From hungary-report-owner Tue Aug 8 07:43:52 1995 Received: from localhost (daemon@localhost) (fnord) by nando.yak.net (8.6.5/8.6.5) id HAA01199; Tue, 8 Aug 1995 07:43:52 -0700 Received: from localhost (daemon@localhost) (fnord) by nando.yak.net (8.6.5/8.6.5) id HAA01188; Tue, 8 Aug 1995 07:43:33 -0700 Received: from bruner@ind.eunet.hu () via =-=-=-=-=-= for hungary-report@hungary.yak.net (1186) 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 HAA01176 for ; Tue, 8 Aug 1995 07:42:02 -0700 Received: from [192.84.226.92] (bruner.dial.eunet.hu) by ind.eunet.hu with SMTP id AA04400 (5.67a8/SZTAKI-4.01 for ); Tue, 8 Aug 1995 16:34:38 +0200 X-Sender: pop029@ind.eunet.hu (Unverified) Message-Id: Mime-Version: 1.0 Content-Type: text/plain; charset="us-ascii" Date: Tue, 8 Aug 1995 16:35:32 +0100 To: hungary-report@hungary.yak.net From: bruner@ind.eunet.hu (Rick Bruner) Subject: Hungary Report 1.19 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. 1.19, August 8, 1995 ======================== The Hungary Report is supported in part by: MTI-Econews, a daily English-language financial news service. For online (fee-based) subscription information, contact (not automated -- write a nice note). ======== CONTENTS BRIEFS Horn proposes cabinet changes, SZDSZ angry Privatization advisor buys large stake in Egis pharmaceutical Tenders open for electricity works Magyar Nemzet again without buyer; OTP backs out Bill Gates to visit, buy Hungary Military eyeing new Yugo fighting, but low-key Hungarian suicide rate highest in Eastern Europe Police warn of credit card thieving rings Jehovah's Witnesses fastest growing religious Hungarian girl appointed CEO of MTV Europe Hungary places 5th in International Math Olympiad Oscar-winning composer Rozsa dies in LA High school student honored for daring river rescue Divorced fathers score small custody rights victory Religious war at village school injurs official Truck-jacking new criminal fashion Hungarian ships collide in Caribbean NUMBERS CRUNCHED Number of Yugoslav War refugees entering Hungry in July Estimated assets of State Privatization and Holding Company Number of people arrested on drug charges this year FEATURE STORY Faked in Eastern Europe PARLIAMENT WATCH Horn raises stakes in economic recovery gamble ====== BRIEFS Copyright (c) 1995, Rick E. Bruner ------------ GENERAL NEWS Horn proposes cabinet changes, SZDSZ angry Prime Minister Gyula Horn's self-reliant style of running the government has again raised the ire of the coalition's junior partners, the Alliance of Free Democrats (SZDSZ). Without consulting the Free Democrats, Horn announced his choices for new top government positions at a presidium meeting of his Socialist Party, a week ago Friday. Horn recommended Sandor Nagy, president of the National Federation of Trade Unions, to be deputy prime minister responsible for economic strategy, Elemer Kiss, administrative state secretary at the Prime Minister's Office, to be minister without portfolio responsible for coordinating inter-ministerial affairs, and Socialist Party deputy chairman Gyorgy Janosi to be state secretary in the Prime Minister's Office, responsible for media affairs. Interior Minister Gabor Kuncze, one of three ministers from the SZDSZ and currently the only deputy prime Minster, said the appointment of Nagy in particular would be "grounds for divorce" within the coalition, according to Hungary Around the Clock. During last year's elections, analysts painted Nagy as representing the Socialists' unreformed, anti-free-market wing. More recently, he has been at loggerheads with the government as the country's top union official, protesting recent economic reforms. Since returning from international travels, Horn said a decision on the appointments would be coordinated with the SZDSZ. -------------------- BUSINESS & ECONOMICS Privatization advisor buys large stake in Egis pharmaceutical Egis pharmaceutical company has become Hungary's first private drug maker in a transaction that was the single biggest deal in the five-year history of the Budapest Stock Exchange. Nearly 2.2 billion Egis shares changed hands on Tuesday for a total of HUF 5.5 billion ($44m), when the State Privatization and Holding Company (APV Rt.) offered its whole 28% stake in the company onto the BSE. NatWest Markets, the company that was acting as Egis' privatization consultant to the government, immediately bought all of the issued shares. By Thursday, NatWest had sold 7% of those shares back to the stock market at 265% of their face value, according to Econews. The European Bank for Reconstruction and Development (EBRD), which owns another 30% of Egis, had earlier in the week expressed its objection to the APV Rt. selling shares to anyone but an international pharmaceutical company, which, in addition to bringing valuable know-how, would pay a higher price for a majority control of the shares than would financial investors. NatWest did not