Country Paper – Republic of Hungary

Introduction

This country paper has been written for educational reasons. It is part of the class ‘International Economic Relations I’ – University of Applied Science Wiesbaden of winter 2001. It is attended to the former socialist country Hungary, which underwent a transition from a socialistic to a democratic country. Mainly it throws light on the question if the simultaneous economical transition - from a planned to a market economy has been successful. Successful means if the country is able to catch up with economical leading countries. ‘What matters is the whole package of policies, financial and technical assistance and dept relief if necessary.’ 1 Strong institutions and effective government;

good educational and humane health system Economic policy Outward oriented policies to promote efficiency through increased trade and investment; training, and research and development to promote productivity Structural reform to encourage domestic competition Economic performance Macroeconomic stability to create the right conditions for investment and saving International economic affairs External dept management to ensure adequate resources for sustainable development’ The report is roughly divided in six main sections. The first part delivers a historic, geographical, cultural overview about the country itself. The second chapter will provide an insight in the political, educational, health and infrastructural system. The third part summarize the economical policy of Hungary. We will discuss in the fourth section how successful was its policy domestically and in the next part how successful internationally. The last three parts provide a base for the last section – a present statement and an economical forecast. To guide the reader through various comments and interrelations the following table gives an overview about the different links.

information, a explanation or correlation in-between this report Source This source sign will indicate a Reference of a book, a Internet-Address or

other sources which has been used in this report Appendix This sign refers to a detailed description in the appendix of the document

Table 2 Comments and Hints ______________________________________________________________________________ cf. “Globalization: Threat or Opportunity?”, http://www.imf.org/external/np/exr/ib/2000/041200.htm; International Monetary

1 the column has been added by U. M.

2 “Globalization: Threat or Opportunity?”; loc. cit.; p. 7

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  Country Paper Republic of Hungary  

Table of Content

Table of Content......................................................................................................................... 4

1.  The state Hungary  6

1.1.  Brief Overview  6

1.2.  Geographical Overview  7

1.3.  History  8

1.4.  Population Culture  10

2.  Economic frame  11

2.1.  National Institutions  11

2.1.1.  State Authorities  11

2.1.2.  Educational system  12

2.1.3.  Health system  14

2.1.4.  Welfare system  14

2.2.  Infrastructure  14

2.2.1.  Transport  14

2.2.2.  Telecommunication  15

2.2.3.  Media  15

2.2.4.  Energy  15

2.3.  Economic Structure  16

2.3.1.  Agriculture forestry  16

2.3.2.  Mining Semi-Processing  17

2.3.3.  Industry Manufacturing engineering  17

2.3.4.  Financial Sector  18

2.3.5.  Tourism  19

3.  Economy Policy  20

3.1.  Fiscal Policy  20

3.2.  Tax System  21

3.3.  Monetary Policy  22

3.4.  Privatisation  23

3.5.  Dual economy  24

3.5.1.  Sectorial dualism  24

3.5.2.  Regional dualism  24

3.5.3.  Ownership dualism  25

3.6.  FDI  25

3.7.  SME  25

3.8.  Széchenyi Plan  26

  International Relations of Economic I WS 2001 02  4

Table of Content

4.  Economic Performance  27

4.1.  GDP  27

4.2.  Unemployment  29

4.3.  Inflation  30

4.4.  Investment  31

4.5.  Private consumption  31

4.6.  Sectors  31

5.  International Economic Affairs  32

5.1.  Import Export  32

5.2.  Current account balance  34

5.3.  Foreign Dept  34

5.4.  Reserves and exchange rate  35

6.  Economical Outlook  36

Appendix A  Bibliography  38

Appendix B  Overview of abbreviations  40

Appendix C  Tables Overview  41

Appendix D  Tables  42

5  Uwe Maurer - Uwe Maurer gmx net  

Country Paper – Republic of Hungary

1. The state Hungary

1.1. Brief Overview

Data Overview 4

Conventional long name Republic of Hungary

Local long name Magyar Koztarsasag; Magyarorszag (short form); HU (Data code)

Capital Budapest

Government type Republic

Currency Forint (HUF, Ft) = 100 Filler / 1 € = 260.1 / 1 $ = 282.18 (2000) 5

Weight and measures Metric (land: cadastral yoke – 1 acre = 0,7033 cy)

National holiday St. Stephen's Day, 20 August

The state Hungary

1.2. Geographical Overview

Hungary stretches itself over 320 km between 45° 46’ and 48° 35’ degrees north and has a longitude of 16° 05’ and 22° 58’ degrees east over 528 km 6 . It is formed by the so-called Carpathian Basin, surrounded by the Carpathian mountain chain in the northeast and southeast, the Sub-Alps in the west and the Slovenian (Transdanubia) hills in the south.

