Alliance of Free Democrats (AFD) and the Federation of Young Democrats (Fidesz), joined the HSP in opposition. Jozsef Antall, the president of the HDF, became the prime minister and made a post-election deal with the AFD that increased his powers, as well as eliminating the two-thirds majority requirement on most legislation. Although the government set some important institutional reforms in motion, The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

10 6 Hungary in it pursued an undisciplined spending programme that left the budget in severe deficit and had a negative effect on the current-account deficit. The May 1994 election returned the HSP to power. Despite having an absolute majority, it formed a coalition government with the AFD. The government introduced an austerity programme (the Bokros Package ) in March 1995 designed to curb the government deficit and the external account imbalances. Economic growth decelerated and real wages fell sharply as a result. By 1997 these policies began to yield results and real GDP grew by 4.6%, but in the 1998 parliamentary election voters punished the HSP-led government for the effects of earlier austerity. Fidesz (which had added the Hungarian Civic Party HCP to its official name) won 148 seats against 134 for the HSP, and formed a new coalition government with two other right-wing opposition parties, the HDF and the SP. Like both its predecessors, the government served its four-year term until the scheduled election in April Important recent events October 1989: Democratic constitution proclaimed March-April 1990: After a free election, the Hungarian Democratic Forum (HDF) emerges to form a centre-right coalition government. December 1991: Association agreement with the EU signed. December 1993: HDF prime minister Jozsef Antall dies and is succeeded by Peter Boross. March 1994: Hungary applies for membership of the EU. May 1994: The Hungarian Socialist Party (HSP) under Gyula Horn wins elections and forms a coalition government with the Alliance of Free Democrats (AFD). March 1995: The Bokros Package of wide-ranging austerity measures is introduced, including fiscal cuts, devaluation, an import tax and wage controls. April 1995: Hungary and Slovakia sign a basic treaty recognising existing borders and ethnic minority rights. March 1996: Hungary is invited to join the OECD. September 1996: Hungary and Romania sign a basic treaty recognising existing borders and ethnic minority rights. July 1997: Hungary is invited to begin accession negotiations with the EU and NATO. EU accession negotiations begin in May 1998: The Federation of Young Democrats-Hungarian Civic Party (Fidesz- HCP) wins the election and forms a right-wing coalition government under Viktor Orban. March 1999: Hungary, the Czech Republic and Poland join NATO. January 2001: Industrial trade with EU becomes fully liberalised. May 2001: Preparations begin for full convertibility of the forint, after the currency s exchange-rate bands are widened. EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002

11 Hungary 7 October 2001: The forint becomes fully convertible. April 2002: Parliamentary election. Constitution, institutions and administration The constitution is a heavily amended version of the communist constitution introduced in A multiparty committee worked on a comprehensive new constitution between 1994 and 1998, but divisions between parties and within the government prevented parliament from approving a new document. There is no state religion, but recognised religions receive state funding. The post government moved to elevate the position of the churches in public life. 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. An absolute majority is required for election to an individual district in the first round. Two or three top candidates 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 seats are distributed proportionally according to the party-list vote at the regional (county or Budapest) level, with a national list (for which citizens do not vote) operating as a top-up mechanism. In 1990 there was a 4% minimum threshold 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, but is largely ceremonial. Mr Madl took office in August The constitution permits a maximum of two terms. Until recently the judiciary was a three-tier system, involving local, county and high courts. A 1997 constitutional amendment added an additional tier, a court of appeal. However, the post-1998 government failed to provide funding for implementation of the appeal courts, which are to hear appeals submitted from county court decisions and handle selected cases. There is also a constitutional court, which 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 judicial system for EU entry. However, there are still several problem areas. In its progress reports the EU Commission has noted that although the judiciary functions satisfactorily and the training of judges in the acquis communautaire (the body of EU law) has progressed, the large backlog of cases before the Supreme Court needs to be addressed. The low pay and status of members of the judiciary is also a problem (salaries of lower court judges are only about one-third of those of private lawyers). Some doubts about the full independence of the judiciary were raised in the latter part of the post-1998 government s term. The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

