NATIONAL INTELLIGENCE ESTIMATE NUMBER 12.5-55 CURRENT SITUATION AND PROBABLE DEVELOPMENTS IN HUNGARY

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• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A005400040004-6
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• Sequence Number: 4
• Publication Date: March 29, 1955
• Content Type: NIE

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? NIE 12.5-55
29 March 1955
NATIONAL INTELLIGENCE ESTIMATE
- NUMBER 12.5-55
? CURRENT SITUATION AND PROBABLE
DEVELOPMENTS IN HUNGARY
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 29 March 1955. Concurring were the Special Assistant,
Intelligence, Department of State; the Assistant Chief of Staff,
G-2, Department of the Army; the Director of Naval Intelli-
gence; the Director of Intelligence, USAF; and the Deputy
Director for Intelligence, The Joint Staff. The Atomic Energy
Commission Representative to the IAC, and the Assistant to
the Director, Federal Bureau of Investigation, abstained, the
subject being outside of their jurisdiction.
"T=
SC
COPY NO. 207
eggraf:?. ASSISTA::r DIRECTOR,0NE
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CENTRAL INTELLIGENCE AGENCY
DISSEMINATION NOTICE
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June 1953.
WARNING
This material contains information affecting
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Title 18, USC, Secs. 793 and 794, the trans-
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p3Magihir
CURRENT SITUATION AND PROBABLE DEVELOPMENTS -
IN HUNGARY
THE PROBLEM
To assess the strengths and weaknesses of the Hungarian Communist regime,
to evaluate the regime's policies and probable courses of action, and to estimate the
ability of the Communists to continue in control through mid-1956.
CONCLUSIONS
1. Hungary has in recent years shown
consistent evidence of political dishar-
mony and economic dislocation, accom-
panied by popular unrest, and will prob-
ably continue to be the most troublesome
of the East European Satellites. Much
of the popular dissension arises from the
Hungarians' deep-seated hostility toward
Communism and toward the Slays who
have imposed Communism upon them.
They do not have the antagonism toward
the Germans displayed by the Czechs
and the Poles. However, the security
forces at the disposal of the government,
plus the presence of Soviet forces, are
sufficient to cope with any active resist-
ance. In any event, we believe that the
Kremlin will take all measures necessary
to keep Hungary in the Bloc. (Paras. 7--
15, 19-28, 34)
2. Although the Communist regime re-
stored the economy and, in some direc-
tions, notably heavy industry, expanded
it, Hungary's economic difficulties multi-
plied. The introduction of the "New
Course" in 1953 failed to resolve the prob-
lems in industry and agriculture. In in-
dustry the failure is attributable to an
inadequate raw materials base, inexperi-
enced management, and inability to pro-
vide sufficient worker incentives. In ag-
riculture, mismanagement coupled with
general peasant resistance to agrarian
policies accounted for most of the diffi-
culties. Living conditions did not im-
prove during 1954 and, in the urban areas,
were clearly below prewar levels. (Paras.
7-9, 14-15)
3. Improvement in the Hungarian econ-
omy is unlikely to take place unless a
substantial increase in agricultural pro-
duction can be achieved. Prospects for
this are poor under existing Communist
policies. (Paras. 16-18)
4. The Hungarian Army and Air Force
are capable of participating in a Bloc
campaign against neighboring countries
although sustained operations would re-
quire extensive Soviet logistic support.
The reliability of the Army and Air Force
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is considered to be sufficiently high for
them to serve in occupation duties, to
guard rear areas, or to serve as integrated
elements of a Soviet field force. The
combat effectiveness of the Hungarian
2
Army is as high as that of any other
European Satellite, except Bulgaria; its
primary limitation being the question-
able reliability of some of the troops.
(Paras. 29-30)
DISCUSSION
I. INTRODUCTION
5. Of all the European Satellites, Hungary
has in recent years shown the most consistent
symptoms of political disharmony, economic
dislocation, and popular unrest. These symp-
toms have not extended to open revolt, such
as occurred in East Germany in June 1953,
but they have been sufficient to arouse doubts,
from time to time, as to the ability of the
Communists to maintain power. We do not
believe that the regime is, in fact, seriously
threatened. Nevertheless, Hungary is almost
certainly the most troubled of all the Euro-
pean states subject to the USSR. Its pop-
ulation is overwhelmingly hostile to the Com-
munist government, and is apathetic and un-
cooperative toward the economic program.
