NATIONAL INTELLIGENCE SURVEY 19; HUNGARY; THE ECONOMY

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• Collection: NIS
• Document Number (FOIA) /ESDN (CREST): CIA-RDP01-00707R000200110038-2
• Release Decision: RIF
• Original Classification: U
• Document Page Count: 43
• Document Creation Date: October 25, 2016
• Sequence Number: 38
• Content Type: REPORTS

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2.
ii
Page
c. Agricultural problems and policies 7
Disappointing rate of growth and policy
changes; greater allocation of resources
and more intensive farming; change in
structure through collectivization; in-
creased freedom and greater incentives.
d. Fishing and forestry
Small fishing industry in inland waters;
inadequate forest resources.
lruels and power
Paucity of fuel resources; large coal reserves
of low quality; changing pattern of consump-
tion.
7
8
a. Coal
8
Reserves for 100 years, largely noncoking
quality; no plans to increase production
substantially.
b. Petroleum and natural gas
9
Limited petroleum resources; output stable
but inadequate; 70% of supply imported;
efforts to diversify sources of petroleum
supply; increasing refining capacity;
rapidly rising natural gas production,
more rapidly rising consumption; planned
increase in imports.
c. Electric power
10
Very low capacity, production, consump-
tion; large imports from U.S.S.R.; indus-
trial use of 70% of inadequate supply;
thermal origin; major expansion plans.
3. Minerals and metals
11
a. Ferrous metals
11
Second lowest producer in European
CEMA; dependence on imported mate-
rials.
b. Nonferrous metals and minerals 12
Large bauxite reserves and output, large
exports of bauxite; substantial output of
alumina, inadequate power supply for
large aluminum reduction; alumina/
aluminum exchange agreement with the
U.S.S.R.; small, low- quality deposits of
copper, magnesium, lead, zinc.
4. Manufa!Auring and construction 14
a. Machine building 14
Largest manufacturing industry; diversi-
fied output; noncompetitive quality of
products; specialization in CEMA agree-
ments.
5.
Page
c. Light industry 17
Relatively little growth due to planners'
neglect; NEM efforts to revitalize light
industry; raw materials imports.
d. Food processing industry
Relatively slow growth in output; dome''
market; exports of food specialities; plans
to increase meat output.
e. Construction
Growth in construction despite neglect
by planners; housebuilding as major ac-
tivity; construction bottlenecks in 1970 -71
because of NEM induced investments;
inefficiency of building materials industry.
Domestic trade
Largely state controlled, increased freedom
under NEM; specialized outlets; rapid in-
crease in volume of trade, especially con-
sumer durables; inadequacy of distnbution
network outside Budapest; labor councils' op-
position to expansion of outlets.
18
19
20
C. Economic policy, performance, and gov-
ernmentfinance 21
1. Economic policy 21
a. Prereform period 21
Strict state control, emphasis on heavy
industry; importance of plans and effects
of plan changes; 1956 revolt and the need
for change.
b. The New Economic Mechanism
NEM) 22
Reduced control of the economy by
the state and increased responsibility for
enterprises; the role of profits and of in-
direct controls; factory democracy.
2. Development 24
a. Plans and results 24
Rigid adherence to early postwar plans and
the 1956 revolt, large Soviet share in re-
storing econom;c losses; failure of 1961 -65
plan, more modest goals and success of
1966 -70 plan; investment boom following
NEM, problems in construction and exces-
sive imports; tighter controls.
b. Chemical industry 15 3.
Very rapid growth, paced by pharmaceu-
ticals; large exports of pharmaceuticals;
major chemical expansion; emphasis on
petrochemicals; rising .Fertilizer produc-
tion; ruing imports; sma output of syn-
thetics.
b. Consumption and investment 25
Neglect of consumers in early postwar
years; narrowing the income gap between
urban and rural groups; housing still a
problem area; changing. patterns of in-
vestment; effect of construction bottleneck.
Government finance 27
a. The state budget 27
An instrument of control and govern-
ment finance; 1968 revision to reflect
enterprise self financing; importance of
taxes on enterprise funds; decline in
budget- financed investments.
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b. Banking and currency 29
Banks as instruments to implement fi-
nancial aspects of economic plans; func-
tions of the Hungarian National Bank;
banking reorganization of 1971; roles of
other banks; the national currency; credit
policy formulation and implementation.
D. Foreign trade 31
1. Volume and direction
High per capita but low total volume; rough
equality in distribution between U.S.S.R.,
the West, and other Communist countries.
2. Commodity composition
Importance of machinery among exports and
of raw materials and semifinished goods
among imports.
3. Balance of payments
Importance of trade balances; cumulative
surplus in trade with Communist countries,
deficit with the West; invisible earnings not
a significant offset to trade deficits.
31
4. Policy and organization
NEM efforts to rationalize output and ex-
ports; effect of the "multiplier greater enter-
prise freedom; development of trade agents.
5. Cooperative arrangements
a. Western countries
Rising incidence of cooperative agree-
ments with Western firms; increasing in-
terest in membership in international or-
ganizations.
b. Communist countries
Bilateral processing and exchange agree
31 ments; joint enterprises.
c. Council for Economic Mutual As-
sistance
32 Hungary a strong advocate of reform and
currency convertibility; dissatisfaction with
CEMA progress in promoting specializa-
tion and exchange; the International In-
vestment Bank and IBEC.
FIGURES
Production of machinery, equip-
ment, and consumer durables
(table)
Production of chemicals and phar-
maceuticals table)
Principal products of light indus-
try(table)
Maturing room for cheese photo)
Housing construction (photo)
Investments in the socialized sec-
tor (table)
Budget revenues and expenditures
(table)
Geographic distribution of foreign
trade (chart)
Foreign trade summary table)
Foreign trade, by commodity
groups (table)
Page
33
34
34
34
35
Page
15
16
18
19
26
27
28
31
32
32
iii
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Page
Fig. 1
Indexes of GNP, industry, and agri-
Fig. 13
culture (chart)
1
Fig. 2
GNP by sectors of origin chart)
1
Fig. 3
Strategic supply position (table)
2 Fig. 14
Fig. 4
Socialist industry: employment, pro-
duction, and fixed assets (table)
4
Fig. 5
Major agricultural zones map)
Fig. 15
5
Fig. 6
Land use (chart)
5
Fig. 7
Crop production (table)
6 Fig. 16
Fig. 8
Livestock numbers and products
Fig. 17
(table)
6 Fig. 18
Fig. 9
Fuel production and consumption
table
g
Fig. 10
Production of fuels, power, min-
erals, and metals (table)
9 Fig. 20
Fig. 11
Major mining and industrial centers
"WP)
12 Fig. 21
Fig. 12
Csepel Machine Tool Factory work-
Fig. 22
shop (photo)
14
Production of machinery, equip-
ment, and consumer durables
(table)
Production of chemicals and phar-
maceuticals table)
Principal products of light indus-
try(table)
Maturing room for cheese photo)
Housing construction (photo)
Investments in the socialized sec-
tor (table)
Budget revenues and expenditures
(table)
Geographic distribution of foreign
trade (chart)
Foreign trade summary table)
Foreign trade, by commodity
groups (table)
Page
33
34
34
34
35
Page
15
16
18
19
26
27
28
31
32
32
iii
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The Economy
A. Basic trends and problems (U /OU)
As in other Communist states, Hungary's postwar
economic strategy involved rapid industrialization
under a rigid system of central planning. Prior to
World War 11, Hungary, a small landlocked country
lacking most of the raw materbik necessary to support
an industrialized economy was predominantly
agrarian. In the postwar period, however, the structure
of the economy was transformed. According to official
Hungarian data, industry grew by more than 500%
during 1950 -71. U.S. estimates indicate a lower
growth rate but show a sharp increase, nevertheless,
particularly in comparison with the estimates of
growth for the gross national product (GNP) and
agriculture (Figures 1 and 2).
300
Although Hungary is generally self- sufficient in
ag- icultural products, which also provide a significant
share of exports, particuarly to the West, the country
must imp: ort most of the iron ore, coke, petroleum, and
timber, in addition to a wide range of nonferrous
metals and minerals, used by the economy (Figilre 3).
Natural resources for industry are limited largely to
natural gas, coal, and bauxite, the chief metal
resource, from which alumina is produced. Because of
electric power shortages, however, Hungary ships most
of the alumina to the U.S.S.R. for processing into
aluminum.
Tle per capita GNP., which was about US$1,600 in
1971, ranks close to the Fast European average
higher than in Bulgaria, Poland, and Romania, but
considerably loN%er than in East Germany and
Czechoslovakia. In addition, the Hungarian GNP has
grown at about the average rate for Eastern Europe.
Severe imbalances in the econoiny, however, had
developed by the 1960's. In focusing on heavy
industry, the planners neglected agriculture, consumer
manufactures, and supporting industries notably
transportation and construction. Moreover, neglect of
TOTAL GNP
US$ 16.0 billion
Eih1]
100
60
1948 50 52 54 56 58 60 62 64 66 68 70 71
FIGURE 1. Indexes of GNP, industry, and agriculture,
based on U.S. estimo es (U /OU)
Manuf
Mining
Other 36%
Services Constrdttk+n
V7 e7
Housing
7 70
Agriculture
Trade and
Forestry
9 7 I B
Transportation
and
Communications
I o
FIGURE 2. GNP by sectors of origin, 1970 (U /OU)
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INDEX (1950 100)
380

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FIGURE 3. Strategic supply position in selected materials, 1970 (U/OU)
(inousand metric tons, unless otherwise noted)
no Data not available.
*Net imports.
export industries was adversely affecting Hungary's
trade position. Continued high growth rates required a
redirection of efforts toward newer industries like
aluminum, chemicals, and electronics, which, in turn,
required large imports of advanced Western
equipment and high- quality Western industrial
materials. Hungarian sales of agricultural products
and the small Western market for most of Hungary's
industrial goods -were not enough to cover the
needed imports.
In an attempt to deal with these problems, Hungary
introduced a far- reaching reform program in 1968
the New Economic Mechanism (NEM). The NEM
the only viable reform among CEMA members at the
beginning of the 1970'x- provides for considerable
decentralization of decisionmaking, putting much of
the burden for development on a combination of
rnarke' forces and financial regulators and cutting
clown the role of plan directives. Enterprises have been
granted authority to determine their own product mix,
customers, and much of their investment, and they
operate under a more relaxed system of price controls.
Market forces are held in check by controls on
enterprise, wage policies, on investment credits, and on
imports. Prices and profits are still distorted by an
extensive system of subsidies.
The first full -scale test of the NEM came in 1970-
7 1. Aided by sl..,sidics and taking advantage of their
new freedom to invest, local enterprises invested
heavily. Imports, considerably liberalized after a year
of large trade surpluses in 1969, rose rapidly in
response to the investment boom, and, in late 1971,
the Hungarian planning authorities were forced to
intervene and apply administrative measi res to brake
the overheated economy. The trade liberalization
following the I:;rge surplus in 1969 was apparently the
resuii of the planners' overestimation of the role of the
NEM in creating that surplus.
The measures taken by the authorities in 1971
succeeded in reducing imports fro the West in the
first 6 months of 1972, and the rate of growth in
investments was slowed. As of late 1972, the
Hungarian authorities were reevaluating the role of
NEM in permitting and even encouraging these
investment and trade excesses. Further major
experiments with decentralization are likely to be
undertaken more slowly.
B. Sectors of the economy
Industry was heavily favored by Communist
planners until 1968, ret.;iving a far larger percentage
shave of investment than its contribution to national
income. In 1950, for ex :unese, industry accounted for
26% of national income and received 38% of
investment, while agriculture provided about half of
national income, vet received less than 10% of
investment. Moreover, investment was selectively
2
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PRODUCTION AS
APr'ARENT
A PERCENT OF
COMMODITY
PRODUCTION
IMPORTS
EXPORTS
CONSUMPTION
CONSUMPTION
Coal
27,830
1,986
91
29,725
93.6
Hard coal coke
1,166
1,254
0
2,420
13.2
Crude petroleum
1,937
4,349
0
6,286
30.8
Natural gas (million cu. m.)
3,469
200
0
3,669
91.5
Electric power (million kw.- hr.)
14,542
*3,395
no
17,937
81.1
Iron ore
629
3,119
0
3,748
16.8
Bauxite
2,022
0
660
1,362
118.5
Rolled steel
2,038
483
632
1,889
107.9
Primary aluminum
66
82
53
95
69.5
Cement
2,771
1,239
37
3,973
69.7
Nitrogen fertilizer
1,709
404
54
2,059
83.0
Phosphorous fertilizer
900
371
0
1,271
70.8
Potassium fertilizer
0
605
0
605
0.0
Corn
4,013
1
209
3,805
105.5
Wheat
2,718
62
467
2,323
117.5
Potatoes
1,430
15
86
1,359
105.2
Sugar
280
82
21
341
89.1
no Data not available.
*Net imports.
export industries was adversely affecting Hungary's
trade position. Continued high growth rates required a
redirection of efforts toward newer industries like
aluminum, chemicals, and electronics, which, in turn,
required large imports of advanced Western
equipment and high- quality Western industrial
materials. Hungarian sales of agricultural products
and the small Western market for most of Hungary's
industrial goods -were not enough to cover the
needed imports.
In an attempt to deal with these problems, Hungary
introduced a far- reaching reform program in 1968
the New Economic Mechanism (NEM). The NEM
the only viable reform among CEMA members at the
beginning of the 1970'x- provides for considerable
decentralization of decisionmaking, putting much of
the burden for development on a combination of
rnarke' forces and financial regulators and cutting
clown the role of plan directives. Enterprises have been
granted authority to determine their own product mix,
customers, and much of their investment, and they
operate under a more relaxed system of price controls.
Market forces are held in check by controls on
enterprise, wage policies, on investment credits, and on
imports. Prices and profits are still distorted by an
extensive system of subsidies.
The first full -scale test of the NEM came in 1970-
7 1. Aided by sl..,sidics and taking advantage of their
new freedom to invest, local enterprises invested
heavily. Imports, considerably liberalized after a year
of large trade surpluses in 1969, rose rapidly in
response to the investment boom, and, in late 1971,
the Hungarian planning authorities were forced to
intervene and apply administrative measi res to brake
the overheated economy. The trade liberalization
following the I:;rge surplus in 1969 was apparently the
resuii of the planners' overestimation of the role of the
NEM in creating that surplus.
The measures taken by the authorities in 1971
succeeded in reducing imports fro the West in the
first 6 months of 1972, and the rate of growth in
investments was slowed. As of late 1972, the
Hungarian authorities were reevaluating the role of
NEM in permitting and even encouraging these
investment and trade excesses. Further major
experiments with decentralization are likely to be
undertaken more slowly.
B. Sectors of the economy
Industry was heavily favored by Communist
planners until 1968, ret.;iving a far larger percentage
shave of investment than its contribution to national
income. In 1950, for ex :unese, industry accounted for
26% of national income and received 38% of
investment, while agriculture provided about half of
national income, vet received less than 10% of
investment. Moreover, investment was selectively
2
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channeled into heavy industry, especially machine
building and metallurgy; the development of light
industry and construction was neglected. Through the
NEM, Hungary has tried to correct existing
imbalances by diverting more investment into
agriculture, construction, and light industry. (U /OU)
Although its relative importance in the economv has
been declining, agriculture (and forestry) still provided
about 18% of GNP in 1970 and more than one third of
exports to the West. Under the NEM, there has been a
strenuous effort to extend ,agricultural mechanization,
to increase the availability of fertilizers and pesticides,
and to strengthen the livestock sector. (U /OU)
In 1970, industry (manufacturing, mining,
metallurgy) contributed 36% of GNP (Figure 2) and
accounted for about 36% of total employment. The
largest branch of industry is the engineering industry,
which produces 29% of industrial output and is the
largest source of industrial exports, the bulk of which
goes to other Communist countries. About half of the
engineering industry's output is accounted for by
transportation egt,iprnent (mainly buses) and
machinery, but the fastest growing component is the
vacuum technology and telecommunications equip-
ment branch. Mining and metallurgy have both been
declining as industrial sectors, accounting for 12% and
9% of total industrial output, respectively, in 1971. A
rapid rise in natural gas production has not offset the
e clining coal output and the fairly constant �and
small� production of petroleum. Increasing fuel needs
will require increasing imports of petroleum. In
metallurgy, the Hungarians are putting more
emphasis on the aluminum industry, which is based
on domestic raw materials, and less on the steel
industry, which operates on an inadequate raw
materials base. (U /OU)
The chemical industry has been the most dynamic,
increasing its output at an average rate of 12%
annually between 1966 and 1.971 and accountin,, for
about 10% of industrial output in 1971. Major
programs include shifting the industry to a
petrochemical base, and expanding the output of
plastics and synthetic fibers. Pharmaceuticals are the
most important category of chemical exports. (U /OU)
Output of light industry, a sector burdened with
obsolete equipment, declined from 21% of industrial
output in 1960 to 18% by 1971. The largest
corn, onent is the textile industry, which is scheduled
for major reconstruction. The food industry accounts
for about 8% of socialized industry output but close to
20% of exports to the West. Figure 4 summarizes data
on the structure of the state industry sector in terms of
employment, production, and fixed assets. (U /OU)
1. Agriculture, fishing, and forestry (U /OU)
a. Climate and soils
Because of a wide range of climate and soils,
conditions are generally favorable for a diversified
agricultural economy in Hungary. An unusually large
part of the total land- 74 �is classified as
agricultural land (Figure 5). Arable land, including
gardens, orchards, and vineyards, accounts for 81 of
the agricultural land. Most of this land is level or
slightly rolling, with a relatively wide range of soil
types. Forest and steppe -type soils predominate,
accounting for 41% and 26% of the total area,
respectively. Alluvial soil and sandy loam together
account for another 25
Climatic conditions vary considerably, both from
area to area and from year to year. Mean annual
precipitation exceeds 30 inches in the mountains and
20 inches elsewhere. Because of the inadequacy or
uncertainty of precipitation during the summer
growing season in some of the major farming areas,
especially in parts of the Great Alfold (Great Plain) of
southeastern Hungary, irrigation has been empha-
sized. Although the area under irrigation has increased
rapidly, the area irrigated during the 1966 -70 period
averaged only about 212,000 hectares annually, or less
than 3% of total agricultural land.
The frost -free period generally lasts from mid -April
to the beginning of October, although late frosts in
May often cause some damage to fruits, vegetables,
and other crops. The relatively long frost -free period
and hot summers combined with a large amount of
sunshine between 1,700 and 2,100 hours per year
permit the raising of a wide variety of crops, including
sunflower, tobacco, and rice, that are not usually
grown at suet, northerly latitudes.
Annual variations in climate occur because
Hungary lies at the convergence of three climatic
zones: the oceanic to the northwest, the Mediter-
ranean to the south, and the continental to the east.
