EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000301200001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 22, 2016
• Document Release Date: July 8, 2011
• Sequence Number: 1
• Publication Date: October 10, 1986
• Content Type: REPORT

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Directorate of
Intelligence
MASTER FILE COPY 25X1
I .SHK
R NOT GIVE OUT
OR MARK ON
European Review
)26
EUR ER 86-023
10 October 1986
Copy 463
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Secret
EUR ER 86-023
10 October 1986
European Review
Italy-Libya: Implications of the Fiat Sales
United Kingdom-France: Final Evaluation for an AEW Aircraft
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Poland: Safety Concerns Delay Nuclear Power Program
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Yugoslavia: Foreign Exchange Laws May Be Revised L
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Hungary: Authorities Ban Literary Journal F
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Bulgaria: Continuing Economic Troubles
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 1II I I I J_IIII
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Secret
Eastern Europe-China: Party Ties Likely
Soviet General Secretary Gorbachev's recent overtures to Beijing
have bolstered prospects for reviving Sino-East European party
relations. Visits this fall to Beijing by the party leaders of Poland
and East Germany give further impetus. Unlike Moscow, however,
Beijing does not see party relations with Eastern Europe as leading
to reestablished party ties between China and the Soviet Union. Nor
does the PRC want to upset Sino-US relations by giving the
impression that Beijing is reassessing its ties to the West. For its
part, Eastern Europe supports Moscow's move to reduce tensions
within the Communist world and hopes improved relations with
China will yield economic benefits.
Poland: Legislating Against Dissent
Since the abolition of martial law three years ago, the Jaruzelski
regime has been amending old laws and passing new legislation to
restrict dissent. The new restrictions have been used to conduct
university purges, make preventive detentions before important
anniversaries, and carry out widespread arrests of persons engaged
in illegal printing and distribution of underground publications.
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Viewpoint Hungary: Observations From a Summer Abroad
Some articles are preliminary views of a subject or speculative, but the contents
normally will be coordinated as appropriate with other offices within CIA.
Occasionally an article will represent the views of a single analyst; these items
will be designated as uncoordinated views.
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European Review
Briefs
Italy-Libya Implications of the Fiat Sale
The Italian firm Fiat hopes it has cleared the way for participation in US defense
contracts by convincing Libya to sell its 14.5-percent share of the automaker. In a
deal completed in mid-September, Fiat purchased one-third of the Libyan shares
and a consortium of bankers-led by the Deutsche Bank-acquired the remaining
shares for resale on the secondary market. Tripoli accepted the current market
price of $3.1 billion for its shares although it had demanded a much higher price
when Fiat first offered to buy back the shares last May. F__1
Profits from the sale will bring Libya's reserves to last year's level, and Tripoli
may have decided to accept the market price now to reduce the impact of a
possible Italian freeze of Libyan assets. The Italian Government probably hopes
the sale will smooth Italian-US relations. The sale also removes one obstacle to
Italy's adoption of stronger measures against Qadhafi-backed terrorism, although
Rome will still be constrained by the 2,000 Italian workers in Libya and by the
nearly $1 billion Tripoli owes Italian companies. F_~
United Kingdom-France Final Evaluation for an AEW Aircraft
The UK Defense Ministry has announced that it has closed bidding for the Royal
Air Force's new airborne early warning aircraft (AEW), reducing contenders to
the British Nimrod fitted with a radar made by Britain's General Electric
Company and the US-manufactured E-3 AWACS. According to the US
Embassy, both contenders have been requested to submit final proposals by mid-
November, and a Defense Ministry decision is expected in December. France,
which is interested in aquiring three such aircraft, will participate in the evaluation
of the two contenders and may consider a joint procurement option.
London may hope that a joint Anglo-French evaluation, especially if it leads to a
decision by both nations to buy AWACS, will help mute criticism that the
Thatcher government too often favors US manufacturers for military
procurement. A joint purchase also would demonstrate London's commitment to
increased European defense cooperation and would probably bring down the unit
cost of either system. The French have long pushed for an airborne early warning
aircraft to fill gaps in their air defenses but probably cannot field a French-built
system before 1993.F___-]
Secret
EUR ER 86-023
10 October 1986
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Safety Concerns Delay Nuclear Power Program U
Work on Poland's first nuclear power plant was halted for several months this
summer, probably due to increased safety concerns in the wake of the Chernobyl
disaster. Following the Soviet mishap, some 3,000 Polish citizens petitioned
parliament to temporarily halt nuclear power plant construction, and Polish
scientists warned that planned safety systems were inadequate. A parliamentary
commission, citing limits on domestic coal production and energy imports from the
Soviet Union, reiterated the importance of nuclear power but promised that safety
concerns were a priority. Last month, the Council of Ministers ordered a review of
blueprints for the plant, and Polish nuclear power officials announced that fire
prevention equipment and monitoring devices would be upgraded. According to a
regional party newspaper, Polish nuclear experts rejected poor quality cement
deliveries and have noted quality problems with Polish steel and electrical cable.
