Republic of Hungary
Area: 93,030 sq. km. (35,910 sq. mi.); about the size of Indiana.
Cities: Capital--Budapest (est. pop. 2 million). Other cities--Debrecen (220,000); Miskolc (208,000); Szeged (189,000); Pecs (183,000).
Terrain: Mostly flat, with low mountains in the north and northeast and north of Lake Balaton.
Nationality: Noun and adjective--Hungarian(s).
Population (est.): 10.1 million.
Ethnic groups: Magyar 92%, Romany 4% (est.), German 2%, Slovak 1%, others 1%.
Religions: Roman Catholic 68%, Calvinist 21%, Lutheran 4%, Jewish 1%, others, including Baptist Adventist, Pentecostal, Unitarian 3%.
Languages: Magyar 98%, other 2%.
Education: Compulsory to age 16. Attendance--96%. Literacy--99%.
Health: Infant mortality rate--15/1,000. Life expectancy--men 66 yrs., women 75 yrs.
Work force (4 million): Agriculture--8%; industry and commerce--42%; services--32%; government--7%.
Constitution: August 20, 1949. Substantially rewritten in 1989, amended in 1990.
Branches: Executive--president of the Republic (head of state), prime minister (head of government), Council of Ministers. Legislative--National Assembly (386 members, 4-year term). Judicial--Supreme Court and Constitutional Court.
Administrative regions: 19 counties plus capital region of Budapest.
Principal political parties: Fidesz-Hungarian Civic Parry--center-right; Hungarian Socialist Party (MSZP)--center-left; Alliance of Free Democrats(SZDSZ)--center-left; Hungarian Justice and Life Party (MIEP)--far right, Hungarian Democratic Forum (MDF) center-right.
GDP (2003 est.): $72.9 billion.
Annual growth rate: (2002) 3.3%, (2003 est.) 3.5%.
Per capital GDP (2003 est.): $7,280.
Natural resources: bauxite, coal, natural gas, fertile soils, arable land.
Agriculture/forestry (2002, 4% of GDP): Products-meat, corn, wheat, sunflower seeds, potatoes, sugarbeet, vegetables, fruits.
Industry and construction (1999, 24% of GDP): Types--machinery, vehicles, chemicals, precision and measuring equipment, computer products, medical instruments, pharmaceuticals.
Trade (2003 est.): Exports--$40.6 billion: machinery, vehicles, medical instruments, food and beverages, agricultural products. Imports--$46.3 billion: machinery, vehicles, consumer manufactures, energy, food and beverages. Major markets--EU (Germany, Austria, Italy), CEFTA, CIS, U.S. Major suppliers--EU (Germany, Austria, Italy, France), CIS, CEFTA, U.S.
Hungary has long been an integral part of Europe. It converted to Western Christianity before AD 1000. Although Hungary was a monarchy for nearly 1,000 years, its constitutional system preceded by several centuries the establishment of Western-style governments in other European countries. Following the defeat of the Austro-Hungarian Dual Monarchy (1867-1918) at the end of World War I, Hungary lost two-thirds of its territory and nearly as much of its population. It experienced a brief but bloody communist dictatorship and counterrevolution in 1919, followed by a 25-year regency under Adm. Miklos Horthy. Although Hungary fought in most of World War II as a German ally, it fell under German military occupation following an unsuccessful attempt to switch sides on October 15,1944. In January 1945, a provisional government concluded an armistice with the Soviet Union and established the Allied Control Commission, under which Soviet, American, and British representatives held complete sovereignty over the country. The Commission's chairman was a member of Stalin's inner circle and exercised absolute control.
The provisional government, dominated by the Hungarian communist party (MKP), was replaced in November 1945 after elections which gave majority control of a coalition government to the Independent Smallholders' Party. The government instituted a radical land reform and gradually nationalized mines, electric plants, heavy industries, and some large banks. The communists ultimately undermined the coalition regime by discrediting leaders of rival parties and through terror, blackmail, and framed trials. In elections tainted by fraud in 1947, the leftist bloc gained control of the government. Postwar cooperation between the U.S.S.R. and the West collapsed, and the Cold War began. With Soviet support, Moscow-trained Matyas Rakosi began to establish a communist dictatorship.