consult the EBRD before the sudden share sale, despite frequent communications between the two institutions regarding Egis before. Egis, which is 100% tax exempt, reports huge profits so far this year, HUF 2.8 billion in the first six months, which is already 75% of the year's target and 166% up on the same period last year. The remaining 42% of Egis' shares are held by local governments and private individuals. Hungary's pharmaceutical industry is one of the strongest in Eastern Europe and a powerhouse in the country's gross domestic production. ----------- SHORT TAKES TENDERS FOR THE PRIVATIZATION OF THE ELECTRICITY SECTOR were issued last Friday, with more than 30 international firms already having purchased the tender documentation, according to Hungary Around the Clock. Final decisions on the sales, which average 47% stakes in Hungary's regional electricity supply companies, are to be announced before the end of the year. The new Minister for Industry and Trade, Imre Dunai, said he believes the government can raise $1 billion before the end of this year with scheduled sales of the electricity works, the Hungarian Oil and Gas Corp. (MOL Rt.) and the nation's gas utilities. MAGYAR NEMZET IS AGAIN WITHOUT A BUYER. The National Savings Bank (OTP) has withdrawn its earlier reported bid to rescue the ailing conservative newspaper after OTP lost against a rival bidder for the right to more profitable Szabad Fold as part of the package. Magyar Nemzet is estimated to lose HUF 1 million ($8,000) a day. The State Privatization & Holding Co. (APV Rt.) now plans to seek a buyer without public tender. BILL GATES, Microsoft mogul and the world's richest man, is reportedly planning a one-day visit to Hungary on September 1 to check up on his subsidiary and the local software market. He will be meeting with national leaders to inquire about the possibility of buying Hungary. (Okay, just kidding about that last sentence. :) MILITARY OFFICIALS ARE ALERT TO THE YUGOSLAV WAR, but the army is not expecting to see any action regarding the stepped-up fighting in Croatia. The army is not fortifying the southern border to avoid alarming Hungary's neighbors there. The recent upsurge in fighting "constitutes no immediate threat to Hungary," Defense Minister Gyorgy Keleti told a worried Nepszabadsag reporter who called him at 4:30 am on Friday, according to Hungary Around the Clock. HUNGARIAN SUICIDE RATE IS THE HIGHEST IN EASTERN EUROPE, according to a study released for the first time in at a recent conference on suicide prevention in Venice. The rate of 39 suicides per 100,000 is down from its peak in the late 1980s, though the figure has been rising again since 1993. POLICE WARN OF CREDIT CARD THIEVING RINGS in Budapest, according to Budapest Week. Notorious for pick-pockets already, the capital now apparently hosts circuits of agents paid up to HUF 10,000 for each stolen credit card. Tourists, obviously, are a main target, so if you're visiting, guard you wallet! JEHOVAH'S WITNESSES are the fastest growing religious movement in Hungary, with more than 25,000 believers gathering for a mass blessing in Debrecen two weeks ago, the Week reports. 20-YEAR-OLD EMESE HORVATH WAS APPOINTED CEO OF MUSIC TELEVISION. The university student won a continent-wide competition on MTV Europe to take the reigns of the company, albeit only for a day. She was wined, dined and serenaded by top pop artists, though, as the Week points out, few Magyars could even see the fun, as MTV Europe was recently scrambled and few cable companies yet pay to decode it. HUNGARY PLACED FIFTH IN THE INTERNATIONAL MATH OLYMPIAD in Toronto last month, well ahead of 11th placed USA and 19th Canada. Ahead of Hungary were (1-4) China, Romania, Russia and Vietnam. Three of Hungary's six teenage team members earned perfect scores, Budapest Sun reported. OSCAR-WINNING COMPOSER, MIKLOS ROZSA, DIED a week ago of pneumonia in Los Angeles at age 88, the Sun reports. Rozsa wrote the Oscar-winning scores for "Spellbound" (1945), "A Double Life" (1947), and "Ben-Hur" (1959), among dozens of other movie scores. A HIGH SCHOOL STUDENT WAS HONORED FOR SAVING A WOMAN FROM THE DANUBE at a ceremony with Budapest Mayor Gabor Demszky last week. Praised for his modesty, Viktor Zollner didn't tell virtually anyone after diving into the Danube in May when he saw a woman fall from the Arpad Bridge. A water polo player since childhood, he dragged the woman from the strong currents, drove her to a sports hospital, then rushed home to change before taking his high school final exams. DIVORCED FATHERS ARE FIGHTING FOR THEIR RIGHTS and are celebrating a modest victory in an April amendment to the country's family law, encouraging couples to seek joint custody of their children. According to Budapest Sun, mothers are awarded sole custody of children in 93% of contested divorces. Men say the mainly female personnel in the social bureaucracy will still work against them