The intensity of their influence varies from year to
year, so thst Hungary's climate sometimes is
temperate like that of northern Europe, sometimes
resembles that of the Mediterranean countries with
hot dry summers and wet autumns, and sometimes
displays the extremes of temperature more characteris-
tic of the continental zone to the east.
b. Agricultural production and consumption
Hungary ranks second among all European
countries in one percentage of total land devoted to
agricultural production (Figure 6). The principal crops
3
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FIGURE 4. Distribution of employment, production, and fixed assets in socialist industry,
1971 (U /OU)
PERCENTAGE DISTRIBUTION
Heavy industry:
Mining
Electric power
Metallurgy
Machine building, total
Machinery
Transportation Pquipment
Electrical equipment
Communications and electronic equip
ment
Precision instruments
Metal products
Building materials
Chemicals and rubber
Total heavy industry
Light industry:
Wood
Paper
Printing
Textiles
Leather, furs, and footwear
Clothing
Handicrafts
Employ- Fixed
EMPLOYMENT ment Production assets
Thousands
141.1
8.2
12.1
12.4
34.9
2.0
5.9
14.4
101.9
5.9
8.6
12.7
534.5
31.0
29.4
18.0
1b0.9
8.8
6.7
4.9
107.5
6.2
8.0
5.7
55.2
3.2
3.1
2.0
84.7
4.9
4.6
2.1
53.6
3.1
3.2
1.0
82.6
4.8
3.8
2.8
81.9
4.7
4.3
5.4
11_.2
6.5
10.3
13.1
1,005.5
58.3
70.6
76.0
53.0
3.1
2.9
1.2
16.5
1.0
.9
1.6
21.1
1.2
1.0
.8
143.2
8.3
5.7
6.3
67.8
3.9
2.7
1.1
77.4
4.5
2.4
.5
87.6
5.1
2.1
.1
Total light industry
466.6
27.1
17.7
11.6
Food, beverages, and tobacco
181.1
10.5
8.4
11.2
Others
71.4
4.1
3.3
1.2
Grand total
1,724.6
100.0
100.0
100.0
*Machine tools, agricultural machinery, and general machinery.
grown are corn, wheat, sugar beets, oilseeds, and
legumes, accounting for about 80% of the total sown
area in 1971. Hungary also produces substantial
amounts of vegetables and fruits, including grapes for
wine, and small quantities of industrial crops, such as
hemp and tobacco.
Of it total labor force of slightly more than 5
million, about 1.2 million, or 23 are employed in
the agricultural sector. Of these, over 900,000 were
employed in the cooperative sector (1971), while the
state sector and private farms accounted for about
200,000 and 100,000, respectively.
The gross value of agricultural production has risen
slowly since regaining the pre -World War II levels in
the mid 1950'x. By 1971, gross agricultural production
had increased approximately 62% over the pre -World
War It level, or less than 2% a year. Official reports
indicate that, in 1971, crops contributed 54 9c to the
gross value of agricultural production, while livestock
products have gradually risen from a 42% share in
1960 to 46% in 1971.
Agricultural output has shown a gradual upward
trend since the late 1960's. Annual average output in
the period 1966 -70 was about 16% above the average
annual output in 1961 -65; crop production rose more,
on average, than did production of livestock products.
There were particularly sharp upswings in production
of wheat, corn, tomatoes, and fruits (Figure 7).
Output of barley, oats, potatoes, stinflower seed, and
hemp declined during the same period, while output
of sugar beets stagnated. Yields per hectare of virtually
all crops registered gains during 1966 -70, with yields
of wheat, corn, potatoes, onions, and tomatoes
increasing between 30% and 355"t'.. The number of
cattle, hogs, horses, and sheep decreased between 1965
and 1970, while the number of poultry increased
Ill
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(Figure 8). Productivity of livestock improved since
1960, but the increase in milk yields was not sufficient
to offset the decline in the number of co" and the
1971 production of milk was 10% below the 1960
level; output of some livestock products such as meat
and eggs continued to rise through 1971.
Unfavorable weather and heavy flooding resulted in
poor harvests in 1970, but output r:.7ounded in 1971,
in some cases reaching record levels. Supported by
both favorable weather and higher Farm prices, the
overall value of farm output rose 95c over that of 1970
and set a next' alltime record. Wheat production ruse
44 in volurne, oats output rose -19 c, and corn output
rose lVi but output of sugar beets, fodder, fruit, and
certain vegetables lagged. The number of hogs
increased to 7.510,000 by March 1971, an increase of
26% over March 1970, while the number of cattle
declined by 16,000. Agricultural producers consumed
a smaller share of their own products and thus w;�re
able to increase sales by 18% in 1971. Aruong the most
important products, 509" more wheat and cattle for
~laughter were sold, while sugar beet sales decreased
Bic and egg sales 41 c.
5. Major agricultural zones (U /OU)
TOTAL LAND AREA
35,900 square miles
Anbte
AGRICULTURAL
Field Crow
7
Gardens
Orttnrda
Vineyards
Meadows
Pastures
141/.
AGRICULTURALLY
FORESTS
NONPRODUCTIVE
107,
1 0'1 0
FIGURE 6. Land use, 1971 (U /OU)
1 Forest I Meadow or pasture
AGRICULTUI:AL REGIONS
L _J Corn, wheat, p, tatoes, sugar beets
LD Vegetables ara fruit
Mixed farming a. livestock
7
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.01571 179 land Utili

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FIGURE 7. Production of selected crops (U /OU)
(Thousand metric tons)
na Data not availabl^
FIGURE 8. Livestock numbers and output of livestock products (U /OU)
Number of livestock* (thousands):
Cattle
Of which:
Cows
Hogs
Sheep
Horses
Poultry (breeding stock)
Output of livestock products (thousand
metric tons):
Meat**
Cow's milk
Eggs (millions)
Wool (grease basis)
1935
AVERAGE
AVERAGE:
1965
1969
1970
1971
1972
1961 -65
1966 -70
1965
1969
1970
1971
Wheat
2,009
2,996
2,358
3,585
2,718
3,915
Rye
259
219
299
239
155
180
Barley
966
843
1,016
909
552
782
Oats
96
73
73
86
57
85
Corn
3,316
3,992
3,608
4,820
4,013
4,674
Rice
35
42
21
50
45
67
Potatoes
1,73.i
1,659
1,762
2,013
1,430
1,488
Sugar hnets
3,090
3,174
3,452
3,303
2,174
2,023
Sunflower seed
115
100
78
119
96
na
Tobacco
22
23
18
27
18
na
Hemp
115
108
138
106
81
74
na Data not availabl^
FIGURE 8. Livestock numbers and output of livestock products (U /OU)
Number of livestock* (thousands):
Cattle
Of which:
Cows
Hogs
Sheep
Horses
Poultry (breeding stock)
Output of livestock products (thousand
metric tons):
Meat**
Cow's milk
Eggs (millions)
Wool (grease basis)
1935
1950
1980
1965
1969
1970
1971
1972
1,9il
2,222
1,971
1,964
2,006
1,933
1,917
1,901
061
1,063
879
798
749
738
735
730
4,674
5,542
5,356
6,963
5,334
5,970
7,510
7,353
1,450
1,049
2,381
3,400
3,277
3,024
2,657
2,271
886
712
628
321
249
231
219
204
21,919
13,000
27,066
29,996
28,120
33,484
36,518
na
*350
388
538
633
723
738
852 na
11,571
1,445
1,957
1,762
1,886
1,861
1,751 na
1844
995
1,848
2,393
2,714
3,280
3,300 na
t6.2
4.4
8.2
10.1
10.8
9.8
8.8 na
na Data not available.
*As of February for 1935 and 1950; probably March for other years.
*Trimmed carcass weight; includes beef, veal, pork, mutton, horsemeat, poultry, and exports of live animals.
*Average of 1934 -38.
tData for 1938.
Hungary is normally self sufficient in most major
agricultural products, and considerable quantities of
sonic products -meat and live animals, fresh fruits
and vegetables, dairy products, and processed
foodstuffs -arc exported. In recent years, exports of
agricultural products have accounted for more than
one -fifth of total exports and close to two fifths of
exports to the West. Half of all agricultural exports is
sold to non Communist countries. In 1970, West
German% was the largest customer for Hungarian
salami, the United Kingdom for butter, and Italy for
live cattle and calves.
Hungary's position in the international grain trade
has shifted from that of a net exporter prior to World
War II to that of a net importer since the mid- 1950's.
6
Following a disastrous crop in 1962, net imports in
fiscal years 1963 and 1964 totaled 1.2 million tons
(mostly wheat). The inability of the domestic
agricultural sector to produce enough fodder to
support an ambitious livestock program has resulted in
increasing imports of feedgrains since the late 1960's,
and in 1971 feedgrain imports reached 648,000 tons.
The average daily per capita food consumption in
calories -3,140 in 1970 -is comparable with that of
the United States and Western Europe, but it includes
a smaller share of animal products and a larger share
of starchy foods. Although there has been a general
improvement in the quality of the Hungarian diet,
consumer demand for meat, dairy products, and fruits
and vegetables remains unsatisfied.
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c. Agricultural problems and policies
The poor performance of the agricultural sector has
traditionally been it major disappointment to the
regime, and a revitalization of the sector has been one
of the objectives of the economic reforms embodied in
the NEM. The 15% growth rate in gross agricultural
output between 1966 and 1970 exceeded the planned
target but was a shallow victory for the planners, since
they had deliberately set the goal at only 10, �a.
Moreover, net agricultural output (i.e., excluding costs
of inputs) rose by only 8 In 1961 -65, gross output
rose 16 substantially below a more ambitious
growth target of 22% to 23� %0.
The level of resources devoted to agriculture
remained low until the 1960'x, when the regime raised
the priority of agriculture and accelerated investment
to support collectivization. Investment in agriculture
rose more rapidly than that of any other sector except
construction between 1960 and 1971, and its share of
total investment increased from 17.4% in 1961 -65 to
2 1. 1 in 1971. The investment in agriculture in 1970
alone was more than seven times that of 1955 and
rnore than half of the total invested in agriculture in
the 5 -year period 1961 -65.
The increase in resources allocated to agriculture
and to industries supplying agriculture resulted in
increased availability of fertilizers, pesticides, and
machinery. Chemical fertilizer consumption in 1971
was nearly 20 times the annual average amount
consured between 1951 and 1955 and more than five
times the amount consumed in 1960. Fertilizer applied
per hectare has increased from 29 kg. in 1960 to 166
kg. in 1971, and the share of fertilizers in chemical
production has grown from 8.7% in 1960 to 11.3% in
1969. Nevertheless, the use of fertilizers per hectare
remains not only below that of Western Europe but
also below that of East Germany, which applies 2.5
times as much per hectare, and Czechoslovakia, which
applies 1.3 times as much. The use of pesticides in
Hungary rose over 400% between 1960 and 1970.
Mechanization of agriculture also has increased, and
the stock of tractors rose more than 70% between 1960
and 1971, to 70,000 uniis, while the inventory of grain
combines rose from 4,167 units in 1960 to 12,900 units
in 1971. The degree of mechanization is very uneven,
however, ranging from nearly 95% in wheat
harvesting to 72% in sugar beet harvesting, 24 ^o for
potatoes, and less than 25% for corn. Frequent
breakdowns of machinery, shortages of spare parts,
and lack of trained operators have been constant
problems.
Collectivization has changed the structure of
agricultural landownership and management. As of 31
May 1957, collectives farmed only about I 1 of the
area; auxiliary farms, 9 and state farms, an
additional 14 The remainder was farmed privately.
By 1959, many peasants had been forced to join
collectives, and private farms had lost their
predominant position. The pressure to collectivize
continued, and by May 1962 more than 97% of total
agricultural land had been "socialized." In 1970, the
state sector accounted for 15% of the agricultural land
area, and collective farms (called agricultural
producer cooperatives) comprised another 78
including private plots of cooperative farm members.
The remaining 7% of the agricultural land was
accounted for by auxiliary farms and private farms.
For many years, state policies concerning the
procurement of agricultural products seriously
interfered with the growth of agricu!ttral production.
Compulsory deliveries of agricultural products at very
low prices set by the state were discontinued only after
the revolt of 1956. A contract system designed to
permit more realistic planning of production by
cooperative and private farms was then introduced. In
practice, however, the production plans set by the
government largely determined the production plans
of the socialist farms, leaving little room for
decisionmaking at the farm level.
In the mid- 1960's, the regime began testing the
NEM in the agricultural sector before applying it to
the entire economy in 1968. The measures enacted for
agriculture were designed to boost outpui, reduce
costs, and improve the level of living of agricultural
workers. The basic principles involved an increased
acceptance of profits as a criterion of success, a greater
reliance on market forces, and decentralization of
responsibility for planning and management.
Regional organizations lost their authority to dictate
instructions, and instead were to rely on 'ecommenda-
tions and appeals. The Ministries of mood and
Agriculture were amalgamated and downgraded in
authority.
In 1965 -66, agricultural cooperatives, with the
exception of grain producers, were allowed to draw up
their own production plans and were required to
create their own depreciation funds for capital
investment. In late 1966, the government also
revalued the fixed assets of the cooperatives and
canceled approximately 60% of the cooperative farm
debt. The cooperatives were also granted the right to
sell directly to consumers and trade enterprises, as well
as to state procurement agencies. Another measure
treats labor engaged in livestock maintenance on
private plots as cooperative labor for the purpose of
pensions and other social insurance benefits.
h
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In January 1968, cooperatives were granted the
right to engage in industrial activities related to
agriculture, but they soon began to extend their
activities into nonagricultural areas. In 1970, 13% of
cooperative income was derived from these ancillary
activities, but industrial opposition resulted in the
restriction in 1969 and 1971 of ancillar.� activities by
cooperatives. In December 1971, cooperatives were
hrohibited from engaging in the production of
engineering, light industry, a,id chemical products
except when a contract existed with a nationalized
enterprise.
The regime employs a variety of financial
mechanisms to assist cooperative farms and to steer
their production in the desired direction. Poorer farms
are subsidized, machinery costs are often underwritten
by government loans, and procurement prices for sot, e
agricultural products have been boosted almost
annually. For example, the sugar beet industry has
been unable to supply domestic needs since 1965, and
150,000 tons of sugar had to be imported in 1971. The
government helped the industry in 1972 by offering a
70% state subsidy for the purchase of sugar beet
harvesting machinery and boosting the procurement
price for sugar beets approximately 30 In other
instances, however, increases in procurement prices
have been offset by increased costs of machinery,
construction, and insurance. Machinery prices have
increased 8% over the last few years, and fodder prices
were to be raised 7% in October 1972.
During 1971 -75, the government plans a slightly
higher growth rate in livestock raising (3.0% to 3.2%
annual growth) than in crop production (2.8% to 3%).
A 22% boost in investment expenditures over the
previous 5 years is scheduled; part of this is to be
allocated to the purchase of 20,000 Soviet tractors and
5,000 high- capacity combines. Problems which must
be faced by agriculture over the next 5 years include
the rising demand for high protein fodder, the
imbalance between processing and storage capacities,
and the stagnation of cattle numbers.
d. Fishing and forestry
Fishing is necessarily confined to inland lakes,
rivers, and manmade ponds stocked by the
government. The fish catch amounted to only 18,000
tons in 1970, and imports are necessary to maintain
even the low per capita consumption of fish. Pollution
of inland waters poses a major threat to the future of
the small fishing industry. In addition, the (output of
at least one -third of the fish breeding ponds is
reportedly very low because of out -of -date equipment
and postponed projects.
8
Timber resources are inadequate to supply the
country's requirements for wood and wood products.
Forests cover 1.5 million hectares, or 16% of the total
land area. In 1970, 6 million cubic meters of wood
were imported to meet domestic demand; imports of
wood and wood products include sawn timber, round
timber, pulpwood, paper, newsprint, cardboard, and
cellulose. In 1972, Hungary agreed to assist in
financing a cellulose plant in the U.S.S.R. in return for
guaranteed cellulose imports.
The 1971 -75 plan calls for an annual harvesting
increase of 700,000 cubic meters of timber, but
domestic needs are expected to grow more rapidly. It is
estimated that timber imports alone will surpass 5
million cubic meters per year by 1975.
2. Fuels and power
Hungary does not produce sufficient fuel to cover its
requirements. It has to import coal, coke, crude
petroleum, natural gas, and electric power to
supplement domestic production. Small quantities of
gas oil and fuel oil are exported. The principal
domestic source of energy is coal, deposits of which
constitute an estimated 84% of probable energy
reserves; :about two thirds of the tonnage and half of
the calorific value of these reserves consist of brown
coal and lignite. Because of the low quality of
domestic coal and the high cost of mining it,
petroleum and natural gas are becoming increasingly
important as sources of energy (Figure 9). Both
production and imports of these fuels are being
increased. By 1975 the share of coal in the total
production of energy is expected to drop to 38 and
by 1980, to 26% to 27 1 Waterpower is of negligible
importance. Figure 10 shows the production of fuels
and power, minerals, and metals. (U /OU)
a. Coal (U /OU)
Coal is found in several areas. Hard coal is mined in
the vicinity of Pecs' and Komlo, in the Meesek
mountains in southwestern Hungary. The better
quality brown coal deposits extend over a distance of
some 80 miles along the Bakony, Vertes, and Pilis
mountains in Dunantul, in the northwestern and
north- ectitral parts of the country. Poorer quality
brown coal is mined in the Borsod- Abauj- Zemplen
and Nograd districts in northern Hungary. lignite
mining is concentrated in two regions: around
Varpalota, in Dunantul, and south of the Matra and
'For diacritics on place names see the list of names at the end of
the chapter.
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FIGURE 9. Fuel production and consumption (U /O'U)
(Percentages of total)*
PRODUCTION CONSUMPTION
1960 1965 1970 1960 1965 1970
Coal 82.7 76.3 62.9 74.0 68.0 51.1
Crude petroleum 11.4 13.8 13.4 19.6 23.1 31.1
Natural gas 3.0 7.5 20.9 3.4 6.3 15.9
Firewood 2.9 2.4 2.8 3.0 2.6 1.9
Total 100.0 :'c .0 100.0 100.0 100.0 100.0
*Computed on the basis of heat equivalents.
FIGURE 10. Production of fuels, power, minerals, and metals (U /OU)
(Thousands of metric tons, unless otherwise noted)
1955 1960 1965 1969 1970 1971
Hard coal 2,692 2,847 4,362 4,133 4,151 3,941
Brown coal and lignite 19,624 23,677 27,075 22,365 23,679 23,483
Natural gas (million cubic meters) 545 342 1,108 3,235 3,469 3,713
Crude petroleum 1,601 1,217 1,803 1,754 1,537 1,955
Gasoline 187 312 427 837 990 1,038
Diesel fuel 351 697 963 1,517 1,721 2,114
Residual fuel oil 653 988 '.,725 2,075 2,276 2,344
Electric power (million ku?.- hr.) 5,428 7,617 11,177 11,069 14,542 14,990
Iron ore 353 516 762 681 629 687
Oven coke 30 199 642 512 657 625
Pig iron 868 1,244 1,577 1,753 1,822 1,970
Crude steel 1,629 1,887 2,520 3,033 3,108 3,111
Rolled steel na 1,187 1,696 2,012 2,038 2,064
Bauxite 1,241 1,190 1,477 1,934 2,022 2,090
Alumina 154 218 267 408 441 467
Primary aluminum 37 50 58 64 66 67
no Data not available
Bukk mountains, in northern Hungary. At current
rates of extraction, Hungary's coal reserves are
adequate for at least 100 years.
Coal production developed rapidly after World War
Ii, nearly doubling between 1950 and 1964. Since
1964, output has generally declined, dropping to 27.4
million tons in 1971, about 13% below the 1964 level.
The coal produced, mainly brown coal, is relatively
low in calorific value. One kilocalorie derived from
coal reportedly costs 50% to 701c more than one
kilocalorie derived from oil or natural gas. Coal
production apparently is scheduled to remain at about
the 1971 level through 1975, although one Hungarian
official recently stated that output would decline by
trillion to 2.5 million tons.
In 1971, more than 80% of coal ruining was done
underground. Except for a few lignite deposits,
Hungarian coal is riot suitable for strip ruining. The
most important strip mine is located at Visonta; its
output is to be increased from 3 million tons in 1971 to
7 million tons in 1975. Between 1972 and 1975 some of
the less efficient underground mines are to be closed.
b. Petroleum and natural gas (U /OU)
Hungary has been striving to expand the production
and use of hydrocarbons. Domestic reserves of
petroleum are limited, however, and imports will have
to supply a larger share of total consumption.
