INTELLIGENCE REPORT NO. 6771 THE CURRENT SITUATION IN HUNGARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A005400040006-4
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 23, 2016
• Document Release Date: May 21, 2013
• Sequence Number: 6
• Publication Date: December 14, 1954
• Content Type: REPORT

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Intelligence Report
No. 6771
THE CURRENT SITUATION IN HUNGARY
DEPARTMENT OF STATE
Office of Intelligence Research
Prepared by
Division of Research for.USSR and Eastern Europe
December 14, 1954
Review of this document by CIA has
determined that
EJ CIA has no obiection to declass
o It contains information of CIA
interest that must remain
classified at TS S
Authority: FIR 704
1:1 It contains nothing of CIA Interest
Date Reviewer
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This report is based on information available through
December 10, 1954.,
TABLE OF CONTENTS
Abstract . ? ? ? ? ? .? ? ? ? ? ? ? ?
I. Political Situation. . 0000 ? ? ?? .
A. Regime ? ? ? ? ?? ? ? ? ? ? ? ?
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B. Population 4 ? ? ? ? ? ?
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II, Economic Situation , oo 4 ? ? 4 ?? ? ?
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A. Agriculture ? * ? 4 ? ????? ? ?? ? ? ? * ? ?
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B. Industry. ? ? ? 5 SS ? ?? ? ??
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C. Consumers Goods and Housing. II 0 ? 4 0 0 4
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D, Labor Force and Attitudes . ? . ? . ?
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E. Foreign Trade 400 ? 4 ? 0 4000401?
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Abstract
The Hungarian Communist regime is currently beset by major
difficulties growing out of the attempt to remedy past failures of the
economy through a shifting of some economic emphasis to agriculture
and consumers' goods. The aim of thereby eliciting a greater economic
effort from the population has so far not been achieved, due to popular
disbelief and antagonism toward the regime's promises and methods.
Moreover implementation of the revised course has been plagued by
intra?Party disagreements and by misunderstanding and obstructionism
within the bureaucracy. Shifts in regime leadership roles have resulted
and are likely to continue from time to time, though there are no
indications that these will lead to any radical replacement of the present
group of leaders. The problem of the regime is essentially one of effecting
a Pro0aza and making the economy work, rather than one of enforcing the
basic police and administrative controls over an unwilling population.
The agricultural program on which promises of improved living
standards were based has remained largely unimplemented, while many of
the changed plans for industry have not actually been put in effect.
Agricultural impyovements scheduled for 1954 were delayed by weather
difficulties, as well as peasant distrust of the regime. In the
industrial sector, stresses and strains have multiplied as a result of
the failure of the inflexible bureaucratic apparatus to effect a smooth
transition to the new course. Difficulties have been so serious as
to necessitate a further drastic cut in 1954 targets, with new over?all
output goals apparently below the 1953 level. Neither the projected
investment shifts nor the proposed shift from capital goods production
to that of consumers' goods and agricultural equipment has actually
been implemented.
The consumers' goods program basic to the regime's bid for
popular support also has been largely a failure, in spite of an
improvement in market supplies in the wake of the "new course"
announcement. Hungary's chronic foreign exchange shortage, intensified
by the disappearance of traditional agricultural export surpluses has
lent added urgency to the need for improvement in performance.
ii
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TBE CURRENT SITUATION :IN HUNGARY
Current difficulties in which the Communist program is involved
in Hungary grow out of the basic problem which has beset the regime
from its start. This is the problem of overcoming the ingrained hostility
of the population to Communist programs and methods. In the period
1949-53 this basic problem WAS exacerbated by the regime's attempt to
carry out an industrial development program too ambitious for the
capacities of the country, and by its ill-advised agricultural policies. .
In. the summer of 1953 the government announced a revised economic program
apparently modifying the stress on development of heavy industry in favor.
of agriculture and consumption. This shift.was designed to deal with
the basic problem by taking some of the pressure off the population,
allowing the latter some relief from depressed living standards and thereby
eliciting from the people a greater economic response. .
