HUNGARY

Republic of Hungary

Magyar Népköztársaság

COUNTRY OVERVIEW

LOCATION AND SIZE.

Hungary is a landlocked country in eastern Central Europe bordered by Austria, Slovakia, the Ukraine, Romania, Serbia, Croatia, and Slovenia. Located in the Carpathian Basin, it is surrounded by the Carpathian Mountains, the Alps, and the Dinaric Alps. It has a total area of 93,030 square kilometers (35,919 square miles), 690 square kilometers (266 square miles) of which is water. Comparatively, Hungary is slightly smaller than the state of Indiana. The capital, Budapest, is located in the central northern region on the Danube river, which runs from Austria to the Croatian-Serbian border.

POPULATION.

The population of Hungary was estimated at 10.04 million at the end of January 2000, a slight decrease compared to the 1990 population of 10.38 million. In 2000 the birth rate was estimated at 9.26 births per 1,000, and the death rate was 13.34 deaths per 1,000. The population growth rate estimate in 2000 was-.33 percent, making Hungary a country where population is declining. The majority religion in Hungary is Roman Catholic (67.5 percent), followed by Calvinist (20 percent), Lutheran (5 percent), and atheist and other (7.5 percent).

Some 60 percent of Hungarians live in urban areas. Compared to other European countries in population density, Hungary ranks in the middle with about 109.4 persons per square kilometer (283 per square mile). The most densely populated areas lie in the industrial axis areas, running southwest to northwest, that are rich in natural resources.

The Hungarian population is predominantly ethnic Hungarian (89.9 percent), descendants of the Finno-Ugric and Turkish tribes who merged with the Avars and Slavic tribes in the 9th century. The modern population also includes Roma (Gypsies, 4 percent), Germans (2.6 percent), Serbs (2 percent), Slovaks (0.8 percent), and Romanians (0.7 percent). An interesting feature of Hungary is that many ethnic Hungarians who identify themselves as Hungarians also live in bordering states and other countries, approximately 5 million in all. The largest Hungarian population outside Hungarian borders—approximately 2 million—lives in the Romanian region of Transylvania. Another 700,000 live in the Slovak and Czech Republics, and some 650,000 live in the former Yugoslavia.

OVERVIEW OF ECONOMY

Hungary has an advanced and diversified free-market economy. Economic growth is strong relative to other countries in Europe, and Hungary has its sights set clearly on accession to the European Union (EU) before 2010. It has been more than 10 years since the official end of state socialism and a semi-command economy, and over 85 percent of the economy has been privatized . Hungary has undergone significant economic reform since 1989 including privatization, reform of important state-supported sectors like health care, pensions, and social security, and housing supports. It has also experienced significant regional development and the encouragement of both foreign and domestic investment.

Hungary's economic output has been steadily growing, yet it continues to lag behind typical western countries, including those of the European Union. Still, its growth rates have been impressive by the standards of developed countries, in recent years exceeding the EU average. Hungary's growth in the gross domestic product (GDP) was 5.5 percent in 2000, up from 4 percent in the previous year.

Hungary is regarded as a converging economy approaching the ranks of developed countries in general. Hungary is a member of the World Trade Organization (WTO), the International Monetary Fund (IMF), the World Bank, and the Organization for Economic Cooperation and Development (OECD). It is currently an associate member of the European Union and has been preparing for full membership since 1997.

The most significant event affecting Hungary's economy after 1950 was the experiment of state socialism. When the communists took over in 1948, the economy of Hungary was based primarily on agriculture. That emphasis shifted under communist rule toward industrialization, especially heavy industry and manufacturing. In the late 1950s and 1960s the government retreated on this stance somewhat, emphasizing more consumer-oriented goods. As a consequence the Hungarian standard of living rose relative to that of other Eastern European countries under communist rule, but by the 1980s the Hungarian economy began to stagnate. As a consequence, Hungary became increasingly indebted to international lenders. At the same time, its ties with foreign governments, businesses, and organizations were gradually increasing. The combination of these financial and commercial trends contributed to the shift to a multiparty system in 1989.

