For the most current version of this Note, see Background Notes A-Z.

PROFILE

OFFICIAL NAME:
Republic of Hungary

Geography
Area: 93,030 sq. km. (35,910 sq. mi.); about the size of Indiana.
Cities: Capital--Budapest (est. pop. 2 million). Other cities--Debrecen (220,000); Miskolc (208,000); Szeged (189,000); Pecs (183,000).
Terrain: Mostly flat, with low mountains in the north and northeast and north of Lake Balaton.
Climate: Temperate.

People
Nationality: Noun and adjective--Hungarian(s).
Population (July 2007 est.): 9,956,108.
Ethnic groups: Magyar 89.9%, Romany 4% (est.), German 2.6%, Serb 2%, Slovak 0.8%, Romanian 0.7%.
Religions (2001 census): Roman Catholic 51.9%, Calvinist 15.9%, Lutheran 3%, Greek Catholic 2.6%, Jewish 1%, others, including Baptist Adventist, Pentecostal, Unitarian 3%.
Languages: Magyar 98.2%, other 1.8%.
Education: Compulsory to age 16. Attendance--96%. Literacy--99.4%.
Health (2007 est.): Infant mortality rate--8.21/1,000. Life expectancy--men 68.73 yrs., women 77.38 yrs.
Work force (2006 est. 4.21 million): Agriculture--5.5%; industry and commerce--33.3%; services--61.2%.

Government
Type: Republic.
Constitution: August 20, 1949. Substantially rewritten in 1989, amended in 1990.
Branches: Executive--president of the Republic (head of state), prime minister (head of government), Council of Ministers. Legislative--National Assembly (386 members, 4-year term). Judicial--Supreme Court and Constitutional Court.
Administrative regions: 19 counties plus capital region of Budapest.
Principal political parties: Fidesz-Hungarian Civic Party--center-right; Hungarian Socialist Party (MSZP)--center-left; Alliance of Free Democrats (SZDSZ)--center-left; Hungarian Democratic Forum (MDF)--center-right; Christian Democratic People’s Party (KDNP)--center-right.

Economy
GDP: HUF 27,220 billion (approx. $163.9 billion) ($1=HUF 166.1 - average exchange rate Jan – Oct 2008) Annual growth rate (2008 est.): 1.8% Per capita GDP (2008 est.): $16,400.
Natural resources: bauxite, coal, natural gas, fertile soils, arable land.
Agriculture/forestry (2006 est., 3.4% of GDP): Products--meat, corn, wheat, sunflower seeds, potatoes, sugar beets, dairy products.
Industry and construction (2007 est., 44,3% of GDP): Types--machinery, vehicles, chemicals, precision and measuring equipment, computer products, medical instruments, pharmaceuticals, textiles.
Trade (2007 est.): Exports ($94,6 billion)--machinery, vehicles, food, beverages, tobacco, crude materials, manufactured goods, fuels and electric energy. Imports ($94,7 billion)--machinery, vehicles, manufactured goods, fuels and electric energy, food, beverages, and tobacco. Major markets--EU (Germany, Austria, Italy, France, UK, Romania, Poland). Major suppliers--EU (Germany, Austria, Italy, France, Netherlands, Poland), Russia, China.

PEOPLE AND HISTORY
Ethnic groups in Hungary include Magyar (nearly 90%), Romany, German, Serb, Slovak, and others. The majority of Hungary's people are Roman Catholic; other religions represented are Calvinist, Lutheran, Jewish, Baptist, Adventist, Pentecostal, and Unitarian. Magyar is the predominant language. Hungary has long been an integral part of Europe. It converted to Western Christianity before AD 1000. Although Hungary was a monarchy for nearly 1,000 years, its constitutional system preceded by several centuries the establishment of Western-style governments in other European countries.

Following the defeat of the Austro-Hungarian Dual Monarchy (1867-1918) at the end of World War I, Hungary lost two-thirds of its territory and nearly as much of its population. It experienced a brief but bloody communist dictatorship and counterrevolution in 1919, followed by a 25-year regency under Adm. Miklos Horthy. Although Hungary fought in most of World War II as a German ally, it fell under German military occupation following an unsuccessful attempt to switch sides on October 15, 1944. Under occupation, the Hungarian Government deported or executed and seized the property of hundreds of thousands of its minority citizens, mostly members of the Jewish community. On January 20, 1945, a provisional government concluded an armistice with the Soviet Union and established the Allied Control Commission, under which Soviet, American, and British representatives held complete sovereignty over the country. The Commission's chairman was a member of Stalin's inner circle and exercised absolute control.

