From hungary-report-owner Mon May 15 11:36:34 1995 Received: from localhost (daemon@localhost) (fnord) by nando.yak.net (8.6.5/8.6.5) id LAA06988; Mon, 15 May 1995 11:36:34 -0700 Received: from localhost (daemon@localhost) (fnord) by nando.yak.net (8.6.5/8.6.5) id LAA06979; Mon, 15 May 1995 11:36:15 -0700 Received: from bruner@ind.eunet.hu () via =-=-=-=-=-= for hungary-report@hungary.yak.net (6977) Received: from ind.eunet.hu (root@ind.eunet.hu [192.84.225.42]) (fnord) by nando (8.6.5/8.6.5) with SMTP id LAA06960 for ; Mon, 15 May 1995 11:35:03 -0700 Received: from [192.84.226.92] (bruner.dial.eunet.hu) by ind.eunet.hu with SMTP id AA19123 (5.67a8/SZTAKI-4.01 for ); Mon, 15 May 1995 20:35:21 +0200 X-Sender: pop029@ind.eunet.hu (Unverified) Message-Id: Mime-Version: 1.0 Content-Type: text/plain; charset="us-ascii" Date: Mon, 15 May 1995 20:30:08 +0100 To: hungary-report@hungary.yak.net From: bruner@ind.eunet.hu (Rick Bruner) Subject: The Hungary Report 1.07 X-Charset: US X-Char-Esc: 0 Sender: owner-hungary-report@hungary.yak.net Precedence: bulk Reply-To: hungary-report@hungary.yak.net ======================== The Hungary Report Direct from Budapest, every week No. 1.07, May 15, 1995 ======================== The Hungary Report is sponsored in part by: MTI-Econews, a daily English-language news service featuring Hungarian financial and business topics, available online. For subscription information, contact . ====== BRIEFS Copyright (c) 1995, Rick E. Bruner ------------ GENERAL NEWS Agrobank in sandal, as usual Not for the first time, president of the Agrobank, Mihaly Kovacs, found himself in police custody on charges of massive fraud, and also not for the first time he found himself released within a week, his lawyer chuckling and prosecutors vowing to get him, yet. Authorities froze the bank's accounts during the incident, wreaking havoc on the finances of hundreds of businesses, hospitals, schools and other depositors. This time around, police grabbed Kovacs on Monday, accusing him of smuggling hundreds of millions of forints worth of gold and silver through the country during the last five years. By Wednesday, the bank president was free again after the Pest Central District Court refused to bring charges against him. The Budapest Prosecutor's Office is set to appeal the court's decision. Last November, Kovacs and the bank's general manager Peter Kunos were accused of defrauding the bank of HUF 2 bn ($16 m), but were similarly freed in five days by the same court. Police investigation of those charges are still underway, according to Econews. Meanwhile, the bank's finances are on the verge of collapse. On Friday, banking authorities ended a three-day freeze on the accounts, allowing deposit-holders to withdraw a maximum HUF 20,000 ($166) each. With 59 branches and more than 54,000 accounts worth HUF 23 bn, the bank has only HUF 2 billion in assets. The recently privatized bank is majority owned by a series of limited liability companies all controlled by Kovacs himself, according to press reports. Authorities also suspect the bank of cooking its books to hide losses last year of more than HUF 3 bn. ------------------ BUSINESS & ECONOMY Privatization Law passes at last Just a few days before the one-year anniversary of the election of this government, Parliament finally voted on what was a campaign cornerstone: a new law on privatization. Passed 208 votes to 86, with five abstentions, the legislation among other things defines the activities of the State Privatization and Holding Company (APV Rt.), a new and improved merger of the State Property Agency (AVU, or SPA) and The State Holding Company (AV Rt.). The law also outlines several new procedures designed to quicken the pace of privatization, which has experienced a dramatic slowdown since the new government took office last year. (See next week's Hungary Report for a feature analysis of the law.) In other privatization news, only 20% of the most profitable state bank, the National Savings Bank (OTP), will be made available for foreigners to purchase, with a ceiling of 5% set for any one investor, the bank announced. Privatization of the utilities is set to enliven privatization activity shortly (see H-Report vol. 1.01 feature story). The British investment bank Schroeders was named to be the advisor on the privatization of the Hungarian Electric Works (MVM), to take place by the end of June. The Hungarian Oil Company (MOL) also announced that its privatization tender would be issued on July 1. The AV Rt is to rule this week on who will advise the telecommunications monopoly, Matav, on its privatization. On the short-list are Credit Suisse First Boston with Deutsche Bank; a consortium of N.M Rothschild and Sons, Goldman Sachs and the Budapest affiliate of the Austrian Creditanstalt; and Salomon Brothers with the local Concord Securities. US Ambassador Donald Blinken raised