The introduction of multiparty competition in 1990 was quickly followed by significant free market reforms, especially in the area of privatization. The new government was also particularly aggressive at attracting foreign investment, accounting for more than half of all direct foreign investment in Eastern Europe by 1993. Since 1989 more than US$20 billion in working capital has been invested by foreign companies. About 40 of the world's top 50 multinational companies are represented in Hungary. Hungary also has the most highly capitalized stock exchange in eastern Central Europe.

The growth potential of the Hungarian economy remains strong relative to both its neighbors and to the advanced economies of the European Union. Hungarian sovereign debt now rates as investment grade (debt low enough for investors to seriously consider putting money into the country). Hungary's economic growth in 2000 exceeded 5 percent, placing it above the EU average. Inflation , while high at just above 10 percent, is expected to drop to single digit levels in 2001 or 2002.

Organized crime has been a problem in Hungary since its political and economic transition in 1989, especially as a consequence of its geographic location and relative economic openness. Organized crime groups have used Hungary as a transit country for smuggling drugs, people, and weapons. Hungary has passed tough laws against such activities, however, and is rated much more highly as an attractive locale for foreign investment than many other post-communist countries. As it seeks to gain accession to the European Union, Hungary is actively seeking to eradicate the further influence of organized crime.

POLITICS, GOVERNMENT, AND TAXATION

Since its transition to a multiparty system in 1989, Hungary has enjoyed a fully competitive and democratic political system. Hungary is a parliamentary democracy with the leader of the largest party as prime minister. There is also a president who acts as head of state and is elected by the legislature. The legislative branch consists of the single-chambered National Assembly, consisting of 386 representatives elected through a combination of proportional and direct representation. Elections are held every 4 years, taking place in 1990, 1994, and 1998.

The ruling coalition in 2001 consisted of the right-of-center Fidesz-Hungarian Civic Party, in concert with the Hungarian Democratic Party and the Independent Smallholders' Party. The main opposition parties were the leftist Hungarian Socialist Party and the centrist Alliance of Free Democrats. A far-right nationalist party, the Hungarian Justice and Life Party, also received 14 seats for the first time in the 1998 election. The parties differ over the emphasis and content of some key economic policy issues. The Fidesz-based coalition, for example, supports a faster pace of economic reform than does the Socialist Party, which during its period in government from 1994-98 slowed the pace of reforms. Because all major parties are committed to Hungary's joining the European Union, however, economic policy differences are muted.

Hungary's judicial branch is headed by an independent Constitutional Court, established during the regime change of 1989 by the First Act of the Constitution. By law it is the responsibility of the Constitutional Court to guarantee that the constitution is adhered to in legal and political affairs. One important duty of the Constitutional Court is to reconcile the differences between national and international law, especially important in the economic and policy sphere as Hungary prepares its laws to conform to EU standards.

The Hungarian justice system is divided into 3 areas of jurisdiction, including criminal, civil, and administrative law. Administrative law includes reviewing the legality of administrative decisions, including economic policy decision, with regard to existing regulations. Hungary has a 3-tier justice system. At the lowest level are local courts (municipal district courts), superseded by county courts (in the 19 counties and the capital Budapest), and the Supreme Court. The office of the public prosecutor also plays an important role, used to investigate criminal activity and to represent the public interest. The public prosecutor supervises investigations, enforces punishments, and oversees court proceedings.