Communist Takeover
The provisional government, dominated by the Hungarian communist party (MKP), was replaced in November 1945 after elections which gave majority control of a coalition government to the Independent Smallholders' Party. The government instituted a radical land reform and gradually nationalized mines, electric plants, heavy industries, and some large banks. The communists ultimately undermined the coalition regime by discrediting leaders of rival parties and through terror, blackmail, and framed trials. In elections tainted by fraud in 1947, the leftist bloc gained control of the government.

By February 1949, all opposition parties had been forced to merge with the MKP to form the Hungarian Workers' Party. In 1949, the communists held a single-list election and adopted a Soviet-style constitution, which created the Hungarian People's Republic. Between 1948 and 1953, the Hungarian economy was reorganized according to the Soviet model. In 1949 and the country joined the Council for Mutual Economic Assistance (CMEA, or Comecon.) All private industrial firms with more than 10 employees were nationalized. Freedom of the press, religion, and assembly were strictly curtailed. The head of the Roman Catholic Church, Cardinal Jozsef Mindszenty, was sentenced to life imprisonment.

Forced industrialization and land collectivization soon led to serious economic difficulties, which reached crisis proportions by mid-1953. Imre Nagy replaced Rakosi as prime minister in 1953 and repudiated much of Rakosi's economic program of forced collectivization and heavy industry. He also ended political purges and freed thousands of political prisoners. However, the economic situation continued to deteriorate, and Rakosi succeeded in disrupting the reforms and in forcing Nagy from power in 1955 for "right-wing revisionism." Hungary joined the Soviet-led Warsaw Pact Treaty Organization the same year.

1956 Revolution
Pressure for change reached a climax on October 23, 1956, when security forces fired on Budapest students marching in support of Poland's confrontation with the Soviet Union. The ensuing battle quickly grew into a massive popular uprising. Fighting did not abate until the Central Committee named Imre Nagy as prime minister on October 25. Nagy dissolved the state security police, abolished the one-party system, promised free elections, and negotiated with the U.S.S.R. to withdraw its troops.

Faced with reports of new Soviet troops pouring into Hungary, despite Soviet Ambassador Andropov's assurances to the contrary, on November 1 Nagy announced Hungary's neutrality and withdrawal from the Warsaw Pact. In response, the Soviet Union launched a massive military attack on Hungary on November 3. Some 200,000 Hungarians fled to the West. Nagy and his colleagues took refuge in the Yugoslav Embassy. Party First Secretary Janos Kadar, defected from the Nagy cabinet, fleeing to the Soviet Union. On November 4 he announced the formation of a new government. He returned to Budapest and, with Soviet support, carried out severe reprisals; thousands of people were executed or imprisoned. Despite a guarantee of safe conduct, Nagy was arrested and deported to Romania. In June 1958, the government announced that Nagy and other former officials had been executed.

Reform Under Kadar
In the early 1960s, Kadar announced a new policy under the motto of "He who is not against us is with us," and introduced a relatively liberal cultural and economic course aimed at overcoming the post-1956 hostility toward him and his regime. In 1966, the Central Committee approved the "New Economic Mechanism," through which it sought to overcome the inefficiencies of central planning, increase productivity, make Hungary more competitive in world markets, and create prosperity to ensure political stability. By the early 1980s, it had achieved some lasting economic reforms and limited political liberalization and pursued a foreign policy which encouraged more trade with the West. Nevertheless, the New Economic Mechanism led to mounting foreign debt incurred to shore up unprofitable industries.

Transition to Democracy
Hungary's transition to a Western-style parliamentary democracy was the first and the smoothest among the former Soviet bloc By 1987, activists within the party and bureaucracy and Budapest-based intellectuals were increasing pressure for change. Young liberals formed the Federation of Young Democrats (Fidesz); a core from the so-called Democratic Opposition formed the Association of Free Democrats (SZDSZ), and the neo-populist national opposition established the Hungarian Democratic Forum (MDF). Civic activism intensified to a level not seen since the 1956 revolution.

