From hungary-report-owner Mon May 22 03:41:30 1995 Received: from localhost (daemon@localhost) (fnord) by nando.yak.net (8.6.5/8.6.5) id DAA05247; Mon, 22 May 1995 03:41:30 -0700 Received: from localhost (daemon@localhost) (fnord) by nando.yak.net (8.6.5/8.6.5) id DAA05238; Mon, 22 May 1995 03:41:13 -0700 Received: from bruner@ind.eunet.hu () via =-=-=-=-=-= for hungary-report@hungary.yak.net (5235) 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 DAA05141 for ; Mon, 22 May 1995 03:33:03 -0700 Received: from [192.84.226.92] (bruner.dial.eunet.hu) by ind.eunet.hu with SMTP id AA09518 (5.67a8/SZTAKI-4.01 for ); Mon, 22 May 1995 12:30:03 +0200 X-Sender: pop029@ind.eunet.hu Message-Id: Mime-Version: 1.0 Content-Type: text/plain; charset="us-ascii" Date: Mon, 22 May 1995 12:27:12 +0100 To: hungary-report@hungary.yak.net From: bruner@ind.eunet.hu (Rick Bruner) Subject: Hungary Report 1.08 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. 1.08, May 22, 1995 ======================== The Hungary Report is sponsored in party by: MTI-Econews, a daily English-language news service featuring Hungarian financial and business topics, available online. For subscription information, contact (not automated -- write a nice note). ====== BRIEFS Copyright (c) 1995, Rick E. Bruner ------------ GENERAL NEWS Defense Minister lays groundwork in DC for NATO in Bp Hungary's minister of defense, Gyorgy Keleti, was in Washington last week making a good impression on US military counterparts in advance this week's historic North Atlantic Assembly spring meeting in Budapest. The meeting will be the first of its kind in a non-NATO country, taking place May 26-29. Keleti spent five days in the US capital meeting with Congress, the State Department and the Department of Defense. Keleti and US Defense Secretary William Perry signed an agreement to share military secrets, allowing the US access to Hungary's expert research and development in fields such as air radar defense and chemical and biological warfare. "We approach this research and development as equal partners," Defense Secretary Perry said, according to AP. Keleti also announced Hungary has over the last month dismantled a dozen "frog" medium-range, Soviet-made missiles intended for nuclear warheads, and he invited US and European legislators to inspect further disarmaments. He also told US officials Hungary will send troops this year to relieve Dutch peace-keepers in the Sinai peninsula in the Middle East and to patrol the demarcation line between Turkish and Greek zones of Cyprus. Lest all his goodwill be taken at face value, Keleti finished his trip on Friday announcing Hungary expects to be made a NATO member by 2000. TV news editor fired Janos Betlen, editor of Hirado, the main evening news program on Hungary's state-controlled television station, MTV1, was fired last Monday without official explanation. Reports on the incident in other media imply the reason was politics as usual, a view Betlen supported. "Everyone knows why I have been removed," Budapest Week quotes him as saying. Betlen assumed the hot-seat less than a year ago, sent in with an entirely new news team after the elections. The program was generally considered bland under his management but considerably more balanced in its reporting than it had been under the previous government's rule. Too objective for Prime Minister Gyula Horn's taste, perhaps, who reportedly raised objections to unfavorable coverage of the government on several occasions. MTV President Adam Horvath refuses to answer questions on the motivation for the dismissal. Betlen has been reassigned to another less prominent program. Despite having pledged to end the "media war" that wrought endless controversy on the broadcast media during the four-year term of the previous conservative government, the new administration has kept the forever-awaited new media legislation exactly where it's been since the end of communism -- in the drafting stage. A couple of months more, say optimists. Strangely timed, the renew media controversy follows two weeks *after* the New York-based Freedom House released an annual international survey that down-graded Hungary's status on press freedom by eight points, shifting it from the "free" to "partially free" category. Austerity package getting family-friendly In what is becoming a familiar sight, more than 10,000 people demonstrated again last Sunday against the government's March 12 economic restructuring package, which takes a heavy toll on social benefits. The protest was organized by the National Association of Large Families (NOE), which later submitted a petition with more than 43,000 signatures to Parliament against the austerity measures. On Thursday, the government responded to the weeks' of protest by easing some previous rulings. Now, all families with three or more children will continue to receive child allowances. Families with two children will still be eligible for child support (equivalent to about $60 a month for each child) where per-capita family earnings are below HUF 15,000 ($120) a month *after tax*, as opposed to the previous pre-tax figure of HUF 25,000. Those families earning an extra HUF 2,000 ($16) per-capita gross a month will get a smaller state child care allowance. Families earning more than that (e.g., a family of four living off of a combined $550 a month after taxes) would not be eligible for state child support. The government's concession on the family benefits will bring it HUF 1 bn ($8.1 m) less than originally planned in the austerity measures, of the HUF 170 bn the state seeks to shave off its massive budget deficit this year. ------------------ BUSINESS & ECONOMY Hucksters