some eyebrows when Nepszabadsag reported he wrote three government members recommending the choice of Salomon Brothers. The Budapest Week carries an interesting report this week about the continuing privatization travails of the famous, tourist-magnet Gerbeaud cafe, on Vorosmarty ter in the center of Budapest. Currently on its fourth attempt at privatization, fifteen potential investors from Hungary, the US and Europe have applied for the rules of the latest tender, with bid submissions due June 7. The State Property Agency remains fixated on the figure HUF 1.5 bn ($12.5 m), though real estate experts are skeptical of that amount. Earlier attempts to privatize it failed after court objections and investor scandals. ----------- SHORT TAKES THE US MAY ISSUE 10-YEAR VISAS for Hungarians with multiple entry allowance, in place of the current one or two-year limits on tourist visas now, reports Magyar Hirlap, citing US State Department sources. Hungary would reciprocate by eliminating visa requirements for US citizens, who currently may remain in the country for only three months at a time. THE US-AGENCY FOR INTERNATIONAL DEVELOPMENT (US-AID) announced plans to pull out of Hungary over the next few years, after channeling more than $200 million to Hungarian aid projects to date. BAD NEWS FOR SUMMER TOURISM: the British Consumers' Association just called Hungary, along with Poland and South Africa, the most "dangerous" tourist destinations, with one in 20 of their surveyed members having been "attacked" while visiting (in Reuters' words -- most likely meaning "pick-pocketed" in Hungary's case, but why quibble with a good story lead?). EX-COMMUNIST CENTRAL COMMITTEE SECRETARY Matyas Szuros, currently a Socialist MP, is staging a bid for president of the republic. With the backing of the opposition Christian Democrats party, but not his own party, Szuros is not likely to unseat the current president, Arpad Goncz, whose original five-year term expires this summer. TV ADVERTING LIKELY TO TAKE HALF OF THE LOCAL AD MARKET, according to organizers of the IAA Global Advertising Conference, on now through May 17. The turnover in the ad market is expected to reach HUF 50 bn ($416 m) this year. THE US ALCOA ALUMINUM COMPANY opened a bottle cap plant in Szekesfehervar (W. Hungary) on Tuesday. With a HUF 755 m ($6.2 m) investment, the factory projects net sales of DM 30 m by 1998, with exports making up 75% of production. THE NEWS MAGAZINE RESPUBLICA FOLDED last week after its owner, Kordax Rt, cut funding. Kordax, and oil trading company, is presently being hounded by the tax authorities for allegations of billions in tax fraud. Respublica, like its former incarnation as Koztarsasag ("Republic"), was losing money hand-over-fist, unable to sell enough ads to support editor Tibor Thurzo's vision of a western-style news magazine free of political bias. ---------------- NUMBERS CRUNCHED * Average monthly gross wage, as of March (Central Statistics Office, CSO): HUF 36,966 ($308). * Number of companies with foreign participation established last year (CSO): 4,431 * Privatization revenue target for 1995 (Finance Ministry): HUF 150 bn ($1.25 bn) * Privatization revenue achieved to date in 1995: HUF/$ 0.0 * Effective tax on new cars above wholesale cost, including customs duty, the new 8% import surcharge, customs clearance fee, consumption tax and VAT (Napi business newspaper): 66% ------------- EXCHANGE RATE May 12, 1995 (National Bank of Hungary): US dollar - 123.92 (buying), 126.24 (selling) Deutschemark - 85.54 (buying), 87.32 (selling) -------------- WACKY AS USUAL Police flunk exams Maybe all the jokes are true about how dumb Hungarian cops are. According to Magyar Nemzet (cited in Hungary Around the Clock), the "vast majority" of Budapest's police officers failed recent exams in gun handling and arrest procedures. Several police chiefs are facing sackings, and more cops than every are quitting in disgust. 'Traditional' washing powder cleans up A wily entrepreneur, Gyorgy Klapka, has launched "Traditional Washing Powder" ("Hagyomanyos Mosopor") in an attempt to get free publicity from competitors on TV comparing themselves favorably to "traditional" brands, while suing them at the same time for degrading his trademark. "This will be a big scandal," he told Budapest Week cheerfully. ============= FEATURE STORY Hungary gets wired, tired at IFABO computer fair By Rick E. Bruner Copyright (c) 1995 The Internet has at long last arrived to Hungary, heralded by half a dozen new and soon-to-launch commercial Internet providers at the fifth annual IFABO computer fair, last week. The new providers were the sensation of the fair, particularly among teenage boys, who waited long on line to check out those dirty Web sites they'd heard so much about. This despite the fact half of the represented businesses don't have their services up and running yet and