The surface of Hungary is about 93.036 sq km, which is nearly the size of Bavaria and Hess. The length of its landlocked border is about 2.242 km and the countries Slovakia, Ukraine, Romania, Yugoslavia, Croatia, Slovenia and Austria ad joint to it. Hungary lies in lowland, two-thirds of its area being plains of less than 200 meters above sea level; only 2 % of the land is about 400 meters above sea level 7 . Nevertheless, Hungary owns a wide-hole river-net formed by Danube (along a 417 km - entire length is 2,860 km) Tisza (598 km long), Raab (Györ) and Drau. 1,200 natural and artificial lakes can be found in Hungary and the lake Balaton is the biggest domestic lake with 598 squaremeters. Hungary's capital is Budapest (established through the unification of three cities: Buda, Óbuda and Pest, in 1873), with a population of nearly two million. Hungary can be roughly divided in three major regions.

More than 66% of the country's territory is under agricultural cultivation. A further 19% is covered ______________________________________________________________________________ cf. Mittel und Osteuropa – Geographie und Kultur, Nachschlagewerk der Deutschen Bibliothek, Frankfurt 1995

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cf. Hungarians Ministry of Foreign Affairs; http://www.kum.hu/Hungary/angol/inhabitants.htm; ‘Geographical Environment’;

7 cf. Hungarians Ministry of Foreign Affairs; http://www.kum.hu/Hungary/angol/inhabitants.htm; ‘Hungary's Territorial

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Country Paper – Republic of Hungary

with woods. The expansion of towns and the needs of industry and transport over the past decades have reduced the area available to agriculture by 10%.

77,700 hectares of land have been declared national parks 9 . Of this, the Hortobágy National Park covers 63,600 hectares, the

mark. Thus in Hungary protected land areas overall constitute 670,600 hectares, 7.6% of the country's total area.

Hungary is situated between the east-European continental, the west European oceanic and the subtropical Mediterranean climatic zones. The annual mean temperature is 12° Celsius (Budapest). The mean temperature of the warmest month (July) is 21.7°C; the coldest month (January) -1.2°C. Annual average rainfall is 561 mm. The average number of hours of sunshine is approximately 2,000 annually. The average wind speed is 2.2 m/sec.

1.3. History

The Hungarians reached the Carpathian Basin in the 7th century as part of the mass migration. 10 The power vacuum in that region and seek for refuge let the Hungarians set off together toward the Carpathian Basin in the year 895. Árpád was chosen as prince among the heads of the seven Hungarian tribes. He successfully organized the resettlement of 500.000 Hungarians. Árpáds soon realized that the survival of the Hungarians in the Carpathian Basin is to form a European patterned settlement of Christianity.

Árpáds son King Stephen I (Saint Stephen 997 - 1038) transformed Hungaria to a western-style

The state Hungary

sovereignty, even after the repression of the Turks by the Holy Alliance in 1686. 1867 at the initiative of Ferenc Deák the Habsburg Empire was transformed into a dualist state federation comprising Austria and Hungary.

After the collapse of the German-Austrian-Hungarian military alliance in World War One a revolution broke out and the Communist Hungarian Republic of Councils headed by the Bolshevik Béla Kun took over the power. However, white terror with Czech and Romanian intervention replaced the red terror and restored the kingdom. In June 1920 the new regime signed the terms dictated by the victorious great powers in the Trianon (Versailles) Peace Treaty. Hungary lost two-thirds of its original

The world economic depression aided political extremists, which

blamed the Trianon for its difficulties, yearned for a revision of the Treaty, and tied itself closer with Germany and Italy. This prevented it from staying out of World War II. Nevertheless, the Red Army transformed the entire country into a battlefield 1945. As a result of total defeat, the old system and state sovereignty itself collapsed and despite promises to guarantee self-rule the Yalta conference 1945 had decided already that Hungary would belong to the Soviet sphere of influence.

Soon the nationalization of private enterprises and introduction of certain elements of a Stalinist- type command economy followed. Rákosi introduced the Stalinist dictatorship least between 1948 and 1953. "Enemies" of the regime and numbering tens of thousands of people were deported to the countryside or sent to do forced labour.