12 8 Hungary 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, and remain heavily dependent on the centre for funds. The 19 county governments are directly elected but lack policymaking and fund-raising powers. The seven new regional bodies set up to participate in EU structural fund programmes 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 prime ministership. 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. Under the Fidesz-led government especially, the prime minister s office has emerged with a powerful agenda-setting and monitoring role. 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 finance ministry was traditionally first among equals among the ministries, but its status has been downgraded under Fidesz, with the more activist new Ministry of Economic Affairs emerging to take the key role in economic strategy design. The use of close personal networks in policymaking and administration is common and probably inevitable in a country with such a small elite. The post-1998 right-wing government especially has felt hampered by hostile communist-era holdovers in public administration, and has put its people into many positions. Government is still seen to some extent as an opportunity for patronage. The various ombudsmen and the State Audit Office have achieved a good 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. In the Hungarian context, the liberal AFD is in effect on the left, along with the HSP, because of its internationalist, universalist and progressive outlook. Government-opposition 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 some laws can give the opposition some leverage. The Federation of Young Democrats-Hungarian Civic Party (officially Fidesz-HCP, but known as Fidesz ), the senior government party in , 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 AFD. However, its more liberal, pro-afd leaders left in When the HSP-AFD government coalition was formed in 1994, Fidesz remained in opposition and began to court conservative opinion. As part of its attempt to broaden its EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002

13 Hungary 9 political appeal beyond the youth vote, the party dropped its upper age limit of 35 in 1993, and added Hungarian Civic Party (HCP) to its name in The same year, in effort to change its image as a youth movement, the party officially dropped Federation of Young Democrats from its name, adopting its Hungarian acronym Fidesz as the official name along with Hungarian Civic Party. Fidesz became increasingly populist and socially conservative, and formed an electoral coalition with the HDF before the May 1998 election. Mr Orban s abrasive style led to a decline in Fidesz s popularity in , but it subsequently recovered. The party is now led by Zoltan Pokorni, with Laszlo Kover who briefly followed Mr Orban in the leadership post in 2000 stepping down to concentrate on the 2002 election campaign. The Independent Smallholders Party (SP) is a populist agrarian force and the contemporary incarnation of a party of the same name popular in the immediate post-war period. Its electorate is primarily elderly and rural. The SP participated in both the post-1990 and post-1998 right-wing governments. In the HDF-led government after 1990, the SP focused on the re-privatisation of land. The party s strong influence on this single issue resulted in a complicated land compensation programme that worked to maintain small land-holdings. The party split as it pursued its goals, with more radical members under Jozsef Torgyan gaining the upper hand by In opposition in the mid-1990s, the SP improved its electoral performance via radical criticism of the HSP-led government and became the key to the formation of the Fidesz-led coalition. However, a series of corruption scandals, including allegations made against Mr Torgyan, caused his resignation as agriculture minister and probably his demise as a significant political player. The SP has in effect disintegrated, with Mr Torgyan s rump party unlikely to remain in parliament after the 2002 election and pro-government figures opting to run as Fidesz candidates. The Hungarian Socialist Party (HSP) came into being in October 1989 when a congress of the ruling HSWP voted to change the party s name and accept democratic politics. Reformers in the HSWP steered it in a new direction, and the HSP declared itself a west European-style socialist party. The party received only 10.9% of the proportional vote in 1990 and went into opposition. After the election the former foreign minister Gyula Horn became party chairman and began to bring together the various factions. The HSP unites diverse groups that include 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. At various times during his prime ministership after 1994, different groups expressed dissatisfaction with Mr Horn s leadership, but no substantial challenger emerged to lead the party into the 1998 election, which the HSP lost. Mr Horn retired from the party leadership after the election defeat. His protégé, Laszlo Kovacs, who served as foreign minister in , was elected to the top HSP post in September 1998, but failed to consolidate his position in the party or show decisive opinion poll success. Although remaining party leader, he stepped aside in June 2001 to allow Peter Medgyessy to be nominated as the HSP s compromise candidate for the prime ministership. The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