Politically, the carrying out of this revised program has meant
(1) the necessity of overcoming widespread misunderstanding, disagreement
and obstructionism within the party and state apparatuses, so as to get
these elements to accept and carry out the new policy, and (2) the attempt
to reduce apathy, tension and hostility among the population at large and
to convince them that their interest lay in cooperating with the program.
Economically, it has meant the need to channel more resources into
agriculture and consumers' goods industries so as to bolster the incentives
of the population. To date very little progress has been made toward
achievement of these aims.
I. POLITICAL SITUATION
Regime
Within the regime, the 1953 shift of policy has intensified latent
disagreements and rivalries and produced a measure of instability that
appearp likely to continue for some time to come, The party has admitted
the existence of disputes in the Central Committee between anti-"new course"
doctrinaires and pro-"new Course" moderates, which reached a showdown in
October in which the Latter appear to have gained the upper hand. Such
disputes are likely to continue. .BowSver, the resultant disharmony and
ideological confusion within the Part,- leadership appears to constitute
more of a drag on the efficiency of the regime than a threat to its
over-all stability and security.
Both the top and the middle-level leadership organs have undergone
shake-ups and are likely to undergo further ones. Por the most part,
however, these are likely to be as undramatic as those which have already
occurred since the inauguration of the revised course reflecting, for
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example, an accelerated rise of a few younger non-Jewish leaders and a
limited come-back of relatively minor older ones, as iell as Some
redistribution of roles among the top leaders. The type of intra-party
crisis leading to a major ideological showdown and purge does not
appear to be indicated at the present stage? Probably the most
conspicuous change that might occur would be the shelving at last of
Akosi, who despite seeming ups and downs has so far held onto his
position as nominal head of the Party. The regime's pointed stress on
"collective leadership" since Stalin's death, and repeated denunciations
(in which R&kosi has joined) of the "one-man" type of rule which Reikosi
has exercised in the past, may well be signs that he is going to be
eliminated from his paramount position. Nevertheless, for the time
being he still appears to have the dominant voice in the regime, If,
however, he should be shelved it. would not produce significant
repercussions on the regime. It would in fact relieve the regime of
a- particularly unpopular character.
B. Population
With regard to the population, the difficulty of the regime is
mainly one of obtaining compliance and positive cooperation, rather than
any substantial threat of active popular resistance. Despite intensive
propaganda the Party has failed 'so far to convince the people that new
promises made under the revised program of 1953 will be kept or that
it is in their interest te, put forth more economic effort under present
circumstances. In an attempt to break down popular indifference and
contempt the regime has gradually redoubled its pressurea and exhortations
during the past year, even appealing to nationalist traditions that it
formerly denounced. Its latest device to foster at least an appearance
of growing support has been-the revival of a People's Patriotic Front
in which the trade unions, churches, youth and wcmen's organizations
and all other official mass agencies are compelled to serve in unison
with the Party as an over-all instrument of propaganda and channel of
responsibility toward the state. By thus yoking all other front agencies
more closely with the Party, the regime apparently hopes to put across
the concept that Party policy is the popularly inspired program of the
nation, and that the responsibility for any failures will rest with the
people. The indications are, however, that this approach makes little
impression on the entrenched antagonism and distrust of.the population,
Significantly, even the Party youth organization, the repository of
the regime's highest hopes for the future, has failed to respond to
1. No major ideological deviation has been chatted in the Party since
the Rajk case of 1949, No top-ranking Communist has been purged
a la Rajk during the four-year interval between his execution and
the imprisonment of General Pbter in 1953. No significant
individual Communist has defected to the West.
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the regime's program and has not yet become an important source of
future intellectual cadres for the Party. After six years or more
of intense indoctrination and disciplinary pressure, youth continues
to be widely affected with cynicism and apathy.