were featuring only canned displays of World-Wide Web pages or suffering the quality of the overloaded academic network for demonstrations. "The word 'Internet' just entered Hungary this year," said Peter Barcza, Internet implementation manager at IBM. Big Blue is joining the frenzy of those providing connections to the Net through its Global Network, recently expanded to include secure Internet gateways to clients. Like two other services, IBM hopes to have its Internet access available by the middle of the summer. Steven Carlson, probably the best-known Internet consultant in Budapest, announced plans for iSYS, a provider due online in July or August, in partnership with the local networking systems integrator, EuroTrend. iSYS, which will offer Texas-based Performance Technology's Instant Internet product, a turn-key interface to put corporate local area networks on the Internet, will be targeting corporate users. While refusing to disclose planned prices, iSYS pledged to have the cheapest rates on the market. "If we had been online already, we could have signed up loads of people at this conference," Carlson said. "Everybody said they don't want to wait till the summer -- they want to be online now." Another prelauch company, Pronet, was talking prices: $75 a month including 20 free hours for SLIP (full Internet access) accounts, $5 each additional hour. That already substantially undercuts the cheapest current commercial Internet provider, Eunet (administered by the Academy of Science's computer department, SZTAKI), which costs $112.5 for the first 20 hours of service. The first independent provider, Odin, a nine-month-old service with a spotty service record, has merged with Microsystem Telekom, a spin-off of the otherwise bankrupt computer distributor, and has changed its name Internet Hungary. Rounding off the market contenders was Datanet, a venture of Rolitron Holdings. Having abandoned 1993's grandiose plans of becoming the "CompuServe of Hungary" with a huge dedicated mainframe and 300-odd telephone lines, the company has scaled back purely to providing Internet services and other online network access via its SprintNet node. Priced at $7/hour access to the Internet, its fees are easily the highest quoted. Not as high as market leader CompuServe's, of course. After a year and a half's presence in the market (including six months of suspended service), CompuServe has nearly 1,000 subscribers to date, says Managing Director Janos Muth, despite charging up to a $20 an hour access fee for a top 9600 bps connection speed. Thirty new members joined during the fair. Beyond online services, IFABO fair was a boon for attractive young women. A plentiful natural resource here, they were employed by the hundreds to offer brochures, demonstrations and a bit of levity to an otherwise rigidly businesslike event. Every bit of attention helped, as IFABO has cemented its reputation for being a "must" for vendors, distributors and other IT service providers, fighting tooth and nail for position in a small, crowded marketplace. This year's fair, May 9-13, was the biggest to date by a narrow margin, with 467 exhibitors from 34 countries. Net exhibition space was in fact down a few square meters from last year, at a total of 19,565 m2, but the approximately 63,000 visitors was a 5% increase from 1994, though below the predicted 70,000 mark. "More and more it feels necessary to be present" at IFABO, said Laszlo Szilvassy, director of the local Computer 2000, Europe's largest computer distributor. "People would fear to lose customers if they were not here. [The growth in number of exhibitors this year] means the market is becoming denser, not that it's expanding rapidly." Comparing the fair to the industry's other large annual event, the autumn's CompFair, Microsoft's Marketing Manager Ervin Sperla said, "IFABO is more for large corporate clients. At CompFair, you see fewer suits and conference rooms and more teenagers." Microsoft, which did $6 million in sales in Hungary last year, was represented for the first time this year at IFABO with a dedicated booth, and it arrived in style. One of the biggest booths at the fair, it was also the one guards at the front gate were telling visitors had the best looking hostesses. Albacomp, a local assembler and distributor of name brand products, held its position as PC industry leader last year with a turnover of HUF 5.5 billion ($45 million), a 25% growth over its 1993's performance, but not without difficulty, said sales manager Zoltan Balazs. "We have to work harder for the same growth," he said. The government's new "shock" economic reform measures announced last March, including a 9% devaluation in the forint and a new 8% duty on all product imports, has impacted the IT market hard, and many distributors are seeing a drop in sales as a result, Balazs said. "The 8% duty has only been an advantage