14 10 Hungary The Alliance of Free Democrats (AFD) has its roots in the dissident democratic opposition of the 1980s, which was prominent in the political transformation of In the 1990 election the AFD finished a strong second to the HDF. In 1994 the AFD again finished second, but entered what turned out to be a difficult coalition with the HSP. By the 1998 election the party s support had dropped substantially and has subsequently failed to recover. Some AFD voters never accepted the party s coalition with the HSP, with some in the leadership also doubtful over the wisdom of the alliance. However, in current political circumstances, the HSP remains the party s natural partner. The AFD is a liberal party, with a focus on a small state and individual rights. The party draws its main support from wealthy, well-educated urban voters. With the AFD s national position weak since 1998, its hold on the Budapest mayoralty, with Gabor Demszky in the post since 1990, has become increasingly important. However, Mr Demszky could face a strong challenge from the right in the autumn 2002 poll. Mr Demszky s attempt to combine his Budapest post with the party leadership in 2001 was unhappy and short-lived; the party leadership has now reverted to former interior minister Gabor Kuncze. Once the leading force in government, but now a minor partner of Fidesz, the Hungarian Democratic Forum (HDF) was formed in 1987 by a group of populist-oriented intellectuals and cultural figures allied with Mr Pozsgay. 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 HDF, which had difficulty regaining unity after the expulsion of one of its founders, Istvan Csurka, for attacking the leadership, and the subsequent death of Mr Antall. After a heavy defeat in the 1994 election, in February 1996 many HDF moderates left to form their own party, the Hungarian Democratic People s Party (HDPP). The HDF gained 17 parliamentary seats in 1998 on the strength of its alliance with Fidesz, having failed to gain representation based on the proportional party list vote. The HDPP won no parliamentary representation. For the 2002 election the HDF abandoned all hope of achieving parliamentary representation alone and in effect merged with Fidesz for electoral purposes the two parties will stand on the first joint regional lists in Hungary s post-communist electoral history. The Hungarian Justice and Life Party (HJLP) was formed in 1993 when the radical populist/nationalist Mr Csurka and his supporters were expelled from the HDF. Mr Csurka is a controversial figure who receives a great deal of media attention. He wants the post-first world war territorial settlement to be reopened, and his statements often include thinly veiled anti-semitism. The party opposed Hungary s membership of NATO, and although it formally supports EU accession, it wishes this to take place only many years in the future, when Hungary is stronger. In 1994 the HJLP failed to gain parliamentary representation, but it garnered 5.5% of the vote in As the 2002 election approached Mr Csurka attempted increasingly to portray himself as a future government player, although no other political force would countenance any formal political co-operation. EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002

15 Hungary 11 Parliamentary election results % vote Individual Seats in % vote Individual Seats in for party districts parlia- % of for party districts parlia- % of list won ment seats list won ment seats Alliance of Free Democrats (AFD) Christian Democratic People s Party (CDPP) Federation of Young Democrats (Fidesz) Hungarian Democratic Forum (HDF) Hungarian Justice and Life Party (HJLP) Hungarian Socialist Party (HSP) Smallholders Party (SP) Other parties Independent candidates Total Memorandum item Total votes cast 5,400,194 4,526,860 Source: Press reports. Main political figures Viktor Orban: Prime minister after 1998 and leading figure of the Federation of Young Democrats-Hungarian Civic Party (Fidesz), although he gave up the party leadership at the end of 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 has been an energetic prime minister, but his imperious style has made him unpopular with many. Since relinquishing the party leadership, he has attempted to project a less combative image. 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 (HSP) in , presiding 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 HSP 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 HSP nomination, especially as it appeared increasingly likely that the party would need a repeat partnership with the liberal Alliance of Free Democrats (AFD) in order to govern again. Laszlo Kovacs: Foreign minister in under the HSP s Gyula Horn, of whom he is a close protégé. Mr Kovacs took over from Mr Horn as HSP leader after the party s 1998 election defeat, but with his moderate leadership style failed to impose himself decisively on the party or the electorate. Mr Kovacs ruled himself out of consideration as the HSP s prime ministerial candidate for The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

16 12 Hungary the 2002 election but remains party leader. He would be in line to return to the foreign ministry were the HSP to form another government. Jozsef Torgyan: Chairman of the Smallholders Party (SP), Mr Torgyan was a lawyer before entering politics in Conflict during the first postcommunist government under Jozsef Antall saw Mr Torgyan split his party and take his more radical wing out of the coalition, before establishing himself as the main SP force via a comeback in the 1994 election. Although his populist rhetoric in opposition earned him support, he moderated his image sufficiently to be able to enter government with Fidesz in However, he was brought down as agriculture minister by corruption allegations, compounded by anger in his core agricultural constituency about the state of the sector and frustration in his party about his authoritarian leadership style. With his rump SP unlikely to enter parliament in the 2002 election, Mr Torgyan appeared increasingly a spent political force. Istvan Csurka: Controversial founder and leader of the far-right Hungarian Justice and Life Party (HJLP), following his expulsion from the Hungarian Democratic Forum (HDF) in Owing to Mr Csurka s strident nationalism, no other parliamentary parties will countenance a formal alliance with him, but he has increasingly talked up his prospects as a major political player. Zsigmond Jarai: Appointed governor of the National Bank of Hungary (NBH, the central bank) for a six-year term in March 2001, after serving as finance minister in the ruling coalition since June His tenure as finance minister followed a career in senior private- and public-sector finance posts. Although his previous relations with the government probably meant greater tolerance of pre-election fiscal loosening than might have occurred under other governors, Mr Jarai has presided over a new central bank act that enhances its independence and enshrines price stability as its overriding goal. Mr Jarai was also responsible for the surprising widening of the forint s exchange-rate band in May 2001, which helped to reduce inflation in the latter part of that year. 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 the SP. Mr Madl seems to have been accepted by the opposition as a non-partisan head of state. 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 the future Yugoslavia). During the 1980s the difficulties faced by Hungarian minorities, particularly in Romania, were an important mobilising element for the opposition parties. Since the collapse of communist rule, Hungarian governments have sought to balance the need to build constructive relations with neighbours with the wish to EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002