In 1988, Kadar was replaced as General Secretary of the MKP, and that same year, the Parliament adopted a "democracy package," which included trade union pluralism; freedom of association, assembly, and the press; a new electoral law; and a radical revision of the constitution, among others. The Soviet Union reduced its involvement by signing an agreement in April 1989 to withdraw Soviet forces by June 1991.

National unity culminated in June 1989 as the country reburied Imre Nagy, his associates, and, symbolically, all other victims of the 1956 revolution. A national roundtable, comprising representatives of the new parties and some recreated old parties--such as the Smallholders and Social Democrats--the communist party, and different social groups, met in the late summer of 1989 to discuss major changes to the Hungarian constitution in preparation for free elections and the transition to a fully free and democratic political system.

Free Elections and a Democratic Hungary
The first free parliamentary election, held in May 1990, was a plebiscite of sorts on the communist past with the Democratic Forum (MDF) winning 43% of the vote and the Free Democrats (SZDSZ) capturing 24%. Under Prime Minister Jozsef Antall, the MDF formed a center-right coalition government with the Independent Smallholders' Party (FKGP) and the Christian Democratic People's Party (KDNP) to command a 60% majority in the parliament. Parliamentary opposition parties included SZDSZ, the Socialists (MSZP), and the Alliance of Young Democrats (Fidesz). Peter Boross succeeded as Prime Minister after Antall died and the Antall/Boross coalition governments achieved a reasonably well-functioning parliamentary democracy and laid the foundation for a free market economy.

In May 1994, the socialists came back to win a plurality of votes and 54% of the seats after an election campaign focused largely on economic issues and the substantial decline in living standards since 1990. A heavy turnout of voters swept away the right-of-center coalition but soundly rejected extremists on both right and left. The MSZP continued economic reforms and privatization, adopting a painful but necessary policy of fiscal austerity (the "Bokros plan") in 1995. However, dissatisfaction with the pace of economic recovery, rising crime, and cases of government corruption convinced voters to propel center-right parties into power following national elections in May 1998. The Federation of Young Democrats (renamed Fidesz-Hungarian Civic Party (MPP) in 1995) captured a plurality of parliamentary seats and forged a coalition with the Smallholders and the Democratic Forum. The new government, headed by 35-year-old Prime Minister Viktor Orban, promised to stimulate faster growth, curb inflation, and lower taxes. Although the Orban administration also pledged continuity in foreign policy, and continued to pursue Euro-Atlantic integration as its first priority, it was a more vocal advocate of minority rights for ethnic Hungarians abroad than the previous government.

In April 2002, the country voted to return the MSZP-Free Democrat coalition to power. The Medgyessy government placed special emphasis on solidifying Hungary's Euro-Atlantic course, which culminated in Hungary’s accession to the European Union on May 1, 2004. Prime Minister Medgyessy resigned in August 2004 after losing coalition support following an attempted cabinet reshuffle. Ferenc Gyurcsany succeeded Medgyessy as Prime Minister in September 29, 2004.

In the April 2006 election, Prime Minister Ferenc Gyurcsany and his Socialist-liberal coalition were re-elected, the first time since communism that a sitting government has renewed its mandate. Currently, the MSZP is ruling as a minority government as the SZDSZ pulled out of the coalition in April 2008. The present configuration of Parliament includes MSzP with 190 seats, SZDSZ with 19 seats; Fidesz and KDNP with 161 seats, MDF with 10 seats, and five independent Members of Parliament. One seat is currently vacant, awaiting a by-election in January 2009. Following the dissolution of the coalition with SZDSZ the Prime Minister reduced the number of ministries in the cabinet from 17 to 13.

GOVERNMENT AND POLITICAL CONDITIONS
The President of the Republic, elected by the National Assembly every 5 years, has a largely ceremonial role, but powers also include appointing the prime minister. The prime minister selects cabinet ministers and has the exclusive right to dismiss them. Each cabinet nominee appears before one or more parliamentary committees in consultative open hearings and must be formally approved by the president. The unicameral, 386-member National Assembly is the highest organ of state authority and initiates and approves legislation sponsored by the prime minister. A party must win at least 5% of the national vote to form a parliamentary faction. National parliamentary elections are held every 4 years (the last in April 2006). A 15-member Constitutional Court has power to challenge legislation on grounds of unconstitutionality.