The economy has been dislocated by unreal-
istic plans and by incompetent management.
By mid-1953, persistent failures led to the
introduction of a "New Course." After about
18 months of operation, the new policies had
failed to bring about the hoped-for improve-
ments. In early 1955, certain modifications
of "New Course" policies were initiated. In
spite of efforts by the Communists, the situa-
tion has not been resolved.
II. ECONOMIC SITUATION AND PROBABLE
DEVELOPMENTS
The Period 1945-1953
6. After World War II the Hungarian econ-
omy, like that of other war-torn nations, was
in a state of paralysis. In 1947, a three-year
program of recovery was instituted under the
auspices of a coalition government including
the Communists which then ruled the coun-
try. This plan was overfulfilled, and by 1949
the general level of production in Hungary
had slightly exceeded the level of 1938. Mean-
while, the Communist minority in the coun-
try, with the support of Soviet occupation
forces, gradually but ruthlessly eliminated
overt and organized opposition and took over
the government.
7. In 1950 the Communist regime inaugurated
a Five-Year Plan for rapid industrialization;
this plan in its general aims was similar to
those of the other Satellites and of the USSR
itself. Encouraged by the striking progress
made during the first year of this program,
and spurred on by the heightened internation-
al tensions accompanying the Korean War,
the Communists in 1951 greatly expanded the
goals which they had set in the previous year.
During early 1951, fairly good progress con-
tinued to be made. Later in 1951, however,
serious difficulties began to appear, especially
shortages of raw materials for the heavy man-
ufacturing industries. A very severe drought
aggravated a continuing deficiency in agri-
cultural production.
8. In spite of difficulties which gradually
multiplied, the Hungarian economy in some
respects had made remarkable gains. From
1949 through 1953, gross national product
(GNP) rose at an average annual rate of more
than seven percent; from an estimated $2.3
billion in 1948 to $3.3 billion in 1953 (in 1951
US dollars) . Total industrial production al-
most doubled between 1950 and 1953, while
production in heavy industry more than dou-
bled. Industrial construction increased three-
fold. Even though these increases were
achieved at the expense of the consumption
sectors of the economy, they were neverthe-
less impressive.
9. Along with the considerable success in
heavy industrial development went a conspic-
uous failure in agriculture. The agricultural
plan for 1947-1949 was not fulfilled, and sub-
NMI T
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sequent plans fared no better. In absolute
terms, agricultural production approximated
the prewar level only once, in 1951, and since
that year it has declined. The causes for this
failure besides the great drought of 1952, lay
in: (a) the drawing off of farm manpower for
industry; (b) the failure to mechanize agri-
culture in accordance with plan; (c) the re-
sistance of the peasants to the regime's actual
or prospective measures for the collectiviza-
tion of farming; (d) arbitrary cropping pat-
terns; and (e) the government's collection
and price policies. This general situation,
which was common throughout the Bloc, was
particularly acute in Hungary.
10. The consequences of the agricultural fail-
ure were very serious. Per capita consump-
tion of food fell below prewar levels. In par-
ticular, consumption of meat, fats, and milk
? the foods required for the better dietary
balance of the rapidly expanding urban work-
ing-, population ? fell off markedly. Hun-
gary's traditional exports declined sharply;
foodstuffs had to be imported. The resultant
reduction of foreign exchange was of special
significance. As Hungary's industries grew
under the development programs, their needs
for imported raw materials grew also, while
the lagging agricultural output rendered it
increasingly difficult to pay for such imports.
At the same time, exports of manufactured
goods met price, quality, and delivery difficul-
ties. Overemphasis upon heavy industry, and
neglect of agriculture, thus led to a serious
economic imbalance; and by early 1953, the
standard of living had reached an all-time low.