17 Hungary 13 extend greater support to the Hungarian minorities. There are perhaps 2.7m-3.3m Hungarians in Hungary s neighbouring states, including upwards of 1.6m in Romania and around 500,000 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. Under the HSP-led government, basic treaties were signed with Slovakia (1995) and Romania (1996), guaranteeing existing borders as well as minority rights. The Fidesz-led government sought to build on this foundation, for example by supporting Romania s and Slovakia s western integration. Relations with Romania were facilitated when that country s main Hungarian party, the Hungarian Democratic Union in Romania (HDUR), entered a coalition government with reformist forces in Hungary s first two-way labour exchange agreement, for 8,000 seasonal workers per year, was signed with Romania in May The leftist Party of Social Democracy (PSD) won the Romanian election in November 2000, but its minority administration has depended on the support of the HDUR, with which it has signed a parliamentary co-operation agreement. Romania s drive to joint NATO is exerting pressure on its government to maintain good relations with Hungary, and to provide new educational and cultural rights to its large ethnic Hungarian minority. Slovak-Hungarian relations also improved after the November 1998 election brought the ethnic Hungarian party into the Slovak government. The two sides have been negotiating on the outstanding issue of the disputed Nagymaros/Gabcikovo Danube dam project, agreed between the two communist governments in 1977, which Slovakia chose to continue after Hungary withdrew on cost and environmental grounds. However, the Hungarian minority issue remains highly sensitive, and in 2001 Hungary s relations with both Romania and Slovakia were put under severe strain by the so-called Status Law, passed by the Budapest 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. Parents educating their children in Hungarianlanguage schools in Hungary s neighbours would also be able to apply for financial support from Budapest. The legislation was intended to offer practical support to the Hungarian minority communities as well as symbolic reassurance that Hungary s western integration, and its disappearance behind the Schengen border at the new frontier of the EU, would not mean abandonment of Hungarian minorities in non-eu member states. However, Romania and Slovakia regarded the Status Law as discriminatory and extra-territorial and as destabilising the system of bilateral relations built up since the mid-1990s. However, Hungary and Romania agreed a bilateral memorandum in late 2001 that involved significant Hungarian concessions, most notably the extension of the short-term employment opportunity to all Romanian citizens. This concession was attacked by the HSP for threatening the Hungarian labour market, reducing the government s incentive to make similar concessions to Slovakia. With pre-election passions also rising in The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

18 14 Hungary Bratislava, it appeared that no agreement would be reached between the two states before the Hungarian parliamentary election. As regards the Hungarian minority in Yugoslavia (Serbia-Montenegro), Hungary faced its greatest test when NATO of which Hungary was a new member took military action against Yugoslavia in Budapest was fearful of a backlash against the Hungarian minority in the province of Vojvodina and relieved that only logistical support was required, but in political terms it backed the NATO action strongly as a defence of minority rights. Relations with Yugoslavia since Slobodan Milosevic s ouster in 2000 have improved, with Hungary encouraging Yugoslavia s democratising and Westernising course and Yugoslavia returning a degree of autonomy to Vojvodina and passing a minority rights law in early Growing international integration Westward reorientation Hungary was developing links with international bodies well before the 1991 dissolution of the Warsaw Pact (established in 1955) and the Council for Mutual Economic Assistance (CMEA, or Comecon; 1949). 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). Hungary was invited to join the OECD in 1996, and joined the International Energy Agency (IEA) in Hungary applied to join the EU in March In July 1997 the European Commission s Agenda 2000 report recommended beginning accession negotiations with Hungary, alongside the Czech Republic, Poland, Slovenia, Estonia and Cyprus. The Commission noted that Hungary had a developed democracy with stable institutions, a functioning market economy, and a productive base and legislative framework already compatible with singlemarket membership in many areas. Annual progress reports have subsequently commended Hungary s move towards monetary convergence and structural complementarity with the EU. In the course of 2001 the EU adopted enlargement in 2004 as an objective and named Hungary as one of ten states that should be able to join at that date. However, the EU continues to call on Hungary to make more progress in some areas, notably the avoidance of unsustainable budgetary and external deficits, a better resourced judiciary, elimination of corruption, and improvements in consumer protection, customs control, environment and energy. Accession talks began in The government has emphasised its commitment to defending the national interest, and Mr Orban has periodically attacked the EU for its negotiating demands and delays, but Hungary has often been willing to make compromises in order to reach agreement earlier than other candidates. In June 2001 Hungary closed the free movement of people and free movement of capital chapters of the acquis communautaire (the body of EU law). In doing so it agreed to restrictions on EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002