The first major oil discovery in Hungary was at
Nagylengyei in 1951. Additional deposits, the most
important of which are at Hajduszoboszlo and near
Szeged, were subsequently discovered, and now more
than 60 oil and natural gas deposits are under
development. A major project was launched at Szeged
in 1967, and the oilfield there is expected to produce 1
million tons of crude petroleum a year, or 50% of
domestic production, by 1976.
9
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More than 1.5 billion forints are spent annually for
exploration, a. d small new oi! Fields are constantly
being developed. For example, in the first 6 months of
1972, prospecting work was conducted in 16 areas,
and 24 wells were drilled, eight of whi .n were
described as productive. New oil fields were found at
Eperjehegyhat and Szilvagy. In addition, secondary
recovery operations are being employed in older fiel
to maintain production.
Despite strenuous efforts to discover new reserves,
domestic output of petroleum has been rather stable
and is not expected to increase significantly.
Production reached 1.6 million tons in 1955, dropped
to about half that amount in 1958 mainly because of
water encroachment in the Nagylengyel oilfields
and did not regain the 1955 level until 1962. It was
slightly less than 2 million tons in 1971, increasing by
less than 1% over 1970 and about 8% over 1965
(Figure 10).
About 70% of the total supply of petroleum is
imported. Crude petroleum imports were about 4.3
million tons in 1970 and 4.9 million tons in 1971. In
1970, nearly 4.0 million tons, or more than 90% of all
imported petroleum, came from the U.S.S.R. which
has agreed to supply 5.5 million tons in 1972. Hungary
has revised upward its original forecast of 6.5 million
tons to be imported in 1975 and now expects 6.5
million tons from the U.S.S.R. alone and perhaps some
3 million to 5 million tons from the Middle East.
Petroleum import agreements have already been
reached with both Iran and Iraq; Egypt has also
supplied petroleum to Hungary.
Partly because of Soviet reluctance to continue as
the virtual sole supplier of Hungarian crude petroleum
imports, Hungary signed an agreement in 1971 with
Czechoslovakia and Yugoslavia covering the
construction of a pipeline from the Adriatic to
refineries in Hungary and Czechoslovakia. The
pipeline is to carry some 17 million to 22 million tons
of Iraqi crude per year, of which Hungary will receive
about 5 million tons. Work is scheduled to begin in
1973 and to be completed by 1975.
Hungary has an oil pipeline network totaling 1,120
kilometers, of which 800 kilometers are for crude and
320 kilometers fo refined products. The CEMA
Friendship I pipeline, which branches off at Sally in
Czechoslovakia, has a capacity of 4.5 million tons per
annum and was completed in 1962. The "Friendship
11" pipeline, completed in November 1972, is to attain
its final capacity of 10 million tons a year in 1980.
Another pipeline was completed in 1971 to carry
domestic petroleum from the Algyo fields to the
refinery at Szazhalombatta.
10
The largest petroleum refinery in Hungary is the
Danube Petroleum Industry Enterprise at Szazhalom-
batta. Four new processing units were added to that
complex in 1971, raising its primary distillation
capacity to 3.5 million tons per year. Further additions
are scheduled to boost its primary capacity to 6.5
million tans by 1975. The other major petroleum
processing enterprise is the Komarom Petroleum
Industry Enterprise. Its largest unit, inaugurated at
Szony in February 1972, has a throughput capacity of
2 million tons of crude petroleum annually, or over
one fourth of Hungary's total refining capacity. Other
Hungarian refineries are small, their combined
capacity totaling less than 2 million tons per year.
Products of petroleum processing include gasoline,
diesel oil, fuel oil, lubricants, and asphalt.
Production of natural gas, unlike that of coal or
petroleum, has been increasing rapidly �from 342
million cubic meters in 1960 to 3.5 billion cubic meters
in 1970 and 3.7 billion cubic meters in 1971. The rapid
expansion in production resulted mainly from the
development of new production sites, including those
at Hajduszoboszlo in eastern Hungary and those near
Nagykanizsa and Szeged. The site at Szeged is
expected to produce 2 billion cubic meters per year by
1976. Current proven reserves, which are being
augmented by new discoveries, are placed at about
100 biilion cubic meters.
Despite the rapid rise in domestic production,
Hungary plans to increase annual imports from
Romania front 200 million cubic meters to about 1
billion cubic meters in 1975. By then, total natural gas
usage is scheduled to reach 6.5 billion cubic meters. To
facilitate the importation of natural gas, an agreement
was signed with the U.S.S.R. in 1971 for the building
of a natural gas pipeline, to be completed in the
second half of 1974. The line will exit the U.S.S.R. at
Beregovo and run to Leninvaros, carrying 1 billion
cubic meters of gas in 1975. Existing natural gas
pipelines in Hungary total 2,415 kilometers.
Natural gas consumption has soared in nearly all
sectors of the economy. Direct usage by industry
increased from 139 million cubic meters in 1960 to 1.5
billion cubic meters in 1970, or 43 0 of the g_s
produced. Electric energy production consumes
another 25% of the natural gas output; its
consumption rose from 67 million cubic meters in 1960
to 884 million cubic meters in 1970. About 1.3 million
households use bottled propane gas for cooking.
c. Electric power (C)
In installed capacity, production, and per capita
consumption of electric power, Hungary exceeds only
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Albania among the Communist countries of Eastern
Europe. At the end of 1971, installed capacity was
estimated to be 3,1.30,000 kilowatts (kw.). Production
during 1971 amounted to 15.0 billion kilowatt -hours
(kw. -hr.) and was supplemented by imports of about 4
billion kw. -hr. Although generating capacity has
almost doubled since 1960, the amount of electricity
available is still inadequate to meet all needs of
expanding industry and other users. Development has
required a large capital investment, amounting to
more than 14% of total industrial investment outlays
in recent years. The industry has over 14% of the fixed
assets of all state industry (figure 4). Hungary is a net
importer in the East European eleoric power network;
net imports mainly from the U.S.S.R.� provided
23% of the electric power consumed in 1970. Hungary
also exchanges power with Austria and Yugoslavia,
but the trade tends to balance and is significant only
for local border areas.
The transmission network connects all important
powerplants and import sources, and provides service
to all economically significant areas. Consumption of
electric energy is concentrated in the metallurgical
Plants in the northwest and in the urban areas of
Budapest, Gyor, Miskolc, and Pecs, where most of the
manufacturing, mining, and steel industries are
located. Industry uses almost 70% of the total output,
and almost 30% of this is used in metallurgy, largely in
the production of aluminum. The chemical industry
accounts for 20% of industrial consumption, an(
1
building and mining each account for about
12%. Almost all households are supplied with
electricity, but more than half of the total household
consumption occurs in the Budapest area. The
agricultural, commercial, public utility, and
transportation sectors are supplied with enough
electricity to meet their basic needs.
Thermal powerplants comprise almost the entire
generating capacity; hydroelectric facilities contribute
only about 1% of the total. Thermal powerplants are
fueled primarily with brown coal or lignite, although
one large plant, accounting for 20% of the total
capacity, uses oil, and another plant is fueled by
natural gas. The electric power generating capacity is
primarily concentrated in the northern half of the
country, particularly in the central region near
Budapest and in the northeast near Miskolc. The
Szazhalombatta Thermal Powerplant, south of
Budapest, is the country's largest, with a capacity of
615,000 kw.
Plans for the future development of the electric
power base call for expanding the capacity by 1.5
million kw. to provide an annual production of 21.7
billion kw. -hr. by the end of 1975. Most of the
enlargement will be in existing plants. The plans
include addition of 800 megawatts at Gvougyos and
adding 645 megawatts at the existing plant at
Szazhalombatta. Construction of an 800 megawatt
nuclear plant at Paks on the Danube has been
postponed, and the first section of the plant is not
expected to start operation until 1980. The U.S.S.R.
designed the plant and will supply part of the
equipment as well as the nuclear fuel. Meeting these
expansion goals will require considerable improve-
ment in meeting delivery and installation schedules.
Hungary is also planning further increases in imports;
transmission lines are under construction from
Czechoslovakia and Romania for this purpose.
3. Minerals and metals (U /OU)
a. Ferrous metals
The iron and steel industry in Hungary is the
smallest among Eastern European CEMA members
with the exception of Bulgaria. In 1970, Hungarian
production of crude steel was only 7.8% and rolled
steel 7.4% of East European CEMA production. The
industry operating on an inadequate domestic raw
material base� produces at high cost. The Hungarians
are stressing modernization and improvements in
quality and assortment rather than expansion of
capacity.
Hungarian production of steel nearly tripled
between 1949 and 1965, but it has increased only 23%
since then. In 1971, crude steel production remained
at the 1970 level (Figure 10), while output of rolled
steel products increased only 1 Profits declined in
the metallurgical industry in 1971, and the Csepel
Lon and Metal Works was reorganized in January
1972, after suffering a finaneW deficit in 1971.
The, iron and steel industry requires extensive
imports of raw materials. Domestic iron ore, mined
only at Rudabanya in northern Hungary, is low in iron
content (about 25 and covers only about 1WIo of the
domestic iron ore requiremenis. The remainder of the
supply is imported, 95% of the imported ore comes
from the U.S.S.R., and India supplies most of the
remaining 5 Hung iry also imports a large part of its
supply of coke. Manganese ore output in 1970 totaled
167,000 tons, of which about 20,000 tons were
exported. Small quantities of better grade manganese
ore are imported from the U.S.S.R. for use in the
production of high quality ferromanganese. Other
ferroalloys are imported.
The principal enterprises of the iron and steel
industry are located in northeastern Hungary (at
11
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Fuels and Industry
RH Hard coal Brown coal andlor lignite
CEMA crude oil pipeline
INDUSTRIAL CENTERS
O Mining and /or inetallurgy
Machine building
Chemicals, oil refining, building
material, wood and paper
O Textiles, clothing and
food processing
501572 1.73
FIGURE 11. Major mining and industrial centers (U /OU)
Salgotarjan, Borsodnadasd, Diosgyor (Miskolc), and
Ord) and on the Danube River (at Csepel, outside
Budapest, and at Dunaujvaros) (Figure 11 The
largest plant, the Lenin plant at Diosgyor, produces
the bulk of alloyed steels used in Hungarian industry.
'rhe Ozd Metallurgical Works produces one -third of
all Hungarian rolled steel and 55% of the rods and
shapes. The Danube Iron and Steel Works produces
80% of the steel plate utilized by Hungarian industry
and also provides large diameter pipe for the
"Friendship IC" oil pipeline.
Hungary is a net exporter of rolled steel, but its
imports have been rising faster than exports. In 1971,
exports of rolled steel totaled 658,000 ions, and
imports were 574,000 tons. About two-thirds of the
Hungarian steel exports are sold it. the West,
especially to West Germany, while over four fifths of
Hungarian rolled steel imports are from Communist
countries.
Between 1971 and 1975, Hungary plans to increase
its production of crude steel by 28 steel tubes by
37 and steel sheets by 23 A high -alloy steel rolling
mill has been purchased by the Lenin Works from the
East German Ernst Thaelmann Works. The new mill
is to be in operation by 1974 and to have a capacity of
220,000 tons annually. At the Ozd Metallurgical
Works, construction of tvr, new units, a 325,000-ton-
capacity continuous steel casting unit and a 300,000
ton bar and wire- drawing mill, was begun in 1971.
Equipment for the Ozd plants is being provided by
West Germany and Czechoslovakia, and West
Germany is also supplying licenses and know -how.
b. Nonferrous metals and minerals
Hungary's most important natural resource is
bauxite �the country ranks ninth in world production
and second only to the U.S.S.R. among Communist
12
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Circles and segments indicate relative importance

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countries. Total bauxite reserves are estimated at
about 250 million tons, of which about 80 million tuns
are preseutly suitable for commercial exploitation.
Production more than doubled between 1949 and
1960 and increased more than 7511 between 1960 and
1971, exceeding 2 million terns in 1971. Other
nonferrous metal resources are not significant.
Bauxite deposits are concentrated in the mountain
ous western part of the country. Mines are located in
the Balcony mountains at Nvirad and Halimba, and in
the Vertes rnoutttainc at Iskaszentgyorgy and Cant.
'['It(- richest deposits are found around Halintba and
Fenyofo. A major new mine, Halimba III, is expected
ultimately to reach an annual production of 600,000
tons; its initial production in 1972 is to be 100,000
tons, Two other mines, Izamajor II and Rakhegy 11,
are near completion, and rnine at Deakpuszta is
scheduled to open in 1975. In all, bauxite production
is expected to increase to 3 million tons annually by
1975.
Hungary is the second largest exporter of bauxite
among Conununist countries, being exceeded only by
Yugoslavia. Vlore than two fifths of Iungarian
bauxite was exported in 1960, but the proportion
exported dropped to about one -third in 1970 -71.
Formerly, the hulk of bauxite exports went to the
U.S.S.R., but after 1955 Hungarian exports of bauxite
to the U.S.S.R. ceased. Czechoslovukia is now the
major purchaser, but Poland, East Germany, and
West Cennany are also important markets.
The bauxite remaining in Hungary is processed into
.lumina (aluminum oxide) in four plants. The largest
plant, at Almasfuzito, produced 280,000 tons of
alumina in 1971, or 60 of domestic output. 'rhe
other major plant, at Ajka, 100 miles southwest of
Budapest, is scheduled to produce 240,000 tons of
alumina annually by 197 -1. 'total alumina production
increased about 75r between 1965 and 1971. Of the
167,000 toms of alumina produced in 1971, over 90%
was exported, mainly to the U.S.S.R. and Poland.
Since Ilungary is short of power, it 1962 agreement
with the U.S.S.R. arranged for the shipment of
alumina to Volgograd for redaction to aluminum and
reimport of the primary alutninurn by Ilungary. The
agreement called for the Hungarian delivery of 2.'6
Million tons of alumina to the U.S.S.R. between 1967
and 1980 and the return to Hungary of IA million
tons of prinmr\ alttmirtunr over the same period. The
U.S.S.R. apparently is lagging in its deliveries. For
example, in 1970, Hungary shipped over 200,000 tons
of alumina to the U.S.S.R. but received only 69,000
tons of nrimary aluminum (the agreement had
specified it 2 to I ratio of alumina exports to alutninurn
imports). Hungary also has contracted to ship 80,000
tons of alumina annually to Poland in exchange for
35,000 tons of primary aluminum. Hungary has three
aluminum reduction pl ants of its own, at Inola, Ajka,
and Tatabanya, and domestic production o! uhnary
aluminum averaged about 66,000 tons per \ear in
1969 -71. 'There are no plans for a major increase in
aluminum capacity.
The major thrust of the Hungarian aluminum
industry daring 1971 -75 will be in the production of
semifinished products in order to earn more hard
currency by exporting items of higher value. Output of
semifinished aluminum products more than doubled
between 1960 and 1970, reaching 82,000 tons, and
plans call for output to doable again between 1971
and 1975. Principal investment projects include an
expansion of the Szekesfehervar Light Metal Works,
the Libanya Aluminum Foil Plant, and the Budapest
Cable Plant. Hungary also securccl a US$15 million
loan from it Western banking consortium in 1969 to
purchase equipment for the aluminum industry.
Domestic end users of aluminum include the
machine building, vehicle, chemical, and food
industries. In 1970, only 4% of Hungarian aluminum
output was used for construction, compared with
about 15% in Western Europe and more than 20/ in
the United States.
Hnngary has very small and low-- quality deposits of
copper ore and is dependent on imports to meet its
domestic requirements for copper. In 1971, 60,000
tons of copper and copper products were imported,
about one fourth from the U.S.S.R. and one eighth
from the United Kingdom. Hungary signed an
agreement in 1972 for the annual importation of 4,000
tons of Chilean copper for US$4 million a year and has
a concession for copper reining in Cypnrs until 1984.
The first large copper casting plant was established in
1967 at the Csepcl Iron and Steel Works, with' a
capacity estimated at 10,000 tons annually.
Magnesium is produced on a small scale, and small
quantities of silver and gold are obtained as
hyproducts of other metal processing. Small deposits
of lead and zinc are located in the C,vongyosoroszi
mines of the Matra mountains, but most lead and
zinc, as well as all tin, must be imported.
Uranium has been mined since 1952. The only
known deposit being exploited is in the Mecsck
mountain area in southwestern Ilungary. Output,
which is controlled by the U.S.S.R., is estimated to be
between 600 and 700 tons of uranium a year.
Titanium and germanium have been produced
experimentally, and gallittrn is recovered as it
byproduct of aluminum production. Essential
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minerals that must be imported include chrome ore,
burnt tnagnesite, asbestos, phosphate rock, cryolite,
salt, various clays, and sulfur. Poland has agreed to
supply Fl ungary between 100,000 and 150,000 tons of
sulfur annually between 1971 and 1975. The U.S.S.11.
provides the remainder of Flungary's sulfur needs.
4. Manufacturing and construction (U /OU)
a. Machine building
Developed mainly since World War 11, machine
building is by far the largest industry in Hungary. In
1971 the industry provided 26% of all exports and
accounted for 31 of total employment in socialized
(state and cooperative) industry and about 20% of the
value of socialized industry output. Products of the
industry include transportation equipment (trucks,
buses, electric and diesel locomotives, railroad
passenger cars, and small ship agricultural
machinery; machine tools; food processing equip-
ment, including installations for complete factories;
electrical c(Iniptnent; electronic and telecommunica-
tions equipment; medical and hospital equipment;
and precision and measuring instruments. One of the
largest producers of machine tools in Flungary is the
Csei al Machine Tool Factory (Figure 12). Production
of the principal hypes of machinery, equipment, and
consumer durables is shown in Figure 13.
Accordiny to official indexes, output of the machine
building industry was 8.5 titnes as large in 1971 as in
1950 and more than twice as large as in 1960. The rate
of growth of this sector was considerably greater than
that of industry as a whole. The largest increases took
place during the earl.: post -World War 11 years under
the policy of indiscriminate expansion of nearly all
machinery lines. In recent years IIungary has stressed
particular lines, especially those which are labor
intensive and require stnall inputs of imported raw
materials. The electronics and telecommunications
and the precision and measuring instruments sectors
both meet these criteria and are the fastest growing
branches of the machine building industry. Together
with other CEMA members, Hungary signed a
specialization agreement in January 1971 for machine
tools and automatic lathes; presumably, this
agreement will reduce the number of production lines.
I'he largest branch of the machine building sector is
the transportation equipment industry, which
accounts for about 20% of employment and 2751) of
the value of output of all machine building. Hungary
has decided to concentrate on the production of buses
in the future and to deemphasize other lines,
particularly trucks and rolling stock. Domestic
production of automobiles is not planned; instead,
1-lungary produces components in cooperative
ventures with other socialist countries and with the
West. Bus production is to expand from 6,360 units in
1971 to 11,000 12,000 units in 1975, with develop-
ment being partially financed by a 20.5 million ruble
loan from the International Investment Batik, the
CEMA hank for long -term loans.
Foreign trade in machinery is conducted primarily
with Communist countries because the quality of
llungarian machinery is generally below world
standards and there is little demand for it in the
industrialized West. Except for a few sales to West
Germany, lathes and milling machines are predomi-
FIGURE 12. High precision -lima
tized workshop of Csepel M ,chine
Tool Factory. Gears produ :ed in
the workshop are shown in the
foreground. (U /OU)
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FIGURE 13. Production of selected machinery, equipment, and consumer durables (U /OU)
no Data not available.