go home Hungarians don't believe everything they see on TV. That was the conclusion delegates at the International Advertising Association's world conference in Budapest heard from the public opinion research company Szonda Ipsos, which said only 4% of 1,000 people polled are inclined to try new products based on advertising. A survey from the advertising company Young & Rubicam, meanwhile, reveals that Hungarians are the least brand-sensitive people in Central and Eastern Europe, the Budapest Sun reports. (The Czechs are the most brand-conscious.) This despite the fact that Hungarians are Europe's most avid TV fans, spending an average 250 minutes per capita glued to the set each day, according to French media analyst Colas Overkott, as reported in Hungary Around the Clock. Agrobank shareholders cash out for $122 The foreign shareholders who control a majority of the troubled Agrobank's shares agreed to relinquish all equity claims for HUF 15,000 ($122), as per the government's demand on Thursday. In exchange, the government will rescue the bank from certain collapse. The government blames the shareholders and the management of the bank with gross negligence, leading to the bank's present state of crisis. Financial experts advised the government it would be considerably more expensive to liquidate the bank than rescue it. The bank's accounts have been partly frozen for more than a week since the president, Mihaly Kovacs, was charged by police with smuggling millions of dollars' worth of gold and silver. The Pest Central District Court refused to bring charges against Kovacs and later rejected the prosecutor's appeal. Bokros won't, but might, quit over bank scandals The State Audit Office is launching an investigation into the secret allocation of HUF 12 bn to Budapest Bank by the state this winter in an effort to make the bank look more attractive to investors (see the Hungary Report 1.06). Finance Minister Lajos Bokros has been acting a bit flaky about his commitment to his cabinet position in reaction to banking issues. Responding to opposition demands that he resign (Bokros was president and CEO of Budapest Bank at the time of the controversial transaction), the finance minister first said he'd step down if the government asked him to, but by the end of the week before last he was confident and defiant. "I enjoy the trust of the prime minister and have no intention of resigning," he said, according to Econews. By the end of this past week, though, he was crying wolf again, threatening to quit if the government stuck to its decision to appoint only one chief to head the National Savings Bank (OTP) instead of separate posts for CEO and president, as Bokros recommended. The finance minister, who has served in the post now for two whole months, was v threatening to resign one week after taking the job if the government tried to compromise the harsh economic austerity plan that now bears his name. Wine board gives foreign-owned Tokaj the thumbs down The first foreign-owned winery to invest in the famous tradition of Tokaj wines had its wine rejected by the National Wine Classification Board as being too young to qualify as real Tokaj Aszu dessert wine. In an excellent feature story in last Saturday's Washington Post, Christine Spolar tells of a deep cultural clash between proud traditions and modern marketing in the struggle to revive Hungary's most famous wine region. Meanwhile, the French-owned Disznoko vineyard, comprising some 220 acres in the village of Sarospatak, is allowing its 1992 vintage another few months to age before seeing whether the millions of dollars invested so far will bring it the right to call its wine "Tokaj" at all. Several other foreign-owned wineries are anxiously awaiting the judgment, too, for insight on what fate awaits them when their vintages are due next year. ----------- SHORT TAKES MATAV'S PRIVATIZATION ADVISOR was not yet named by the government, as expected, last week. Credit Suisse First Boston (CSFB), Goldman Sachs and Salomon Brothers are battling for the assignment, which would mean upwards of $20 m in consultancy fees, in what is to be the telecommunications company's second and final stage of privatization. After observers scoffed at US Ambassador Donald Blinken writing recommendation on behalf of Salomon Brothers to three government officials, CSFB drew jeers for its CEO arranging a personal audience with Prime Minister Horn, ostensibly to discuss "sponsoring" his up-coming trip to the US. BUDAPEST IS SAFE FOR TOURISTS, the Foreign Ministry insists. After the UK's "Holiday, Which?" magazine called Hungary the most dangerous vacation spot in the world the week earlier, a ministry press conference revealed the magazine's sample group was 34 respondents who visited Hungary last year, two of whom (5.9%) had been robbed. The ministry cited police statistics where of the 21 million tourists to visit last year, 403 reported violent attacks and 13,242 had items stolen here, or 0.002% and 0.06% respectively. WORKERS COMPLETED THE NEW LAGYMANYOSI BRIDGE on Thursday, the seventh bridge now spanning the Danube in the capital. The southernmost bridge, it was completed on schedule for HUF 16 bn ($130 m) and is expected to reduce air pollution and traffic congestion in the city. With four car lanes, plus bicycle and pedestrian access, new tram lines will also be added to cross it in the future. THE ROLLING STONES will perform at Budapest's Nepstadion (People's Stadium) on August 8. Tickets are expected to run about HUF 5,000 ($40). THE HUNGARIAN ELECTRIC WORKS (MVM), considered to be a grand prize offered for privatization later this year, announced HUF 11.7 billion ($95 m) in losses for 