19 Hungary 15 labour mobility of up to seven years. In return, the EU agreed on transition periods for the sale of arable land to companies and joint ventures of seven years and to self-employed EU farmers of three years. Non-arable land sales are restricted for five years. Some problem areas remain: in agriculture, for example, which is to be negotiated in 2002, Hungary wants to retain the right to subsidise agricultural investments, even though EU regulations limit investments in areas where there is chronic overproduction. Defence Admission talks with NATO commenced in September 1997, and in a November 1997 referendum 85% of those who voted (turnout was only 49%) approved entry to the alliance. The admission protocol was signed in December 1997, and the formal signing ceremony for membership occurred on March 12th Hungary has benefited from providing a forward base for the NATO-led Stabilisation Force (SFOR) and the earlier Implementation Force (IFOR) in Bosnia and Hercegovina (BiH). A 300-member Hungarian technical contingent also served in both forces. These activities led to close co-operation between NATO and the Hungarian armed forces. Military forces, 2000 Active forces Army a 13,430 Border guards 12,000 Air force 7,500 UN & peacekeeping 816 Total incl others 33,810 of which: conscripts 22,900 Reserves Army 74,900 Air force 15,400 a Includes 270 personnel in Army Maritime Wing. Source: International Institute for Strategic Studies, The Military Balance, The government has promised a virtual doubling of defence spending, raising the defence budget by 0.1% of GDP over four years, in order to carry out the substantial modernisation, especially of communications and aircraft, required for military compatibility with NATO. Major military reforms have still to be carried out, including substantial technology upgrades. The military continues to reduce the number of active troops, and has discussed ending conscription (which has been cut to six months), but the pay increases needed to effect this have proved difficult to fund. Security risk Armed conflict Hungary faces few external security risks, especially since becoming a member of NATO. Austria borders Hungary, and four of Hungary s neighbours are leading candidates for either NATO or EU membership. The security situation in neighbouring Croatia and Yugoslavia (Serbia-Montenegro) has improved markedly, and Ukraine has long tried to establish closer ties with European security organisations. Security along the borders with Croatia, Yugoslavia and The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

20 16 Hungary Ukraine remains an issue in EU accession negotiations, with Hungary recently having taken several steps to bolster surveillance. Sizeable minorities of ethnic Hungarians in Slovakia, Romania and Yugoslavia have been a source of contention 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 By lending its airspace and military bases to the US-led war on terror, Hungary has probably increased the risks of becoming a terrorist target itself, although the likelihood remains low. Hungarian security forces have stepped up their patrols of the country s borders and airports since September 11th and remain on high alert. Civil unrest With the exception of the 1956 events, Hungary s post-war history has been free of civil strife. The risk of civil or labour unrest is extremely low, especially given Hungary s homogenous society and lack of divisive issues. A majority of the population looks forward to joining the EU, 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 been growing in frequency since the fall of communism. Tourists, and tourist 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 occur infrequently in certain bars and restaurants in Budapest where tourists are charged exorbitant prices and then threatened with physical violence. Drug smuggling and organised crime If Hungary faces any substantial security risks, they emanate from the activities of organised crime in the country, particularly that of the Russian mafia. Since the fall of communism in the region, organised crime activities have risen significantly, especially that of Russian, Italian, ethnic Albanian, Nigerian, and Chinese criminal organisations and Colombian drug-trafficking groups. Hungary shares a border with seven countries and its well-developed transportation network makes it a logical transit zone for smuggling. Recent evidence shows that it also is a transit point on one of the pathways for smuggling heroin to western Europe from Afghanistan and other parts of Central Asia. Authorities have tightened border controls, altering smuggling methods, but having little discernible impact on the extent of traffic. EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002