By February 1949, all opposition parties had been forced to merge with the MKP to form the Hungarian Workers' Party. In 1949, the communists held a single-list election and adopted a Soviet-style constitution which created the Hungarian People's Republic. Rakosi became Prime Minister in 1952. Between 1948 and 1953, the Hungarian economy was reorganized according to the Soviet model. In 1949, the country joined the Council for Mutual Economic Assistance (CMEA, or Comecon), a Soviet-bloc economic organization. All private industrial firms with more than 10 employees were nationalized. Freedom of the press, religion, and assembly were strictly curtailed. The head of the Roman Catholic Church, Cardinal Jozsef Mindszenty, was sentenced to life imprisonment.
Forced industrialization and land collectivization soon led to serious economic difficulties, which reached crisis proportions by mid-1953, the year Stalin died. The new Soviet leaders blamed Rakosi for Hungary's economic situation and began a more flexible policy called the "New Course." Imre Nagy replaced Rakosi as prime minister in 1953 and repudiated much of Rakosi's economic program of forced collectivization and heavy industry. He also ended political purges and freed thousands of political prisoners. However, the economic situation continued to deteriorate, and Rakosi succeeded in disrupting the reforms and in forcing Nagy from power in 1955 for "right-wing revisionism." Hungary joined the Soviet-led Warsaw Pact Treaty Organization the same year. Rakosi's attempt to restore Stalinist orthodoxy then foundered as increasing opposition developed within the party and among students and other organizations after Khrushchev's 1956 denunciation of Stalin. Fearing revolution, Moscow replaced Rakosi with his deputy, Erno Gero, in order to contain growing ideological and political ferment.
Pressure for change reached a climax on October 23, 1956, when security forces fired on Budapest students marching in support of Poland's confrontation with the Soviet Union. The ensuing battle quickly grew into a massive popular uprising. Gero called on Soviet troops to restore order on October 24. Fighting did not abate until the Central Committee named Imre Nagy as prime minister on October 25, and the next day Janos Kadar replaced Gero as party first secretary. Nagy dissolved the state security police, abolished the one-party system, promised free elections, and negotiated with the U.S.S.R. to withdraw its troops.
Faced with reports of new Soviet troops pouring into Hungary despite Soviet Ambassador Andropov's assurances to the contrary, on November 1 Nagy announced Hungary's neutrality and withdrawal from the Warsaw Pact. He appealed to the United Nations and the Western powers for protection of its neutrality. Preoccupied with the Suez Crisis, the UN and the West failed to respond, and the Soviet Union launched a massive military attack on Hungary on November 3. Some 200,000 Hungarians fled to the West. Nagy and his colleagues took refuge in the Yugoslav Embassy. Kadar, after delivering an impassioned radio address on November 1 in support of "our glorious revolution" and vowing to fight the Russians with his bare hands if they attacked Hungary, defected from the Nagy cabinet; he fled to the Soviet Union and on November 4 announced the formation of a new government. He returned to Budapest and, with Soviet support, carried out severe reprisals; thousands of people were executed or imprisoned. Despite a guarantee of safe conduct, Nagy was arrested and deported to Romania. In June 1958, the government announced that Nagy and other former officials had been executed.
Reform Under Kadar
In the early 1960s, Kadar announced a new policy under the motto of "He who is not against us is with us." He declared a general amnesty, gradually curbed some of the excesses of the secret police, and introduced a relatively liberal cultural and economic course aimed at overcoming the post-1956 hostility toward him and his regime. In 1966, the Central Committee approved the "New Economic Mechanism," through which it sought to overcome the inefficiencies of central planning, increase productivity, make Hungary more competitive in world markets, and create prosperity to ensure political stability. However, the reform was not as comprehensive as planned, and basic flaws of central planning produced economic stagnation. Over the next two decades of relative domestic quiet, Kadar's government responded to pressure for political and economic reform and to counterpressures from reform opponents, By the early 1980s, it had achieved some lasting economic reforms and limited political liberalization and pursued a foreign policy which encouraged more trade with the West. Nevertheless, the New Economic Mechanism led to mounting foreign debt incurred to share up unprofitable industries.