Hungary has a large centralized tax office, known in Hungarian as APEH. APEH monitors the financial activity of citizens and businesses, processing annual returns and value-added taxes , currently between 12 and 25 percent in Hungary depending on the category of good. APEH has fairly sweeping powers to investigate tax non-compliance, including its own police branch. Income tax on individuals is progressive (meaning the proportion of tax paid increases as income increases), ranging from 25 percent to 42 percent for the highest incomes. The general tax rate on businesses is 18 percent.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Like many former communist countries, Hungary possesses an excellent public transport system. The rail system, consisting of 7,606 kilometers (4,726 miles) of track, is state-owned and operated and connects all major cities in Hungary as well as a large number of international destinations. Hungary has 188,203 kilometers (116,944 miles) of highways, 81,680 kilometers (50,756 miles) of which are paved and 438 kilometers (272 miles) of which are expressways. Hungary also has 1,373 kilometers (853 miles) of permanently navigable waterways, including the Danube River flowing north to south through the center of the country. With its tributaries, the Danube provides a low-cost means to transport passengers and a large portion of domestic freight.

The completion of a canal between the Main River and the Danube River in 1992 allowed for goods to be shipped from the Black Sea to the North Sea. Finally, Hungary had 43 airports in 1999, including an international airport just outside Budapest. Hungary has a national airline, Malév, serving nearly all major European cities and several destinations in North America, Asia, the Middle East, and Africa. The airline was formerly state-owned but has now been partially privatized. The Ministry of Economic Affairs approved a large-scale program, the Széchényi Plan, designed to make massive national investments in highway and property development after 2000.

Power production in Hungary relies on a combination of domestically generated energy sources and imports. In 1999 Hungarian consumption of energy was 33.317 billion kilowatt hours (kWh), while production was 35.104 billion kWh. Hungary still has artificially low subsidized energy prices, but there are plans to allow prices to rise to western European market levels. At present Hungary's energy prices are between one-third and one-half of the prices in EU countries.

Like many other former Eastern bloc countries, Hungary relies heavily on fossil fuels to meet its energy needs. Hungary's estimated sources of primary energy supplies (1996, OECD/IEA) were 16.9 percent coal, 27.1 percent oil, and 40.4 percent natural gas. Of non-fossil fuel sources, 14.6 percent came from nuclear energy, 0.1 percent from hydroelectric sources, and 0.9 percent from other sources. Nuclear energy is produced in Hungary's 1 nuclear power plant, located near the city of Paks. Nuclear energy provides 38.9 percent of Hungary's electricity production, producing 13.969 billion kWh in 1998.

Hungary's telecommunication network has until recently been underdeveloped both from a technological and a service standpoint. But partial privatization of the state telephone company Matáv in 1993 and the planned introduction of competition for land-based telephone lines in 2002 has led to many important changes. Among these has been a spectacular growth in cellular phone services and ownership, with the number of mobile phone subscribers estimated at more than 3 million in 2000. (Official data put this number at 1.62 million in 1999, and 1.034 million in 1998.) There were 3 companies providing cellular service in 2001.

Under communism the telecommunication system was underdeveloped and poorly operated. Even in the first half of the 1990s, Hungarians often had to wait more than a year to have a fixed telephone line installed. This situation has changed quickly in recent years, however. The domestic phone network is now digitized and highly automated and is able to provide almost any telecommunication service need. Trunk services are carried by fiber-optic cable and digital microwave radio relay. Subscribers have had the option of fiber-optic connections (using ISDN lines) since 1996. Hungary has fiber-optic cable connections with all neighboring countries. Total fixed-line telephones in use were 3.609 million in 1999 and estimated at over 4 million in 2000. The Hungarian state telecommunications company, Matáv, had a state-guaranteed monopoly on fixed-line communications, a monopoly that was scheduled to end in 2002.

Hungary has an extensive number of radio stations: 57 FM radio stations, 17 AM radio stations, and 3 shortwave radio stations in 1998. Total radio ownership in 1997 was 7.01 million. Hungary also had 39 television broadcast stations and some 4.42 million televisions in 1997. Internet activity has also grown significantly in Hungary, with 45 Internet service providers operating in 1999. Only 58.9 persons per 1,000 owned personal computers in 1998, a figure well behind the United States, although many more people use computers in school or at their workplaces. The number of Internet users in 1999 was 137,000, and estimates for 2000 put this figure at 733,000.