*Not including narrow gage
nantly sold to other Communist counties. Poland and
East Germany purchased 86% of the exports of
Hungarian tractors during 1966 -70, Bulgaria and
Poland bought 7456 of exported diesel locomotives,
and Czechoslovakia and the U.S.S.R. took 95% of the
railroad passenger cars. The U.S.S.R. imported 3,000
Ikarus buses, nearly 50% of Hungarian bus
production, in 1971 and plans to purchase 3,600 in
1972. Hungary imports heavy, standard types of
equipment, such as railroad cars, lathes, and tractors,
from other Communist countries, but turns to Western
markets for more sophisticated and technically
advanced eyuiptnent.
Plans call for streamlining the machine building
sector by stepping up production of computer
equipment and machine tools and closing down
uneconomical lines of production. Hungary also will
continue to arrange license agreements and to push for
new cooperative arrangements with both the West and
the East. In IWO, only 1% of Hungarian finished
machinery products were produced under interna-
tional cooperation agreements, and most of it involved
finished automobile components for shipment to the
U.S.S.R. for Zhiguli automobiles.
b. Chemical industry
The chemical industry has been one of the fastest
growing Hungarian industries (Figure 14) and will
continue to be if the ambitious expansion plans are
met. The industry grew 15 -fold between 1950 and
1970 and increased its share of industrial output from
5.6% in 1955 to 10.3% in 1971. Investment in the
industry rose from Me of total industrial outlays
during 1950 -60 to 16% during 1961 -70, making
possible an annual average growth rate of 14% from
1961 to 1965 and 12% from 1966 to 1970, compared
with overall industrial growth rates of 8.0% and 6.2
respectively. Employment in the industry reached
111,000 in 1971, or 6.4% of industrial employment.
The most dynamic component of the chemical
industry is the pharmaceutical branch, whose share of
total chemical production increased from 3.7% in
1950 to 19.7% in 1970. 'rhe Hungarian pharmaceuti-
cal industry is very well developed and ranks 12th in
world production and second only to Switzerland in
per capita exports. Its main products are antibiotics,
vitamins, alkaloids, sulfa drugs, and barbiturates.
Production and exports are scheduled to double during
1971 -75. Hungary has signed a cooperative agreement
15
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UNIT
1955
1960
1965
1969
1970
1971
Metalcutting tools:
Center lathes
Units...............
1,645
2,577
2,492
2,829
2,996
2,987
Milling machines
....do..............
775
1,176
1,083
995
985
791
Drill presses
....do..............
2,523
3,054
5,128
4,029
4,834
5,660
Diesel motors
1,000 hp............
77
152
252
266
221
193
rractors
Units...............
4,659
2,649
2,961
2,064
1,930
1,611
'rractor- plows
....do..............
4,556
424
3,178
961
2,096
na
Combines
....do..............
1,535
1,858
1,381
520
1,004
na
Diesel locomotives
do
4
113
128
122
98
50
Railroad passenger cars
....do..............
296
454
377
610
584
308
T rucks
....do..............
3,664
2 570
3,617
3,973
3,815
3,975
Buses
....do..............
1,348
1,877
2,688
4,790
5,983
6,360
Motorcycles
1,000 units..........
16
58
45
36
35
37
Bicycles
....do..............
230
256
257
283
275
255
Radio receivers
....do..............
377
212
228
234
206
215
Television receivers
....do..............
insip.
139
267
345
338
37.
T elephories
....do..............
5
37
126
101
60
97
Electric meters
do
388
461
296
323
347
366
Electric light bulbs
Million units.........
42
65
90
132
149
177
Electric washing machines, household...........
1,000 units..........
13
144
182
158
165
162
Electric spin dryers, household
....do..............
na
insig.
66
95
113
102
Electric refrigerators
....do..............
na
9
103
214
242
278
Vacuum cleaners
....do..............
na
23
51
75
87
85
Passenger car tires
....(10..............
67
86
199
195
225
215
'Truck and bus tires I........
....do..............
178
250
382
396
373
450
no Data not available.
*Not including narrow gage
nantly sold to other Communist counties. Poland and
East Germany purchased 86% of the exports of
Hungarian tractors during 1966 -70, Bulgaria and
Poland bought 7456 of exported diesel locomotives,
and Czechoslovakia and the U.S.S.R. took 95% of the
railroad passenger cars. The U.S.S.R. imported 3,000
Ikarus buses, nearly 50% of Hungarian bus
production, in 1971 and plans to purchase 3,600 in
1972. Hungary imports heavy, standard types of
equipment, such as railroad cars, lathes, and tractors,
from other Communist countries, but turns to Western
markets for more sophisticated and technically
advanced eyuiptnent.
Plans call for streamlining the machine building
sector by stepping up production of computer
equipment and machine tools and closing down
uneconomical lines of production. Hungary also will
continue to arrange license agreements and to push for
new cooperative arrangements with both the West and
the East. In IWO, only 1% of Hungarian finished
machinery products were produced under interna-
tional cooperation agreements, and most of it involved
finished automobile components for shipment to the
U.S.S.R. for Zhiguli automobiles.
b. Chemical industry
The chemical industry has been one of the fastest
growing Hungarian industries (Figure 14) and will
continue to be if the ambitious expansion plans are
met. The industry grew 15 -fold between 1950 and
1970 and increased its share of industrial output from
5.6% in 1955 to 10.3% in 1971. Investment in the
industry rose from Me of total industrial outlays
during 1950 -60 to 16% during 1961 -70, making
possible an annual average growth rate of 14% from
1961 to 1965 and 12% from 1966 to 1970, compared
with overall industrial growth rates of 8.0% and 6.2
respectively. Employment in the industry reached
111,000 in 1971, or 6.4% of industrial employment.
The most dynamic component of the chemical
industry is the pharmaceutical branch, whose share of
total chemical production increased from 3.7% in
1950 to 19.7% in 1970. 'rhe Hungarian pharmaceuti-
cal industry is very well developed and ranks 12th in
world production and second only to Switzerland in
per capita exports. Its main products are antibiotics,
vitamins, alkaloids, sulfa drugs, and barbiturates.
Production and exports are scheduled to double during
1971 -75. Hungary has signed a cooperative agreement
15
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FIGURE 14. Production of principal chemice!s and pharmaceuticals (U /OU)
PRODUCT
Nitrogenous fertilizer...........
Phosphatic fertilizer............
Sulfuric acid
Caustic soda (97.5
Penicillin
Chloromycetin
Vitamin B
Crude morphine
Phenolic molding powder........
Polyvinyl chloride and copoly-
mers.
Caprolactam
na Data not available.
UNIT 1955 1960 1965 1968 1969 1970 1971
1,000 tons (as N)
13
57
148
245
300
350
377
1,000 tons (as 1`20s)���
28
45
117
156
170
167
174
1,000 tons
144
164
378
446
467
471
479
....do
12
17
50
52
49
63
66
Billion international units....
6,235
12,416
38,856
45,398
55,315
59,436
na
1,000 kg
2
39
202
226
307
323
no
Kg
1
9
185
254
380
508
na
1,000 kg
7
8
9
15
12
9
na
Tons
1,869
2,8:5
3,718
4,592
4,173
4,319
na
....do
0
193
6,554
6,934
8,002
14,087
20,683
....do
0
300
431
4,777
5,064
5,823
na
with Ciba and Geigy of Switzerland covering the sale
of licenses and the marketing of pharmaceutical
products.
Pharmaceuticals alone account for about 5% to 6%
of total exports, 40% of all chemical exports to the
West, and 71% of all chemical exports to the
Communist countries. From 1968 to 1970, 63% of all
pharmaceutical output was exported, with West
Germany, Switzerland, the United States, the
Netherlands, and France among the most important
Western customers. In 1970, pharmaceuticals
constituted 11% of U.S. imports from Hungary,
amounting to slightly more than US$1 million.
A major expansion program has been slated, in
which Hungary will develop a petrochemical industry.
As part of the program, a new olefin plant with a
capacity of 250,000 tons of ethylene, 125,000 tons of
propylene, and unstated quantities of pyrolysis
gasoline and other petroleum products will be
constructed by 1975 at the Tisza Chemical Combine
in Leninvaros. Hungary has agreed to deliver,
between 1975 and 1984, 130,000 tons of ethylene and
50,000 tons of propylene yearly to the U.S.S.R. via a
280 kilometer pipeline to Kalush in West Ukraine,
where the U.S.S.R. will build large vinyl chloride and
polyvinyl chloride facilities. In exchange, the U.S.S.R.
will ship plastics materials and other chemicals to
Hungary. Part of the remaining ethylene (about
40,000 tons) will be used by the Hungarian chemical
industry to produce vinyl chloride /polyvinyl chloride
at Borsod, and the remainder of the ethylene and
propylene will be used to produce polyethylene, vinyl
chloride /polyvinyl chloride, and synthetic rubber in
other plants to be built in Leninvaros. Until these
plants are completed, however, Hungary will have
about 70,000 tons of ethylene and 75,000 tons of
propylene available for export.
16
To supply the input requirements of the new olefins
plant and meet the additional domestic requirements
for petroleum products, the oil processing capacity will
be expanded from 6 million tons in 1970 to about 11
million tons in 1975, and plans call for an additional
increase of 60% during each succeeding 5 -year period
until 1985. These expansions, in addition to the
production of motor fuels, heating oils, aromatics, and
other products, will provide sufficient naphtha to
supply the requirements of the naphtha cracker f the
new olefins plant. The major part of the 1971 -85
program consists of the expansion of the Danube
Petroleum. Enterprise from its current capacity of 3
million tons a year to 9 million tons annually,
including a distillation plant with a capacity of 3
million tons per year and 15 processing plants to be
built during 1971 -75 at a cost of 5.9 billion forints.
Production of fertilizers, in terms of plant nutrient
content, more than doubled between 1965 and 1971,
reaching 551,795 tons in 1971. Despite the increase in
output of both nitrogenous and phosphatic fertilizers,
Hungary imported an average of 73.5% of the
fertilizers it consumed in 1970 and 1971, including all
potassic fertilizer, as shown by the following
tabulation of apparent consumption, in tons of plant
nutrient:
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1970
1971
Production
N
350,286
377,439
P.100
167,219
174,356
Total production
517,505
551,795
Imports
N
381,357
243,704
RD-,
365,000
301,320
K.,0
604,761
739,095
Total imports
1,351,118
1,284,119
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Total consumption 1,828,840 1,756,473
Domestic output is expected to rise to 1.1 million tons
of nutrients by 1975, consisting of 698,000 tons of N,
282,000 tons of P205 and 120,000 tons of K.-,O. The
increase in output will be derived from new plants to
be built at the Pet Nitrogen Works, including a
300,000 -ton Kellogg ammonia unit, a 200,000 -ton
urea plant, and a 280,000 -ton N -P -K compound
fertilizer plant, which will be obtained from GEXA of
France. The estimated cost of 8.5 billion forints is
about 5% of the total industrial investment forecast
for the 1971 -75 period.
Hungary is not an important producer of synthetic
rubber, plastics, or rnanmade fibers. In 1971, nearly
two thirds of its manmade fiber supply and nearly half
of its plastics were imported. Synthetic rubber is
produced only on it laboratory scale. There are plans
for 01V expansion of output of these products, but
Ii ungary will continue to depend heavily on imports.
Chemical production increased rapidly during the
1960'x, averaging about 12% annually during 1966-
70. Imports also rose rapidly, especially from the
industrialized West (an average rate of more than 15%
per year in 1966 -70). Exports to the West have also
increased sharply, but the deficit in trade in chemical
products with the West rose from US$59 million in
1965 to $102 million in 1970. As Hungary's demand
for chemical products grew and became more
diversified. a larger proportion of the chemical imports
(particularly synthetic materials) came from the West.
Hungary still relies on Communist countries for
many of the raw materials needed for the chemical
industry. For example, ammonia used for the
production of nitrogenous fertilizers is manufactured
front waste gases obtained in the refining of imported
crude petroleum from the U.S.S.R., and the U.S.S.R.
also supplies phosphate rock for the production of
phosphatic fertilizer. Trade in chemicals with the
Communist countries, although growing more slowly
than that with the industrialized West, is also
characterized by a widening Hungarian deficit.
c. Light industry
Light industry, which includes the textile, clothing,
leather, wood, paper, printing, and miscellaneous
industries, reportedly expanded at about the same rate
as industry as a whole during the early post -World
War II years. Part of this reported early growth,
however, resulted from the industrialization of former
handicraft activities; it did not constitute a net
increase in production. Since the early 1950's, light
industry has been one of the poorest performing sectors
of industry, primarily because of the failure of
planning authorities to provide for investment in the
industry's much needed modernization. Production in
light industry grew only 75% during 1960 -71,
compared with the 121% growth in total industrial
output. During 1961 -65, light industry accounted for
1925 of total industrial production, yet it received
only 9.4% of investment funds. During 1965 -71, the
share of industrial output produced by light industry
declined to 17.7 while its share of industrial
employment dropped to 27 Labor productivity is
extremely low in light industry, especially in the
paper, leather, fur, and shoe industries, and the
average monthly earnings of its workers are 18% below
the industrial average. Production of the principal
products of light industry is shown in Figure 15.
The neglect of light industry by the economic
planners resulted in a deterioration in the quality and
style of its products. One of the targets of the NEM
was to revitalize the industry by an ambitious program
oenteripg on the textile, printing, and furniture
industries. During the 1971 -75 period, 24 billion to 25
billion forints were scheduled to be invested in the
ailing sector; some of these funds were earmarked for
imports of new equipment� including textile
machinery from Communist countries and Japan and
printing machines from East Germany. By 1975,
output of clothing and footwear was to increase by
over 40% and that of furniture by 100
In 1971, an automatic cotton mill was completed in
Budapest, and other cotton mills were built in Tolna
and Bodajk. Investment in light industry rose to 13.4%
of total industrial outlays in 1971, and output was
planned to increase 8 compared with a target for all
industry of 7 However, light industrial output
increased by only 3.7% in 1971.
The investment cutbacks required to eonl the
overheated economy in 1971 will have some l ,:gative
impact on the 1971 -75 reconstruction plans in light
industry. In October 1971, Premier Fock announced
that the furniture industry would merely be renovated
rather than expanded, and that planned new building
17
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1970
1971
Exports
N
33,801
74,100
P. I
5,982
5,341
Total exports
39,783
79,441
Apparent consumption
N
697,842
547,043
P.Oa I
526,237
470,335
K_O
604,761
739,095
Total consumption 1,828,840 1,756,473
Domestic output is expected to rise to 1.1 million tons
of nutrients by 1975, consisting of 698,000 tons of N,
282,000 tons of P205 and 120,000 tons of K.-,O. The
increase in output will be derived from new plants to
be built at the Pet Nitrogen Works, including a
300,000 -ton Kellogg ammonia unit, a 200,000 -ton
urea plant, and a 280,000 -ton N -P -K compound
fertilizer plant, which will be obtained from GEXA of
France. The estimated cost of 8.5 billion forints is
about 5% of the total industrial investment forecast
for the 1971 -75 period.
Hungary is not an important producer of synthetic
rubber, plastics, or rnanmade fibers. In 1971, nearly
two thirds of its manmade fiber supply and nearly half
of its plastics were imported. Synthetic rubber is
produced only on it laboratory scale. There are plans
for 01V expansion of output of these products, but
Ii ungary will continue to depend heavily on imports.
Chemical production increased rapidly during the
1960'x, averaging about 12% annually during 1966-
70. Imports also rose rapidly, especially from the
industrialized West (an average rate of more than 15%
per year in 1966 -70). Exports to the West have also
increased sharply, but the deficit in trade in chemical
products with the West rose from US$59 million in
1965 to $102 million in 1970. As Hungary's demand
for chemical products grew and became more
diversified. a larger proportion of the chemical imports
(particularly synthetic materials) came from the West.
Hungary still relies on Communist countries for
many of the raw materials needed for the chemical
industry. For example, ammonia used for the
production of nitrogenous fertilizers is manufactured
front waste gases obtained in the refining of imported
crude petroleum from the U.S.S.R., and the U.S.S.R.
also supplies phosphate rock for the production of
phosphatic fertilizer. Trade in chemicals with the
Communist countries, although growing more slowly
than that with the industrialized West, is also
characterized by a widening Hungarian deficit.
c. Light industry
Light industry, which includes the textile, clothing,
leather, wood, paper, printing, and miscellaneous
industries, reportedly expanded at about the same rate
as industry as a whole during the early post -World
War II years. Part of this reported early growth,
however, resulted from the industrialization of former
handicraft activities; it did not constitute a net
increase in production. Since the early 1950's, light
industry has been one of the poorest performing sectors
of industry, primarily because of the failure of
planning authorities to provide for investment in the
industry's much needed modernization. Production in
light industry grew only 75% during 1960 -71,
compared with the 121% growth in total industrial
output. During 1961 -65, light industry accounted for
1925 of total industrial production, yet it received
only 9.4% of investment funds. During 1965 -71, the
share of industrial output produced by light industry
declined to 17.7 while its share of industrial
employment dropped to 27 Labor productivity is
extremely low in light industry, especially in the
paper, leather, fur, and shoe industries, and the
average monthly earnings of its workers are 18% below
the industrial average. Production of the principal
products of light industry is shown in Figure 15.
The neglect of light industry by the economic
planners resulted in a deterioration in the quality and
style of its products. One of the targets of the NEM
was to revitalize the industry by an ambitious program
oenteripg on the textile, printing, and furniture
industries. During the 1971 -75 period, 24 billion to 25
billion forints were scheduled to be invested in the
ailing sector; some of these funds were earmarked for
imports of new equipment� including textile
machinery from Communist countries and Japan and
printing machines from East Germany. By 1975,
output of clothing and footwear was to increase by
over 40% and that of furniture by 100
In 1971, an automatic cotton mill was completed in
Budapest, and other cotton mills were built in Tolna
and Bodajk. Investment in light industry rose to 13.4%
of total industrial outlays in 1971, and output was
planned to increase 8 compared with a target for all
industry of 7 However, light industrial output
increased by only 3.7% in 1971.
The investment cutbacks required to eonl the
overheated economy in 1971 will have some l ,:gative
impact on the 1971 -75 reconstruction plans in light
industry. In October 1971, Premier Fock announced
that the furniture industry would merely be renovated
rather than expanded, and that planned new building
17
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FIGURE 15. Principal products of light industry (U/OU)
PRODUCT UNIT 1955 1960 1965 1968 1969 1970
Cotton and cotton -t.vpe fabrics
Million sq. meters.......
na
247
Woolen fabrics
....do................
26
28
Artificial fabrics resembling woo;
....do................
3
4
Silk fabrics (natural, artificial, and synthetic)
....do
20
28
Linen and hemp fabrics
....do................
22
31
Knit goods
1, 000 tons.............
5
8
Leather footwear
Million pairs...........
14
21
Paper and cardboard
1,000 tons.............
105
138
Parquet flooring
1,000 sq. meters........
530
1 131
323 330 317 30 -1
36 40 :35 :39
36
46
54
57
41
na
na
na
11
12
12
13
26
33
33
36
174
258
251
259
2,366
2,798
2,640
2,827
na Data not available.
in the industy would be postponed. The government
also postponed projects involving exEPansion of the
Polyester Silk Works and it board factory at
Kisterenve. Government spokesmen still insist,
however, that the goal of modernizing the light
industrial sector has not been abandoned.
Light industry depends on imports for ,uch raw
materials as hides and skins, tinlher, cellulose, cotton,
and jute, as well as for hemp, flax, and artificial and
synthetic fibers. During 1966 -70 the U.S.S..'. provided
more than one third of the irnporteLll synthetic fibers,
more than half of the cotton, newsprint, and cellulose,
and close to nine tenths of iu h -r imports.