gaining access to their children, regardless of the new amendment. NUMBERS CRUNCHED * Number of Yugoslav War refugees entering Hungary in July (Budapest Sun): 794 * Preliminary estimate (final due end of August) for total value of assets owned by the State Privatization and Holding Co. (APV Rt.): HUF 1.3 trillion ($10.4 billion) * Number of people arrested on drug charges this year (Magyar Hirlap): 110 ------------- EXCHANGE RATE August 7, 1995 (National Bank of Hungary) US dollar - 126.22 (buying), 128.64 (selling) Deutschemark - 90.31 (buying), 92.09 (selling) -------------- WACKY AS USUAL Separating church and state...with bricks A three-year old dispute about the Catholic Church's role within the main primary school in the village of Dabas-Sari led last week to a school official suffering a brain concussion from a brick. The dispute began in 1992 when the town's mayor took it upon himself to give the school's property and management to the church, despite a large number of parents preferring secular education for their children. A compromise was reached, dividing the building into two schools, religious and not. This year, the Catholics made the division literal, with a wall. Secularist parents rebelled last week and, without anyone's authorization, started tearing down the wall. An unprepared school business manager for the Catholic side, at work in the room opposite the protesters, was hit with a falling brick accidentally. Jackets hijacked Possibly appalled by men's fashion in Hungary, a gang of thieves overpowered the driver of a Czech truck in east Hungary and hijacked his HUF 27 million cargo of men's suits, stopping several times on a trip around the country to drop off the clothing goods at selected locations, Hungary Around the Clock reports. Presumably they are being pursued now by the fashion police. Two Hungarian ships collide in the Caribbean Two Hungarian ocean freighters, the Balaton and the Vososmarty, crashed into each other last Wednesday near Bermuda, according to Magyar Hirlap. The Balaton's engine broke down, and in its eagerness to provide aid, the Vorosmarty rammed it at low speed. No injuries were reported. The Balaton was towed to Bermuda for repairs. ============= FEATURE STORY Faked in Eastern Europe Product piracy in the ex-East Bloc has investors on the run By Rick E. Bruner Copyright (c) 1995 Once upon a time in the East, icons of Western culture such as a pair of Levi-Strauss jeans or the latest Michael Jackson cassette inspired hope and courage among the oppressed masses of communism -- or at least they fetched a high price on the black market. Well, times have changed, and jeans and records today are strictly commerical. But the black marketeers haven't gone away. Rather, they have found new ways to make a buck in the free economies. Chances are about 50-50 those new Levis are fake and the Michael Jackson cassette is a pirate copy. The growth of consumer fraud across Central and Eastern Europe has exploded over the last two years. Brands commonly counterfeited in the region include Levis, Kodak, Nike, Reebok and Adidas, not to mention huge piracy rates of videos, recorded music and computer software. Book buyers are plagued by phony titles and misleading authors' names. Phony phone cards, bus and metro passes and even that old favorite, money, are all common get-rich-quick schemes, part of a trend that's fast becoming a way of life for many of the region's new capitalists. "We did a survey in 1992 and found 4 in 10 jeans passing for Levis on the Hungarian market were counterfeits," said Agelina Kojics, business development manager for Levi-Strauss, Hungary. "It's becoming more and more of a problem. It started a few years ago, and it is just getting stronger." The collapse of East Bloc central planning has meant new market opportunites not just for North American and European Union manufacturers but also for the well-established counterfeit product rings operating out of Turkey, Malaysia, China and elsewhere. Analysts say Eastern Europe hasn't yet reached levels of patent fraud in the Far East, but domestic counterfeits of a wide range of products are mushrooming, the former enemies of capitalism proving deviously quick learners. Particularly as a market for illegitimate goods, the region has several things going for it. To begin with, pirates play on consumer naivete, where household brand names in the west may be still unknown to Ukranian and Romanian peasants. Also, there entirely lacks a traditional respect for copyright here, where previously everything belonged to the state and black marketeers were often seen as liberators of choice. And not least, in the midst of a profound, region-wide recession, there remains strong, unrepentent demand for products that are "almost as good" when sold at a fraction of brand prices. "It's important to keep in mind, in an Eastern European context the pirate was long regarded as a hero," said Malcom