Principal Government Officials
President--Laszlo Solyom
Prime Minister--Ferenc Gyurcsany (MSZP)
Minister of Foreign Affairs--Kinga Goncz
Ambassador to the United States--Ferenc Somogyi
Ambassador to the United Nations--Gabor Brodi

The Hungarian embassy is located at 3910 Shoemaker St. NW, Washington, DC 20008 (tel. 202-362-6730). Hungary has consulates in New York City, Chicago and Los Angeles.

ECONOMY
The Hungarian economy prior to WWII was primarily oriented toward agriculture and small scale manufacturing. Hungary's strategic position in Europe and its relative lack of natural resources also have dictated a traditional reliance on foreign trade. In the early 1950s, the communist government forced rapid industrialization after the standard Stalinist pattern in an effort to encourage a more self-sufficient economy. Most economic activity was conducted by state-owned enterprises or cooperatives and state farms. In 1968, Stalinist self-sufficiency was replaced by the "New Economic Mechanism," which reopened Hungary to foreign trade, gave limited freedom to the workings of the market, and allowed a limited number of small businesses to operate in the services sector.

Although Hungary enjoyed one of the most liberal and economically advanced economies of the former Eastern bloc, both agriculture and industry began to suffer from a lack of investment in the 1970s, and Hungary's net foreign debt rose significantly--from $1 billion in 1973 to $15 billion in 1993--due largely to consumer subsidies and unprofitable state enterprises. In the face of economic stagnation, Hungary opted to try further liberalization by passing a joint venture law, adopting an income tax, and joining the International Monetary Fund (IMF) and the World Bank. By 1988, Hungary had developed a two-tier banking system and had enacted significant corporate legislation which paved the way for the ambitious market-oriented reforms of the post-communist years.

The Antall government of 1990-94 began market reforms with price and trade liberation measures, a revamped tax system, and a nascent market-based banking system. By 1994, however, the costs of government overspending and hesitant privatization had become clearly visible. Since that time, the government sector has been prone to high deficit spending, often preceding national elections. A series of reforms has helped bring this under control, and Hungary's early openness to foreign direct investment (FDI) led to a sustained period of high growth and made Hungary a magnet for FDI in the late 1990's and early parts of this century.

In 1995 Hungary's currency, the forint (HUF), became convertible for all current account transactions, and subsequent to OECD membership in 1996, for almost all capital account transactions as well. In 2001, the Orban government lifted remaining currency controls and broadened the band around the exchange rate, allowing the forint to appreciate by more than 12% in a year. Conflicting fiscal and monetary policy in the summer of 2002 caused confusion briefly in the market, with the forint surging against the Euro for several months. Prior to the change of regime in 1989, 65% of Hungary's trade was with Comecon countries. By the end of 1997, Hungary had shifted much of its trade to the West. Trade with EU countries and the OECD now comprises over 75% and 85% of the total, respectively. Germany is Hungary's single-most important trading partner. The United States has become Hungary's sixth-largest export market, while Hungary is ranked as the 72nd largest export market for the United States. Bilateral trade between the two countries has increased to more than $1 billion per year. The United States has normal trade relations with Hungary and has extended to it Overseas Private Investment Corporation insurance, and access to the Export/Import Bank.

In the 1990’s, Hungary rapidly integrated into the European economy, with the value of exports and imports both growing to well over 70% of GDP. This close relationship with the economies of the European Union (EU) helped pave the way for Hungary's accession to the EU in 2004. In recent years, Hungary has been a leader in per capita FDI in the region, and the private sector is the dominant engine of growth in an economy saddled down with heavy government debt and a substantial fiscal deficit. Many analysts and international organizations note the success of export-oriented manufacturing companies, but see room for substantial structural reform to reduce government spending and increase efficiencies in areas such as taxation, health care, education, and social benefits. As a result, despite high levels of FDI, Hungary’s growth rate over much of the last decade has trailed that of its central European neighbors.