Argentina provided most of the imported rawhides,
Pakistan supplied most of the jute, and Western
Europe was the source of most synthetic fibers.
Hungary also irnpor it growing volume of finished
light industrial goods to fill gaps in output, especially
of luxury items. Considerable quantities of light
industrial products are also exported. Exports of
clothing and household textiles made up 10% of all
exports in 1970 and were about five times as large as
imports in the sand: category. Communist countries
and underdeveloped countries are the principal
purchasers, because poor design and workmanship
make niany products unacceptable in the more
demanding Western markets. In 1967, however,
Hungary began exporting cotton textiles to the United
States, it highly competitive market.
d. Food processing industry
The principal branches of the food indlustry (which
includes the t :)acco at verage industries) are meat
and poultry processing, and vegetable canning,
milling, baking, sugar refining confectionery
manufacture, and the production of dairy products.
Output of the food industry as a whole has been
growing less rapidly than total industrial outp >it and
less rapidly than the output of light industry.
Branches in which growth has been greatest are
poultry processing, canned fruit and vegetables, frozen
foods, and alcoholic beverages, while growth has
lagged in baking, milling, and sugar products. In
1971, output of the food industry was about 84%
greater than in 1960 and accounted for about 12% of
employment and 8% of production in socialized
industry.
Most raw materials used in food processing are of
domestic origin. In some years grin imports are
needed and vegetable oils and sugar also are imported,
although it program was launched in 1971 to achieve
self sufficiency in sugar production. In general, the
food industry covers domestic food requirements
except for a few specialty foods and tropical
products �and provides it surplus for export.
Exports consist rnainiy of quality food products and
luxury items. Hungary exports to Western Europe, the
U.S.S.R. and other Communist countries such
products as wine, salami, sausages, gooseliver pate,
paprika, canned fruits and vegetables, tomato paste,
butter, cheese (Figure 16), and poultry. Food products
accounted for 14.4% of total exports and only 7.1 of
total imports in 197 1. Nearly two fifths of the exports,
including 70% of the meat products, arc purchased by
non (communist countries, making the food industry it
major hard currency carrier. In recent years, Italy has
been the chief customer for Hungarian beef, Austria
for pork, and the United Kingdom for butter and
cheese.
Because of increasing attention to consumer
demand at home and because meat products are
important carriers of hard currency, efforts are being
made to expand the capacity of meat processing plants
and storage facilities. Four new abattoirs are to be
huilt during 1971 -75, as well as a meat combine at
Miskolc and it salami factory at Debrecen. Additionai
refrigerating plants will also he built to expanJ furuter
the rapidly groxving production of frozen foods.
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FIGURE 16. Maturing room for Emmentaler cheese. The
Zola plant (Zolaegerszeg), which produces 70% of the
Emmentaler cheese that is exported, has 24 maturing
rooms with total shelf space of 12 kilometers. (U /OU)
Frozen fruit production has increased from 4,000 tons
in 1960 to 15,000 tons in 1970, while frozen vegetable
output has increased from 6,000 to 25,000 tuns over
the sane period.
e. Construction
According to official indexes, construction has made
rapid progress since 1965, after lagging; well behind
the industrial rate of gr.twth during most of the post
World War 11 period. According to official data,
which substantially overstate the industry's growth in
the early 1950'x, the value of construction work in
1971 was 490% of that done in 1950 and 230% of that
done in 1960; in the same periods industrial output,
again, according to official data, grew 540% and
210 'o, respectively. Growth of only 3% to 4% is
planned for 1972, with emphasis on completing
projects already underway; construction work grew by
12 i in 1970and8% in 1971.
About half o` all construction work is clone by state
construction enterprises. The most dynamic elements,
i:owever, are building cooperatives--which account
htr it srni,9 but growing share of cov. truction work
and industrial aad other enterprises, which build for
their own account. Building cooperatives concentrate
on housing, especially privately financed housing,
although they also do some industrial and agricultural
construction work. In 1971 -75, cooperatives are
expected to construct about 55,000 to 60,000
apartments. Nonconstruction enterprises accounted
for 28% of the value of construction in 1971. A
considerable amount of construction work is done by
individuals, both artisans working for hire and
householders building for themselves.
Housing construction accounts for the larg st share
of construction work performed �a little less th 29%
in recent years. industrial building and agricultural
building comprise the next largest shares, 11 and
10 respectively. Roadbuilding has been increasing
as it share �now over 9% �while railroad construction
has slipped to under 3% of the total. nrl !.-rgc
categories are power lines (9 trade and storage
buildings (6 and administrative buildings (4
1'he construction industry has traditionally been
neglected by economic planners in Hungary. During
1961 -70, the construction sector produced 10% to 1 1
of national income, but received only 2. I to 2.3% of
total investment, a lower share of investment than in
any other East European country.
In spite of the relatively low level of investments in
the construction industry, it has usually met the
construction goals established for it by the planning
authorities. Productivity growth in the industry has
been impressive �with a 240% increase in employ-
ment between 1950 and 1971, the industry achieved a
490% increase in output. In the state sector of the
industry, employment in 1971 was only 23% above
that of 1950. Employment in the industry rose at an
annual average rate of 8.4 between 1966 and 1970,
following it period of virtually no increase between
1961 and 1965. The increase in the more recent period
was attributed largely to increases in wages, which
exceeded the increases in other industries and brought
construction workers into second place, after trainers,
in terms of wage levels.
Despite increases of 12% and 8 respectively, in
the value of work completed in 1970 and 1971, the
construction industry was unable to cope with the
onslaught of building orders from enterprises
e xercising their new freedom to invest. From January
to August 197'., the number of unfinished building
projects rose from 5,139 to 6,058. Furthermore,
because of hasty preparation by the enterprises, more
than 90% of construction projects required revisions
while underway. Despite controls on prices, rising
demand for building materials in the face of
stagnating production in 1970 -71 forced their prices to
rise at an annual rate of 35 to 4 As it result o, the
bottleneck that developed, planners restricted new
Ilk'7
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starts in 1972 and are focusing construction activity on
the completion of existing projects.
The building materials industry was it major source
of the construction bottic;:rek in 1970 -71. While
construction output increased 27% between 1968 and
1971, the building rnaterials industry stagnated
producing less brick, cement, lime, asbestos cement
roofing shingles, and reinforced concrete beams in
1971 than in 1968. 1niports exceeded 25% of domestic
production in 1970, and required US$40 million in
hard currency in 1971. In un attempt to revive the
building materials industry, Hungary plans to boost
investment in it by 80ie from. 1971 to 1975, increasing
the share of the building materials industry from 2.9%
to 3.9Si of total investments. In addition, preferential
treatment has been given to the industry, including
nearly 5W nonrepayable state grants for investment
projects and authorization for 100 1 5(', use of
depreciation funds (other industries can only use 60
of depreciation funds for investment). Projects in the
building materials industry have been scheduled for
earlier completion; the Berenrend Cement Factory, for
example, which was planned to begin operation in
1973, was rushed into operation by nnid -1972. Prices of
materials have also been raised 32% for brick and
tile, 1551 for castings, and Mi for cement �in an
effort to stimu a
late domestic production nd
discourage waste.
Despite the measures taken to revive the building
materials industry, plans required an increase in
imports of 3.3, in 1972. Hungary has completed a
series of agreements with Conununist nations to
supply building materials formerly purchased in the
West for hard currency. The .S.S has agreed to
increase exports of asbestos cement hoards and sheets,
thus cutting hard currency imports of these items by
5W,r and 17 respectively. East Germany has
contracted to deliver prefahricated dwellings
otherwise purchased in the West, and Poland,
llontania, and Bulgaria will provide inputs for glass
and cement production. By diverting trade to
Cornnnnist countries, Hungary expected to reduce
imports of building materials front the \Vest by 155n in
1972.
5. Domestic trade (U /OU)
Domestic trade is largely controlled by the state. All
wholesale establishments are state enterprises, and
state and cooperative enterprises predominate in retail
trade. In 1971, stale enterprises accounted for nearly
6Y/ of domestic sales and cooperatives accounted for
34`x. Private retail establishments are permitted to
20
operate under license, and individual peasants are
allowed to sell their own agricultural products on the
open market, but private trade accounted for less than
I Si of the total sales in 1971. Fruits and vegetables,
however, are predominantly sold on the free market.
The Ministry of Internal Trade exercises control
over nearly all retail trade. 'Trade outlets generally are
supervised by the local councils in urban areas and by
the National Association of Cooperatives in rural
areas.
Under the NEM, retail trade outlets may order
goods directly from producers, from wholesalers, or
from foreign trade enterprises. A few restrictions
remain, including purchasing quotas for products in
Short supply, quotas for const, :aer goods imported
from the industrialized West, and marketing controls
on meat and meat products. In 1970, lard, flour, and
sugar were removed from compulsory marketing
channels. D irect purchases by retail outlets (that is,
bypassing wholesale distributors) amounted to lie of
all consurner goods sold in 1970 and 26% of clothing
items.
Domestically produced foods for the urban
population and for industrial and export requirements
are obtained from state and collective farms by state
procurement agencies. Compulsory deliveries were
abolished in 1956; since then, deliveries have been
made on the basis of contracts concluded between the
farms and the procurement agencies. Before 1965, the
local councils played it significant role in the signing of
these contracts making arbitrary production
assignments to Farms in their area, based on target
figures passed down from the central government, and
directing the farms to sign contracts with the
procurement agencies. In 1965, it new system was
introduced which permits collective Farms to negotiate
directly with the procurement agencies and to sign
contracts for the amounts and products they feel will
he most profitable for them. The procurement
agencies also purcha, additional supplies on the free
market.
At the end of 1971 there were 33,795 state and
cooperative stores (including drug stores), 14,242
eating places, and 13,062 factory canteens. In addition,
there were Borne 10,500 private stores and some =100
private eating places. Most of the shops are small. In
1971, only the 139 department stores, the 302
supermarkets, and the 1,127 drug stores averaged more
than six employees each. Most stores �even food
stores �are specialized, so that customers have to go
several different places to make purchases, often
having to wait in line at each shop to be served. Some
progress has been made toward establishing the kind
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of multiple- conunodity soil- service shops or shopping
centers that are cornnum in the United States and
increasing in Western Europe.
Retail trade increased -11 ii between 1966 and 1970
(compared with 1961 -65) and is scheduled to grow by
out additional Sc/" to 4W during the 1971 -75 period.
Sales of foodstuffs and tobacco make up about half of
total retail sales, but they have declined as a share of
total sales since 1965. The share of clothing sales in t;:e
total has declined even more rapidly �from 2Wi in
1960 to 17i in 1971. The most rapid increase in sales
has been in consumer durables, which increased from
6.3`ir of total retail sales in 1960 to 9.90 in N7i.
Retail prices have been increasing by about 1.5
annually since the price reform in 1968. Prices of
seasonal commodities, mainly vegetables and fruit,
have risen much more rapidly �by 12% in 1971. In
early 1972, the prices of many consumer goods imports
(which made up 175"C' of all consurer sales in 1971)
were raised along with those of building materials,
beer, and several other products. The consumer price
level was expected to rise by 3% in 1972, partly
because of it substantial increase in rents.
In general, the quality and assortment of consume;
goods have improved, and consumer credii has
become increasingly available� purchases of durable
goods on credit, for example, covered 37`i of all
durable goods sold in 1971. Outside of Budapest, the
retail network remains inadequate, and shortages and
low quality goods are chronic problerns. Since the
introduction of the NEM, the government has relaxed
the requirements for licensing private shops all(]
granted special tax privileges to private shops and
artisans in small towns and rural areas. For example,
artisans in villages of less than 5,000 can receive it
license without ar! examination, are exempt from
taxation for the first 2 years, and have reduced tax
liability after 2 years. These incentives have not vet
paid off, mainly because of the poorer profit
opportunities in sparsely populated areas.
Reluctance, and al times opposition, on the part of
labor councils to the establishment of alternative retail
outlets that would compete Nvilh outlets operated by
the councils themselves has slowed down the
development of the retail marketing system, especially
ontside Budapest.
C. Economic policy, performance, and
government finance (U /OU)
1. Economic poliev
Prere:furnr period
Prior to the institution of the New Economic
Mechanism (NEM) in 1968, the Hungarian economy
ender Cominainist rule adhered closely to tile: basic
Soviet economic model. Rapid industrialization with a
strong emphasis oil heavy industry and extension of
the states control over almost the entire range of
economic activities were the major economic priorities
of the regime after its accession to power in 1919.
Foreign trade was :node it government monopol the.
larger industrial enterprises were nationalized, and
land and currency reforms were carried out. Prices
were set by the state and only coincidentally reflected
costs. The allocation of investment funds, labor, and
material inputs was all done by the state.
Collectivization of agricultural land was the
exception; it comprehensive and harsh collectivization
program was not conducted until 1959.
During the prereform period, economic objectives
^re incorporated in nedium -term plans (usually 5
years), which outlined broad goals, and in annual
plans. Annual plans, drawn up by the National
Planning Office, established detailed instructions for
enterprises, including quantitative and qualitative
norms, material allocations, number of employees,
and wages. The local or enterprise level had little say
in the early stages of formulating the plan and were
relegated to bargaining for the reduction of
established goals.
In addition to the inherent difficulties associated
with central allocation of resources, the Hungarian
economy was repeatedly jarred by changes in policies
its strains and imbalances developed. The basic goal of
planning authorities was to develop industry, even at
the expense of other sectors and in spite of declining
living standards. However, as untenable strains and
imbalances developed, policies became more
inoderaie. In 1951, the already ambitious plan for
heavy industry was revised upward to a goal of nearly
tripling the 1919 output of heavy -ulustry by 1951.
Shortages of consumer goods and it lagging
agricultural sector forced the abandonment of these
plans in 1953 in favor of the so- called New Course,
under which resources were partially redirected toward
the improvement of living conditions. In turn, the
more balanced policy of thy New Course was
discarded in 1955, and the "industrialization at anv
cost' policy resumed. Economic uncertainty and
instability, together with complaints about living
conditions, helped bring on the revolt in October 1956
that led to it change in leadership.
After the 1956 revolt, the government set tip it team
of experts under economist Istvan Varga to examine
the existing economic system and to make suggestions
for economic reform. Vargas report castigated the
concept of planning front above and proposed it new
system based on decentralized decisionmaking and
guided by inc'.ircet controls, but the new leadership
21
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under Kadar was more impressed by the need to
reconstruct the revolt -torn economy and by the
stiffening Soviet attitude toward revisionism. The
Varga report was rejected.
The need for some economic reform was accepted,
however, and a number of limited, piecemeal
measures were instituted after 1957. Industrial
enterprises were merged into trusts, which were
granted the authority, subject to ministerial veto, of
assigning production targets, controlling certain
investments, and determining the size of wage funds.
A profit- sharing plan for workers was also introduced,
and the number of compulsory targets for firms was
reduced, with several firms being granted the
authority to conduct foreign trade independently. In
1959, the wholesale price structure was revised to
reflect somewhat better the product scarcities, and in
1964 a capital use rate of 5% of total assets was levied
on enterprises.
These limited measures did little to relieve basic
problems, and the economy began to falter in 1964 -65.
The price reform had been based on the cost structure
of 1956 and thus froze existing disproportions. The
profit sharing plan proved ineffective, and the new
trusts became unwieldy, noncompetitive concentra-
tions of industry. In late 1964, discussions of more
sweeping economic changes were begun, and by
November 1965 the Central Committee announced its
full support for a basic restructuring of the economic
system. The next 2 years before implementation of the
NEM on 1 January 1968 were devoted to careful
preparation educating enterprise officiais, workers,
and consumers and revising prices.
The raid- 1960's proved to be a more propitious
period for economic reform than the period
irnmediately following the revolt. Kadar had
consolidated his position by the mid 1960'x, and the
political atmosphere had improved �the necessity for
economic reform had oven been acknowledged by the
U.S.S.R. Economists throughout the Communist
countries were studying, discussing, and, to a lesser
extent, implementing economic reforms. Moreover,
Flungary was not acting in desperation despite a
^wdown in 1964 -65, the economy was not in a state
of crisis, as it had been in 1957. Thus, rather than a
short -terra corrective measure, the NEM represented a
philosophical acceptance of the need for a basic
restructuring of the controlling mechanisms of the
economy.
b. The New Economic Mechanism (NEM)
The major features of the reform introduced on I
January 1968 were a decentralization of operational
22
decisionmaking, providing for some competition and
play of m.�rket forces in determining economic
activity, and a shift from administrative toward
economic met, ods of exercising government control
over economic levelopment. Ministries were stripped
of much of their ::lithority, and most of the trusts were
disbanded. Central planning continues. but it now
concentrates on the main directions of economic
development. Emphasis is shifted from the annual
plans to the medium- and long -term plans, and the
fulfillment of these plans will depend largely on
economic controls rather than administrative orders.
The most important change in the decisionmaking
process is the increased responsibility given to the
enterprises. Except when national defense or foreign
trade obligations are involved, the enterprise has the
right to draw up its own plans, take measures for
technological improvement, change its product
pattern, and, within limits, conduct its own
investment program. Except for a few remaining
centrally allocated materials, the enterprise is also free
to buy and sell where its own advantage is greatest,
and many enterprises also have independent foreign
trade rights. Enterprises have considerable freedom
over wages, but the state still controls aggregate wages
through its tax policies and, if need be, through wage
ceilings. The state also retains the power, through the
ministries, to establish or liquidate enterprises, hire
and fire managers, and reorganize enterprises.
Under the NEM, profits have become the major
criterion of success, and enterprises are expected to
base investment and salary decisions on profit
maximization (within socially acceptable limits as
defined by the state). Profits are divided into a
development fund for self- initiated investment and a
sharing fund to supplement wages according to a
formula set by the state and varying among industries
according to the level of assets. A reserve fund must be
maintained and built up to a level equal to 8% of the
annual wage costs and 1.5% of total assets of an
enterprise. The reserve fund may be used to cover
losses or to repay credits otherwise not repayable.
Enterprise development funds may be used to
replace scrapped equipment, modernize existing
plants, or expand capacity. Three fifths of deprecia-
tion funds may also be used for these purposes.
Application may also be made to state banks for
additional funds for investment, with the proviso that
30% of investment funds must be self- generated. The
banks ration credit according to national interests, the
profitability of the project, and the size of the
development fund of the enterprise. The largest
investments, outlays involving infrastructure, or
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planned increases in enterprise capacity beyond 25%
to 30% remain in state hands. Enterprises and
cooperatives accounted for56% of investment in 1971.
To insure that adequ:,f^ attention would be given to
technological innovation and research and develop-
ment, a major objective of the NEM, the designers of
the NEM decided to require that enterprises include a
fee for technological development in their product
prices. This fee varies among products from 0.1% to
25% of the product price, and the funds collected are
to be used to create a tax -free technological fund,
which could be the minimum amount to be spent for
research and development. Technological funds, as of
October 1972, were equal to about 1.2% of gross
industrial income and ranged as high as 1.9% of
income in the chemical industry anc: 2.7% in the
engineering industry. Preliminary surveys show that
product development expenditures increased as a
share of total research and development expenditures
from 32% in 1967 to 499b in 1969, but most of the
expenditures were devoted to widening product
assortment rather than raising the technological level
of products.