1956 suggested the end of the Stalinist times (Stalin died 1953) and led to the revolution of October 23, 1956. Imre Nagy restored the multi-party system and Hungary quit the Warsaw Treaty. The Soviet crushed the revolution brutally on November 4 and organized a socialist regime with János Kádár as the puppet. Thus, the new regime, having restored "law and order", consolidated its position by granting an amnesty and launching reforms in the 1960s. The industrialization and collectivisation were carried out, the "new economic mechanism”. By the 1980s their limitations were apparent. The reforms proved insufficient to ensure economic growth, and so the semblance of prosperity was maintained from foreign loans and at the cost of building up massive debts for the country.

The "reform communists" dismissed Kádár in May 1988 (area of Mikhail Gorbachev) after his resistance to any further change. Shortly afterwards several opposition groups organized themselves into political parties; their activities received greater publicity and in 1988 and 1989 encouraged mass demonstrations throughout a reviving civil society. They initiated the peaceful change of regime by "trilateral negotiations" at the Opposition Round Table in March 1989. On October 23, 1989, the country received its official old name - Hungarian People's Republic – and converted the state-party system to a market economy and a multi-party democracy.

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Country Paper – Republic of Hungary

1.4. Population & Culture

Hungarians are of Finno-Ugric origin and as a people have lived in their present-day homeland, the Danube Basin, for more than 1,000 years 11 .

According to the 2000 estimates, Hungary had a population of 10,1 Million (end of 1999) 12 , which is a density of about 108 per km² (equal to France and Poland). The country's population has been on the wane since 1981. No immediate turnabout is expected. The German speakers represent the single largest group among the nationalities. They settled along the western borders, the Transdanubian central hills, around the capital and in the Mecsek hills. Southern Slavs (Serbs, Croats, Slovenes, Sokac and Bunevac) are concentrated in the southwest, Romanians along the southeaster border, and Slovaks in the southeaster county of Békés and near the capital. The number of Gypsies is around 400,000 to 600,000 according to the latest estimates. 70 % of the population are Roman Catholics, 20% Calvinists, 5 % Lutherans, 0.5 % Jews, 4,5 % other and unknown in religion.

96.6% of Hungary's population have Hungarian as their mother tongue. (About five million Hungarians live beyond the borders, most of them in Transylvania, part of Romania.), the ratio of ethnic minorities in Hungary is relatively low, representing only 2.05% of the country's permanent population.

The age composition of the Hungarian population reflects a state of stagnation, with more than half being over 35 years. The proportion of those older than 60 is well above the international average 13 . 1995 65% of Hungarians lived in 194 cities 14 . The declining national population, a process that has been ongoing since the early eighties, has left its marks on the urban population. Since 1985, only 75 towns have actually increased their population.

The country has one of the finest folk traditions in Europe (pottery, wall painting) 15 , as well as a

Economic frame

2. Economic frame

2.1. National Institutions

2.1.1. State Authorities

Hungary is a parliamentary democracy. Its constitution based on acts effective from 20th August 1949, revised 19th April 1972; 18th October 1989 revision ensured legal rights for individuals and constitutional checks on the authority of the prime minister and also established the principle of parliamentary oversight; 1997 amendment streamlined the judicial system The Legal system is still in process of revision, moving toward rule of law based on Western model. Suffrage is 18 years of age (universal).

Chief of state President Ferenc Madl (since 24 May 1998); previous president from 1990 on was Arpad Goncz (2 periods) The prime minister is elected by the National Assembly on the recommendation of the president election results Only be replaceable by ‘vote of confidence’ (naming a alternative candidate) Head of government Prime Minister Viktor Orban (since 6 July 1998) The president elected by the National Assembly for a four-year term Council of Ministers Elected by the National Assembly on the recommendation of the president elections. They are able to use orders and degrees to implement policy. highest executive organs 16

Legislative

Unicameral National 386 seats; members are elected by popular vote under a system of proportional Assembly or (according to a party-list votes at national and regional level) and direct “Orszaggyules” representation (according to individual electoral constituencies – 176 seats) to serve four-year terms Elections: last held on 10 and 24 May 1998 17 (next to be held May/June 2002) election results: percent of vote by party (5% or more of the vote required for parliamentary representation in the first round)

Two periods of free elections proved the consolidation of the democratic parliamentary

______________________________________________________________________________ Table 14 Cabinet Members, Appendix D – Tables, p. 42

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Table 13 Parliamentary election results 1994 and 1998, Appendix D – Tables, p. 42

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