The "New Course"
11. Confronted by this deteriorating situation,
the Hungarian government on 4 July 1953,
announced the "New Course" which had the
dual purpose of redressing the unbalanced
economy and placating the hostile popula-
tion. The "New Course" announcement in
Hungary followed shortly after the announce-
ment of a similar policy in East Germany but
preceded that of similar programs in the other
Satellites. The economic part of the "New
Course" sharply altered past policies and out-
lined a new program designed to de-emphasize
heavy industry and to increase production in
3
agriculture and light industry. Agricultural
production was to be encouraged through ma-
terial incentives rather than coercion. Peas-
ants working their own land were promised
greater government assistance, more equitable
treatment in the use of agricultural machin-
ery, some concessions with regard to delivery
obligations, and higher prices. Even more
important, the collective farm peasants were
given permission to withdraw. Industrial
workers and urban residents were promised
increased food and other consumer goods, im-
proved wages, and better housing. The gov-
ernment promised better quality, wider vari-
ety, and lower prices of consumer goods. The
announcement of the "New Course" was ac-
companied by a tremendous propaganda
campaign aimed at generating greater popu-
lar support for the regime.
12. The immediate popular reaction to this
announcement foreshadowed the difficulties
which would plague the regime in its efforts
to accomplish the two objectives of the pro-
gram. The announcement was widely inter-
preted to mean that the government was
weakening; large numbers of peasants left
the collective farms, thus seriously interfering
with harvesting and sowing; in the factories,
efficiency and discipline deteriorated to even
lower levels. Party functionaries became dis-
contented at the prospect that their position
and influence would be curtailed as the vari-
ous promises of the "New Course" were ful-
filled. Within one week after the announce-
ment, First Secretary Rakosi appeared pub-
licly and reaffirmed that the regime's ultimate
goal was the socialization of agriculture and
reminded industrial workers that the aboli-
tion of fines did not mean that breaches of
discipline would go unpunished. These state-
ments dissipated much of the hope that had
been aroused by the promises of the "New
Course" and created uncertainty and mis-
givings among the people.
13. These misgivings were confirmed by the
regime's erratic implementation of the eco-
nomic part of the "New Course" during 1953
and 1954. Initial concessions in agriculture
included cutbacks in delivery quotas, cancella-
tion of quota arrears, and reduction of income
adiddliftiw
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taxes. However, a sustained press attack was
launched against those leaving collectives,
various obstacles were placed in the way of
those who insisted upon withdrawing, and
concessions favored collective farms over in-
dividual peasants. The regime's policy toward
urban workers was more consistent, but in-
dividual benefits either did not materialize or
fell far short of inflated expectations. Con-
cessions were made in the form of increased
wages, improved labor protection, and social
security; prices were reduced, food stocks were
released from reserves and foodstuffs were im-
ported to supplement low supplies in the ur-
ban areas. However, instead of reducing pop-
ular antagonism toward the regime, these con-
cessions appeared only to generate more de-
sires and to promote the feeling that the re-
gime could be ignored with impunity.
14. Not only did the "New Course" fail to re-
duce the widespread hostility toward the re-
gime, but it also failed to achieve its purely
economic aims. Industry's modified plan pro-
viding for a 1954 increase in output of 4.5 per-
cent had to be even further reduced. Total
industrial production increased by approxi-
mately three percent, while heavy industrial
output fell by an equal percentage and nation-
al income declined. Production continued to
be impeded by rising costs, waste, low pro-
ductivity, poor labor discipline, ineffectual
management, and poor maintenance. It was
in agriculture, however, where the greatest
gains were planned and needed, that the "New
Course" most conspicuously failed. The out-
put of industrial crops increased considerably,
but bread grain production was below that of
1953, despite an increase in acreage, and beef
cattle stock remained at the 1953 level. More-
over, the general collection was unsatisfac-
tory, even for those crops for which produc-
tion was good. Among the causes for the
shortfall in bread grains were: (a) the un-
favorable weather; (b) confusion in the coun-
tryside; (c) the regime's failure to deliver
sufficient quantities of agricultural machin-
ery; and (d) the still depressant collection
and price policies. A more fundamental, and
probably equally important, factor was the
failure of the regime to win the support of the
peasants. Even the additional concessions
4
made during 1954, including further cancella-
tion of tax arrears, failed to generate confi-
dence among the peasants. The moderate
goals of the 1954 plan were still well below
the minimum requirements of the Hungarian
nation.