In order for profits and indirect economic controls to
operate satisfactorily, it was necessary to reform the
old price structure. Because of the importance of
preventing a decline in living standards or other
dislocations in the economy, a mixed price structure
was instituted. Prices of some items, chiefly consumer
goods and vital raw materials, continue to be fixed,
but their number has declined from 20% of all prices
in 1960 to 12% in 1971. The remaining prices are
flexible, but most are subject to ceilings. The state
must be notified in advance of intended increases in
prices of certain consumer goods and may disapprove
these increases. The price structure allows considerable
profits in some industrial sectors but requires heavy
subsidies for agriculture.
In foreign trade Hungary is attempting to replace
the previous unsuccessful import substitution policy of
reducing imports with a policy of promoting exports
by providing added export incentives. The NEM uses
a two pronged approach of injecting competition and
market forces into foreign trade while retaining
ultimate state control: Direct contacts between
Hungarian enterprises and foreign customers are to be
increased, chiefly at the expense of specialized foreign
trade enterprises; and domestic producers are
subjected to foreign price aril cost competition
indirectly through the operation of multipliers. A
multiplier was established for dollar trade and one for
ruble trade, and multipliers for trade with other
countries were determined from the relationship
between the ruble or dollar and the "third" currency
involved. The values of the dollar and ruble
multipliers, which are ;trictly domestic financial
devices distinct from the established rates of exchange,
are based on the average domestic cost of producing
goods that are exported to obtain foreign exchange.
The prices received by exporters are actual export
prices converted to forints at the multiplier rate, and
importers pay the actual foreign exchange costs plus
tariffs (for hard- currency trade) or import sales tax (for
soft- currency trade), computed at the multiplier rate.
The multiplier for dollar trade is set at 60 forints per
dollar, and that for the ruble trade is 40 forints per
ruble.
Since the multipliers were constructed at "average"
costs of producing goods, exporters who produced at
above average costs would be undercompensated
when paid at rates based on the multiplier, and a
substantial part of their trade would thereby be
uneconomical. To cushion the economy against the
possible disruptions of this trade, which comprised a
significant portion of total trade, an extensive but
gradually declining subsidy system was instituted. An
estimated 60% of exports required subsidies in 1972 to
prevent losses. In addition to multipliers and subsidies,
the government employs a variety of trade controls,
including customs duties, import licenses, and quotas,
to prevent unwieldy trade deficits and to maintain a
politically acceptable balance between the dollar and
ruble trade.
Another feature of the reform was an increase in
"factory democracy worker participation in
management decisions. 'Trade unions have become
more important because of their authority under the
Labor Code of 1967 to negotiate collective agreements
with enterpri ;s concerning local working conditions.
The labor cou grants trade unions the power to veto
decisions of e- aerprise managers. Although such vetoes
have been used on occasion, enterprise management
generally still treats trade unions in a supercilious and
perfunctory manner, offering little information on
enterprise plans at trade union meetings and often
ignoring trade union resolutions.
This increase in factory democracy does not,
however, vitiate a fundamental precept of the NEW
Individual responsibility and individual reward. The
NEM places great reliance on enterprise managers,
who are held individually accountable for their
enterprises' performance. Managers may be punished
for poor performance by reductions in wages and,
ultimately, by dismissal by the state. The NEM does
not provide for worker councils. Whether unions will
develop into effective representatives of workers'
23
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interests, through the use of their veto, for example,
remains unclear.
The successful introduction of the NEM on 1
January 1968 encouraged the regime to relax sonic of
the temporary economic controls which had been
designed to ease the transition. Curbs on new
investment by enterprises were lifted, pric s were
progressively shifted into categories allowing freer
fluctuation, and export subsidies were reduced. As of
January 1971, the rights of enterprises were further
expanded to permit them to combine with other
enterprises in "simple" or "common" associations.
(Simple associations are based on cooperative working
agreements in areas such as advertising, purchasing, or
selling, while common associations are legal entities in
which transfer of funds between enterprises is
permitted.) Other measures passed in 1971 included
the establishment of uniform export subsidies by the
industrial sector, thereby rewarding the most efficient
firms within a sector, and measures to bolster labor
productivity.
2. Development
a. Plans and results
At the beginning of the First Five Year Plan (1950-
54 industrial production already exceeded the prewar
level. Forced expansion of industrial output �the huge
growth of 155% during 1950 -54 was even less than
planned� coupled with only a 12% increase in
agricultural output, led to substantial imbalances in
the economy. Moreover, workers' real incomes in 1954
had riot risen from the 1949 level. No improvements
took place in the next few years in spite of the
planners' redrafting of plans, and the revolt of 1956
ensued.
The revolt caused severe losses for the economy
estimated at more than 25 1 5'1 of the national income in
1956, in addition to heavy losses of skilled labor and
technicians through emigration. Nevertheless,
recovery was rapid. The regime obtained credits from
nany Communist countries, especially the U.S.S.R.,
and thus was able to raise imports sharply. Credit
financed imports permitted industrial production to
regain previous levels quickly, while personal
consumption also rose. By the fourth quarter of 1957,
industrial output was greater than before the revolt.
For the remainder of the 1950's, the economy
performed satisfactorily. Virtually all the targets in the
1958 -60 :3 -year plan were exceeded; the pattern of
industrial production was modified to deemphasize
the production of material- consuming items like
heavy machinery and to stress specialized labor-
1PA1
intensive production like telecommunications
equipment; and agricultural production grew 10%
during the period despite a slowdown in its rate of
growth after the collectivization campaign that began
in 1959.
The plan for 1961 -65 emphasized increased
efficiency and improved quality of products, but no
apparent steps were taken to achieve those goals.
Rather, the plan amounted to a slightly subduci
version of rapid industrialization at the expense of
other sectors. None of the production goals for thai
period were met, although industrial production came
close to its goal, rising by 47 The increase in
agricultural production (16 was far below the plan,
partly because of unfavorable weather, but mostly
because of peasant resistance to collectivization.
National income rose only 24% during the 5 years,
compared with the 36% planned.
The Third Five Year Plan (1966 -70) deliberat set
modest goals as a precaution against any unsettling
effects that might be caused by the introduction of the
NEM in 1968. In fact, in the initial years of the reform
there were no major disruptions in the economy (with
the possible exception of a stagnation in labor
productivity in 1968 -69), and thus the overall goals of
the Five Year Plan were easily achieved.
During 1966 -70, national income grew by 31%
(19% to 21 planned). Industrial output rose by 35
raising its contribution to national income from an
average of 40% in 1961 -65 to an average of 42% in
1966 -70. The chemical industry and the instrument
manufacturing industry led the growth in the
industrial sector by increasing their output 75% and
74 respectively. Agricultural output achieved a 15%
growth over the previous period, despite unsatisfactory
results in the production of sugar beets, tobacco,
vegetables, and beef. Personal consumption was 32%
greater in 1970 than in 1965.
Rapid growth especially in investments� during
1968 -70 led to problems in 1971. Using their new
freedom to invest, enterprise managers invested
heavily in 1969 -70. Enterprise development funds
were 50% larger than the government had expected
firms had been underreporting their profits to obtain
larger subsidies. In fact, the subsidy system was so
extensive that all enterprises, even uneconomical ones,
had accumulated funds to invest. Moreover, firms
with favorable growth prospects were granted
additional funds by the state, further fueling the rate
of investment. Several enterprises used reserve funds
and circulating capital for investment; others began
investment without any financial backing and then
appealed to the state for a.;sistancc. Meanwhile the
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banks, which had been expected to play a major role
in rationing credit, were simply sidestepped by the
enterprises. Excess investment by enterprises was
estimated at 32 billion forints in 1969 and more than
10 billion forints in 1971.
By 1971, overinvestment had created an untenable
situation in the foreign trade and domestic
construction sectors. Huge above -plan imports of ra%,
and semifinished materials and machinery and
equipment were needed to supply the investment
boom, resulting in ,n unprecedented US$555 million
trade deficit ($270 million with the West) during the
first three quarters of 1971. Meanwhile, the
investment volume was overwhelming the construc-
tion industry �the stock of unfinished construction in
1971 amounted to more than 73 billion forints and
nearly equaled the entire investment outlay in 1970.
In the fall of 1971 the government postponed
several major projects, banned certain types of
enterprise investment, introduced a system of
sanctions on uncovered investment, and limited bank
credit. Import quotas were tightened, especially in
trade with non Communist countries, and price
subsidies were increased 7% for exports and reduced
10% for imports. Exports to the Communist countries,
originally planned to increase by 13% to 14 were
revised in the spring of 1972 to increase 18 exports
to the West were to be increased by 1:3 Imports from
the Communist countries were also revised, to increase
2% over 1971, while imports from the West were to
grow by 5% to 6 Moreover, a policy was announced
of reducing the growth rate by 1 to 2% per year until
the economy righted itself. National income and
industrial output were expected to grow by 5% to 6
investment by 6 and agriculture by 2% to 3
The corrective measures have apparently been
successful� exports were up 21% and imports were
clown 9% during the first 7 months of 1972. During the
same period, investment expenditures were only 7%
over those of 1971, and the major output goals were
being rnet. The regime has been sobered by the
experience, however, especially since it had to resort to
administrative measures rather than indirect economic
regulators to correct the imbalance. As a result, a
number of commissions have been created to
reexamine the NEM in in effort to correct its
weaknesses.
For the time being at least, Hungary is back on the
schedule of its Fourth Five Year Plan (1971 -75). It is
the first medium -term plan to call for an equal growth
rate of consumption and investment (maintaining the
ratio of 76% to 24% between the two). Also, the major
development goals selected by the regime are not in
the.area of heavy industry, as in the past, but they
focus on correcting imbalances in the economy by
reconstruction of the textile industry, expansion of the
housing program, and modernization of the
construction industry. There is also an attempt to
strengthen the energy base by depending to a greater
extent on petroleum fuels and by an ambitious natural
gas development program. Another major goal is the
Further development of G." aluminum industry.
National income is to rise 30% to 32% between 1971
and 1975, more slowly than during the 1966 -70
period. Industry is to grow only slightly faster �by
32% to 34 Between 85% and 90% of the increase in
national income is to result from increased labor
productivity. The target for agriculture has been set at
15% to 16% growth in the 5 -year period, with heavy
emphasis on livestock production.
Investment expenditures are forecast at 500 billion
forints during the 5 -year period but will likely exceed
this figure. Nonproductive investment is to increase
from the 16% share of investment in the 1966 -70
period to a 19% share, led by a rise in housing
investments to 12.5% (housing accounted for 8% of
investment during 1968 -70). The 1971 -75 trade plan,
which will apparently be exceeded, calls for trade with
the Communist countries to grow by average annual
rates of 7% to 7.5% in exports and 8% to 8.5% in
imports and for trade with the West to grow by 6% to
6.5% in exports and 5% to 6% in imports.
b. Consumption and investment
Consumers did not benefit proportionately from the
rise in total output in the early postwar period. Per
capita consumption recovered slowly after the war and
did not regain the prewar level until 1956. Fairly
substantial gains were made during 1957 -60, and,
since then, total consumption has remained fairly
constant at about three fourths of national income.
Prior to World War 11 the gap between urban and
rural consumption levels was wide, but it narrowed
considerably in the early postwar years. Since 1960,
however, the rate of increase in the real value of per
capita consumption among the peasantry has
approximately equaled the rate of increase in
household incomes of workers and employees, and the
disparity in consumption levels has remained virtually
unchanged. At any rate, living standards of the
peasant 'v are officially acknowledged to be well below
those of the urban population. The trends in real
household incomes of workers and real per capita
25
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consumption of peasants are shown in the following
indexes (1960= 100):
Since 1956 the Ilungarian diet has improved
considerably; foodstuffs have been available in
adequate quantities and varieties. The share of total
consumption expenditures accounted for by foods has
declined front 41 in 1960 to 34% in 1970. Alcoholic
beverages account for about 10% of total consumption
expenditures.
The other principal categories of consumer
expenditures include clothing (I1 education,
culture, aril sports (7 household goods (7 health
and hygiene (4 and transportation (3 Rents,
kept ..rtificially low through subsidies, accounted for
less than 5% of the total, and utilities, for another 3%.
In an effort to make rents correspond more closely to
costs, rents were raised in 1971, but the government
will provide assistance to tenants for a few years.
Although rents are cheap, housing is one of the
principal sources of consumer dissatisfaction in
Hungary. Accommodations are poor and badly
overcrowded. Housing conditions are being improved
only slowly, because new construction barely suffices
to cover new demand aril replacements. The average
number of inhabitants per room decreased from 2.5 on
I January 1960 to 2.0 on I January 1970, and 1.9 on I
January 1972. A total of 373,000 housing units (new
units less retirements) were added to the housing stock
between 1949 and 1960. During 1961 -70 about
609,000 new units were added, with retirements
anwunting to about 140,000 units. 'I'hc Fourth Five
Year Plan (1971-75) calls for construction of 80,000
apartments per year. Examples of recently built high
density housing in the Budapest area are shown in
Figure 17.
The size of new housing units has been increasing.
It 1971, 64% of all new units had 2 "living" rooms
(i.e., excluding kitchens, bathrooms, and other service
areas), compared with 57% in 1960, and 26% had
three or more "living" rooms, compared with only 7%
in 1960. Nearly four fifths of the units built in 1971
26
FIGURE 17. Housing construction in the Budapest area.
The Kelenfold housing estate in the 11th District, a
newly built project housing 6,987 families in 1.5 2
and 3- bedroom apartments. (U /OU)
had bathrooms, and 99% had electricity, but only
73% had running water. In recent years more than
half of the new dwellings have been financed by bank
credits granted to individuals.
'I'otal investments increased from 41 billion forints
in 1961 to 110 billion forints in 1971, and now account
for about 30% of GNP, on the basis of Hungarian
data. Besides the big increase in volume of
investments, there have been significant changes in
the pattern of investments. 'rhe socialist sector (state
and cooperative) accounts for more than 90% of total
investments, while investments in the private sector,
which received 20% of total investments in 1950, now
accounts for less than 10% of the total. Prior to the
introduction of the NEM in January 1968, industry
received between 40% and 45% of investment in the
socialist sector; since then, its share has declined to
37% to 38 in favor of increased investments in
agriculture and construction (Figure 18). In absolute
terms, however, there was a very large increase in the
level of investments in industry.
'l'he most striking shift in investments after the
advent of the NEM was the increased outlays in the
agricultural sector. Agriculture received only 175 of
investments in the socialist sector in the 5 -year period
1961 -65, hut, since the NEM, the share of agriculture
has risen to 21% to 22 Investment in the
construction industry per se has risen frorn 2.3% of
investment in the socialist sector in 1961 -65 to 32% of
tit(- total in 1971; investment in the construction
function, however, has been substantially higher, with
the investment in housing construction alone rising
front its 7% share (annual average) in 1961 -70 to
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WonKERS HOUSEHOLD
PEASANTS' PER CAPITA
REAL INCOMES
HEAL CONSUMPTION
1961
101
99
1962
104
104
1963
112
108
1964
119
114
1965
119
117
1966;
124
P3
1967
130
130
1968
138
140
1969
146
147
1970
155
159
1971
163
170
Since 1956 the Ilungarian diet has improved
considerably; foodstuffs have been available in
adequate quantities and varieties. The share of total
consumption expenditures accounted for by foods has
declined front 41 in 1960 to 34% in 1970. Alcoholic
beverages account for about 10% of total consumption
expenditures.
The other principal categories of consumer
expenditures include clothing (I1 education,
culture, aril sports (7 household goods (7 health
and hygiene (4 and transportation (3 Rents,
kept ..rtificially low through subsidies, accounted for
less than 5% of the total, and utilities, for another 3%.
In an effort to make rents correspond more closely to
costs, rents were raised in 1971, but the government
will provide assistance to tenants for a few years.
Although rents are cheap, housing is one of the
principal sources of consumer dissatisfaction in
Hungary. Accommodations are poor and badly
overcrowded. Housing conditions are being improved
only slowly, because new construction barely suffices
to cover new demand aril replacements. The average
number of inhabitants per room decreased from 2.5 on
I January 1960 to 2.0 on I January 1970, and 1.9 on I
January 1972. A total of 373,000 housing units (new
units less retirements) were added to the housing stock
between 1949 and 1960. During 1961 -70 about
609,000 new units were added, with retirements
anwunting to about 140,000 units. 'I'hc Fourth Five
Year Plan (1971-75) calls for construction of 80,000
apartments per year. Examples of recently built high
density housing in the Budapest area are shown in
Figure 17.
The size of new housing units has been increasing.
It 1971, 64% of all new units had 2 "living" rooms
(i.e., excluding kitchens, bathrooms, and other service
areas), compared with 57% in 1960, and 26% had
three or more "living" rooms, compared with only 7%
in 1960. Nearly four fifths of the units built in 1971
26
FIGURE 17. Housing construction in the Budapest area.
The Kelenfold housing estate in the 11th District, a
newly built project housing 6,987 families in 1.5 2
and 3- bedroom apartments. (U /OU)
had bathrooms, and 99% had electricity, but only
73% had running water. In recent years more than
half of the new dwellings have been financed by bank
credits granted to individuals.
'I'otal investments increased from 41 billion forints
in 1961 to 110 billion forints in 1971, and now account
for about 30% of GNP, on the basis of Hungarian
data. Besides the big increase in volume of
investments, there have been significant changes in
the pattern of investments. 'rhe socialist sector (state
and cooperative) accounts for more than 90% of total
investments, while investments in the private sector,
which received 20% of total investments in 1950, now
accounts for less than 10% of the total. Prior to the
introduction of the NEM in January 1968, industry
received between 40% and 45% of investment in the
socialist sector; since then, its share has declined to
37% to 38 in favor of increased investments in
agriculture and construction (Figure 18). In absolute
terms, however, there was a very large increase in the
level of investments in industry.
'l'he most striking shift in investments after the
advent of the NEM was the increased outlays in the
agricultural sector. Agriculture received only 175 of
investments in the socialist sector in the 5 -year period
1961 -65, hut, since the NEM, the share of agriculture
has risen to 21% to 22 Investment in the
construction industry per se has risen frorn 2.3% of
investment in the socialist sector in 1961 -65 to 32% of
tit(- total in 1971; investment in the construction
function, however, has been substantially higher, with
the investment in housing construction alone rising
front its 7% share (annual average) in 1961 -70 to
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FIGURE 18. Investments in the socialized sector (U /OU)
na Data not available.
*Percentage entries are rounded.
*Manufacturing, mining, construction, and electric power.
*As distinguished from the construction function.
12.5% in 1971 -75. More than 20% of total investments
has been allocated to purposes which do not
contribute directly to the country's material product
growth; among these are housing, municipal services,
trade, culture, and health services. Except for housing,
these commercial and service functions have remained
relatively stable as investment sectors.
Total investment outlays have fluctuated widely
(Figure 18), largely because of the interaction of
foreign trade and investments. Rapid increases in
investments have led to sharply increasing imports of
machinery and raw and semifinished materials and to
declining exports, leaving large deficits in foreign
merchandise trade. Efforts to restore the balance in the
foreign trade account typically led to cutbacks in
investment expenditures. This was illustrated by the
rapid increase in investments and imports after 1968
and the resulting clampdown on investments since late
1971.
The effectiveness of investments has declined
because of the inability of the construction industry to
complete projects on schedule. The Hungarian
construction industry is admittedly much less efficient
than those of advanced Western countries, an(] it was
not able to cope with the unprecedented increase in
construction orders resulting from the investment
"splurge" following the introduction of the NEM in
1968. Its performance in the post -1968 period was
diminished by shortages of building materials
resulting from a relative stagnation in the building
materials sector, and by frequent changes in
specifications by enterprises after projects were started.
