Hungary: an investment magnet

Gyula Horn
An interview with the former Prime Minister

Prime Minister Horn: popularity fallingYour Government's popularity has declined in recent years owing to austerity measures. Do you expect enough support to win elections scheduled for 1998?

Popularity always falls after austerity measures. That hurts, I don't need to tell you, but I am convinced that there is no other road that will lead the country out of economic crisis. We have broken with previous Governments' policies of dodging problems rather than solving them. We have declared the principle according to which positions, even if they have been entrenched for decades, may not be maintained if they are not justified by economic performance. I am committed to pursuing stability and the reform of public finances. I have the impression that people acknowledge the results that our consistent policies have brought, even though their standard of living does not yet reflect these results. The decline in our popularity has stopped - in fact, in recent months our popularity has increased - and it seems that people accept the Government's efforts and have not lost confidence in the parties which form the Government, not least because the parties that form the opposition have not so far come forward with a feasible alternative economic strategy.

Few countries in Central Europe have attracted as much foreign investment as Hungary. Why?

First of all, I am happy to be able to correct you: no Central European country has attracted as much foreign investment as Hungary. The 14 countries of East-Central Europe have so far attracted a total of US$28 billion, of which Hungary alone has received US$13 billion. Even during the war in the neighbouring former Yugoslavia, the presence of foreign capital was more extensive in Hungary than in any other country in the region. The results Hungary achieved in privatising public assets during 1995, when revenues from privatisation were double the target for the year, was a sign of encouragement from foreign investors. Foreign investors are increasingly aware that the labour force in Hungary is highly qualified and - I say this with mixed feelings - relatively inexpensive. Another factor to Hungary's credit is that it is increasingly seen as a gateway to countries lying to the east and west and to the north and south.

Market access is always a key factor in investment decisions. Being an Associate Member of the European Union, Hungary is an ideal springboard for investors who wish to reach major markets in Central and Eastern Europe. The state of the infrastructure is another important consideration, and Hungary has undergone spectacular development here, both in terms of the modernisation of its roads and its mobile telephone systems. In fact, because of the latter, Hungary has the most advanced telecoms systems in the region.

Which fields do you see as being central to foreign investment in coming years?

We expect the multinational companies which have established themselves in Hungary to expand their operations in the electronics and food industries. We sense a tendency that, after electronics and vehicle companies set up shop here, they will be followed by suppliers for their operations. We also reckon on considerable investment in the service sector if Hungary can capitalise on the transit potentials of its geographic location and can become a Central European regional centre for goods distribution and for financial services.

How important is Hungary's accession to the OECD?

Hungary was admitted to the organisation that gathers together the most advanced countries in the world in March 1996. The OECD is often referred to as the foyer of the EU, and indeed our membership is a milestone along the road to full EU membership. Hungary's admission to the OECD expresses appreciation of the Government's results in economic and political stabilisation, and grants legitimacy to these results. It's a bit like a favourable school report on where Hungary stands and what it has accomplished.

In addition to the economic aspects of our admission to the OECD, it helps draw the attention of foreign investors and confirms the country's political and economic stabilisation and the legal framework of the evolution of the market economy.

What are your hopes with regard to EU membership?

The word 'hopes' is an understatement. I am convinced that Hungary is ready for EU membership considering its democratic institutions, its results in building a market economy and in harmonising its legislation with that of the Union. I think that the negotiations on accession could open half a year after the completion of the IGC, and Hungary can become a full member by about 2000.

Let me stress that Hungary's relationship to NATO and to the EU dates back beyond the change in the country's political system: intensive co-operation began in the second half of the 1980s. I consider it important that the member states of the EU are increasingly aware that, maybe for the first time in history, the creation of an undivided Europe is becoming a realistic historical opportunity. Western Europe has got to make a decision on the admission of the new democracies of East-Central Europe because that is the only way to ensure stability in Europe. Moreover, it is our conviction that the enlargement of the EU may be beneficial to original member states in terms of finances, access to new markets and job creation. In view of the conclusions at the top-level meeting in Madrid, I consider that the process of enlargement is irreversible. We have received the Questionnaire of the European Commission and have formulated the answers to it, covering both the country's situation up to 1995 and our predictions for the future.

How do you assess Hungary's economic relations with the other countries of Central Europe?

As I have already said, Hungary seeks early accession to the EU and to NATO. We hope that the other countries of the region will also achieve this as soon as possible for the sake of the stability of the region, the promotion of bilateral relations and the observation of minority rights. As far as economic relations are concerned, we transit some 70 per cent of our intra-region trade turnover with the signatories to the Central European Free Trade Area (CEFTA). CEFTA aims to liberalise trade between the member countries, to remove tariffs for manufactured goods by 2001 and to support trade in farm produce by preferential tariffs. Under the auspices of CEFTA in 1995 Hungary exported US$757 million-worth of goods and imported US$982 million - 20 per cent higher than in 1994.

With regard to the region as a whole, 23 per cent of Hungary's total foreign trade in 1995 was with the countries of Central-Eastern Europe - about US$3 billion. Let me speak in detail of trade with two of our neighbours in particular. The value of trade between Hungary and Slovakia in 1995 was 50 per cent higher than in 1994, thanks chiefly to a growth in Hungarian exports. (There are over 500 joint ventures in these two countries.) Trade between Hungary and Romania expanded by 80 per cent, and the number of joint ventures reached 1,700.

What role can the Visegrad group play in economic relations?

As before, Hungary is committed to promoting co-operation between the countries of the so-called Visegrad group (ourselves, the Czech and Slovak Republics and Slovenia). We encourage the tightening of relations in free trade, the removal of tariffs, the support of investment and mutual participation in the privatisation of public assets. But, frankly speaking, other regional organisations such as CEFTA, the Central European Initiative - which grew in 1996 to include 15 members and has done a lot to promote European integration - intra-regional co-operation between Hungary, Austria and Slovakia and other cross-border groupings like the Alps-Adriatic Working Group, the Sub-Carpathian Council on Inter-Regional Co-operation and the Assembly of the European Regions, play a greater role. We believe that it is necessary to develop cross-border relations in order to assure regional stability, assert minority rights and build confidence at local levels.

What are the political and economic challenges ahead?

Our principal challenge is to prepare for EU and NATO membership. We are pleased to see that the country is in agreement on these objectives. But the government is also aware that the reforms that touch on nearly every aspect of life have unfavourable consequences for some sections of Hungarian society. We are determined to achieve a situation in which honest human endeavour earns a just reward. In this connection we plan to create social welfare systems that can grant a secure livelihood for the needy. Thanks in no small degree to the loyalty of the Hungarian people, the conditions are now appropriate for the government to fulfil its duties to its people.

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