Since private ownership of publications was legalized in 1989, the print media in Hungary has blossomed. In 1999 there were 10 national daily newspapers, the most popular being Népszabadság and Metró, each with 207,000 copies printed per day. Népszabadság, meaning People's Freedom, was formerly controlled by the communist party but is now independent. Most of Hungary's daily newspapers are partially foreign owned. Hungary also has dozens of weekly and monthly magazines and papers, the largest exceeding 500,000 copies per week.

ECONOMIC SECTORS

Hungary's shift to a service-based economy, away from the agricultural and industry sectors, has been the most marked change in recent decades. Before World War II, Hungary's economy was based primarily on agriculture, and its industry was almost entirely destroyed by the war. During the communist period beginning in 1948, emphasis shifted toward the development of industry, although production goals were set unrealistically high and Hungary was not able to meet them. In the 1960s and 1970s economic reforms shifted some of the emphasis from industry and placed more focus on agriculture and consumer goods . More recently, services have come to dominate the economy. According to 1999 figures, services account for 65 percent of the GDP, compared to 30 percent in industry and only 5 percent in agriculture. The labor force of 4.2 million shows a similar distribution, with 65 percent employed in services, 27 percent in industry, and 8 percent in agriculture.

AGRICULTURE

Agricultural production is important to Hungary's economy although its role in the economy has steadily declined. In 1999 agriculture provided 5 percent of the GDP and 8 percent of employment, roughly similar to proportions observable in West European countries. As a share of exports, agricultural and food products constituted 10.5 percent of Hungary's exports in 1998. Hungary has 93,000 square kilometers (35,900 square miles) of cultivated land, covering 52 percent of Hungary's total area.

During the communist period about 90 percent of all farmland was organized into collective and state-owned farms. In collective farms, different families worked together on jointly owned land and shared the earnings from the farm's output. State farms were directly owned and managed by the government. Following the introduction of the multiparty system and the transition to a free market economy in 1990, the new government began returning farms to private hands, also introducing forms of compensation for lands that had been seized. The result is that currently about 90 percent of cultivated land in Hungary is privately owned. Severe droughts following privatization, combined with sharp drops in government subsidies for farming, caused a 30 percent drop in agricultural production during the past 10 years. Animal breeding has fallen by 50 percent in comparison with 1990. State subsidies for agriculture in Hungary tend to be comparatively low, an average of 5 to 7 times less per capita in Hungary than in the average European Union country.

Hungary's leading agricultural products are a combination of staple crops, famous specialty items such as wine and livestock products, and basic livestock. Hungary's most important crops include corn, wheat, sugar beets, barley, potatoes, and sunflower seeds. It also produces grapes and wine, including several famous wines such as those from the Tokaj region. Other well-known specialty items include salami, goose liver, and paprika. Livestock production is also important in Hungary, including cattle, pigs, sheep, horses, and poultry. Important livestock products include milk, meat, butter, eggs, and wool. Finally, Hungary has some important freshwater fisheries, mostly located on the Danube and Tisza rivers, and on Lake Balaton. The commercial fish catch consists mainly of carp, pike, perch, sheatfish, and shad.

Hungary also has important forestry resources, although poor forestry management reduced Hungary's forestry resources under communism. The expansion of agriculture, a high rate of exploitation, and inadequate re-planting of trees contributed to a significant decline in the period following World War II. In response, the government reduced timber cutting and launched an extensive reforestation program in the 1960s. The timber cut in 1998 was 3.88 million cubic meters (137 million cubic feet).

INDUSTRY

Once a major component of the Hungarian economy under communist rule, industrial enterprises struggled in the early 1990s to come to terms with operating in a free market. By the late 1990s, however, investments in many industries and the expertise and education of Hungarian workers contributed to a resurgence in the industrial sector. From 1999 to 2000 alone, industry expanded 18.3 percent, the third straight year of double-digit growth in this sector.

MANUFACTURING.