As of August 1971, a total of 6,058 building projects
were in various stages of completion, compared with
5,139 in January of that year. Of the 13 large building
projects completed in 1971, 10 were originally
scheduled for completion in earlier years, and, of the
30 large projects underway that year, 17 were already
well behind schedule. Furthermore, 70� %0 of the large
projects under construction in 1971 were running an
average of 14% above planned cost. Overall, the
backlog of construction orders at the end of 1970 was
equal to 80% of the value of construction work
completed that year.
Under the NEM, authority to make investment
decisions was decentralized, and enterprises were
given greater freedom to develop their own investment
programs. As a result, enterprise investments
accounted for 56% of total investments in 1971,
compared with only 17% in 1966; whereas state
directed investments, which had accounted for 83% of
total investments in 1966, declined to 44% of the total
in 1971. Bank credit to enterprises for investment since
the NEM began has not been as important as
expected, since most enterprises were able to
accumulate funds internally for investment. In 1972,
hank credit and enterprise development funds were
restricted, and enterprise investment is expected to
decline to 54% of total investments.
3. Government finance
a. The state budget
Hungary's budget, like those of other Communist
countries, is an instrument for exercising financial
control over the economy, as well as a means of
financing normal government operations. The budget
encompasses all income and expenditure of so- called
budgetary units administrative organs of the
government -and part of the income and expendi-
tures of "productive units" or enterprises. Because of
the inclusion of the latter, budgets of Communist
countries are much larger relative to GNP than
budgets of non Communist countries. Hungarian
27
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1958 -60
1965
1966
1967
1968
1969
1970
1971
Total investments (billion Jorin.$)
91
44
48
58
55
75
88
IOU
Percentage distribution:*
Industry**
41.8
no
43.2
43.8
40.8
39.5
37.4
38.4
Construction industry
2.0
no
2.4
2.9
2.0
2.2
2.9
3.2
Agriculture
17.8
na
16.3
16.0
20.4
20.7
22.1
21.1
Transportation
12.0
14.6
14.3
14.0
14.7
12.1
12.7
11.9
Trade......'
3.6
3.5
3.4
3.5
2.9
4.0
3.4
4.0
Communal (housing, health, cultural, etc.) admin-
istrative and other services
22.9
20.7
20.4
19.8
19.2
21.5
21.5
21.4
na Data not available.
*Percentage entries are rounded.
*Manufacturing, mining, construction, and electric power.
*As distinguished from the construction function.
12.5% in 1971 -75. More than 20% of total investments
has been allocated to purposes which do not
contribute directly to the country's material product
growth; among these are housing, municipal services,
trade, culture, and health services. Except for housing,
these commercial and service functions have remained
relatively stable as investment sectors.
Total investment outlays have fluctuated widely
(Figure 18), largely because of the interaction of
foreign trade and investments. Rapid increases in
investments have led to sharply increasing imports of
machinery and raw and semifinished materials and to
declining exports, leaving large deficits in foreign
merchandise trade. Efforts to restore the balance in the
foreign trade account typically led to cutbacks in
investment expenditures. This was illustrated by the
rapid increase in investments and imports after 1968
and the resulting clampdown on investments since late
1971.
The effectiveness of investments has declined
because of the inability of the construction industry to
complete projects on schedule. The Hungarian
construction industry is admittedly much less efficient
than those of advanced Western countries, an(] it was
not able to cope with the unprecedented increase in
construction orders resulting from the investment
"splurge" following the introduction of the NEM in
1968. Its performance in the post -1968 period was
diminished by shortages of building materials
resulting from a relative stagnation in the building
materials sector, and by frequent changes in
specifications by enterprises after projects were started.
As of August 1971, a total of 6,058 building projects
were in various stages of completion, compared with
5,139 in January of that year. Of the 13 large building
projects completed in 1971, 10 were originally
scheduled for completion in earlier years, and, of the
30 large projects underway that year, 17 were already
well behind schedule. Furthermore, 70� %0 of the large
projects under construction in 1971 were running an
average of 14% above planned cost. Overall, the
backlog of construction orders at the end of 1970 was
equal to 80% of the value of construction work
completed that year.
Under the NEM, authority to make investment
decisions was decentralized, and enterprises were
given greater freedom to develop their own investment
programs. As a result, enterprise investments
accounted for 56% of total investments in 1971,
compared with only 17% in 1966; whereas state
directed investments, which had accounted for 83% of
total investments in 1966, declined to 44% of the total
in 1971. Bank credit to enterprises for investment since
the NEM began has not been as important as
expected, since most enterprises were able to
accumulate funds internally for investment. In 1972,
hank credit and enterprise development funds were
restricted, and enterprise investment is expected to
decline to 54% of total investments.
3. Government finance
a. The state budget
Hungary's budget, like those of other Communist
countries, is an instrument for exercising financial
control over the economy, as well as a means of
financing normal government operations. The budget
encompasses all income and expenditure of so- called
budgetary units administrative organs of the
government -and part of the income and expendi-
tures of "productive units" or enterprises. Because of
the inclusion of the latter, budgets of Communist
countries are much larger relative to GNP than
budgets of non Communist countries. Hungarian
27
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FIGURE 19. Budget revenues and expenditures (U/OU)
(Billion forints and percentages of totals)
Total
Expenditures:
Investments
Subsidies, support to agriculturrl cooperatives...
Debt repayment, reserves, etc
Welfare (education, health, research, etc.)
Defense
Law enforcement
Administration
Other
Total
Deficit
193.1 212.7 100.0 100.0
41.8
VALUES
21.4
PERCENTAGES
53.0
1970
1971
1970
1971
Revenues:
11.4
12.3
46.2
51.7
Taxes and payments by state enterprises.........
159.8
173.4
82.8
81.5
Tares and payments by cooperatives
4.7
5.6
2.4
2.6
Taxes on individuals
10.5
11.7
5.4
5.5
Other
18.1
22.0
9.4
10.E
Total
Expenditures:
Investments
Subsidies, support to agriculturrl cooperatives...
Debt repayment, reserves, etc
Welfare (education, health, research, etc.)
Defense
Law enforcement
Administration
Other
Total
Deficit
193.1 212.7 100.0 100.0
41.8
47.4
21.4
22.0
53.0
55.9
27.2
25.9
22.2
26.5
11.4
12.3
46.2
51.7
23.7
24.0
9.4
9.7
4.8
4.5
5.7
5.8
2.9
2.7
14.0
15.4
7.2
7.1
2.8
3.2
1.4
1.5
195.2
215.8
100.0
100.0
-2.1
-3.1
NOTE Components may not add to totals because of rounding.
Not pertinent.
budget revenues and expenditures in 1971 and 1972
are summarized in Figure 19.
Hungary employed a Soviet -type budget during
1950 -67. In 1968, the budget structure was revised to
reflect the price revisions and the self financing of
investments by enterprises. "Turnover taxes have been
downgraded from their former key role as a revenue
producing device and are now applied at a fixed rate
rather than as a tax on price differences. Turnover tax
collection hus been shifted from producing enterprises
to wholesale trade distributors, and the number of tax
rates has been reduced from 2,500 to 1,000, with a
further reduction to 350 to 400 envisioned.
The major revenue source since 1968 has been taxes
on enterprise funds. The enterprise development funds
are taxed at fixed rates usually 60 but varying
among industries (e.g., 70% for trade and 45% for
agriculture). A fixed rate was chosen for each industry
in order to reward enterprises with above average
profits and penalize inefficient enterprises, although,
in practice, differential subsidies have had a leveling
effect on the size of development funds. Depreciation
funds are taxed it 40 but troubled industries such as
the building materials industry are exempt. The
enterprises' profit- sharing funds are progressively
taxed at rates from 40% to 7090. These tax rates were
deliberately set high to compel the enterprises to seek
additional investment funds at banks, thus
strengthening the state's influence over investment
allocation.
Enterprises and cooperatives must also pay a 5% tax
on the gross value of their fixed and liquid assets. This
tax, imposed in 1964 and continued under the NEM,
is designed to produce a minimum return on capital.
1 it 1968, the capital -use charge was extended to credit-
financed assets. Other enterprise taxes include an 8%
wage tax and a 17% (of total wage bill) social
insurance contribution, customs tariffs, and a
production tax which attempts to tax away unearned
profits resulting from such things as location or price
advantages.
The major change in budget expenditures since the
NEM is the drop in investment allocations. The share
of investments in total budgetary expenditures
dropped from about half in 1967 to approximately
one -fifth during 1968 -72. Another change involves the
recording of subsidies. Formerly, receipts from the
profit tax were net of enterprise subsidies and turnover
tax was net of price subsidies; subsidies were not
entered as an expenditure item. Subsidies are now
included in the budget, and their size has been
increasing, although their percentage share of total
budget expenditures has been declining. The budget
expenditure for welfare remrJns large, amounting in
1972 to 12% for social security, pensions, and family
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allowances, 5% for education, and 4% for public
health. Budgetary deficits have been permitted since
1968.
b. Banking and currency
The banking system, which was nationalized in
1947, serves mainly to implement the financial aspects
of the economic plans. The system includes the
Hungarian National Bank, the State Development
Bank (until 1971 called the Investment Bank), the
Hungarian Foreign "Trade Bank, the National Savings
Bank, the Central Corporation of Banking Com-
panies, the General Bank for Trust and 'Trade, the
Mutual Benefit Savings Bank, and the State Insurance
Company.
The National Bank performs the functions of a state
central bank. It issues currency, handles the fonds of
the state budget, holds deposits of other banks,
administers the national reserves of gold and foreign
exchange, and handles international payments. It also
maintains the accounts of state enterprises, effects
payments among them, and grants credits to
enterprises and cooperatives. Most interfirm
transactions handled by the bank are on a noncash
basis; cash is largely confined to payments between
individuals.
The Nat: -ial Bank is a joint -stock company
administered by a president and a board of directors
under the supervision of the Minister of Finance.
Shares are held mainly by the Treasury; shares
formerly held by foreigners were bought back by the
bank betwee: 1969 and 1971. The main office of the
bank in Budapest includes special directorates for
industry and trade, economic planning, foreign
exchange, and administration. The bank has country
directorates and also branch offices both in Budapest
and elsewhere.
As the result of a banking reorganization in 1971,
the Hungarian Investment Bank was renamed the
State Development Bank, and several of its functions
were transferred to the Hungarian National Bank. The
provision of working capital for the building industry
and the responsibility held by the State Development
Bank for financing enterprise investments were both
shifted to the National Bank, thus giving the National
Bank authority for financing fixed and working
capital for all enterprises and cooperatives.
Meanwhile, the National Bank yielded the accounts
of local councils to the Nationa! Savings Bank. As a
result of this reorganization, the State Development
Bank i now responsible only for state investments and
for channeling state financing from the central budget
to centrally approved development projects. With
regard to these investments, it is expected to examine
development plans, provide working capital, keep
accounts, set up controls, and supervise investment
outlays. It also has the right to initiate the creation of
new enterprises and to supervise the establishment of
economic associations.
The Foreign Trade Bank carries out foreign
exchange transactions in cooperation with the
National Bank. It buys and sells foreign currencies,
handles tourist exchanges, and contributes to the
execution of some foreign trade transactions. It
specializes in complicated deals involving switch
dealing, barter, multicountry trades, and innovative
arrangements, particularly those involving "coopera-
tion" and other arrangements which result -in
increased Western presence in Hungary. The bank is
under the joint supervision of the Ministers of Finance
and Foreign Trade. The shareholders are the
Hungarian foreign trade companies. The bank has no
branch offices; operations are conducted through
correspondent banks in other countries.
The National Savings Bank performs a variety of
functions on behalf of individuals. It handles personal
savings accounts and personal checking accounts;
grants credits to individuals for building houses, for
purchasing consumer durables, and for operating
artisans' enterprises and private gardens; it also sells
real estate to individuals. In 1971, an increase in
deposits of 6.3 billion forints raised total deposits in
the National Savings Bank to 50 billion forints. Loans
outstanding in 1971 amounted to 30 billion forints,25
billion of which was in the form of long -term credit for
construction of 13,000 dwellings, and 5 billion forints
in short- and medium -term loans for consumer
durables and nondurables.
The National Savings Bank also manages the state
lotteries, TOTO and LOTTO, the youth savings
contracts, the school savings stamp program, and the
IKKA gift service, which handles gifts to Hungarians
paid for in hard currencies. It controls the operation of
the Mutual Benefit Savings Bank, which collects
savings from factory workers and extends to them
short -term loans. It is also building two recreational
establishments, one of which, at Balaton-Szabadi-
Sosto, is being built in cooperation with Czecho-
slovakia.
In rural areas, savings cooperatives operating under
the auspices of the National Savings Bank exist in
more than 2,500 of Hungary's 3,178 towns and
villages. The initial capital for a savings cooperative is
obtained by issuing stocks; shareholders are part
owners of the cooperative and theoretically have an
influence on loan and interest rate policy. Profits from
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loans, which may riot exceed a 7% return on capital,
are distributed to shareholders. Interest rates on loans
extended for home construction, purchase ,f consumer
durables, or personal needs have a ceiling of 12
Savings cooperatives also serve as advance agents for
the State Insurance Company and IBUSz (Pouring,
Money Changing, Traveling arid Shipping Com-
pany). On 30 June 1971, savings deposits in savings
cooperatives were 4.2 billion forints, a 93% increase
over December 1968.
The Central Corporation of Banking Companies
and the General Bank for Trust and Trade handle
foreign financial claims of individuals arid administer
real estate owned abroad by Hungarians. 'rhe State
Insurance Company handles both personal and
property insurance. The company places part of its
funds at the disposal of the state in the form of long-
term loans.
The national currency of Hungary is the forint,
which replaced the pengo in August 1946. The forint is
nominally based on gold, and its exchange rate has
been set arbitrarily at 10.81 forints to US$1.00. This
rate is entirely unrelated to the actual value of the
forint and is used only in foreign trade accounting.
The tourist rate of exchange, applicable to most
noncommercial transactions, was changed on 23
December 1971 from 30 forints to US$1.00 to 27.63
forints to US$1.00. Foreign exchange multipliers,
which differ according to the particular foreign
currency involved, are used to calculate the forint
equivalents to be paid or received by enterprises
buying or selling on foreign markets. Under these
rates, 60 forints equal US$1.00 arid 40 forints equal 1
ruble. Exchange rates for other currencies are
proportional to their values in terms of dollars or
rubles.
A Credit Policy Council was established in 1968 to
formulate annual credit policy guidelines under the
medium -term and long -term economic plans. The
council is attached to the National Bank, and its
president is the president of the bank. The members of
the council are first deputy ministers and leaders of
national institutions concerned with national
planning, such as the National Planning Office arid
the National Material and Price Office. The
guidelines worked out by the council are subject to
government approval.
All credit in Hungary is granted by banks, although
as of 1971 enterprises that joined in common
associations were allowed to shift funds among
themselves. Before the introduction of the NEM,
investment credit, except for construction loans to
Bic
individuals, was not important in Hungary. The
National Bank had broad authority to check on the
production activities of enterprises and to take
financial action to assure compliance with national
production plans, but it granted only commercial
credits to enterprises and had no responsibility for
influencing the development of the economy.
Investments were financed from the budget or from
the enterprises' own funds, not by credit. Under the_
NEM the bank was expected to have considerable
scope for determining the direction of economic
development, and the authority to grant or withhold
credit was to become its main instrument of control.
This power proved illusory in 1970 -71, however, in
part because enterprises had accumulated substantial
funds for investment. The bank no longer has
complete access to information concerning the
internal operations of enterprises, although it is
expected to determine the credit worthiness of
enterprises to which it extends credit and the
profitability and usefulness of the projects for which
the credit is granted.
The Hungarians were disappointed in their
expectation that the banks and interest rate policies
would act as effective rationing devices for credit
allocation. In their drive for investment funds,
enterprises appeared undaunted b. repeated railings
of interest rates for loans and also of interest return on
deposits, in part, because they possessed their own
funds for investment. As a result, the planning
authorities were forced to impose more direct controls
on investments, including the imposition of temporary
bans on certain projects. In the first 6 months of 1972,
credit for new investment -Yas granted only for
purposes specified by the government, such as export
expansion, vehicle production, and aluminum
production.
General credit guidelines by banks require that
projects have anticipated profit rates of 15% in
industry and construction, 10% in the food industry
and trade, and 7% in the building materials industry.
Interest rates are set at 8% for long -term loans, which
are repayable in 8 years; medium -term loans carry an
interest rate of 9% and are repayable in 5 years if they
are extended to meet government targets aril 2 years if
extended for other purposes. Projects in preferred
sectors such as expansion of hard currency exports may
receive preferred rates of 6% interest with 12 -year
repayment. The interest paid on deposits by
enterprises ranges from 3% for 6 -month certificates to
8% for 2 -year certificates.
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D. Foreign trade
1. Volume and direction (U /OU)
Foreign trade turnover in 1971 reached a level
equivalent to US$5.5 billion, nearly nine times the
1950 level and about three times the 1960 level.
Although Hungary ranks ahead of only Bulgaria and
Romania among East European CEMA members in
terms of total trade turnover, its foreign trade per
capita is high, amounting to the equivalent of US$530
in 1971.
The distribution of Hungary's foreign trade among
the U.S.S.R., other Communist countries, and non-
Communist countries is roughly equal. The U.S.S.R.
accounted for 34% of Hungarian imports in 1971 and
35% 'of exports. East Germany, Poland, and
Czechoslovakia together accounted for about 25% of
total trade in 1971, and other Communist countries for
about s%. Trade with China is insignificant, barely
surpassing US$31 million in 1971. The remainder of
the trade was with nun Communist countries.
West Germany, accountilib for about 6% of total
trade, is Hungary's most important non Communist
trade partner, followed by Italy, Austria, the United
Kingdom, Switzerland, and France, which together
account for 15% of the total turnover. "Trade with the
United States was slightly more than 1 of Hungarian
trade in 1971. Less developed non Communist
countries accounted for only 5% of total Hungarian
trade and only 15% of its total trade with the non
Communist area in 1971. The chief trade partners
among the less developed countries are India, Turkey,
Egypt, and Iran. The geographic distribution of
Hungarian foreign trade is shown in Figure 20, and
trade trends during 1950 -71 are shown in Figure 21.
2. Commodity composition (U /OU)
Machinery exports as a percentage of total exports
have registered a slight downward trend since 1960,
averaging 30% of all exports between 1961 and 1965,
and 26% between 1966 and 1971 (Figure 22).
Foodstiffs, which comprised more than 40% of
exports in 1949, dropped to an average of 22% of the
total during 1960 -71. Tbc other two main categories of
exports -raw materials and industrial consumer
goods- together accounted for about half of total
exports in 1971. The most important items in these two
groups are rolled steel, bauxite, alumina, drugs,
footwear, textiles, and clothing.
Because of its limited natural resources, Hungary
imports a wide variety of raw and semifinished
materials and parts, chiefly frorn the U.S.S.R. "These
Distribution. in percent _NON- COMMUNIST
COUNTRIES 34.3
IMPORTS
West Germany 5.9
(USS2,990million)
Italy 4.0
Austria 3.9
United Kingdom 3.1
Hence 2.8
COMMUNIST'COUNTRIES 65.7
United Sates 1.9
Other 12.7
U.S.S.R. 34.0
East Germany 10.7
Other 7.6
Czechoslovakia 6.4
Poland 5.0
NON- COMMUNIST
COUNTRIES 31.1
EXPORTS
West Germany S.B,
HUNGARY
Italy
(USS2:500million)
Austria 26
26
Switzerland 26
United Kingdom 20
COMMUNIST COUNTRIES 68.9
United 5cates 0.4
Other 122
U.S.S.R: 34.9
East Germany 9.7
Other 8.9
Czechoslovakia 7.9
Poland 7.S
FIGURE 20. Geographic distribution of
foreign trade, 1971 (U /OU)
products including metals, chemicals, textile fibers,
and lumber make up about half of total imports,
and fuels and electric power imports usually account
for another 7% to 9 The share of foodstuffs in total
imports has averaged 11% since 1965. Imports of
machinery and equipment -most of it from
Communist countries -have accounted for nearly
one fourth of all imports. Imports of consumer goods
rose after the institution of the NEM, ranging between
9% and 12% of total imports since 1968, compared
with an average of 6% during 1961 -65.