As part of its EU membership agreement, Hungary agreed to meet the economic criteria necessary to adopt the Euro. In 2005 and 2006, it became clear that not only was a high budget deficit hurting the economy (at one point in danger of surpassing 10% of GDP in 2006), but that Hungary would have to endure EU scrutiny and possible sanctions associated. Against this backdrop, Prime Minister Gyurcsany proposed and launched a sweeping austerity program to attack Hungary’s budget deficit, by raising taxes, decreasing subsidies, and streamlining the public sector. Businesses have complained that the increased taxes and greater enforcement costs have decreased Hungary's competitiveness, but the positive affects of the deficit are clear. With a goal of cutting the deficit from over 9% if GDP in 2006 to 6.8% of GDP in 2007, the government exceeded its target and attained a deficit of 5,0% of GDP for the year. GOH decreased the 2008 deficit target to 3.4% of GDP (from 4%) and the 2009 target to 2.9% of GDP. The rate of inflation has been declining since May 2008. The Finance Ministry projects 6.4% annual average inflation for 2008. With more than $60 billion in FDI since 1989, Hungary has been a leading destination for FDI in central and eastern Europe, although this level is beginning to decline. The largest U.S. investors include GE, Alcoa, General Motors, Coca-Cola, Ford, IBM, and PepsiCo. Foreign companies modernized Hungary's industrial sector and created thousands of new, high-skilled, high-paying jobs. As a result of extensive and continuing liberalization, the private sector produces about 80% of Hungary’s output. Currently, foreign firms control two-thirds of manufacturing, 90% of telecommunications, and 60% of the energy sector. Inflation declined from 14% in 1998 to 3.7% in 2005, and is expected to return to low levels by 2008. Policy challenges include cutting the public sector deficit, reducing the country’s high redistribution rate, and taking concrete measures on transparency and tax reform to retain its competitive position in attracting investment.

In October 2008, the effects of the global financial crisis spilled over into Hungary. Years of high budget deficits and Hungary’s high external debt levels fueled investor risk aversion, and negatively affected the foreign exchange, government securities, and equity markets in Hungary. Even though macroeconomic and financial policies had been strengthened since 2006, Hungary was hit hard by global de-leveraging. In order to increase investor confidence and ensure liquidity in domestic financial markets, Hungary concluded a $25 billion financial stabilization package with the IMF, EU and the World Bank.

NATIONAL SECURITY
Hungary's key national security focus since joining NATO in 1999 has been contributing to the stability of the region while integrating its armed forces into NATO's force structure. Hungary takes a keen interest in NATO expansion and in the transatlantic link. It shares a more acute sense of the threat than many other European countries and is watching events in the Balkans, Ukraine, and Russia with great interest. Hungarians believe that Hungary's own security and that of its ethnic minorities in neighboring countries will be best served by a peaceful, unified region, which will be achieved when EU and NATO membership is extended to the entire region.

Hungary has been slowly modernizing and downsizing its armed forces since it left the Warsaw Pact in 1990. Transitioning from a heavy, slow-moving Warsaw Pact force to a lighter, versatile NATO force, the Hungarian military has gone from 130,000 in 1989 to approximately 24,000 combat and combat support forces in 2008. Implementing a new training, logistics, and leadership systems and a new Joint Forces Command structure, the Hungarian military has gained considerable practical experience working with NATO and other forces serving in international military missions (about 1,000 at any given time). Hungary was especially helpful during the implementation of the Dayton Peace Accords in the Balkans from 1995-2004, when its airbase at Taszar was used by coalition forces transiting the region. Hungary currently leads a Provisional Reconstruction Team (PRT) in Afghanistan and provides security at the Kabul airport. Hungary has committed to providing two Operational Mentoring and Liaison Teams (OMLT) as well as Special Forces personnel, without caveat, in Afghanistan in 2009. The Hungarian military took over command of a joint battalion in the Balkans in 2008. Hungary’s Papa Airbase will be the home base of the Strategic Airlift Consortium’s C-17 operations, expanding its contribution to NATO and other European partners. Hungary’s military still faces numerous challenges to its modernization program, as reflected in the 2008 Hungarian defense budget, set at 1.17% of GDP, well below the NATO target of two percent.

FOREIGN RELATIONS
Except for the short-lived neutrality declared by Imre Nagy in November 1956, Hungary's foreign policy generally followed the Soviet lead from 1947 to 1989. During the communist period, Hungary maintained treaties of friendship, cooperation, and mutual assistance with the Soviet Union, Poland, Czechoslovakia, the German Democratic Republic, Romania, and Bulgaria. It was one of the founding members of the Soviet-led Warsaw Pact and Comecon, and it was the first central European country to withdraw from those now defunct organizations.