Carruthers, managing director of Sony Music, Hungary. That was particularly the case in the music business, where budget constraints and censorship kept hit songs from the masses. The black market was then a bastion of free expression. "Nobody cared that the artists weren't getting the money because the populace was getting the music." When the major labels first moved into the markets five years ago, the odds seemed insurmountable. "In Poland, the traditional answer was that pirates controlled 110% of the market, the extra 10% being export," said Carruthers. Since that time, piracy rates have come far down thanks to new copyright laws in Poland, Hungary and the Czech Republic and concerted efforts by western distributors. Their strategies have included hologram labels on cassettes and CDs and teams of investigators monitoring shop sales. Nevertheless, as with movie videos, pirates still hold a large share of the tape market: 40% in Hungary, according to Phonographic Industry Federation. Western firms in other industries are also fighting back against the pirates. The Brand Protection Association of sports manufacturers including Nike, Reebok, Adidas, KangaROOS and Speedo have met again recently in Budapest to discuss with authorities the impact counterfeiting is having on their business. Janos Simon, who says his firm SH Impex did $8 million in turnover on licenced Nike products last year, a "minimum" 20% of the clothing products that sell under Nike's name are fakes, including many high-quality imitations he believes come from Turkey, Hong Kong, Thailand and China. Nike's problems are with shirts and shorts, but Reebok is plagued even by fake shoes. "If you spell it 'Reabok' or 'Reebak,' that may be enough to get approval from the authorities. Some parent in rural Hungary who's never seen the brand before isn't going to know the difference," Simon said. Software giant Microsoft recently cracked down on a "multi-million-dollar" Windows and DOS counterfeit ring in Germany, with extensive links in Eastern Europe, according to Eric Koenig, a Paris-based corporate attorney for Microsoft. "We were lucky to find them and snuff them out this year." Microsoft has invested heavily in the region, with subsidiaries in Russia, Poland, the Czech Republic, Hungary and Slovenia. In addition to counterfeit rings, software firms face a tidal wave of piracy both by individual computer end-users and handware assemblers. "Software piracy in Eastern Europe is in excess of 80% or even 90%," said Koenig, who is also a vice president of the Business Software Alliance (BSA). Microsoft through the BSA is plowing money into public awareness campaigns and training authorities in all the countries where they are active to inhibit the trend. Koenig calls the new Hungarian, Czech and Polish copyright legislation "good laws" and says it is now basically a question of enforcement. While Microsoft's determination has brought about "several raids that may lead to prosecutions" around the region, other companies still see enforcement as the major shortcoming. In fact, despite lost tax revenues, it's not fully in the governments' interest to stamp out the black market altogether, say many analysts. "All the governments in the region have a laissez faire attitude towards the black market," said Andras Vertes, CEO of GKI Economic Research Co. The "hidden" or "grey" economies, including various forms of tax evasion, account for 30% of Poland and Hungary's economies, said Vertes, citing his firm's research for the OECD. Between 20% and 40% of Hungary's 500,000 so-called unemployed are actually working off the books, he says, which relieves a degree of social pressure that would otherwise be leveled against the beleaguered administration. "It's not too popular to say, but customs is the weakest point," says Andras Kegyes, marketing manager for Kodak Hungary. His firm was hit by a wave of counterfeits last year, too, but it is unauthorized, tax-free distribution of genuine Kodak products that poses the biggest threat to the company's image and profit margin, he says. Hungary being a transit country, it is not difficult for crooks to avoid duties by convincing customs officials that a shipment is only passing through when in fact is is intended for the domestic market. "And customs officers aren't very well paid, if you know what I mean," Kegyes said. Hungarian-American liquor magnate, Peter Zwack, may have found the ultimate solution to the region's penchant for piracy. Zwack is heir to the family's 200-year-old formula for the Hungarian "national drink," Unicum, a bitter "digestive" (reminiscent of hairspray to the uninitiated palate). The Zwacks had first to combat the communist government itself, which started producing a fake version of Unicum when it nationalized the factory in 1947 and the Zwack family fled with the authentic recipe in hand. The family had a victory in the '70s, when under international pressure the