Warsaw probably will have to seek additional outside technical assistance-
possibly from East Germany or the West-to address safety concerns and alleviate
materials shortages. Despite the delays and mounting costs of the plant under
construction, plans for Poland's second nuclear power plant are moving forward.
Nonetheless, Polish officials do not expect nuclear power to contribute
significantly to Poland's energy supply before the year 2000.1
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 II I i .1 1111_
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Yugoslavia Foreign Exchange Laws May Be Revised 0
Yugoslav officials appear increasingly convinced that the controversial foreign
exchange laws passed last December after a major political struggle are not
working and may have to be changed. From the outset, leaders and businessmen
from the northern trade-oriented republics have criticized the legislation-the
heart of which is a requirement that exporters turn over all hard currency earnings
to a federally administered "market." Both Premier Mikulic and a deputy trade
minister in public statements have left the door open to eventual changes. The
southern regions-which initially pushed for the new system in hopes of gaining
greater access to foreign exchange-are likely to acquiesce to some changes over
the next year as they discover they have even less access to hard currency than
The problem with the new laws, according to critics, is that they decrease the
incentive to export to the West and are less efficient in allocating foreign exchange
than the "gray" market that flourished under the old system. Regional officials
note that exporters have been slow to remit earnings and say privately that firms
and banks are "hiding" foreign exchange through "creative" accounting methods.
The Federal Government estimates that of $6 billion earned in the first eight
months of 1986 only $320 million reached the official market. US diplomats report
that importers face growing difficulties in obtaining foreign exchange. Moreover,
many exporters can no longer increase their profits through gray market sales of
foreign currency and have seen their earnings fall. At the same time, inflation has
made domestic sales more attractive.)
The fate of the laws ultimately may depend on Belgrade's ability to meet
obligations stemming from its roughly $19 billion hard currency debt. The
disincentive to export in the new system almost certainly has contributed to the
recent deterioration of Yugoslavia's trade balance with convertible currency
markets-Belgrade recorded a $1.1 billion deficit in the first six months of 1986,
nearly double the $683 million deficit registered during the same period last year.
Hungary Authorities Ban Literary Journal
The closure this summer of the literary journal Tiszataj for publishing a poem that
implicitly accuses Hungary's current leaders of betrayal for helping crush the
October 1956 revolution reflects the regime's anxiety at the approaching 30th
anniversary of the uprising. This is the first time in recent years that the relatively
benign Kadar regime has taken such harsh reprisals against a legitimate journal
for critical commentary. This action, which a source of the US Embassy recently
said was appealed by the regime-sponsored Writers Union, is a clear warning to
the literary community to avoid unauthorized interpretations of the 1956 events.
The authorities have used unusual force several times this year to break up
demonstrations or confiscate dissident literature in an apparent effort to set clear
limits to nonsanctioned activities prior to the revolution's anniversary.
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The regime's unusually severe response to Tiszataj's transgression may also have
been prompted by the journal's strong nationalist orientation. It has long been an
outlet for so-called populist writers, who have focused on the plight of Hungarian
minorities in neighboring Romania and Czechoslovakia, a cause that has wide
appeal in Hungary and has even forced Budapest to protest Prague's and
Bucharest's alleged mistreatment of their Magyar populations. The authorities
may fear that the populists are now turning to the-heretofore taboo issue of the
1956 uprising and its aftermath and even joining forces with dissidents who have
been consistently critical of the role played by current leaders in the revolution.
The affair also highlights divisions within the party over how to handle touchy
subjects such as 1956. Embarrassed party officials told US diplomats that they
acted quickly to revoke the journal's license because the editorial board is
composed of party members. Some elements of the party, particularly young
members, tend to favor removing the ban against open discussion of the topic,
according to US Embassy officers. The party's senior members, however, some of
whom participated in the events of 1956, remain opposed to unfettered discussion
of the uprising and defensive about their own activities during that time.)