Manufacturing forms an important component of the Hungarian economy and was responsible for 84.6 percent of Hungary's exported commodities in 1998, even though most of Hungary's industries must import the raw materials used in the manufacturing process. The engineering industry—which is dominated by automobile and automobile parts production—accounts for roughly one-third of industrial output. Other leading manufactured products include steel (both crude and rolled), cement, aluminum, textiles, paper products, and shoes. The manufacture and processing of agricultural products is also an important contributor to Hungary's manufacturing output.

CHEMICALS.

The chemical industry is an important component of the Hungarian economy. The plastic base materials and plastic processing industries were major components within this sector, contributing 2.1 and 2.6 percent of total industrial output, respectively. This sector is mainly concerned with producing goods for other companies within the industrial sector, and produces some goods for export. The pharmaceutical industry contributes 2.4 percent of industrial output and is primarily oriented toward producing human and veterinary medicines, fine chemicals, pesticides and insecticides, and other pharmaceuticals.

MINING.

Mining was an important component of Hungary's industry during the communist period but has declined considerably since the collapse of the communist regime in 1989. Under communism, the government owned all subsurface resources and held exclusive rights to extract and use them. The only exception was uranium ore, which was mined by an agency of the Soviet Union. In the mid-1990s Hungary's chief mineral products were hard coal, lignite, bauxite, petroleum, and natural gas.

SERVICES

TOURISM.

Tourism is an important and growing contributor to Hungary's economy. Not only does it directly fuel economic activity, but it has also in the past provided an important source of foreign currency. After agriculture, Hungary's second largest net foreign exchange earning source is tourism. The capital, Budapest, is a strong attraction for many tourists, with its many museums, churches, castles, and cultural events, including an annual spring festival of music and drama. In all, Hungary maintains more than 100 public museums throughout the country. Lake Balaton is also a popular vacation spot for summer recreation activities such as boating, fishing, and swimming. In 2000, according to the Hungarian Statistical Office, 31,141 foreigners visited Hungary, generating a total balance of revenues and expenditures of 2.5 billion euros.

RETAIL.

Retail commerce forms an important and growing part of Hungary's economy. At the end of 1999 some 103,000 economic associations and more than 150,000 retail businesses were in operation. This represents 149 retail stores for every 10,000 inhabitants. Nationwide, the most important players in the retail sector are involved in the sale of food and groceries, accounting for 35 percent of the retail trade. Leisure and other items come next at 24 percent, followed by textile and clothing retail at 17 percent. Total retail revenues have been steadily rising, at 4.3 trillion forints in 1999, compared to 3.8 trillion in 1998.

FINANCIAL SERVICES.

Financial services are provided by a competitive and largely privatized banking sector. The largest bank, the National Savings Bank or OTP, has branches nationwide and provides a full range of personal and business banking services. Many other banks exist, most private and wholly or partially foreign-owned. Bank services include personal accounts, credit and debit card accounts, mortgage and personal loans, business accounts and business loans, foreign currency accounts and currency exchange, insurance services, and safety deposits. Customer service in Hungarian banks lags behind United States standards but has been steadily improving as the sector becomes more competitive. Most banks now offer Internet and mobile phone account access, and all provide

an extensive national network of automated teller machines.

INTERNATIONAL TRADE

Hungary's international trade made an important shift following the change of regime in 1990. Under the communist system, nearly half of Hungary's annual foreign trade was with the Soviet Union and other communist nations of the Council for Mutual Economic Assistance (CMEA). Since the late 1980s and the collapse of the CMEA shortly thereafter, however, most of Hungary's international trade has taken place with western countries. Hungary's leading trade partners today are Germany, Italy, Austria, Russia, and the United States. In 1998 Hungary's exports went to Germany (37 percent), Austria (11 percent), Italy (6 percent), and the Netherlands (5 percent). The country's imports came mostly from Germany (28 percent), Austria (10 percent), Italy (8 percent), and Russia (7 percent). Exports in 1999 amounted to US$22.6 billion, and imports were valued at US$25.1 billion. Hungary's main exports are machinery and transport equipment, consumer goods, agricultural products, chemicals, apparel, textiles, iron and steel, and wine. Its main imports are machinery and transport equipment, crude petroleum, chemicals, metal ores, consumer goods, and agricultural products.

