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    ========================
    The Hungary Report

    Direct from Budapest, every week

    Also available on the World Wide Web
    (http://www.isys.hu/hrep/)

    No. 1.36, February 5, 1996
    ========================


    SPONSORED BY: iSYS Kft., providing full Internet solutions for
    companies and individuals in Hungary. For further information, send
    e-mail to <info@isys.hu>, view our World Wide Web home page
    (http://www.isys.hu) or call (+36-1) 266-6090.


    =========
    CONTENTS

        BRIEFS

        Hungarian-Romanian treaty's future looks unclear
        Matav plans to meet phone demands by year's end
        NATO opens new base for Nordic troops
        Privatization revenue to increase from last year's record
        Paprika adulterers identified
        Hungary's EBRD loan tops Russia's
        Banking and secrecy reforms planned
        Retirement age to be lifted
        Economic reforms on the legislative agenda
        Prostitution legalization in the works
        Pope plans summer visit
        Hungarian inventors give hope to the blind
        Cashier's bark sends would-be-robber running

        NUMBERS CRUNCHED

        Time allotted for debating and passing bills
        Schoolchildren going hungry
        New police salaries
        Expected percentage drop in domestic trade
        Number of cars stolen in Hungary
        Counterfeit bills found in post offices
        Troubled taxis on the streets

        FEATURE STORY

        Hungarian companies anticipate Balkan peace dividend

        PARLIAMENT WATCH

        Sorry, no Parliament Watch this week

    The Hungary Report is also supported in part by:

    MTI-Econews, a daily English-language financial news service. For
    online (fee-based) subscription information, contact the Internet
    address: <madarasz@mti-eco.hu>. (It's not automated -- write a nice
    note.)

    ======
    BRIEFS

    By Jennifer C. Brown
    Copyright (c) 1996

    -------------
    GENERAL NEWS

    Hungarian-Romanian treaty's future looks unclear

    The Hungarian-Romanian bilateral treaty that promises to reaffirm
    current borders and ensure minority rights looks unlikely this year,
    reports the Budapest Week. Foreign Minister Laszlo Kovacs told the
    paper that inflammatory campaign rhetoric of extremist parties in
    Romania on the topic of minorities during this spring's local
    elections could delay the treaty.

    Both the European Union and NATO are pressuring Hungary and Romania
    to settle their differences over the minority issue. Kovacs told the
    Budapest Week that he "thinks that  international organizations
    should compare the legislation of all the countries concerned with
    European standards and norms." He was referring to Romanian President
    Ion Iliescu's call for a historic reconciliation between the two
    countries shortly after Romania banned foreign flags and the singing
    of foreign national anthems in public. Hungary signed a basic treaty
    with Slovakia but afterwards, Slovakia's parliament passed a law
    restricting the use of non-Slovak languages. Kovacs said he doesn't
    rule out the same thing happening in Romania.

    ---------------------
    BUSINESS & ECONOMICS

    Matav plans to meet telephone demand by year's end

    The wait for telephone lines could end by 1997 for some 390,000
    people currently on the waiting list when Hungarian
    telecommunications giant Matav installs new lines, writes the
    Budapest Business Journal. Matav promised to fulfill 90% of the
    demand for telephone lines within the first half of 1997 when
    MagyarCom, a joint venture between Germany's Deutsche Bundespost
    Telekom and U.S. telephone company Ameritech purchased 30.3% of Matav
    in Dec. 1993. At that time, Matav's waiting list had 750,000 names.

    Matav installed 330,000 new lines last year, spending 80% of its Ft
    60 billion capital. This year the company plans to spend 60% of its
    capital expenditure on providing new telephone services. A Matav
    official was quoted saying that a shortage in demand will enable the
    company to install the promised number of lines by the end of the
    year. There are currently 420,000 people on the waiting list but the
    company said there are people who either won't want a line or won't
    be able to pay for it, leaving no more than 30,000 waiting for a
    telephone line.

    ------------
    SHORT TAKES

    NATO OPENED A NEW BASE LAST WEEK IN THE SOUTHWEST TOWN of Pecs to
    supply food and equipment to 2,000 Nordic soldiers in Bosnia. The
    base will also be used to house 200 soldiers from Poland, Denmark,
    Finland, Norway and Sweden.

    THE PRIME MINISTER'S OFFICE STATE SECRETARY ELEMER KISS said he
    expects privatization revenue from unsold state-owned companies to
    total US$ 4.5 billion, reports Vilaggazdasag, up from last year's US$
    4.2 billion. Foreign companies which purchased Hungarian companies
    last year will spend up to US$ 2.5 billion on development this year.