15. Thus, the Hungarian economy remains in
a state of serious dislocation."' The standard
of living of the people is generally low and
in the urban areas, except for the privileged,
is substantially below prewar levels. There
is a very considerable number of black market
dealers who obtain much of their merchandise
as a result of widespread pilfering by workers.
Agricultural machinery has thus far had little
effect because of poor maintenance, lack of
spare parts, and the fact that its use has been
largely limited to the 30 percent of the land
comprising state and collective farms. Fac-
tories are badly planned, and some of them
are left unfinished. Those in operation pro-
duce generally inferior goods at a high cost
which makes it difficult to compete with more
efficient producers in foreign markets. The
marked increases in GNP represent almost
entirely capital equipment which, thus far,
has contributed very little toward the im-
provement of the welfare of the people.
Probable Economic Developments
16. According to recent policy statements re-
garding the 1955 plan, some of the former em-
phasis upon industrial production is to be re-
stored. Industrial production is scheduled to
increase over 1954 by nearly six percent and
agriculture by slightly more than seven per-
cent. National income is to rise by nearly
eight and one-half percent. The planned in-
crease in industry is made dependent largely
upon raising productivity and that in agricul-
ture is to be achieved through larger acreage
and modernization. Hungary's prospects for
achieving these 1955 increases are, at best,
poor.
17. Hungary will almost certainly be unable
to achieve any substantial economic growth
during the next few years under the present
course, and unless there is a significant modi-
fication in it, no improvement in living stand-
ards is likely. Some temporary improvement
may be obtained through extended credits or
.6411.11114101111rm
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import loans from either the USSR or the
West. The two basic difficulties impeding ,
economic development ? an inadequate raw
materials base and the stagnation in agricul-
ture ? have not been resolved, and the regime
has been unable to reduce the widespread
apathy and passive resistance of the people.
Continued general emphasis upon agricul-
tural production, and particularly upon in-
creasing the amount of agricultural equip-
ment and chemical aids available to both col-
lective farmers and individual peasants, might
lead to some increase in production, providing
the weather is favorable. The latest expres-
sion of economic policy, which may have been
dictated by the USSR, suggests that there is
little likelihood during the next few years of
any appreciable increase in the proportion
of national product assigned to meet current
consumer needs. The outlook after 1955 will
be influenced by the role assigned to Hungary
by the USSR in the coordinated Bloc-wide
planning period due to commence in 1956,
but it will be even more dependent upon basic
Hungarian capabilities.
18. Over the long term, Hungary's basic eco-
nomic problem is that of maintaining its in-
dustrial plant and importing a large part
of the raw materials essential to the opera-
tion of that plant. These imports can be paid
for by proceeds from the export of an agricul-
tural surplus or, alternatively, but less prob-
ably, manufactured products. Hungary had
been a predominantly agricultural country,
but this basic pattern changed as a result
of the rapid industrialization and the lag in
agriculture since 1949. At present, Hungary's
industry will have difficulty competing in
world markets. Thus, of the two alternatives,
agriculture is probably the more economic
means of paying for the needed imports, but
prospects are poor for achieving a significant
surplus under Communist agrarian policy.
III. POLITICAL DEVELOPMENTS
Nature and Impact of the "New Course"
19. Political developments in Hungary have
been strongly influenced by the independent
character and traditions of the Hungarian
people. They have a deep-seated hostility to-
5
ward Communism and toward the Slays who
have imposed Communism upon them. The
Hungarians feel that their ancient parliamen-
tary customs, Roman Catholic and Protestant
heritage, and their cultural tradition bind
them to Western Europe. These factors,
coupled with the peoples' recollections of
Hungary's earlier (1919) Communist dicta-
torship, increase the regime's difficulties in
its efforts to bolster its limited popular sup-
port.
20. Although the "New Course" laid primary
emphasis upon economic policy, it also offered
a number of concessions of a political nature.
Specifically, it promised: (a) broader religious
freedom; (b) a radical change in police meth-
ods to increase individual security; (c) cessa-
tion of deportation and liquidation of deten-
tion camps; and (d) a general amnesty. The
implementation of these promises has been
both limited and belated with resultant pop-
ular disillusion.