Bulgaria Continuing Economic Troubles L__]
Bulgarian economic growth in key sectors during the first half of 1986-the
crucial first year of its Ninth Five-Year Plan-was below the mark even for the
government's modest targets, and it is now unlikely that the country can meet its
economic goals for the year. Poor performance in the critical areas of agriculture
and energy production will have serious repercussions throughout the Bulgarian
economy. The country's deteriorating trade situation will almost certainly lead the
regime to expand its now modest Western debt.
Party leader Todor Zhivkov, who turned 75 on 7 September, will not hesitate to
make scapegoats of top economic officials if the economy does not turn around. He
has repeatedly removed economic planners during his 32-year rule-including
formerly close allies-and has often reshuffled the planning bureaucracy to deflect
criticism and promote the appearance of reform. Continued poor economic
performance could affect the political fortunes of several of Zhivkov's potential
successors-probably boosting Party Secretary and Politburo member Alexandrov
at the expense of Economic Council Director Doynov
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Secret
Eastern Europe-China:
Party Ties Likely
Soviet General Secretary Mikhail Gorbachev's recent
overtures to Beijing have bolstered prospects for
reviving Sino-East European party relations. Visits
this fall to Beijing by the party leaders of Poland and
East Germany give further impetus. F_~
Unlike Moscow, Beijing does not see party relations
with Eastern Europe as leading to reestablished party
ties between China and the Soviet Union. The
Chinese have been expanding economic and political
relations with Eastern Europe for several years as part
of their "independent foreign policy" of reducing
tension with the Soviet Bloc and expanding relations
with developing countries to balance China's opening
to the West. Beijing hopes to increase its influence in
Moscow's backyard and to encourage both East
European independence of Moscow and East
European-West European detente. China does not,
however, want to upset Sino-US relations by giving
the impression that Beijing is reassessing its ties to the
West. For its part, Eastern Europe supports Moscow's
move to reduce tensions within the Communist world
and hopes improved relations with China will yield
economic benefits as well as lead to greater Soviet
diversity in dealing with the various East Bloc
regimes. Ironically, the effort has produced some
friction among the East European allies over which
one should set the pace. F_~
Unprecedented Visits
Statements by several Chinese and East European
officials in recent months suggest that they have been
preparing to reestablish party relations suspended
since the Sino-Soviet break of the mid-1960s.'
Gorbachev's overtures to China in his Vladivostok
speech of 28 July underscored Moscow's effort to
reduce tensions with Beijing, and this conciliatory
mood could facilitate the normalizing of Sino-East
European party relations.
' For purposes of this analysis, Eastern Europe refers only to East
Germany, Poland, Czechoslovakia, Hungary, and Bulgaria. China
already enjoys party ties to Romania and Yugoslavia; Albania does
The landmark events on the road to reestablishing
party ties have been the working visit by Poland's
Wojciech Jaruzelski last month and the impending
state visit by East Germany's Erich Honecker. Each is
party chief as well as head of state, making the visits
the highest level contacts with China in more than 20
years by the East European parties that follow
Moscow's foreign policy lead.
Jaruzelski stopped over in Beijing for a three-day
working visit as an add-on to an earlier scheduled visit
to Mongolia and North Korea. Jaruzelski met with
top Chinese state and party officials, including Deng
Xiaoping, Premier Zhao Ziyang, Head of State Li
Xiannian, and Party Chief Hu Yaobang. Zhao, Li,
and Hu have accepted invitations to visit Poland and
invited Jaruzelski to return on a formal visit. They
also signed a cultural and scientific agreement.
Honecker, who was invited for a longer stay, will be
the official guest of both Hu and Li and probably will
sign one or more economic cooperation agreements.
Honecker, who considers himself Moscow's most
valuable ally and revels in state visits abroad, must be
furious with Jaruzelski for diminishing the uniqueness
of his own trip. Western diplomats in Beijing also
report that the Chinese were irritated at Jaruzelski
and believe they were tricked by the Soviets, who
knew that China could not turn down the Polish
request. Consequently, the Chinese stopped short of
reestablishing full party-to-party ties during
Jaruzelski's visit.