for the smugglers," he complained. His sentiment was shared other exhibitors, who say the smuggling particularly of memory chips is rampant. Building on its name recognition, Albacomp announced it will open a retail chain of end-user shops in all major cities starting this spring. ================ PARLIAMENT WATCH Budapest Bank a PR nightmare By Tibor Vidos Copyright (c) 1995 The Budapest Bank capitalization scandal reached Parliament last Monday. In one of the longest debates before the agenda since the adoption of the new rules, the opposition attacked for a full hour the non-public government decision to "lend" Ft 12 billion to Budapest Bank last December. The opposition focused its rare consensus attack on three elements: * Finance Minister Lajos Bokros was the president and CEO of Budapest Bank at the time of the deal; * Bokros has been quoted several times as an outspoken critic of the debt restructuring program of the banking sector; * The government is introducing an austerity program aimed the pocket of the man and woman on the street - netting Ft 9 billion by cutting family allowances - while it secretly gave away Ft 12 billion to a bank up for privatization. Tamas Suchman, the minister of privatization, also came under attack, as he, too, was employed by Budapest Bank at the time of the fund transfer. There is little doubt that a parliamentary investigation initiated by the opposition and supported by the government will prove that the transfer of Ft 12 billion in state securities to Budapest Bank was legal and only transitional and that the treasury suffered no damage as a result. What is doubtful is the government's ability to manage public relations crises like the current one. The public, unskilled in banking techniques and terminology, is confused and will become even more confused as time passes. Terms like capital base, debt consolidation, share package, interests paid for a non-interest bearing state securities, restocking of reserve funds, are plain nonsense to someone not acquainted with the fine points of bank accounting. As long as the government does not speak in plain language and does not use charts to explain its cause, Jozsef Torgyan, president of the Smallholders Party, will find an attentive audience when he says: "...in the budget, Ft 175 billion was foreseen as income for 1994. Of this, Ft 7.9 billion was realized, or less than 5%. They have paid out of this monthly salaries of Ft 700,000 during the whole year. Plus bonuses twice a year. We can justifiably ask: Why does the government want to grab Ft 2,000 from the students?" We do not know what budget Torgyan is speaking about and the relation between the alleged salaries at the State Holding Co. and the proposed university tuition fee. But this is what people like to hear opposition politicians talking about. They like the story about big guys playing around with billions while robbing the pockets of the little guys. It is time to wake up, dear government, before it is too late. * * * Tibor Vidos is a lobbyist and political consultant in charge of the Budapest office of GJW Government Relations. A version of this article appeared in the Budapest Business Journal. =========== FINAL BLURB The Hungary Report is free to readers. To subscribe, send an email message to the following Internet address: hungary-report-Request@hungary.yak.net containing (in the body of the message, not in the headers) the single word subscribe Conversely, to stop receiving Hungary Report, simply send to the same address (in the body of the message) the single word unsubscribe * * * Back issues of The Hungary Report are available on the World-Wide Web (http://www.yak.net/hungary-report/) and via FTP (host: ftp.yak.net; directory: /pub/hungary-report/ ; login name: "ftp"; password: your email address) * * * The entire contents of The Hungary Report is copyrighted by the authors. Permission is granted for not-for-profit, electronic redistribution and storage of the material. If readers redistribute any part of The Hungary Report by itself, PLEASE RESPECT AUTHORS' BY-LINES and copyright notices. Reprinting and resale of the material is strictly prohibited without explicit prior consent by the authors. Please contact the authors directy by email to enquire about resale rights. * * * For information on becoming a corporate sponsor of The Hungary Report, contact Rick E. Bruner or John Nadler by email. Feedback is welcome. Rick E. Bruner John Nadler Tibor Vidos * * * For its briefs, The Hungary Report regularly consults the news sources listed below -- for information about subsriptions, contact them by email: The Budapest Business Journal <100263.213@compuserve.com>; Budapest Sun <100275.456@compuserve.com>; Budapest Week and Hungary Around the Clock (same email address) <100324.141@compuserve.com>, and Central Europe Today (free online) . ================ END TRANSMISSION