    SOME 180 SUSPECTS HAVE BEEN IDENTIFIED BY POLICE IN connection with
    adulterated paprika. Over 20 people were hospitalized beginning June
    1994 after consuming ground paprika that was mixed with lead. Police
    discovered that the paprika originated from spice dealer, Vilmos
    Horvath Jr. Police couldn't prove that the dealers who purchased the
    low-grade spice knew the paprika was tainted but said they could have
    taken more precautions.

    THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (EBRD) has
    provided Hungary with the second largest sum of aid after Russia,
    according to the Budapest Week. Developers in Hungary received $145
    million for the building of the M5 motorway linking Budapest and
    Szeged. The EBRD loaned $47.2 million to help phone company Matav
    build the national telephone network, $44.7 million for a 32.5% stake
    in the newly-privatized Budapest Bank, $36.3 million for a regional
    telephone network in southern Hungary and $23.6 million for a credit
    agreement with the Hungarian Credit Bank.

    MPs PLAN TO DEBATE ECONOMIC FORMS DURING THE UPCOMING legislative
    session. The reforms to be introduced include the reform of pension,
    health care and social security systems. Controversial proposals
    include one to reduce financial support for local governments,
    further education reforms and guidelines to regulate conflicts of
    interest among government members. Government members can currently
    hold any position they want outside of Parliament.

    HUNGARY PLANS TO RESHAPE ITS BANKING AND SECRECY LAWS TO European
    Union norms. The package is expected to be submitted to Parliament by
    June.

    AS A PART OF AN OVERHAUL OF THE GOVERNMENT PENSION AND social
    security systems, the retirement age will be raised to 62 for men and
    women, announced Finance Minister Lajos Bokros last week.

    PLANS TO LEGALIZE PROSTITUTION IN HUNGARY ARE UNDERWAY by the
    Interior Ministry. The plans stipulate that prostitutes must be
    registered as private entrepreneurs. If approved, local governments
    will issue the licenses and prostitutes will  have to carry a valid
    certificate of health.

    POPE JOHN PAUL 11 WILL MAKE A VISIT TO HUNGARY JUNE 20 and 21,
    announced the chief abbot of Pannonhalma. The Pope will be staying at
    the 1,000-year old Pannonhalma Benedictine monastery and will hold a
    Mass somewhere between Pannonhalma and Gyor in western Hungary.

    HUNGARIAN INVENTOR JANOS FEKETE ALONG WITH FOUR SCIENTISTS have come
    up with a way for the blind to judge distances to large objects. The
    device is special attachment for eyeglass frames that works like a
    sonar signal by projecting ultrasound waves that bounce off large
    objects. The waves give off a sound that changes in pitch depending
    on the distance of the detected object.

    ----------------
    NUMBERS CRUNCHED

    *  Time legislators have to debate and pass 67 bills in the next
       legislative session (MP Tamas Isepy):  4.4 hours each

    *  Children going hungry in schools in kindergartens (Foundation
       Providing Meals to Children): 22,000

    *  New average pay for members of the National Police force (National
       Police): Ft 40,000 (US$ 296)

    *  Percentage drop expected in the volume of domestic trade this year
       (National Trade Association): 25%-30%

    *  Number of cars stolen in Hungary last year, up 20% from 1994 (The
       Budapest Sun):  12,000

    *  Amount of counterfeit money paid to the post office last year, 40%
       over the year before (Magyar Posta) Ft 941,000 ($6,818)

    *  Percentage of taxis in Budapest found to have mechanical difficulties
       (Consumer Protection Agency):  30%

    --------------
    EXCHANGE RATE

    (National Bank of Hungary)

    US dollar - 146.26 (buying), 146.35(selling)
    Deutschemark - 97.44 (buying), 98.48 (selling)

    ---------------
    WACKY AS USUAL

    Cashier's bark sends would-be-robber running

    Cashiers in Hungary are intimidating to most customers, but to an
    armed robber? According to the Budapest Week, a masked man carrying a
    pistol entered a post office in Kalocsa and attempted to hold up a
    female cashier. After demanding that the woman hand over the money,
    she responded by telling him to leave the premises. Apparently, her
    scolding worked. The would-be robber turned and walked out of the
    post office without the loot.

    =============
    FEATURE STORY

    Hungarian companies leap into the Balkans

    By Theresa Agovino

    The day after the United Nations lifted the embargo against Serbia
    and Montenegro Pannonplast Rt. director of foreign trade Laszlo
    Heczey was in Belgrade. "I was visiting import-export companies and
    laying the first steps necessary for us to do business there, said
    Mr. Heczey.