Chinese Motivations
Beijing has stepped up its efforts to strengthen
political and economic ties to Moscow's East
European allies ever since Hu announced China's
"independent foreign policy" at the 12th Party
Congress in September 1982. We believe the Chinese
seek to:
? Encourage East Germany, Poland, Czechoslovakia,
Hungary, and Bulgaria to emulate Romania in
pursuing foreign policies less subservient to
Moscow.
Secret
EUR ER 86-023
10 October 1986
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? Promote Beijing's long-range vision of a multipolar
world in which China, Japan, and a united Europe
enjoy greater autonomy from the superpowers.
? Further legitimize Chinese modernization efforts
both at home and within the Communist world by
sharing experiences with reform-minded Hungary.
? Develop alternative sources for acquiring Soviet
technology and markets for Chinese products. F_
China, in our judgment, does not view strengthened
party ties to Eastern Europe as paving the way for
party relations with the Soviet Union.
any case, the Hungarians would welcome the
opportunity to develop relations with another reform-
oriented Communist state.)
East Germany has served most often as Moscow's
East European stalking-horse in developing economic
and political ties to China. Sino-East German
government relations in many areas have expanded at
an increasing tempo since 1983. Honecker's visit thus
caps a series of exchanges in the past year-the
highest level in more than 25 years-in which three
East German Politburo members holding government
East European Motivations
Eastern Europe, in contrast, supports Moscow's
efforts to use improvements in Sino-East European
ties to promote Sino-Soviet reconciliation. We believe
that the East Europeans hope as well that a
diminution of the bitter factionalism that has plagued
the Communist world since the two giants split in the
mid-1960s might increase Soviet tolerance of diversity
within Eastern Europe. The East Europeans also see
China as a potentially vast market for their industrial
goods and a supplier of raw materials and light
manufactures.
Each East European country-especially East
Germany-has its own agenda with a broad range of
political and economic objectives. On the political
side, Honecker has striven to raise East Germany's
profile in international affairs and to present himself
as a Central European statesman and political
interlocutor as sought after as West German
Chancellor Helmut Kohl, who visited Beijing in 1984
and hosted Hu in Bonn this past June. Similarly, we
believe Jaruzelski welcomes the boost to his
international image arising from being the first East
European party head (with the notable exception of
Romania's Nicolae Ceaucescu, who has always been a
foreign policy maverick) to visit China. Even
Bulgaria's Todor Zhivkov, in the past critical of
Chinese reforms, recently met with a visiting Chinese
official of ministerial rank and discussed expanding
trade. The East European party leader most likely to
visit China next is Hungary's Janos Kadar. According
to Embassy sources in Budapest, Kadar may be
planning such a trip even though he loathes flying. In
posts have met with Hu during visits to Beiiine.
Outlook
We believe China will gradually normalize party
relations with all of Eastern Europe, which should
lead to increased senior party exchanges and
attendance at one another's party congresses. China is
scheduled to convene its next party congress in 1987,
and the East Europeans will hold theirs in the early
1990s. Party ties will complement existing
government and economic relations, which will also
continue to develop at an increasing rate. At the same
time, the East Europeans will be on guard against
Chinese efforts to use them against the Soviets.
Honecker, for example, visited Moscow in early
October, presumably to discuss, among other things,
his forthcoming trip. For its part, Beijing will seek to
reassure the West-and Washington in particular-
that party relations with Eastern Europe do not
foreshadow similar ties to Moscow. Deng and other
senior Chinese leaders have recently stressed that any
progress in Sino-Soviet relations depends on major
Soviet concessions on Cambodia.)
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Poland: Legislating Against
Dissent F-1
The Polish Government has used the period since the
abolition of martial law in July 1983 to amend old
laws and pass new restrictive legislation to limit
dissent. Moreover, it has not been deterred by
domestic criticism. For example, church protests over
revision of the liberal education law in 1985 were
brushed aside by the government. The regime has
privately told its critics the new harsh laws will not
necessarily be broadly implemented but are intended
as a wart. ing that the regime has the legal tools to use
against tt oublemakers. The new restrictions have
been used to conduct university purges, make
preventive detentions before important anniversaries,
and carry out widespread arrests of those involved in
the illegal printing and dissemination of underground
publications.
The brunt of the new legislation is aimed at
dissidents. A special criminal liability law and
changes to the penal code increase the power of judges
to speed up the trial process, to impose sentences
immediately-especially when the accused is caught
in the act-and to waive trials without appeal for a
greater number of offenses. Other changes include
harsher jail terms, fines, confiscation of property,
changes in the parole procedure, and travel
restrictions. General Baryla, the Politburo and
Secretariat member in charge of security, announced
earlier this year that more law-and-order legislation is
being prepared.