1994 at its annual general meeting on Friday. ROMANIA'S PRESIDENT ION ILIESCU has called on his country's large Hungarian minority to abandon objectives for cultural autonomy as being "anti-democratic and anti-European." Interpretations of the Hungarian minority's rights in that country have stalled the signature a basic treaty on borders and neighborly relations between the two countries for several weeks. ---------------- NUMBERS CRUNCHED * Number of US, British and German citizens who have registered with their embassies in Budapest more than those who have registered with the Hungarian authorities (Budapest Sun): 16,000+ * Increase of household energy prices and foodstuffs (respectively) in the 12 months since April, 1994 (Central Statistics Office): 49.8% and 37.6% * Current account deficit as of the end of February (National Bank of Hungary): $700 m * Average 1994 price for room in five-star hotel (Horwath Consulting): HUF 13,500 ($105) ------------- EXCHANGE RATE May 19, 1995 (National Bank of Hungary): US dollar - 124.74 (buying), 127.16 (selling) Deutschemark - 86.62 (buying), 88.40 (selling) -------------- WACKY AS USUAL Major beggar harassed by police A retired army major in the southern village of Kiskoros was arrested for begging last week. He had positioned himself in the town's central square with a sign reading "Long live May 1 -- on HUF 4,000 a month," according to Hungary Around the Clock. He was soliciting donations into his ex-officer's hat. ============ NEWS FEATURE Privatization Law means no more excuses By Rick E. Bruner Copyright (c) 1995 The governing Socialist and Free Democrat parties may finally have the chance to live up to their year-old campaign promises to speed up the pace of privatization. After 10 months of drafting it, Parliament at last passed the Act on the Sale of State-Owned Entrepreneurial Assets -- commonly known as the Privatization Law. "The most important point of the new law is that it has been adopted," said Peter Lorincze, partner in charge of management consulting at Deloitte & Touche, an international financial services firm. The new law -- passed on May 9, with 208 votes for, 86 against, and five abstentions -- has introduced little that will revolutionize Hungary's advanced process of selling its state-owned corporate assets to private investors. Nonetheless, the law's passage certainly leaves no excuses for further delays in the privatization process since the government assumed power last summer. To date, Hungary has privatized considerably more of its economy than its former communist COMECON trading partners. More than $8 billion in foreign capital has been invested in the last five years and roughly 50% of the economy is now in private hands. In Poland and Romania, by comparison, a fraction as much has been invested and mass privatization has barely begun. Nonetheless, despite plans to hasten privatization here even more, the Socialist-liberal coalition has effectively frozen state asset sales since assuming office pending the passage of last week's new law. Of the HUF 150 billion ($1.2 bn) the state budget is expecting from privatization revenues this year, the government has so far achieved zero towards that target. Deloitte & Touche's Lorincze says foreign investors should see the new law as "a cause of relief and comfort" because it provides the "stable legal framework" on privatization "that was missing until the new law was adopted." Janos Martonyi disagrees. A partner with the international law firm Baker & McKenzie and the former commissioner in charge of privatization under the last communist government of 1989-90, he believes the anticipation of the much vaunted new law was a colossal waste of time. "We could have and should have privatized very well without this new legislation," he said. "It was completely futile to wait for new legislation and thereby lose 10 months, because the existing legal framework was perfectly appropriate even to accelerate privatization." Necessary or not, the law now exists and will take effect early next month. From the point of view of foreign investors, both analysts agree of key interest is the premium put on cash purchases over other "preferential" forms of investment, such as management-employee buyouts, compensation coupons and so-called "existential credit" or E-loans (long-term, low-interest, state-backed loans for local entrepreneurs). Section 32 (1) of the law says that "preferential privatization techniques" may be used only "if no valid bid reaching or exceeding the limit price [set by the state]...in cash...has been received." Martonyi notes, "This gives a competitive edge to foreign investors, because these are the people who usually have financial resources." The law also defines the operation of the State Privatization and Holding Company (Allami Privatizacios es Vagyonkezelo Rt.), which is to merge the functions of the existing State Property Agency (SPA or AVU) and the State Holding Company (AV Rt.). All assets managed by the new APV Rt. will be legally owned by a single shareholder, the minister without portfolio in charge of privatization, currently Tamas Suchman. The APV Rt. will be run by a board of directors, overseen by a supervisory board, each of 11 members, both of which will be appointed by the government. The law also introduces the process of "simplified privatization" for the 800 or so small and medium companies remaining to be sold. A novel concept, the process will see companies offered once for sale by public auction and awarded to the highest bidder. A list of such firms, which must have registered equity below HUF 600 million ($4.8 m) and staffs smaller than 500 employees, will be published