Except for the trade in agricultural products,
Hungary's commodity trade is dominated by
Communist countries. In 1971, Communist countries
purchased 91% of Hungary's exports of machinery
and equipment, 75% of industrial consumer goods,
61% of fuels and power, 59% of raw materials, and
61% of processed food products, but only 43% of
unprocessed food products and live animals. They
supplied 93% of fuels and power, 79% of machinery
and equipment, 77% of industrial consumer goods,
60% of raw and semifinished materials, and 40% of
foods and food products.
31
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FIGURE 21. Foreign trade summary (U /OU)
(Millions of equivalent U.S. dollars)
NOTE Components may not add to totals because of rounding.
FIGURE 22. Foreign trace, by commodity groups (U /OU)
(Percentages of respective totals)*
Imports:
Power and fuels
Raw materials, semi manufRetures, and parts......
Machinery and equipment
Manufactured consumer goods
Foodstuffs and food industry raw materials......
Total
Exports:
Power and fuels
Raw materials, semi manufactures, and parts......
Machinery and equipment
Manufactured consumer goods
Foodstuffs and food industry raw materials.......
WITH COMMUN18T COUNTRIES
WITH NON COMMUNIST
COUNTRIES
TO'N'AL TRADE
Exports
Imports
Balance
Exports
Imports
Balance
Exports
Imports
Balance
1950
216.7
178.8
-38.0
111.8
136.9
-25.1
328.5
315.7
+12.8
1955
404.0
302.4
+101.6
197.0
251.8
-54.8
601.0
554.2
+46.8
1960
623.4
687.3
-63.9
250.5
288.4
-37.9
873.9
975.8
-101.8
1965
1,057.8
1,018.2
+39.5
451.7
502.1
-50.4
1,509.5
1,520.3
10.8
1966
1,088.9
1,015.7
+73.2
504.4
549.8
-45.4
1,593.3
1,565.5
F27.8
1967
1,166.8
1,183.0
-16.3
534.3
592.2
-57.9
1,701.1
1,775.2
74.1
1968
1,285.6
1,234.7
+50.9
503.5
567.9
-64.4
1,789.1
1,802.6
-13.5
1969
1,417.6
1,305.9
+1i1.7
666.1
621.8
+44.3
2,083.7
1,927.7
+156.0
1970
1,519.5
1,617.1
-97.5
797.1
888.1
-91.0
2,316.6
2,505.1
-188.5
1971
1,723.0
1,963.5
-240.5
777.1
1,026.1
-249.0
2,500.4
2,989.6
-489.2
NOTE Components may not add to totals because of rounding.
FIGURE 22. Foreign trace, by commodity groups (U /OU)
(Percentages of respective totals)*
Imports:
Power and fuels
Raw materials, semi manufRetures, and parts......
Machinery and equipment
Manufactured consumer goods
Foodstuffs and food industry raw materials......
Total
Exports:
Power and fuels
Raw materials, semi manufactures, and parts......
Machinery and equipment
Manufactured consumer goods
Foodstuffs and food industry raw materials.......
Total 100
*Componen,�., -:ay not add to totals because of rounding.
The principal products purchased from the
industrial West are specialized machinery and other
manufactures and agri ^ultural products riot readily
available from Communist sources. 'fhe less developed
countries supply mainly raw materials and tropical
agricultural products. In addition to meat, live
animals, and other agricultural products, Hungary has
found growing markets in the non Communist area
for sernirnanufact/Ires such as steel and nonferrous
metals, and also for light industrial products.
3. Balance of payments (C)
Since 1957, when the U.S.S.R. bailed Hungary out
of a serious hard- currency debt situation, Hungary has
32
1G0 100 100 100 100 100
been very cautious in its trade relations with the West.
During the 1960's, the hard currency debt was held at
a fairly stable ratio to exports, being permitted to rise
generally in line with rising exports. By the end of
1969, the debt was only US$375 million, probably the
lowest in all of Eastern Europe, and equal to
approximately 73% of annual hard- currency exports.
In 1969, however, Hungary experienced its largest
trade surplus with the West in recent history. In trade
with both the East and the West, exports rose more
rapidly than did imports, yielding large surpluses in
trade with both areas. 'Co a large extent the rapid rise
in exports in 1969 was due to the rapid growth in the
economics of Western European countries. The
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1971
Non
1960
1965
1969
1970
Communist
Communist
Total
8
10
8
7
10
2
7
54
52
53
50
43
57
48
22
21
20
22
30
16
26
6
6
8
10
10
6
9
10
12
11
11
7
20
11
100
100
100
100
100
100
100
2
1
2
1
1
1
1
24
27
28
29
23
37
27
34
27
25
26
33
8
26
18
21
22
21
25
19
23
22
23
23
23
18
36
24
Total 100
*Componen,�., -:ay not add to totals because of rounding.
The principal products purchased from the
industrial West are specialized machinery and other
manufactures and agri ^ultural products riot readily
available from Communist sources. 'fhe less developed
countries supply mainly raw materials and tropical
agricultural products. In addition to meat, live
animals, and other agricultural products, Hungary has
found growing markets in the non Communist area
for sernirnanufact/Ires such as steel and nonferrous
metals, and also for light industrial products.
3. Balance of payments (C)
Since 1957, when the U.S.S.R. bailed Hungary out
of a serious hard- currency debt situation, Hungary has
32
1G0 100 100 100 100 100
been very cautious in its trade relations with the West.
During the 1960's, the hard currency debt was held at
a fairly stable ratio to exports, being permitted to rise
generally in line with rising exports. By the end of
1969, the debt was only US$375 million, probably the
lowest in all of Eastern Europe, and equal to
approximately 73% of annual hard- currency exports.
In 1969, however, Hungary experienced its largest
trade surplus with the West in recent history. In trade
with both the East and the West, exports rose more
rapidly than did imports, yielding large surpluses in
trade with both areas. 'Co a large extent the rapid rise
in exports in 1969 was due to the rapid growth in the
economics of Western European countries. The
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Hungarian authorities, however, erroneously at-
triblited the surge in exports in large part to the
operation of the NEM, and they proceeded to relax
controls on imports. As a result, imports in 1970 rose
more rapidly than did exports (in response to the
investment boom under way in Hungary), and
Hungary experienced another large deficit ca its trade
account, including a substantial deficit in its hard
currency account. In 1971, as the boom in Western
Europe fad exports to that area declined while
imports continued to rise, and Hungary sustained
record deficits in its hard currency trade. By 1972, ''.e
Hungarian hard currency debt stood between $500
million and $600 million, and the government
imposed more restrictive quotas and other import
controls and placed controls on the rate of economic
growth to control the deteriorating debt situation.
Much of the d:' is financed by medium -term
supplier credits anu ;hurt -term Eurodollar loans, but
Hungary has been the most innovative in Eastern
Europe at seeking new sources of hard currency. From
1968 to 1971, Hungary borrowed US$120 million from
Western banking consortia, and in 1971 it was the first
East European country to float a Eurodollar bond
issue. The bond �$25 million �was favorably received
and in September 1972 the Hungarians offered an
additional $50 million Eurodollar issue at 8'/2
interest.
Hungary generally had a favorable trade balance
with Communist countries until the large Soviet hard
currency loan in 1957. During 1958 -70 Hungary ran a
cumulative surplus on current account with
Cc_nmunist countries of about US$130 million. The
1971 -75 plan called for imports from Communist
countries to grow faster than exports, and in 1971 the
current account deficit with the Communist countries
amounted to $240 million. Trade with the Communist
countries for the first 7 months of 1972 was in
approximate balance.
Net invisible earnings have not provided a
significant offset to Hungary's trade deficits. For
example, estimates of Hungary's hard currency
balance of payments show total net cumulative
earnings from invisibles during 1959 -69 of US$45.5
million �only $4 million a year� compared with a
cumulative hard currency commodity trade deficit of
$423 million, or $38 million it year on the average. Net
earnings from transportation and tourism �the main
plus items �have in effect been canceled in the
invisibles account by net interest payments on
outstanding debt. Tourism, however, has begun to rise
sharply, and earnings from that source (although
netting only ''8 million in 1971) probabl_: will be a
significant factor in the balance of payments later in
the 1970's.
4. Policy and organization (U /OU)
The NEM included a set of trade reforms designed
to combat the familiar problems of noncompetit*ve
and low- quality finished goods, artificial prices or
costs which prevented rational output and export
decisions, and the large gap between domestic output
and foreign demand. Under the NEM, prices were
reformed; a "multiplier" system, reflecting the
average cost of obtaining foreign exchange through
exporting, was created to bridge the gap between
domestic prices and dollar and ruble prices; and many
producing enterprises were given the right to engage
directly in trade, instead of having to go through
specialized trade firms.
The trade system was not completely overhauled.
Most trade continued to be conducted at fixed prices
with Communist countries on the basis of 5 -year and
annual plans. Political considerations, as well as the
chronic danger of large trade deficits, prompted close
control of trade with the West by means of licenses,
quotas, fairly high tariffs, and at times steep import
deposits. In addition, an extensive subsidy system was
established to cushion the impact of the multipliers
which, by covering only average costs, would have
made many exports unprofitable. These subsidies
cover 60% of exports to the Communist countries and
70% of exports to the West.
Although trade in effect is still a government
monopoly, enterprises are far less insulated now than
before the NEM. The number of producing firms able
to buy and sell directly in foreign markets has been
expanded from only eight in 1967 to 91 in January
1972. In addition, enterprises can also contract with
foreign trade firms on a commission basis or join other
firms in joint -stock companies to promote sales. Two
examples are GEOMINCO, formed by 10 mining
companies, with net profits divided among them in
proportion to their shares, and BUDAVOX Ltd.,
founded by the five largest enterprises of the
telecommunication industry. Thus far, the most
common method of enterprise sales has been on a
commission basis with the foreign trade enterprises.
"There are 10 Hungarian enterprises which act as
agents for 250 -300 foreign firms. These are the
Agentura Ltd., thr; Eurocom Corporation, Hungagent
Corporation, Import Trade Ltd., the Industria
Corporation, Interag Corporation, Mercator Ltd.,
Universal Ltd., Hunicoop Intercooperation, Ltd., and
Zenit Ltd. These agencies transacted US$100 million
33
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in sales to Hungary in 1971 and also handled a
number of cooperative arrangements with Western
firms. The Hungarian Government has been
pressuring thc.ze enterprises to promote Hungarian
exports also, but o far they have apparently resisted
the pressu.e sue
5. Cooperative arrangements (U /OU)
a. Western countries
Hungary has been actively promoting cooperative
agreements with Western firms. Of the 220 such
agreements existing with Western firms in 1972, over
50 were reached in 1971. These agreements often
cover joint development, production, and marketing
of industrial goods, and several of them allow
Hungary to pay for imported technology with goods
or with the proceeds from sales in third countries. The
Hungarians also pruchased 142 licenses during 1968-
71, compared with 63 in the previous 20 years.
Cooperative industrial agreements include an
arrangement between the Austrian firm Steyr -Puck
and the Hungarian firm Gyor Agricultural Machinery
Works, signed in 1971, under which the Austrian firm
supplies a prototype tractor and some components and
the .Hungarian firm produces the chassis and
assembles the final product. A similar agreement
between the French firm Ratier Forest and Technoim-
port of Hungary involves machine tool production.
The French fim provides components, for which they
are paid with complete machines. In an agreement
with Seidl of Austria, Hungary received a license to
produce faucet hardware, Austria and Hungary
agreed to exchange components, and Hungary was
granted unlimited rights to market the hardware in
certain countries. Among several nonindustrial
cooperative agreements are 'he electric power
exchange with Austria, an agreement with Shell to
build service stati-! -s in Hungary, and an agreement
between a U.S. firm and the Babolona State Farm
concerning corn cultivation throughout Hungary and
extending into Czechoslovakia, the U.S.S.R., and
Yugoslavia.
Hungary has also formed joint companies with
Western firms, but, as of late 1972, they have all been
headquartered outside Hungary. A joint U.S.
Hungarian enterprise, EuroAmerican Techno
Corporation, was established in May 1972 and is
registered in Amsterdam and Curacao. The new
enterprise -50% Hungarian- owned �is concerned
with market research and sales of a Hungarian tissue
substitute called "fibrin biop,ast." Other joint
companies include two in London� M edicha rge,
34
created to manufacture and sell batteries, recharge-
able cells, and associated electrical equipment in the
United Kingdom, and Medibase, to sell know -how;
one in France (Technotrans) to promote sales of
Hungarian machine tools; and one in Italy devoted to
the sale of Hungarian textile products. In the fall of
1972 the government was preparing new regulations
to allow for the first time the establishment of jointly
owned enterprises within Hungary.
Hungary has also indicated interest in a number of
international organizations and has an application
pending to join the General Agreement on Trade and
Tariffs (GATT). Prominent Hungarian spokesmen
have pointedly remarked on the importance for
Hungary of eventually joining other organizations
such as the International Monetary Fund (IMF) and
the International Bank for Reconstruction and
Development (IBRD).
b. Communist countries
The most important Hungarian cooperative
arrangements with Communist states involve raw
materials, such as that with the U.S.S.R. in which
Hungary is to provide equipment on credit between
1971 and 1973 to develop Soviet production of
asbestos, cardboard, phosphorous raw materials, and
chemical fertilizers, and will be repaid in deliveries of
these materials between 1976 and 1990. In another
agreement, announced at the 26th CEMA Council
Session in 1972, Hungary and other CEMA members
will assist in the construction of a cellulose plant in the
U.S. S. R. The plant is to be in production by 1975, and
credits will be repaid in cellulose deliveries until 1990.
Other agreements of this type are in force for
Bulgarian soda and Polish sulfur.
Hungary also has processing agreements with
Communist countries. Hungary is building a
petrochemical complex with capacity beyond its
present needs and has agreed to ship 130,000 tons of
ethylene and 50,000 tons of propylene annually to the
U.S.S.R. until 1984. The U.S.S.R. will deliver
polyethylene and synthetic products in payment. The
other significant example of a processing agreement is
t1-2 shipment of Hungarian alumina to the Soviet
Union, where it is processed into aluminum ingots and
returned to Hungary.
Despite existing raw materials agreements, Hungary
has complained openly about the rel.. -tance of the
U.S.S.R. to make long -term commitments for raw
material deliveries. Presumably the chief concern of
Hungary is to assure a high volume of petroleum
deliveries beyond 1975.
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CONFIDENTIAL
Only a few jointly owned enterprises have been set
up with Communist countries. One is the Haldex
Company, a joint Polish- Hungarian enterprise
engaged in coal extraction. "There are also two
enterprises jointly owned by Bulgaria and Hungary
Intransmash, which designs and sells small transport
equipment, and Agromash (later joined by the
U.S.S.R.), which is concerned with vegetable and fruit
production. 11 ungary has not shown much enthusiasm
fo- joint enterprise because of the lack of enterprise
autonomy and the cumbersome bureaucracy in other
East. European states.
e. Council for Economic Mutual Assistance
Hungary is 4 tull member of the Council for
Economic Mutuaa Assistance (CEMA), the economic
coordinating body of the East European Communist
countries, and its multilateral organizations. Within
CEMA, Hungary has been the strongest advocate for
reform of prices and movement toward currency
convertibility. At least partly to assuage Hungary, the
Comprehensive Program for Integration issued at the
CEMA session in July 1971 established a timetable for
exchange rate adjustments and currency converti-
bility. In 1971, initial steps were taken to create
realistic exchange rates against the transferable ruble,
but there is no indication of further progress.
Hungary also has criticized the low degree of
specialization within CEMA in the production of
machinery and component parts. (One major
exception is the production by Hungary of component
parts for the Soviet Zhiguli autamobile). In addition,
Hungary has had difficulty in selling to other member
countries the products it has produced under
specialization agreements or in buying from them the
products it has agreed to stop producing.
The International Investment Bank (IIB), founded
in January 1971, has granted loans for several
Hungarian projects, including 20.5 million rubles for
the expansion of the Ikarus Bus Works, 12.7 million
rubles for the electri fication of railroads, and 14.4
million rubles for a cotton processing plant. The
International Bank for Economic Cooperation
(IBEC), established in 1964, has somewhat facilitated
multilateral clearing of accounts among the
Communist countries but has not contributed much to
multilateral balancing of trade. IBEC has been an
active borrower in West European money markets in
1972, but it is not known whether any of the hard
currency obtained has been reloaned to Hungary.
Places and features referred to in this chapter (U /OU)
CONFIDENTIAL 35
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COORDINATES
COORDINATES
Ajka
o W
o 1 E.
o 'N.
o 'E.
Algyo"
47 06
17 34
Iza- major (farm)
46 57
17 25
Almfisfiizito
46 20
20 13
Kalush, U .S.S.R.........................
49 01
24 22
Babolna
47 43
18 16
Kisterenye
48 01
19 50
Balcony mts)
47 38
17 59
Komld..
46 12
18 16
Beregovo (U.S.S.R.)
47 15
48 13
17 50
22 39
Leninvaros
46 22
16 52
Bodajk
47 19
18 14
MAtra (mts
47 53
19 57
Borsod (sec of Miskolc)
48 19
20 45
Mecsek mts
46 10
18 18
Borsodnadasd
48 07
20 15
Miskolc
48 06
20 47
Budapest
47 30
19 05
Nagyknnizss 46 27
16 59
Biikk mfs
48 05
20 30
Nagylen gyel 46 47
i6 46
repel 47 25
19 05
Nyirnd............. 47 00
bzd
17 27
Danube River siren
45 20
29 40
48 13
20 18
Deukipuszta 46 59
17 24
Paks.. 46 38
18 52
Debrecen 47 32
21 38
Pecs 05
18 14
Dibsgyor (,see of Miskolc) 48 06
20 41
Pilis mfs
47 42
18 57
nttil
Dun:i region)
9 47 00
18 00
m
Rakhegy (mine) 47 17
18 16
Dunatijvilros 46
59
18 56
Rudabnnya 48
23
20 38
Eperjes- hegyhAt
$ahy, Czechoslovakia 48 04
18 58
46 37
Feny5fii
16 44
Salg6tarjAn 48 07
19 49
paint
47 21
17 46
SzAzhalom batta......................... 47 20
18 56
�17
23
18 24
Szeged.. 46 15
20 10
(:rent Alfold (plain) 47 00
20 00
Sz 47 44
18 10
Gy6ngy6s 47 47
19 56
Tatabanya 47 34
18 25
Gy6ngy6soroszi 47 50
19 54
Tolna 46
26
18 47
G y5r 47 41
17 38
VArpalota......� 47
12
18 08
Hajd6szoboszl6 47
27
21 24
Vertes hil ls) 47
25
18 20
Halim ba 47
02
17 32
Visonta. 47
47
20 02
Inota (sec of V(Irpalota) 47
12
18 11
Volgograd, U.S.S.R...................... 48
45
44 25
I skaszentogyorgy 47 14
18 18
Zalaergerszeg 46
50
16 51
CONFIDENTIAL 35
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APPROVED FOR RELEASE: 2009/06/16: CIA- RDP01- 00707R000200110038 -2