Clamping Down on Educators, Students,
and the Media
Amendments to the 1982 Higher Education Law
provide for greater central government control over
university activities. The Minister of Science and
Higher Education is given authority to ensure
teachers take a loyalty oath before employment,
reassign troublesome instructors, and approve
university election lists. Other changes allow rectors
to call in police to stop protests-which are now
grounds for expulsion-give the party's national
student organization the exclusive right to represent
students and require the revision of university
charters to conform to a new model statute. In
November 1985 the regime purged 70 university
professors and is currently conducting a nationwide
teacher verification program to be completed by the
end of 1986.F___~
There is also evidence that the regime is planning
further legislation to tighten controls over the careers
of university-trained professors.
the regime is considering draft laws requiring
one year of compulsory employment in the socialized
sector for people exempt from military service.
Moreover, graduates of vocational state-run schools or
universities would be required to work in state-run
enterprises or institutions for 10 years or repay the
government for their education. Returning emigres
would be subject to the same law; students visiting the
West would be required to leave a deposit with the
government to ensure their return. The current job
verification policy, according to the official press, is
partly aimed at forcing teachers back to the schools
and out of more lucrative positions in the economic
sector.
New censorship and press laws further centralize
control of the media, especially print journalism.
Licenses are required for the use of all printing,
recording, and film operations. Copiers, stamps, and
seals must be registered and use permits are required.
The 1982 law on dissemination of false information
causing grave damage to Poland carries a sentence of
five years imprisonment and remains part of the new
penal code. F_~
Weakening Workers' Rights
Amendments to the Trade Union Act in July 1985
eliminate the possibility of union pluralism. In
addition, the unions are empowered to allocate
housing, health, and vacation benefits. Former
Solidarity members have had strong representation on
some self-management councils.
Secret
EUR ER 86-023
10 October 1986
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Measures in effect in 1983 that have
been maintained or expanded
Leadership boards of associations can be
replaced temporarily pending elections.
Student organizations must be registered
or approved.
Censorship extended to art and photo-
graphic exhibits, trade union publications,
and scientific and academic papers.
Can be forced to wait six months before Chairman of State Council may introduce
changing jobs. state of emergency in part or all of Poland if
internal security threatened.
Those who leave job without permission Anyone organizing or conducting an illegal
can be paid lowest wage permissible in action is liable to three years' imprisonment.
new position.
"Shirkers" face six months' to two years' Anyone disseminating tape recordings or films
imprisonment or can be assigned to labor- containing "false information that may cause
short sector. grave damage to Poland" is liable to five
year's imprisonment.
Anyone in an organization dissolved or re-
fused legal status liable to three years'
imprisonment.
Citizens subject to military courts for "serious
crimes against the state."
Minister of Education given sweeping
powers to appoint professors, ensure loyal-
ty oath taken, and reassign troublemakers.
Also approves university election lists and
can expel students.
Independent student bodies and self-
government eliminated.
Police can enter university grounds with-
out being summoned.
Licenses required for printing, recording,
and filming.
Accelerated trials, police can act as prosecu-
tors; pretrial arrest mandatory; power to
waive trial without appeal; habitual offenders
ineligible for parole.
Government-backed trade unions given Summary courts can try cases of unlawful
powers at enterprise level to control social assembly or "incitement to commit a crime."
housing and health benefits.
Labor Code amended to limit workers' Search without warrant permitted.
rights and enhance role of management.
Managers can increase workweek from 42 Payment of fines by third parties, including
to 46 hours. church, banned.
Parliament is currently considering amendments to
the Labor Code that will further weaken workers'
rights. The proposed changes, according to the US
Embassy, require workers to wait longer than six
months before changing jobs, ban normal pay raises
for those who quit previous jobs or were fired, and
maintain the regulation that those who leave jobs
without permission can be paid the lowest permissible
wage rate in a new position. The Council of Ministers
has also approved an increase in the workweek at the
discretion of management from 42 to 46 hours.
Passage of the Labor Code has been delayed until
December. Further revisions may be in the offing.