Transition to Democracy
Hungary's transition to a Western-style parliamentary democracy was the first and the smoothest among the former Soviet bloc, inspired by a nationalism that long had encouraged Hungarians to control their own destiny. By 1987, activists within the party and bureaucracy and Budapest-based intellectuals were increasing pressure for change. Some of these became reform socialists, while others began movements which were to develop into parties. Young liberals formed the Federation of Young Democrats (Fidesz); a core from the so-called Democratic Opposition formed the Association of Free Democrats (SZDSZ), and the neopopulist national opposition established the Hungarian Democratic Forum (MDF). Civic activism intensified to a level not seen since the 1956 revolution.
In 1988, Kadar was replaced as General Secretary of the MKP, and reform communist leader Imre Pozsgay was admitted to the Politburo. That same year, the Parliament adopted a "democracy package," which included trade union pluralism; freedom of association, assembly, and the press; a new electoral law; and a radical revision of the constitution, among others. A Central Committee plenum in February 1989 endorsed in principle the multiparty political system and the characterization of the October 1956 revolution as a "popular uprising," in the words of Pozsgay, whose reform movement had been gathering strength as communist party membership declined dramatically. Kadar's major political rivals then cooperated to move the country gradually to democracy. The Soviet Union reduced its involvement by signing an agreement in April 1989 to withdraw Soviet forces by June 1991.
National unity culminated in June 1989 as the country reburied Imre Nagy, his associates, and, symbolically, all other victims of the 1956 revolution. A national roundtable, comprising representatives of the new parties and some recreated old parties--such as the Smallholders and Social Democrats--the communist party, and different social groups, met in the late summer of 1989 to discuss major changes to the Hungarian constitution in preparation for free elections and the transition to a fully free and democratic political system.
In October 1989, the communist party convened its last congress and re-established itself as the Hungarian Socialist Party (MSZP). In a historic session an October 16-20, 1989, the Parliament adopted legislation providing for multiparty parliamentary elections and a direct presidential election. The legislation transformed Hungary from a people's republic into the Republic of Hungary; guaranteed human and civil rights; and created an institutional structure that ensures separation of powers among the judicial, executive, and legislative branches of government. But because the national roundtable agreement was the result of a compromise between communist and noncommunist parties and societal forces, the revised constitution still retained vestiges of the old order. It championed the "values of bourgeois democracy and democratic socialism" and gave equal status to public and private property. Such provisions were erased in 1990 as the need for compromise solutions was obviated by the poor performance of the MSZP in the first free elections.
Free Elections and a Democratic Hungary
The first free parliamentary election, held in May 1990, was a plebiscite of sorts on the communist past. The revitalized and reformed communists performed poorly despite having more than the usual advantages of an "incumbent" party. Populist, center-right, and liberal parties fared best, with the Democratic Forum (MDF) winning 43% of the vote and the Free Democrats (SZDSZ) capturing 24%. Under Prime Minister Jozsef Antall, the MDF formed a center-right coalition government with the Independent Smallholders' Party (FKGP) and the Christian Democratic People's Party (KDNP) to command a 60% majority in the parliament. Parliamentary opposition parties included SZDSZ, the Socialists (MSZP), and the Alliance of Young Democrats (Fidesz). Peter Boross succeeded as Prime Minister after Antall died in December 1993. Thc Antall/Boross coalition governments achieved a reasonably well-functioning parliamentary democracy and laid the foundation for a free market economy.
In May 1994, the socialists came back to win a plurality of votes and 54% of the seats after an election campaign focused largely on economic issues and the substantial decline in living standards since 1990. A heavy turnout of voters swept away the right-of-center coalition but soundly rejected extremists on both right and left. Despite its neocommunist pedigree, the MSZP continued economic reforms and privatization, adopting a painful but necessary policy of fiscal austerity (the "Bokros plan") in 1995. The government pursued a foreign policy of integration with Euro-Atlantic institutions and reconciliation with neighboring countries. But neither an invitation to join NATO nor improving economic indicators guaranteed the MSZP's re-election; dissatisfaction with the pace of economic recovery, rising crime, and cases of government corruption convinced voters to propel center-right parties into power following national elections in May 1998. The Federation of Young Democrats (renamed Fidesz-Hungarian Civic Party (MPP) in 1995) captured a plurality of parliamentary seats and forged a coalition with the Smallholders and the Democratic Forum. The new government, headed by 35-year-old Prime Minister Viktor Orban promised to stimulate faster growth, curb inflation, and lower taxes. Although the Orban administration also pledged continuity in foreign policy, and continued to pursue Euro-Atlantic integration as its first priority, it was a more vocal advocate of minority rights for ethnic Hungarians abroad than the previous government. In April 2002, the country voted to return the MSZP-Free Democrat coalition back into power. The new government, led by Prime Minister Peter Medgyessy, has a very slim majority in Parliament following the closest elections of the post-communist era.