by September 30 and another final list by December 31, 1995. Analysts suggest few of the remaining small and medium-sized companies will solicit much interest from foreign investors. Most western interest is focused instead on the large utilities and other "strategic" companies now being offered for sale, 10 to 20 firms, "depending on how you calculate them," said Martonyi. "That's big money, hundreds of billions of forints," he said. The new law does make clarifications to two other areas that had been previously much criticized: transparency of the privatization process and the government's ability to intervene therein. The new law stipulates that detailed guidelines for each company's privatization shall be advertised beforehand, that extensive company financial records will be publicly available and that a memorandum explaining the AVP Rt.'s final decision will be published after each sale. "You can't expect a privatization will be as transparent as a football match," said Lorincze, "but the legal foundations for a clear and transparent process have been laid down." In the wake of Prime Minister Gyula Horn's move last December derailing a prominent hotel package's privatization at the last minute, many investors have been eager to see the new law address more clearly where the final authority rests in privatization rulings. The new law is clear: with the government. Section 8 (2) states, "The government shall decide on the privatization conception of companies which are especially significant...[to] the national economy." Just which companies fall under that definition is to be determined within 60 days from the law coming into force on June 10. Prime Minister Horn's move last December, vetoing the already concluded agreement to sell the HungarHotels hotel chain to a US investor, caused huge controversy locally and damaged investor confidence internationally, largely because of the lack of foundation in law for Horn to make such a decision. Investors can rest assured that were the prime minister or the government again to reverse itself in the middle of an important privatization, this time around it would be different. As Martonyi puts it, "Now it will be lawful." Copies of the 52-page English translation of the law (and presumably the Hungarian original) are available from the soon-to-be-non-existent State Property Agency. Tel: (36-1) 269-8600. ================ PARLIAMENT WATCH First anniversary hands MSZP defeat By Tibor Vidos Copyright (c) 1995 The Hungarian Socialist Party (MSZP) suffered its first defeat in Parliament since the 1994 elections, one year almost to the day after its historic election victory. Representatives of junior coalition partner the Alliance of Free Democrats and 19 socialist renegades joined the opposition parties in voting against amendments sponsored by MSZP MPs aimed at introducing a last-minute change in the agreement on the distribution of funds to civic organizations. Every year since the democratic transition, a special parliamentary committee based on equal representation has developed a consensual recommendation later adopted by Parliament to distribute some HUF 400 million among civic organizations. This had seemed to be the case this year again. The committee held dozens of meetings to consider the 519 applications for the grants. A compromise appeared impossible when negotiations started, but finally an agreement was reached. This agreement, also approved by representatives of the MSZP in the committee, was threatened by three socialist members of Parliament belonging to the Left Youth Association (BIT). Parliamentarians of BIT, a group "very close" to the MSZP, represent the largest and one of the best organized groups inside the socialist faction. It seems that BIT believed that it could force a last minute redistribution of funds to, among others, itself. And it almost succeeded in doing so. Upsetting a consensual agreement after it had been accepted by all parties is greatly unfair and irresponsible. An action like this undermines basic parliamentary ethics and threatens to discredit Parliament. The question following the vote is not whether the Free Democrats were right in joining the opposition on this issue but why only 19 socialists dared to vote against their own troublemakers. The coalition is otherwise stable, government business runs as usual. * * * 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. or ====== APPEAL Dear readers, I ask for your support in a circulation drive. On this two-month anniversary of the online publication of the Hungary Report, I still have fewer than 500 subscribers. To secure the project's long-term viability, I would like to find a corporate sponsor for the Report, but to do so, I would need at least to double the number of subscribers. Therefore, I ask any of you who can help spread the word about this mailing list please do so. I would be most grateful if you were to recommend the Hungary Report to any interested acquaintances, or call attention to it in appropriate forums. To avoid redundancy, I have already promoted in on the following mailing lists and newsgroups: HIX, soc.culture.magyar (Usenet), CivSoc (Civil Society News and Resources), E-Europe (Eastern Europe Business Network), Net Happenings and New-List. If there are other forums you think are appropriate, please send me a note and I'll act on the suggestion immediately. Thanks, Rick =========== 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 or John Nadler Tibor Vidos or * * * 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> (and tell them what dwads they are for me pay for issues at the newsstand); 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