MONEY

Hungary's currency is currently linked to an exchange rate control mechanism known as the crawling peg , a mechanism used by the Hungarian National Bank to slowly devalue the currency. The objective has been to gradually make the transition between the forint, historically a non-convertible currency, to a currency that is fully convertible on world markets. Under communism, the currency was not convertible outside the communist bloc countries and an artificial exchange rate applied within Hungary, set by the government. Western currencies sold on the black market during this period typically

fetched a much higher conversion rate than the official government rate, and such activities were difficult for the government to control. The National Bank, therefore, sets and publishes a daily rate of exchange between the forint and the world's major currencies. This rate is determined by a combination of the market value of other currencies, the inflation rate of the forint, and decisions by the National Bank to change the value of the forint.

As in most economies emerging from communism, inflation in Hungary has been high relative to western economies. Despite concerted efforts by the government to bring inflation into single digits, inflation in 2000 was 10.1 percent. Hungary's inflation during the post-communist transition period, however, has remained much lower than in many other Eastern European countries where rates often rose into the triple digits.

The country's central bank is the National Bank of Hungary, which issues currency and maintains checking and savings accounts. Other financial institutions include the Foreign Trade Bank, which serves businesses trading outside of Hungary, and the State Development Institution, which finances large-scale investment projects. The Budapest Stock Exchange opened in 1990 and is today the most heavily capitalized exchange in the East European region.

POVERTY AND WEALTH

Despite the official ideology of equality during the communist period, incomes in Hungary during this period were far from equal. Incomes varied according to social class and place of residence, with incomes in Budapest typically higher than in villages. The situation was much worse during the period between World War I and World War II, however, when average per capita income was very low and income inequality very high. One measure often used to measure income inequality is the ratio of the richest 10 percent of the population to the poorest 10 percent. A survey taken in 1992 suggests that the ratio of incomes of the highest to lowest 10 percent was

more than 6, making it similar to the income distribution in France and Germany. This level rose to 7.5 in 1996, according to one source, although the official figures from the World Bank place it at 6.3. The differences between social and employment categories has also widened. The social groups who were more affluent before the change in regime were able to increase their incomes in the 1990s faster than inflation, while the poorer groups had incomes that generally lagged behind inflation. In addition, the poorer segments of society were those where unemployment struck the hardest.

A large portion of Hungarian society, about 30-40 percent, suffered a loss in income after 1989. About 30-40 percent, on the other hand, were able to maintain their income, while a smaller percentage, around 10 percent, were able to increase their incomes. This small category included the managers of state and private enterprises, former government officials, and some of the intellectual elite.

Poverty is a problem in Hungary, and one which has worsened since the transition in 1989. According to estimates based on the subsistence level calculated by the Hungarian Statistical Office, in 1996 the proportion of those living under the subsistence level was at least 35 percent. Using the European definition of poverty as being 50 percent lower than the per capita average wage, then 14 percent of the population was poor in 1996.

Poverty in Hungary is disproportionately high among children, peasants and agricultural workers, housewives, and the handicapped. Geographically, poverty is higher in villages than in urban areas, with approximately 28 percent of the village population living in poverty, but only 18-19 percent of the city-based population and 5 percent of Budapest living in poverty. One social group where poverty is particularly high is the Gypsy ethnic grouping. The Gypsy population has been among the worst off in the transition to a market economy. Some 80 percent of Gypsies lived in poverty, compared to just 15 percent of non-Gypsies in 1996.