The Medgyessy government has placed special emphasis on solidifying Hungary's Euro-Atlantic course. It has supported the U.S.-led war on terrorism and confirmed Hungary's intention to join the EU in 2004 with the signature of an accession agreement in April 2003. A sweeping victory in the 2002 local elections solidified the governing coalition's political position.
The President of the Republic, elected by the National Assembly every 5 years, has a largely ceremonial role, but powers also include appointing the prime minister. The prime minister selects cabinet ministers and has the exclusive right to dismiss them. Each cabinet nominee appears before one or more parliamentary committees in consultative open hearings and must be formally approved by the president. The unicameral, 386-member National Assembly is the highest organ of state authority and initiates and approves legislation sponsored by the prime minister. A party must win at least 5% of the national vote to form a parliamentary faction. National parliamentary elections are held every 4 years (the last in April 2002). A 15-member Constitutional Court has power to challenge legislation on grounds of unconstitutionality.
Principal Government Officials
Prime Minister--Peter Medgyessy (MSZP)
Minister of Foreign Affairs--Laszlo Kovacs (MSZP)
Ambassador to the United States--Andras Simonyi
Ambassador to the United Nations--Laszlo Molnar
The Hungarian embassy is located at 3910 Shoemaker St. NW, Washington, DC 20008 (tel. 202-362-6730). Hungary has consulates in New York City and Los Angeles.
As one of NATO's three new members, Hungary's key national security focus over the past 3 years has been contributing to the stability of the region while integrating its armed forces into NATO's force structure. As a "NATO island" in an area of instability, Hungary takes a keen interest in NATO expansion and in the transatlantic link. It shares a more acute sense of the threat than many other European countries and is watching the transition in the Balkans, Ukraine, and Russia with great interest. Hungarians believe that Hungary's own security and that of its ethnic minorities in neighboring countries will be best served by a peaceful, unified region, which will be achieved when EU and NATO membership is extended to the entire region.
Hungary has been slowly modernizing and downsizing its armed forces since it left the Warsaw Pact in 1990. The transition from a heavy, slow-moving Warsaw Pact force to a lighter, versatile NATO force, has been a long road, and U.S. advisers have been involved in the process throughout. The force has gone from 130,000 in 1989 to 45,000 in 2001 while dozens of bases have been closed. New training, logistics, and leadership systems have been implemented, while considerable practical experience working with NATO and other forces has been achieved by Hungarians serving in peacekeeping missions (about 1,000 at any given time). Hungary was especially helpful during the Kosovo crisis in 1995, when its airbase at Taszar was used by coalition aircraft. Hungarian military personnel are also present in Afghanistan and Iraq. Hungary spends 1.61% of its GDP on defense, just above the NATO average but below that of the other new members.
The Hungarian economy prior to WWII was primarily oriented toward agriculture and small scale manufacturing. Hungary's strategic position in Europe and its relative lack of natural resources also have dictated a traditional reliance on foreign trade. In the early 1950s, the communist government forced rapid industrialization after the standard Stalinist pattern in an effort to encourage a more self-sufficient economy. Most economic activity was conducted by state-owned enterprises or cooperatives and state farms. In 1968, Stalinist self-sufficiency was replaced by the "New Economic Mechanism," which reopened Hungary to foreign trade, gave limited freedom to the workings of the market, and allowed a limited number of small businesses to operate in the services sector.
Although Hungary enjoyed one of the most liberal and economically advanced economies of the former Eastern bloc, both agriculture and industry began to suffer from a lack of investment in the 1970s, and Hungary's net foreign debt rose significantly--from $1 billion in 1973 to $15 billion in 1993--due largely to consumer subsidies and unprofitable state enterprises. In the face of economic stagnation, Hungary opted to try further liberalization by passing a joint venture law, enstating an income tax, and joining the International Monetary Fund (IMF) and the World Bank. By 1988, Hungary had developed a two-tier banking system and had enacted significant corporate legislation which paved the way for the ambitious market-oriented reforms of the post-communist years.