As with any country, Hungarian security attitudes are shaped largely by history and geography. For Hungary, this is a history of more than 400 years of domination by great powers--the Ottomans, the Habsburgs, the Germans during World War II, and the Soviets during the Cold War--and a geography of regional instability and separation from Hungarian minorities living in neighboring countries. Hungary's foreign policy priorities, largely consistent since 1990, represent a direct response to these factors. Since 1990, Hungary's top foreign policy goal has been achieving integration into Western economic and security organizations. To this end, Hungary joined NATO in 1999 and the European Union in May of 2004. Hungary also has improved its often-chilled neighborly relations by signing basic treaties with Romania, Slovakia, and Ukraine. These renounce all outstanding territorial claims and lay the foundation for constructive relations. However, the issue of ethnic Hungarian minority rights in Slovakia and Romania periodically causes bilateral tensions to flare. Hungary was a signatory to the Helsinki Final Act in 1975, has signed all of the CSCE/OSCE follow-on documents since 1989, and served as the OSCE's Chairman-in-Office in 1997. Hungary's record of implementing CSCE Helsinki Final Act provisions, including those on reunification of divided families, remains among the best in eastern Europe. Hungary has been a member of the United Nations since December 1955.

U.S.-HUNGARIAN RELATIONS
Relations between the United States and Hungary following World War II were affected by the Soviet armed forces' occupation of Hungary. Full diplomatic relations were established at the legation level on October 12, 1945, before the signing of the Hungarian peace treaty on February 10, 1947. After the communist takeover in 1947-48, relations with Hungary became increasingly strained by the nationalization of U.S.-owned property, unacceptable treatment of U.S. citizens and personnel, and restrictions on the operations of the American legation. Though relations deteriorated further after the suppression of the Hungarian national uprising in 1956, an exchange of ambassadors in 1966 inaugurated an era of improving relations. In 1972, a consular convention was concluded to provide consular protection to U.S. citizens in Hungary.

In 1973, a bilateral agreement was reached under which Hungary settled the nationalization claims of American citizens. In January 1978, the United States returned to the people of Hungary the historic Crown of Saint Stephen, which had been safeguarded by the United States since the end of World War II. Symbolically and actually, this event marked the beginning of excellent relations between the two countries. A 1978 bilateral trade agreement included extension of most-favored-nation status to Hungary. Cultural and scientific exchanges were expanded. As Hungary began to pull away from the Soviet orbit, the United States offered assistance and expertise to help establish a constitution, a democratic political system, and a plan for a free market economy.

Between 1989 and 1993, the Support for East European Democracy (SEED) Act provided more than $136 million for economic restructuring and private sector development. The Hungarian-American Enterprise Fund has offered loans, equity capital, and technical assistance to promote private-sector development. The U.S. Government has provided expert and financial assistance for the development of modern and Western institutions in many policy areas, including national security, law enforcement, free media, environmental regulations, education, and health care. American direct investment has had a direct, positive impact on the Hungarian economy and on continued good bilateral relations. When Hungary acceded to NATO in April 1999, it became a formal ally of the United States. This move has been consistently supported by the 1.5 million-strong Hungarian-American community. The U.S. government supported Hungarian European Union accession in 2004, and continues to work with Hungary as a valued partner in the Transatlantic relationship. Hungary joined the Visa Waiver Program on November 17, 2008.

Principal U.S. Embassy Officials
Ambassador--April H. Foley
Deputy Chief of Mission--Jeffrey D. Levine
Political/Economic Counselor--Eric V. Gaudiosi
Commercial Officer--Patricia Gonzalez
Public Affairs Officer--Michael J. Hurley
Environment/Science/Technology Attaché--Camille Hill
Management Counselor--Paul Gilmer
Consul--Thomas M. Ramsey
Defense Attaché--Col. Robert Duggleby
USAID Director--David Leong

The U.S. Embassy in Hungary is located at Szabadsag Ter 12, Budapest 1054 (tel. (36) 1-475-4400).

[This is a mobile copy of Hungary (11/08)]