The temporary requirement that job applicants must
present a labor certificate from a previous employer
may be permanently codified in law. Work "shirkers"
still face the possibility of imprisonment, but this law
has not been widely implemented, according to
Embassy reporting. F__1
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Hungary: Observations From
a Summer Abroad
The typical tourist's impression of Hungary is that of
a land of plenty smoothly avoiding the difficulties that
trouble so much of Eastern Europe in the 1980s. The
first few days a visitor spends in Budapest seems to
confirm this opinion. There are no lines outside the
stores, which display a variety of Western consumer
goods in their windows. There are many restaurants
and cafes and even a few Western-style nightclubs
that offer entertainment long into the night. Food is
plentiful and sold in numerous markets and from
many sidewalk stands. The shoppers who stroll down
Budapest's pedestrian shopping district are well
dressed in a Western style, and the streets are
crowded with traffic. The new houses and apartment
buildings rising in the Buda hills would fit in some of
the best suburbs of Vienna or Munich.)
These initial images, however, conceal as much as
they reveal. The new homes that look so impressive on
the outside can develop cracks and plumbing
malfunctions as quickly as they do elsewhere in
Eastern Europe told me that
the wait for an apartment in u apest is now 10
years. The grocery markets are not able to maintain a
consistent supply of some foods, and an indifferent
food-processing industry ruins some of the goods that
are available. Budapest's working-class districts are
home to individuals who are obviously not affluent or
attached to Western styles. The stores stock goods
that are too expensive for working-class Hungarians
to buy, and many restaurants feature meals that
would cost an average worker a fifth or sixth of his
monthly wage. The vast income inequalities that the
country suffers from are readily apparent on the
streets of Budapest, as the many who can barely
afford an East German-built Trabant are passed by
the few who can afford a BMW. Outside the large
STAT
cities, one is just as likely to see horses used for farm
transportation as tractors or trucks. True, much of the
bounty on display in Budapest is meant for the STAT
Austrian and West German tourists who converge on
the city in the summer, but the ready availability of
these goods serves only to heighten the expectations of
Hungarians.
In short, Hungarian society is a mixture of
contradictory and confusing features, a Communist
country in which great wealth, substantial freedoms,
and a good measure of satisfaction with the country's
leader coexist with considerable poverty, police
repression, and an increasing potential for political
instability. It is also a society about which the
leadership is very much concerned.
Economic Problems
Hungarian officials admit freely that they are
concerned about the potential consequences of the
country's economic difficulties. Hungary's high debt
service obligations, outmoded industrial base, and
uncompetitive export sector, among other factors,
have contributed to economic stagnation throughout
the 1980s. Individual Hungarians have suffered
because wage increases have not kept pace with
inflation during this period. Consumers stare at the
prices of goods in shop windows, shake their heads,
and walk on. Most find it necessary to take second 2o~"I
jobs just to maintain their standard of living, and
many have given up hope of seeing an improvement in
living standards in their lifetime. This problem is
compounded by the fact that not everyone is suffering
equally from the stagnation. Those who have the skills
and entrepreneurial spirit needed to succeed in the
"second economy" (accepted private activities) or the
"third economy" (blatantly illegal activities) can
prosper. These people can build a new home without
waiting for a state-built home, drive high-priced
Western cars, shop in the costly Western-style
boutiques, and eat in the most expensive private
Secret
EUR ER 86-023
10 October 1986
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Hungary: Average Wages and Inflation
Percentage change over previous year
1981 1982 1983 1984 1985 1986a
restaurants in Budapest. Indeed, their willingness to
flaunt their prosperity is a major cause of the social
tension that the regime is so worried about. The mass
of Hungarians who are cut out of this new prosperity
don't understand who these wealthy people are or how
they make their money. Many suspect that the
nouveaux riches resort to political contacts or
corruption to get ahead.
Despite the problems associated with the private
sector, it seems unlikely that the regime will be able to
cut back on private activities unless it is willing to
endure the economic dislocation that this would
entail. The private sector provides the economy with
an important source of dynamism and fulfills many
service needs that the state sector cannot. It also
provides an important safety valve to absorb those
who will need to find alternative work if the regime
continues with its plan of restructuring the state
sector. F--7
Although an occasional rumor of a work stoppage by
disgruntled workers reaches the US Embassy, the
harried populace for the most part expresses its
resentment verbally and in private. Still, officials
point out that this is Hungary's first experience with
anything other than continuous improvement in living
standards since 1956, and no one is quite sure how
people will react, especially if conditions do not
improve in the coming years. Indeed, top economic
policy makers are already trying to prepare the
populace for the announcement of the 1987 plan,
which does not include an increase in living standards
among its provisions. F----]
Political Uncertainties
These economic problems and resulting social
concerns come at a time when the political and
economic decision making process appears almost
paralyzed by confusion and indecision. Some officials
complain that party leader Kadar is no longer
interested in governing or capable of making the hard
decisions that must be taken if Hungary is to climb
out of its economic doldrums. This may be a part of
the problem, but it is probably not the most important
and is surely an oversimplification of the political and
ideological disarray that characterizes Hungarian
society.