    Plastics manufacturer Pannonplast suffered along with the rest of the
    Hungarian economy as the four year war in the Balkans killed an
    important trading partner as well as easy access to the ocean.
    Hungary's Ministry of Industry and Trade estimated the embargo cost
    the country  $2.25 billion after ramifications such as the loss of
    export markets, costlier transit routes, higher unemployment, lower
    corporate taxes and pricey import substitutions are considered.

    Now that a peace agreement has been signed and the embargo lifted,
    Hungarian companies are primed to benefit from both the massive,
    lengthy rebuilding effort in the former Yugoslavia and the eventual
    return to normalcy in the region. Hungarian firms are getting an
    extra peace dividend because the American troops stationed within the
    country's borders are purchasing substantial amounts of good and
    services. Some transportation firms, building suppliers, warehousing
    facilities and food companies have already started to see orders rise
    because of the troops.  But experts say most Hungarian companies
    won't feel the full effect of the peace until the second half of 1996
    or early 1997 when rebuilding starts in earnest. In the end, analysts
    expect companies ranging from the mighty gas company MOL Rt to small
    retailers on the Serbian border to benefit.

    "The peace process will add to Hungary's GDP in the second half of
    '96 and that increase will be substantial," predicted Istvan Racz,
    the economist at CS First Boston. The Ministry estimated by the end
    of this year trade with the former Yugoslavia should reach $250 to
    $270 million and jump to $350 million by 1997. However, the peace
    also presents a dilemma for Hungarian companies anxious for new
    customers. Some worry that despite the vast amount of aid that will
    pour in Bosnia and Croatia for rebuilding, some war-ravaged clients
    won't be able to pay their bills. Yet, if the Hungarian companies
    fail to extend credit they could lose the potentially good  business
    in what is expected to be a fiercely competitive market place.

    "We want to get down there quickly..before the rush of companies,"
    said Sandor Nagy, financial director of Graboplast, which makes floor
    and wall coverings as well as insulation. "But we're going to need
    pre-payment or at least partial payment." Added Pannonplast's Mr.
    Heczey, "Without some sort of a guarantee we won't ship anything
    there and that will be the main barrier to starting business
    relations."

    Still, most Hungarian businesses are upbeat about their prospects in
    the Balkans. Nagy was set to be one of a delegation of 100  Hungarian
    Chamber of Commerce members that was scheduled to visit Belgrade in
    early January. Belgrade officials requested representatives from
    about 20 companies but 100 members signed up for the trip. Mr. Nagy
    said he hoped to find a contract manufacturer during his visit.
    Ceramic tile maker Zalakeramia Rt is scouting for a factory in the
    former Yugoslavia, according to its chairman Gyorgy Katona. Mr.
    Katona said he will spend "several million deutsche marks" to
    refurbish a plant in the region because he believes local management
    and staff sales representatives are crucial to success in a new
    market. Previous experience with contract sales agents in other
    markets left a sour taste in his mouth. "I'd rather rely on my own
    network," said Mr. Katona.

    Meanwhile,  Pannonplast has already re-established contact with its
    former sales agent in Belgrade and is seeking a representative in
    Macedonia. Production of plastic pipes and insulation sheets have
    already been increased both because of orders from the American
    troops and fears of not having enough inventory to meet any large,
    unexpected orders. Mr. Heczey said since orders from the troops are
    still rolling in it's not possible to value the new business.
    However, he said the war cost Pannonplast 100 million forints
    annually.

    Hungarocamion director of transportation Rudolf Forster refused to
    estimate how much the war cost his trucking concern. So far business
    is up about 3% because of shipping equipment for the American troops
    but there has also been a flurry of inquiries from various companies
    concerning transportation into Bosnia.  Even if those inquiries don't
    translate into orders, Mr. Forster says Hungarocamion's outlook will
    improve because the end of the embargo means his trucks don't have to
    go across Romania and Bulgaria to get to Greece, Turkey, Syria and
    Iran. The longer route required three extra days and an additional
    250 deutsche marks. About 15% of Hungarocamion business is derived
    from trips to Turkey, Syria and Iran. Mr. Forster contacted the
    ministry of transportation in Belgrade to introduce Hungarocamion to
    companies in Serbia that may need its services.

    All Express Shipping has taken a more aggressive approach. The
    company is setting up a staging area in Zagreb and has already
    purchased $50,000 worth of new equipment including a another truck
    and added five employees. "This (peace) represents a big opportunity
    for us," said Paul Szeman, AES country manager in Hungary.

                                * * *
    Theresa Agovino <100324.1032@compuserve.com> is a freelance journalist
    in Budapest who writes for Business Central Europe and Business Eastern
    Europe, two divisions of The Economist Group.

    ===========
    FINAL BLURB

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                                   * * *

    For its briefs, The Hungary Report regularly consults the news
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    addresses to come).

    =================
    END TRANSMISSION