Despite general popular apathy toward regime measures and
disaffection toward Communist and Soviet rule, there is little active
resistance and little opportunity for such resistance to develop. The
controls maintained by the regime's security apparatus, which have
undergone no impairment or essential changes, are adequate to prevent
the spread of any important organized resistance movement. Unorganized
resistance has so far taken the form only of occasional scattered acts.
There have been no reports of major instances of sabotage since several
months before the 1953 inauguration of the revised course. Neither
the East German riots of 1953 nor the purge of Beriya in the USSR caused
any overt or important popular reaction in Hungary. Such relaxation
of police controls as has taken place during the past year has not
been followed by any noticeable increase in signs of active resistance.
The curtailment of the formerly free.-wheeling State Security Authority
(AVH) and imprisonment of its tyrannical chief after the regime's
introduction of the revised course has so far had no observable popular
repercussions or deleterious effects on the efficiency of police controls.
ECONOMIC SITUATION
In the economic field little progress has been made toward
the major policy goals as revised 18 months ago. In part this has
been due to the population's continuing hostility and its withholding
of cooperation. The regime so far has not succeeded in implementing
its agricultural plan, carrying out projected investment shifts, or
shifting industrial emphasis sufficiently from heavy engineering
industries to basic materials, consumers' goods and agricultural
equipment. The entire economic program was hampered during the first
half of 1954 by weather conditions. An unusually hard winter caused
transportation tieups and work stoppages in industry and affected
agriculture by damaging crops and delaying spring field work. Heavy
floods of the Danube River basin in mid-July, preceded and followed
by unseasonably heavy rains, interfered with agricultural work at
harvest time and again interrupted industrial activities. But resistance
from various elements of the population apparently accounted for the
largest measure of the economic failures. Included was obstructionism
and opposition from some high-ranking economic leaders which has been
otted by spokesmen as the main factor for the non-implementation of
new course provisions.
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Following a period of uncertainty and argumentation, the economic
course originally charted in June 1953 was reaffirmed and intensified
in a meeting of the Hungarian Workers' Party Central Committee
(October 1-3, 1954) which apparently resolved, for the time being, a
long drawn-out debate on the causes and cures of economic ills. At this
new affirmation of the "new course," promises were advanced for a
greater measure of material incentive and for even more drastic investment
and production shifts than had been projected originally.
A. Agriculture
. The most conspicuous failure during the past 18 months has been
in the agricultural program which is recognized as basic to any
appreciable or lasting improvement in living standards. This sector
continues to be hamstrung by the identical difficulties which had been
responsible for its stagnation in the past and which the new programwas
designed to correct -- namely, inadequate investment and lack of
cooperation on the part of the Peasantry. Agricultural improvements
planned for 1954 as part of the comprehensive three-year agricultural
development program launched in December 1953 were delayed not only
by weather difficulties but also by non-implementation of investment
and mechanization plans and by the failure of the authorities to win
the peasants' confidence through efforts at conciliation. As a result,
over-all production, particularly of bread grains, has been below
expectations despite claimed increases in sown acreages.
By the end of September 1954 agriculture admittedly had received
only 50 percent of scheduled investments (it is not clear whether this
proportion refers to the whole year or only to the nine-months quota),
In view of this lag agricultural investments during 1955 are to be kept
at the level scheduled but not attained for 1954, previously specified
at about 3,25 billion forints. At this rate -- not significantly
higher than the admittedly inadequate investments of 11 billion forints
scheduled for the period 1950-54 under the Five Year Plan or the
5 billion forints actually invested during the three years 1951-53 --
the investment goal of 12-13 billion forints for the three year period
1954-56 called for by the agricultural plan, appears out of reach. There
have also been admissions that during the first 9 months of 1954 only
51 percent of the tractors ordered and even smaller proportions of other
agricultural implements have actually been delivered and that the items
supplied have frequently been of inferior quality.