The political confusion seems to me to be a logical
outgrowth of Kadarism, that style of leadership in
which the party has permitted, indeed encouraged,
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nonparty members and institutions to play a more
active role in the political process and the economic
system. This longstanding tendency has been
intensified in recent years as the regime has sought to
improve its legitimacy to make up for the damage
done by the stagnating economy. The leadership has,
among other things, introduced a new election format,
spoken about enhancing the role of the National
Assembly, introduced worker-management councils
in enterprises, encouraged the trade unions to change
their traditional role, announced new responsibilities
for the Chamber of Commerce, and decentralized the
local administrative structure-all within the last five
years. F_
One gets the impression that the central authorities,
either following some master plan or simply reacting
to events, spin out new responsibilities and new rights
for these institutions without giving careful thought to
how the changes will be implemented or to their
ultimate cumulative effect. To this point, it is clear
that the officials in control of these various
organizations often don't seem to understand their
new duties or disagree with them and do nothing to
implement them. In some cases, it seems that
managers simply cannot keep up with the rapidly
changing policy directives. The net result is the spread
of confusion, indecision, and a sense of drift
throughout the political and economic systems. For
example, no one in Hungary seems to understand
exactly how the enterprise council reform is to work,
or what it has meant to enterprise operation thus far.
The managers of a shoe cooperative argued for 10
minutes among themselves in trying to explain to me
how they were elected by the co-op workers before the
party secretary silenced them with his views on the
matter. The director of the Chamber of Commerce
was unable to explain to me how his organization
would represent the interests of enterprise managers,
a task that was recently assigned to the Chamber by
the Council of Ministers. These clearly were not
deliberate attempts to withhold information but real
signs of puzzlement and disorganization.
This sense of confusion extends even to the role of the
party itself. A party historian told me that the party is
the ultimate coordinator of interests in society,
meshing and refining the demands of social groups as
expressed by other institutions. The party does not
favor any of these interests, I was told, but measures
them against the interests of society as a whole. The
leaders of these other organizations are
uncomfortable with the lack of clear guidance that
this passive role of the party presupposes, and with the
prospect of advancing interests that may be at odds
with party policy. At the same time, local party
officials seem uncertain of their responsibilities and
each apparently defines them according to his own
preferences, further adding to the confusion. For
example, newspaper and journal articles appear in
Budapest that suggest serious consideration is being
given at the highest levels to having the party
"withdraw" from the economic system, particularly at
the enterprise level. A party official in one of the
outlying counties told me, however, that this is an
"extreme view" and that the party is only encouraging
other institutions to become more involved than they
have been in the past, while the level of party activity
Ideological Ambiguity
This same confusion extends to ideology. There are no
longer any clear distinctions between policies that are
considered ideologically legitimate and those that are
not. Everyone seems concerned with the income
inequalities that plague society, but general
agreement is lacking on what constitutes ill-gotten
gains. Budapest officials tend to focus their ire on
blatantly illegal activities, such as land speculation,
while the more orthodox officials in outlying areas
point to such things as privately operated boutiques as
examples of improperly achieved income.)
The party historian admitted to me that Marxism-
Leninism holds little relevance for contemporary
Hungary. The regime sees the more vague concept of
socialism, defined simply as a type of political and
economic organization that favors certain policy goals
above others, as its guiding philosophical concept. Yet
even this idea is being modified from its traditional
meaning to make it more relevant to the current 25X1
scene, and its claims more realistic and less utopian.
Thus, the theory of socialism is being changed to fit
reality in the hope that Hungarians will accept it as a
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political and economic system that can solve certain,
but not all, basic human problems. In the meantime,
this doctrinal confusion contributes to the feeling of
drift and indecision that permeates society.