WORKING CONDITIONS

The single most significant factor affecting employment in Hungary has been the change in the early 1990s from a communist economy to a free market economy. The collapse of the communist system and the wide-scale privatization of the means of production led to a huge displacement of Hungarian workers, causing unemployment to reach 13 percent in 1993. But as the economy has continued to improve since the mid-1990s, employment has improved. Unemployment in 2000 was 6.4 percent, a respectable figure even lower than in many West

European countries such as France or Germany. This rate is down from approximately 10 percent in 1999. Unemployment varies regionally, being the highest in the eastern and rural areas. Most Hungarian employment is in the service industry, which accounted for 65 percent in 1996. Another 27 percent was employed in industry, and some 8 percent in agriculture.

Throughout the 20th century, Hungary has seen a net migration from rural to urban areas. Urbanization in Hungary's 5 major cities accelerated this process, even though, after Budapest, the 5 major cities have populations only between 127,000 and 210,000. Currently many workers commute to urban workplaces from rural areas. In 1996, some 25 percent of the nation's workforce commuted to and from their jobs in this manner.

A labor code was passed in 1992 which recognized the collective rights of workers, including the right to organize into unions and bargain collectively. This code includes the right to strike, extended to all workers except the police and the military. Following the passage of this code the number of strikes in Hungary increased dramatically, although most lasted for only a short time. The largest union is the National Confederation of Hungarian Trade Unions, with approximately 1 million members in 1993 (from a total labor force of 4.3 million). A number of other union federations also exist.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1000. King Stephen of the Árpad dynasty rules the country. He is converted to Christianity and establishes Hungary as a Christian state.

1241. The Mongolian Tatars invade Hungary and occupy the territory for the year.

1526. Hungary is invaded by the Turks and the last Hungarian battle is lost in the southern town of Mohács. The Turkish occupation lasts for 150 years.

1686. Buda, the traditional seat of power on the western side of the Danube river dividing the cities of Buda and Pest, is recaptured from the Turks.

1703-11. Ferenc Rákóczi II, prince of Transylvania, leads a rebellion against the Habsburg Imperial army. The rebellion fails.

1848. A revolution against the Habsburg rule starting in Pest spreads to the whole country. Lajos Kossuth is elected governor after the Habsburg emperor is dethroned following several important Hungarian victories. The Hungarian revolutionary forces are defeated in 1849 by the Habsburgs, the ruling royal family of Austria, with the help of the Russian Army.

1867. A dual Austro-Hungarian monarchy begins following a compromise with the Habsburgs. A spectacular phase of industrial development begins.

1873. Pest, Buda, and Obuda are unified, and Budapest becomes a European metropolis, with the building of the Opera House, the National Gallery, and the Parliament. The first underground railway in continental Europe is put into operation.

1918. The Austro-Hungarian monarchy disintegrates following its defeat, along with Germany and its other allies, during World War I.

1920. The Treaty of Trianon is signed, redrawing the borders of Hungary. The new borders place one-third of Hungary's former population in other states and reduce its territory by two-thirds.

1944. The Nazis occupy Hungary in March during World War II. At the end of the war, fascists take over the country. In October, the Soviet Army liberates Hungary from fascist rule and occupies the country.

1947. The last relatively free election is followed by years of communist control, including show trials, executions, forced resettlements, forced industrial development, and a drop in living standards.

1956. Following the death of Soviet leader Joseph Stalin, a revolution against Soviet rule takes place in Hungary. The uprising is defeated by Soviet troops. János Kádár assumes power with Soviet assistance. Hundreds of Hungarians are executed, thousands more imprisoned, and about 200,000 flee the country.

1965. Cautious economic reforms are launched, causing a rise in living standards and a loosening of some of the more harsh measures of the communist system. In 1968 the New Economic Mechanism is introduced, reducing central control of the economy and allowing for greater freedom among individual business managers.

1982. Hungary becomes a member of the World Bank and the International Monetary Fund.

1988. A transition to democracy begins in Hungary, led by opposition parties demanding new institutions and the right to compete in legislative elections scheduled for 1990.

1989. The Hungarian Socialist Workers' Party agrees with opposition parties to end one-party rule and hold free elections in 1990.