Hungarian communists stopped using the Zwack name on the fake product. After buying back the family business in 1992, Zwack first considered killing the illegitimate brand. But then he had a better idea. "We realized there was still a share in the market for a cheaper product," said Aniko Flamek, director of quality control at Zwack Unicum Ltd. Now the firm markets a second, similar tasting drink in a plainer bottle but with the recognizable logo. "We decided to call it Bitter 2," she said. If you can't beat them, join them. ================ PARLIAMENT WATCH Horn raises stakes in economic recovery gamble By Tibor Vidos Copyright (c) 1995 How big should the budget deficit become in 1996? Three or four percent? This was the key issue during the two day marathon government meeting on the Wednesday and Thursday of July 26-27. The figure for 1995 is likely to be around 6 percent. Wednesday afternoon it seemed that the appointment of a new finance minister was imminent as Prime Minister Gyula Horn and Finance Minister Lajos Bokros were far apart. The prime minister, in line with his latest public messages to the International Monitary Fund insisted that it was impossible to shrink the deficit below the magic four percent line. Mr. Bokros affirmed that without sticking to a figure around three percent there would be no IMF agreement and as a consequence the management of the debt would become impossible, a process which he did not want to become part of. The meeting was adjourned by the prime minister without a decision being taken. Next morning the prime minister announced that he could accept a formula for the 1996 budget deficit to fall between 3.5 and 4 percent of the GDP. Mr. Bokros, a technocrat, seems to have scored a major victory over the politicians worried about the unpopularity of austerity measures. The question is, at what price? The political isolation of Mr. Bokros appears to be almost complete. Budget balancing means cutting into the flesh of every ministry -- i.e., no support is likely to come from any civil servant or minister and no influential wing of the socialist party rallies behind him either. The otherwise supportive junior coalition partner, the Alliance of Free Democrats, has also criticized Bokros' budget balancing fervor. According to the economists of the liberal party, it is the current account deficit and not the budget deficit that should be primarily concentrated on. It should be noted however, that even with disagreeing in some details, the Free Democrats view the execution of the Bokros plan as an essential condition of their participation in the coalition. The future of Mr. Bokros thus depends solely on the Prime Minister. Meanwhile the Prime Minister seems to be sticking to his idea of appointing either a new deputy prime minister -- this would require a constitutional amendment -- or a minister without portfolio to coordinate economic policy. This function is currently part of Mr. Bokros's job description. There is little doubt that Mr. Bokros would step down should his powers be limited without his consent. Although there is a rationale in Mr. Horn's argument for introducing the new cabinet position of economic coordination -- the Minister of Finance is physically overburdened by the daily management of budget issues -- the premature departure of Mr. Bokros may lead to highly undesirable effects: * The international business and financial community would see it as a signal of abandoning the economic policy they believed to be the only way for an economic recovery in Hungary; * Ministries and lobbies of budget spending industries and professions would immediately capitalize on Mr. Bokros's resignation to improve their positions resulting in a likely explosion of the budget deficit; * The coalition between the socialists and the liberals may become unstable and may eventually break up. Mr. Horn likes to take high risk in his political gambles. Let's hope he does not over-bet, this time. * * * Tibor Vidos is a lobbyist and political consultant in charge of the Budapest office of GJW Government Relations. or A version of this article appeared in the Budapest Business Journal. Tibor will be traveling for a few weeks on vacation, so his column will resume in early September. =========== 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 Please note: all mailing lists suffer from frequent "error" addresses. If we have problems with sending to your address more than one week in a row, we will remove you from the list. If you haven't received the report for more than one week, feel free to enquire directly to Rick Bruner (but please wait for at least a week, as we're also just famously late in getting the thing out sometimes :) * * * 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 by email. Feedback is welcome. Rick E. Bruner 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 making us 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