Local Politics
Last year's competitive Council election, coupled with
a decentralization of authority from county to local
level, and the confusion that has immobilized
institutional life in the country, have led to some
interesting and important developments in local
politics. For example, a new tax law, designed to fund
municipal projects such as schools and swimming
pools, requires that a majority of the households in a
taxing district approve the expenditure of funds for
each specific project. This means that local officials
must now be more solicitous of voter opinion and must
work to build a consensus behind their policy
proposals.
Local council meetings have become more contentious
since the competitive elections, and these local bodies
have more control over the expenditure of funds than
ever before. The Patriotic People's Front (PPF)-the
body that, among other things, organizes the
parliamentary and local elections-now plays a major
role in ensuring the accountability of these local
officials. County and city officials told me that the
PPF organizes meetings of voters three to four times
each year at which elected councilmen must report on
their activities and that it has the power to organize
special referendums to determine popular support for
controversial council decisions. The councilmen must
also report to the PPF itself upon demand. F_~
Conclusions
The leadership is in a difficult position. It has
unleashed the forces of political and economic change
but is reluctant to see these changes run their course.
Although the party has tentatively assigned new roles
and tasks to old institutions, it has yet to emphasize
that officials will not suffer sanctions if they make use
of their new authority to advocate policies that run
counter to those favored by the party. The party has
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also permitted market forces to influence economic
activity to some extent but has been reluctant to
rationalize the economic system as a whole.
Far from promoting social stability, these limited and
contradictory reforms have served to undermine the
regime's credibility by presenting to the populace an
image of indecisiveness and confusion. Not following
through on these reforms may be as
counterproductive in the long run as not having tried
them at all. Remaining caught somewhere in the
middle between encouraging words and real
structural reform can only serve to sharpen existing
social problems as the gap between the regime's words
and deeds grows wider with each new policy
Yet moving off center will be no easy task in itself.
Most officials must realize that Hungary is on the
verge of a political succession and will be unwilling to
undertake new responsibilities and their attendant
risks until that issue is resolved. The party leaders
themselves, recognizing that Kadar's rule is drawing
inevitably to a close, may not be doing all they could
to enforce the recent policy changes for fear of
becoming too closely identified with a particular
policy. Finally, the omnipresent concern about Soviet
attitudes toward further reform acts as an instinctive
brake on moving too far and too quickly.
Hungary's leaders face some difficult choices, and a
protracted period of argument among those who have
different policy priorities is likely, especially after
Kadar passes from the scene. It seems, therefore,
probable that Hungary will be characterized over the
next several years by more drift and confusion during
which much is said about further reform but little is
accomplished. The decade of the 1980s has changed
Hungary from a textbook example of how to deftly
reform a Communist system into something more
open and rational to a textbook example of how
difficult and risky it is to enact meaningful structural
reform in an East European state.F--~
25X1
25X1
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Economic News in Brief
Western Europe
Finland reportedly to increase aid to Nicaragua by
some 25 percent next year ... $5 million is 3 percent
of Helsinki's development assistance ... gesture to
domestic left and USSR despite US criticism.
USSR reportedly buying 1 million tons of EC soft
wheat ... EC, responding to US subsidy program,
boosted subsidy, making net price $80 per ton-some
$10 less per ton than US price ... determined to
retain Soviet market share.
France likely to offer Egypt highly subsidized wheat
prices ... probably will threaten to reduce subsidies
on flour sales unless Egypt buys wheat ... market
fifth largest for US exports. F___-]
UK Home Minister Mellor praised Bolivian and
Colombian antinarcotics efforts during regional
trip ... announced more antinarcotics aid, plans to
urge EC partners to follow suit ... first official offer
of increased European aid since Blast Furnace
operation in Bolivia.
Eastern Europe
Romania signed agreement with Western banks to
reschedule $800 million due this year and next on debt
rescheduled during 1982-83 ... still short $200 million
this year ... controls on imports, draconian consumer
austerity to continue.
Press reports Hungary activated third reactor at
nuclear power plant at Paks ... plant will generate
about one-third of domestic electricity ... fourth
reactor due next year ... shows commitment to
nuclear program despite Chernobyl accident.
Yugoslav trade union chief opposing Belgrade's
commitment to eliminate subsidies for unprofitable
firms ... union earlier criticized government wage
controls ... possibility of union-government clash over
new economic legislation growing. F___-]
Secret
EUR ER 86-023
10 October 1986
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 II I ., I I I LI L
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