1990. The Soviet Army leaves Hungary and the opposition Hungarian Democratic Forum wins the legislative elections held in March and April, ending 45 years of communist rule. Hungary also gains accession to the Council of Europe.

1991. Hungary, Poland, and Czechoslovakia sign the Visegrad Cooperation Agreement, a declaration to cooperate in preparation for accession to the European Union. Hungary also signs an agreement on cooperation with the European Union.

1992. Central European Free Trade Agreement pledging open and cooperative trade is signed by Hungary, Poland, and the Czechoslovak Customs Union.

1994. The Hungarian Socialist Party wins a legislative majority in elections held in May. Hungary joins the Partnership for Peace Program.

1996. Hungary joins the Organization for Economic Cooperation and Development (OECD).

1997. Hungary is formally invited by the European Union to begin accession talks.

1998. Hungary pays off its debts to the International Monetary Fund.The Fidesz-Hungarian Civic Party assumes power following elections held in May.

1999. Hungary becomes a full member of NATO.

FUTURE TRENDS

The future looks positive for Hungary's economy, given the trend since the end of the communist system. Growth has been steadily increasing, inflation has been declining, and unemployment has stabilized. Relative to other countries in the region, Hungary's economic conditions have proved quite favorable. The key economic event in the near future affecting Hungary will be accession to the European Union, something Hungary hopes will happen between 2004 and 2008. This event will bring about a significant restructuring of trade, employment, agriculture, and financial services. Hungary has already begun to introduce major fiscal and financial changes in preparation for accession, following the detailed guidelines issued by the European Union. Among other changes that accession would bring, Hungary intends to join the euro states adopting a single European currency. Doing so would link Hungary's inflation and interest rates to the European Central Bank in Frankfurt and remove the independence currently enjoyed by the Hungarian National Bank.

Hungary's main challenges for the future will be to manage its workforce, including some structural sectors where unemployment remains significantly high. There are also regions, especially in the eastern portion of the country, where unemployment and poverty remain significantly higher than the national average. In addition, Hungary in 2000 and 2001 has experienced problems with flooding that have caused significant disruption to people and to agriculture. These problems and more will have to managed in the future to enable Hungary's economy to grow and develop further.

DEPENDENCIES

Hungary has no territories or colonies.

BIBLIOGRAPHY

Economist Intelligence Unit. Country Profile: Hungary. London: Economist Intelligence Unit, 2001.

Hungarian Statistical Office. Hungarian Statistical Yearbook 1999. Budapest: Statistical Office, 2000.

Ministry of Economic Affairs. <http://www.gm.hu/kulfold/index.htm>. Accessed September 2001.

Molnár, Éva, ed. Hungary: Essential Facts, Figures, and Pictures. Budapest: Media Data Bank, MTI Corporation, 1997.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Hungary. <http://www.state.gov/www/about_state/business/com_guides/2001/europe/index.html>. Accessed September 2001.

U.S. Department of Energy, Office of Fossil Energy. An Energy Overview of the Republic of Hungary. <http://www.fe.doe.gov/international/hungover.html>. Accessed September 2001.

Welcome to the Embassy of the Republic of Hungary. <http://www.hungaryemb.org>. Accessed September 2001.

—Kenneth Benoit

CAPITAL:

Budapest.

MONETARY UNIT:

Hungarian forint (Ft). One forint equals 100 fillérs. There are coins of 10, 20, and 50 fillérs and 1, 5, 10, 20, 50, and 100 forints, and notes of 200, 500, 1,000, 2,000, 5,000, 10,000, and 20,000 forints.

CHIEF EXPORTS:

Machinery and equipment, other manufactures, agriculture and food products, raw materials, fuels and electricity.

CHIEF IMPORTS:

Machinery and equipment, other manufactures, fuels and electricity, agricultural and food products, raw materials.

GROSS DOMESTIC PRODUCT:

US$79.4 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$22.6 billion (f.o.b., 1999). Imports: US$25.1 billion (f.o.b., 1999).