The Antall government of 1990-94 began market reforms with price and trade liberation measures, a revamped tax system, and a nascent market-based banking system. By 1994, however, the costs of government overspending and hesitant privatization had become clearly visible. Cuts in consumer subsidies led to increases in the price of food, medicine, transportation services, and energy. Reduced exports to the former Soviet bloc and shrinking industrial output contributed to a sharp decline in GDP, falling 18% from 1990 to 1993.
Unemployment rose rapidly--to about 12% in 1993. The external debt burden, one of the highest in Europe, reached 250% of annual export earnings, while the budget and current account deficits approached 10% of GDP. In March 1995, the government of Prime Minister Gyula Horn implemented an austerity program, coupled with aggressive privatization of state-owned enterprises and an export-promoting exchange rate regime, to reduce indebtedness, cut the current account deficit, and shrink public spending. By the end of 1997 the consolidated public sector deficit decreased to 4.6% of GDP-- with public sector spending falling from 62% of GDP to below 50%--the current account deficit was reduced to 2% of GDP, and government debt was paid down to 94% of annual export earnings.
These reforms and a massive infusion of foreign direct investment set Hungary on a path of high growth, falling inflation, and unemployment. Growth has averaged 4.5% since 1996; inflation fell from 28% to under 7%; and unemployment fell to under 6%, the envy of many EU countries. Eighty percent of GDP is now produced by the private sector, and foreign owners control 70% of financial institutions, 66% of industry, 90% of telecommunications, and 50% of the trading sector. Hungary is now one of Europe's fastest-growing and most open economies, deeply integrated into the European economy, and it is expected to join the EU in May 2004.
The Orban government, elected in 1998, maintained the broad macroeconomic reforms of its predecessor. However, it did little to address structural problems in agriculture, health care, and the tax system. Under the slogan "economic patriotism," the government moved to increase the government's role in the economy and switch from an export- to a domestic demand-driven economy. In 2002, the consolidated fiscal deficit doubled to 9.9% of GDP, in part due to overspending by the previous administration prior to the last national elections and by the new government after the elections. The government has since sought to lower the deficit while creating a business-friendly environment. A large wage increases and a strongly appreciating local currency in 2002-3 has, however, decreased Hungary's competitiveness somewhat. A straight and narrow path lies ahead for Hungary if it is to join the Euro zone by 2008, as planned.
In 1995 Hungary's currency, the forint (HUF), became convertible for all current account transactions, and subsequent to OECD membership in 1996, for almost all capital account transactions as well. In 2001, the Orban government lifted remaining currency controls and broadened the band around the exchange rate, allowing the forint to appreciate by more than 12% in a year. Conflicting fiscal and monetary policy in the summer of 2002 caused confusion briefly in the market, with the forint surging against the Euro for several months. In attempts to reassure the market, the government has since repeatedly said the country will join the ERM II as soon as possible after EU accession in May 2004, with hopes of adopting the Euro by 2008. Prior to the change of regime in 1989, 65% of Hungary's trade was with Comecon countries. By the end of 1997, Hungary had shifted much of its trade to the West. Trade with EU countries and the OECD now comprises over 75% and 85% of the total, respectively. Germany is Hungary's single-most important trading partner. The United States has become Hungary's sixth-largest export market, while Hungary is ranked as the 72d largest export market for the United States. Bilateral trade between the two countries increased 46% in 1997 to more than $1 billion. The United States has extended to Hungary most-favored-nation status, the Generalized System of Preferences, Overseas Private Investment Corporation insurance, and access to the Export/Import Bank.
Foreign investment was the key to Hungary's success. With about $23 billion in FDI since 1989, Hungary has been a leading destination for FDI in central and eastern Europe--including the former Soviet Union. Of this, more than $7 billion has come from U.S. companies. The largest U.S. investors include GE, General Motors, Coca-Cola, Ford, IBM, and Pepsico. Foreign companies modernized Hungary's industrial sector and created thousands of new, high-skilled, high-paying jobs. Foreign companies account for over 70% of Hungary's exports, 33% of GDP, and about one-quarter of new jobs.