21. The promises and concessions of the "New
Course" produced dissension within the Com-
munist Party. Some Party elements con-
sidered the new program to be contrary to the
principles of Communism. Many function-
aries feared that their own positions or au-
thority might be reduced, and that, in any
case, control of the Party over the Hungarian
people would be substantially impaired. On
the other hand, the adherents of the "New
Course" considered that implementation of
its liberal policies had become essential, if
the Hungarian economy was to be preserved
from disaster and the goals of the Commu-
nist Party achieved. Party leaders attempted
to restore unity by a series of public state-
ments. Shortly after a plenum meeting of
the Central Committee of the Party in Octo-
ber, 1954, members of the Committee declared
that leaders who were unable or unwilling to
carry out the "New Course" would be replaced.
22. During 1954 and early 1955, Matyas Ra-
kosi, Secretary of the Hungarian Communist
Party, became identified with the members
of the Party faction resisting what they con-
sidered to be the extremes of the "New
Course," while Premier Nagy remained its
chief defender. Since December, 1954, Ra-
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LII 6
kosi's influence appears to have increased
steadily, and the recent shifts in Soviet eco-
nomic priorities and leadership indicate that
his views are again dominant. Nagy's dis-
appearance from public view in early 1955
and the subsequent public attack by the Cen-
tral Committee on his "rightist incorrect em-
phasis" during the "New Course" furnish addi-
tional evidence of this trend. Although dis-
sension and vacillation over the "New Course"
have diminished the stature and prestige of
the Party, we believe that the Party will con-
tinue to maintain effective leadership and con-
trol.
23. The initial reaction of the Hungarian
people in general to the political promises of
the "New Course" was a combination of op-
portunism and unrealistic expectations. Pub-
lic reaction was sharp when it developed that
many of the regime's concessions fell far short
of meeting these high expectations. Even
though the "New Course" did remove a few
of the political causes of popular dissatisfac-
tion, the hostility of the Hungarian people
toward Communism and the Communist re-
gime continues.
24. The vast majority of Hungarians feel that
their country was stolen from them by a Com-
munist minority, which gained power and re-
tains it only through the backing of Soviet
armed forces. Even among the industrial
proletariat and youth ? groups from which
Communism has generally drawn most of its
adherents ? the prevailing attitude ranges
from hostility through resentment to apathy.
Prospects for Continued Communist
Control
25. Active and organized resistance is virtu-
ally impossible because of elaborate and effec-
tive police controls, but popular resentment
is expressed in open criticism of the regime
and in widespread passive resistance. This
resentment manifests itself in a lack of co-
operation, deliberate misunderstanding of in-
structions, low quality production, high dam-
age and reject rates, and other kinds of subtle
sabotage. This pervasive passive resistance
has been one of the important reasons for the
failure of the original Five-Year Plan and
for the spotty performance under the "New
Course" since 1953.
26. While it is unlikely that the regime can
soon eliminate the basic and general hostility
of the people, it has nevertheless at its dis-
posal a formidable security apparatus: to wit,
the Security Police of 20,000 and a Frontier
Guard of 18,000. The Security Police is a
highly mobile, well-organized, politically re-
liable, and intensively trained force. Although
the Frontier Guard is probably not as depend-
able as the Security Police, its reliability is
improving as a result of incessant political
indoctrination and selective recruiting. In
addition, the regime regularly uses the Com-
munist Party, its informer network, its corps
of "political educators," and numerous MVD
members dispersed throughout the country
to suppress subversion and to maintain au-
thority. The Civil Police force of more than
50,000, though not as reliable as the security
forces, can perform limited assignments.
27. In case of widespread public disturbances,
the regime has at its disposal an Army of con-
siderable size and a small Air Force. If the
situation got beyond the control of Hungarian
forces, the Soviet forces stationed in the coun-
try, including two Soviet mechanized divisions
and elements of the 59th Tactical Air Army,
would almost certainly act with or without
an invitation. Additional Soviet troops could
be quickly brought into the country if needed.
28. With these forces available, there is little
likelihood that Communist control over Hun-
gary will be jeopardized during the period
of this estimate, but the difficulties confront-
ing the regime will continue to be accentuated
by the hostility of the people. Dissension in
the Party will continue to impair its effec-
tiveness. In the absence of any lasting solu-
tions to Hungary's basic problems, there will
almost certainly be reorganizations, new
promises, and shifts in leadership.