21 Hungary 17 Resources and infrastructure Population Hungary is one of the smaller European countries. According to preliminary data from the February 2001 census, the population is 10,195,513. The capital city, Budapest, is losing inhabitants but remains home to just under 1.8m people, or 18% of the population, and 47% live in other urban areas. The age structure of the population is typical for Europe, with 17% of the population below the age of 14 and 20% aged 60 or above in Ethnic homogeneity In ethnic terms, the population is relatively homogeneous, especially compared with many other countries in the region. Relevant figures from the 2001 census are not yet available, but the 1990 census showed minorities, including Roma (142,700), Germans (30,800), Croatians (13,600), Romanians (10,700) and Slovaks (10,500), totalling only around 2% of the total population at the time. Unofficial estimates suggest that the minority populations are higher; the European Roma Rights Centre claims that there are more than half a million Roma, 5.7% of the population. Hungarian minorities in neighbouring countries are much larger, at least 3m, 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. (See Reference table 1 for population statistics.) Population by age, 2000 ( 000) Age bracket Males Females Total , , , , , , , , Total 4, , ,043.2 Source: Central Statistical Office (CSO), Statistical Yearbook. An ageing population Hungary s population has been falling since 1982, when the death rate began to exceed the birth rate. According to official figures, the population dropped from 10.38m in 1990 to 10.01m at end The 2001 census, however, confirmed that the population may be higher than previously thought, probably owing to immigration since The birth rate declined from 12.3 per 1,000 population in 1991 to 9.4 in 1999, but recovered somewhat in 2000 and 2001, to 9.7 per 1,000. The death rate rose to a peak of 14.6 per 1,000 in 1993, before falling back to 13.2 per 1,000 in The ageing population has placed an increasing strain on the traditionally generous system of pensions and early retirement. Successive governments have worked to tighten eligibility for pensions and let them erode against The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

22 18 Hungary inflation, but the growing voting power of older people makes it hard to continue this. After 1994 the government led by the Hungarian Socialist Party (HSP) significantly reduced maternity and family benefits as part of its austerity drive, and the post-1998 administration led by the Federation of Young Democrats-Hungarian Civic Party (Fidesz) has sought to increase support for families via tax breaks. Reversing the population decline has been an explicit aim of the Fidesz-led government. Labour force Unemployment rose sharply during the economic downturn of the early 1990s, and the subsequent return to strong growth was slow to bring it down because of rapidly rising labour productivity, especially in manufacturing with heavy foreign investment. Employment has also contracted, reflecting a demographic decline in the working-age population, and a fall in the participation rate as older or less-skilled workers are sidelined from the labour market. According to labour force surveys by the Central Statistical Office (CSO), the economically active population fell from 5.28m persons in 1989 to a low of 4m in However, it has since started to rise, recording 4.11m in 2000, although it fell back again slightly in Between 1990 and 2000 the percentage of the working-age population that was not economically active grew from 15.9% to more than 33.9%. Whereas virtually all of the economically active population was employed in 1989, at the end of 2001 some 226,500 persons were unemployed, or 5.6% of the economically active population. However, registered unemployment at labour offices was higher, at 343,000 at end-2001 (for more on unemployment, see The economy). The nature of employment has also changed. There has been a marked shift away from employment in agriculture towards service occupations. According to CSO surveys, 15.8% of the labour force was employed in agriculture and forestry in By 2001 the percentage had fallen to 6.2%. Between the two dates employment in agriculture dropped by over 222,000. The share of industry in employment declined from 29.5% to a low of 26.7% in 1995 before rebounding somewhat. Job creation and redeployment in the services sector saw employment there rise to 60% of the total by (See Reference table 2 for data on the labour force.) Education Educational attainments are comparable to those of western Europe. A high standard of general and vocational education has been important in attracting foreign employers to Hungary, especially in new-technology sectors. In 1999 carmaker Opel reported that the workforce at its Szentgotthard component plant was significantly better educated than its counterpart in Germany, with more than half holding a degree or equivalent qualification. Among central European countries, Hungary is consistently at the top of the education spending league table. However, annual state spending on education as a percentage of GDP declined from about 7% in the early 1990s to under 5% in the late 1990s and 2000, as the government was forced to curtail expenditure. The post-1998 government attempted to reverse this trend as it sought to encourage an expansion in higher education in particular. Primary and EIU Country Profile 2002 The Economist Intelligence Unit Limited 2002