Except for the short-lived neutrality declared by Imre Nagy in November 1956, Hungary's foreign policy generally followed the Soviet lead from 1947 to 1989. During the communist period, Hungary maintained treaties of friendship, cooperation, and mutual assistance with the Soviet Union, Poland, Czechoslovakia, the German Democratic Republic, Romania, and Bulgaria. It was one of the founding members of the Soviet-led Warsaw Pact and Comecon, and it was the first central European country to withdraw from those organizations, now defunct.
As with any country, Hungarian security attitudes are shaped largely by history and geography. For Hungary, this is a history of more than 400 years of domination by great powers -- the Ottomans, the Habsburgs, the Germans during World War II, and the Soviets during the Cold War -- and a geography of regional instability and separation from Hungarian minorities living in neighboring countries. Hungary's foreign policy priorities, largely consistent since 1990, represent a direct response to these factors. Since 1990, Hungary's top foreign policy goal has been achieving integration into Western economic and security organizations. To this end, Hungary joined NATO in 1999 and is slated to join the European Union in May of 2004. Hungary also has improved its often-chilled neighborly relations by signing basic treaties with Romania, Slovakia, and Ukraine. These renounce all outstanding territorial claims and lay the foundation for constructive relations. However, the issue of ethnic Hungarian minority rights in Slovakia and Romania periodically causes bilateral tensions to flare. Hungary was a signatory to the Helsinki Final Act in 1975, has signed all of the CSCE/OSCE follow-on documents since 1989, and served as the OSCE's Chairman-in-Office in 1997. Hungary's record of implementing CSCE Helsinki Final Act provisions, including those on reunification of divided families, remains among the best in eastern Europe. Hungary has been a member of the United Nations since December 1955.
Relations between the United States and Hungary following World War II were affected by the Soviet armed forces' occupation of Hungary. Full diplomatic relations were established at the legation level on October 12, 1945, before the signing of the Hungarian peace treaty on February 10, 1947. After the communist takeover in 1947-48, relations with Hungary became increasingly strained by the nationalization of U.S.-owned property, unacceptable treatment of U.S. citizens and personnel, and restrictions on the operations of the American legation. Though relations deteriorated further after the suppression of the Hungarian national uprising in 1956, an exchange of ambassadors in 1966 inaugurated an era of improving relations. In 1972, a consular convention was concluded to provide consular protection to U.S. citizens in Hungary.
In 1973, a bilateral agreement was reached under which Hungary settled the nationalization claims of American citizens. In January 1978, the United States returned to the people of Hungary the historic Crown of Saint Stephen, which had been safeguarded by the United States since the end of World War II. Symbolically and actually, this event marked the beginning of excellent relations between the two countries. A 1978 bilateral trade agreement included extension of most-favored-nation status to Hungary. Cultural and scientific exchanges were expanded. As Hungary began to pull away from the Soviet orbit, the United States offered assistance and expertise to help establish a constitution, a democratic political system, and a plan for a free market economy.
Between 1989 and 1993, the Support for East European Democracy (SEED) Act provided more than $136 million for economic restructuring and private sector development. The Hungarian-American Enterprise Fund has offered loans, equity capital, and technical assistance to promote private-sector development. The U.S. Government has provided expert and financial assistance for the development of modern and Western institutions in many policy areas, including national security, law enforcement, free media, environmental regulations, education, and health care. Direct investment in Hungary by American companies is rising rapidly. When Hungary acceded to NATO in April 1999, it became a formal ally of the United States. This move has been consistently supported by the 1.5 million-strong Hungarian-American community.
Principal U.S. Embassy Officials
Ambassador--George Herbert Walker III
Deputy Chief of Mission--Janet E. Garvey
Political Counselor--Robert Patterson
Economic Counselor--Jeffrey Miotke
Commercial Officer--Scott Bozek
Public Affairs Officer--Cesar Beltran
Environment/Science/technology Attache--Karyn Posner-Mullen
Administrative Counselor--John M. Kuschner
Defense Attache--Col. Thomas B. Sweeney
USAID Director--Hilda Arellano
The U.S. Embassy in Hungary is located at Szabadsag Ter 12, Budapest 1054 (tel. (36) 1-475-4400).
For the most current version of this Note, see Background Notes A-Z.