IV. MILITARY STRENGTHS AND CAPABILITIES
29. The Hungarian Army consists of 150,000
men organized into 13 line divisions (10 rifle,
1 cavalry, 1 mechanized, and 1 armored) with
sufficient combat support units. Under a
system of compulsory universal service, some
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50,000 men are inducted into the Army each
year and pass into the reserve after two, or in
some cases, three years. The number of well-
trained reserves is approximately 350,000 men.
Upon mobilization, the size of the Army could
be quickly expanded, reaching a strength of
650,000 men by M-1-180 days, if adequate ma-
teriel support is provided by the Soviets. The
Hungarian Army is capable of participating
in a Bloc campaign against its neighbors al-
though sustained operations would require ex-
tensive Soviet logistic support. Army units
also could be employed for occupation duties
and to guard rear areas and lines of commu-
nication, or they could be integrated with So-
viet field forces. The combat effectiveness of
the Hungarian Army is as high as that of any
other European Satellite, except Bulgaria; its
primary limitation being the questionable re-
liability of some of the troops. The reliability
of the Army as a whole, however, is considered
to- be sufficiently high for it to fight effective-
ly in the Bloc cause until it became apparent
that the tide of war was turning irrevocably
against the Soviets.
30. The Hungarian Air Force has a comple-
ment of 13,000 men and an estimated opera-
tional strength of 370 aircraft, including ap-
proximately 200 jet fighters, 110 ground
attack planes, 40 light bombers, and 20 trans-
ports. During the past year, emphasis on
primary and advanced flying and on the re-
cruitment of young pilots has already raised
morale and effectiveness, and the Air Force
is considered to be loyal to the regime. The
Air Force will probably be further improved by
gradual advances in organization, by a con-
tinuation of the jet re-equipment program,
and by more extensive operational training.
V. HUNGARY'S ROLE IN THE BLOC
31. Like the other Satellites, Hungary is un-
der the firm control of Moscow. Basic policies
are almost certainly dictated by the Kremlin,
perhaps in considerable detail. The campaign
for industrialization and the subsequent in-
troduction of the "New Course" were common
to all the Satellites, although more pro-
nounced in Hungary. The recently renewed
emphasis on heavy industry probably reflects,
7
at least in part, a conviction in Moscow that
relaxation of pressures for industrial growth
had gone too far throughout the European
Bloc.
32. There is no evidence that Moscow treats
Hungary as a special case among the Satel-
lites, nor do we believe that the USSR would
permit the adoption of policies in Hungary
which would conflict with programs laid down
for the Satellites generally. However, pe-
culiarities exist in the Hungarian political
and psychological make-up which constitute
sources of intra-Satellite dissension. One is
popular hostility toward neighboring bene-
ficiaries of the country's postwar territorial
and population losses: and, another is that
the Hungarians, having no territorial issue
to settle with Germany, appear largely un-
moved by Communist propaganda against
West German rearmament.
33. During the next several years, Hungary's
obvious economic difficulties and the recalci-
trance of its population will present consider-
able problems to the Soviet rulers as well as
to the Hungarian regime. Improvement in
Hungary's managerial skill and in the people's
attitude toward the regime will develop very
slowly, if at all. Hungary will continue to
be a weak member of the Bloc, and might
even, for a time, cost more on balance in Bloc
resources than it will contribute.
34. Despite Hungary's limited contribution to
the Bloc's power potential, the Kremlin prob-
ably considers Hungary of value because it
comprises an important strategic area, and
makes a contribution to Bloc military
strength. Economically, while Hungary may
constitute a raw material drain, it does supply
certain specialized industrial and selected ag-
ricultural products. Over the long term,
Hungary may be able to increase its contribu-
tion to the general viability of the Orbit econ-
omy and to the Orbit integrated military
front. Probably more important than any
of these factors, from the Kremlin's point of
view, is the prestige involved in maintaining
the Communist monolith intact. We believe,
therefore, that the Kremlin will take all meas-
ures necessary to keep Hungary within the
Bloc.
4141ffirewr
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Declassified and Approved For Release 2013/05/21: CIA-RDP79R01012A005400040004-6