?Yor have new course agrarian policies -- despite some significant
moves to ease the peasants' burden -- secured the expected larger
measure of support in the countryside. Concessions regarding past
arrears in compulsory deliveries of farm products and the mitigation
of current obligations for a five.-year period beginning January 1954,
for instance, have not overcome the trouble the authorities have
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chronically experienced in securing aomplidnce with these measures.
Encouraged by concessionary w.o.rds, peasants have apparently been
withholding 0.-.' 3,..ger amounts of produce in the hope that the regime,
f,/...1 to cancel last years delivery arrears, will again forgive arrears
from current obligations.
The regime has been trying to maintain a precarious balance
in its agricultural policy. On the one hand it seeks to stimulate
production by offering more material incentives to private peasants,
but on the other it feels constrained to limit these incentives
sufficiently to avoid political and ideological consequences including
jeopardy of the goal of collectivization, which continues to be
espoused as the correct policy for the countryside. This conflict
of interests has produced considerable uncertainty and argumentation,
expressed in an alternate tightening and loosening of the reins which
has confused local rural officials charged with putting into effect the
government's policies and enhanced the peasant's insecurity and distrust
of the government.
Illustrative of such vaccilation has been the regime's attitude
toward collectivization. The attempt to make individual peasants, who
till more than two-thirds of the country's arable land feel secure
encough about the future to increase production and marketing, has included
assurances that collectivization in the future mould be strictly
voluntary. In July 1953 an extreme measure was adopted: members of
agricultural "cooperatives" were offered the opportunity of disbanding
such units or to withdraw from them. This offer evoked such violent
and apparently unprecedented response that it was followed, within a
week of its announcement, by a series of severe restrictions and an
intensive propaganda campaign designed to prevent a serious weakening
of the "socialized" sector. Nevertheless, close to 50 percent of all
collectivized peasants chose to return to individual farming. Subsequent
attempts to draw these peasants back into collectives by making it hard
for them to make a living outside had the effect only of holding back
agricultural production.
It now appears that the Communists will abstain -- at least in
the near future -- from using coercive means and will instead rely
on the relative economic advantages granted the "socialized" sector,
to further collectivization. Remedial measures formalized at the
October 1954 Party Central Committee meeting noted the persistent
failure of coercive methods to replace the profit motive as a
stimulant to production efforts and called for a revision of the current
agricultural price system which had been designed to further the
industrial program and discriminated against the peasants. There were
also suggestions of a possible further modification of the currently
effective delivery quotas so as to permit the peasant to dispose of a
larger proportion of his output in the open market.
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The success of these measures will be importantly affected by
the ability of the industrial sector to provide agriculture with the
needed equipment and with incentive goods which will induce the
peasant to increase his efforts and to market his produce.
B. Industry
In the industrial sphere accumulated stresses and strains have
multiplied since the inauguration of the "new course." The inflexible
bureaucratic apparatus, controlled in part by Party meMbers unsympathetic
with any retreat from Hungary's former industrialization program, has
proven incapable of effecting a smooth transition to the new program.
Long-standing difficulties in planning and in the allocation of resources
have been intensified by the new program and its lack of firm direction.
The cumbersome system of materials allocations, already taxed by chronic
shbrt',.supply Orbasic materials, was incapable of coping with sporadic
production shifts. As a results ?0MA factories developed more pressing
shortages even than in the past while others accumulated stocks of
unneeded materials. Factory managers, reluctant to accommodate
themselves to the new order and to shift from the production of capital
goods to consumere goods and agricultural equipment, frequently
disregarded government directives concerned with such changes. A softer
official attitude encouraged infractions of laws and violations of
labor discipline. Waste and lack of attention to quality factors
assumed -- by official admission -- unprecedented proportions.
Perhaps the most revealing indication. of the extent of industrial
difficulties was the failure to attain the new reduced goals for
over-all investments and industrial production, and the need to effect
further severe cuts in plans during 1954.
There is evidence that the originally scheduled increase in
industrial production of 45 percent over 1953 modest as it was in
comparison with the 11.8 percent growth claimed for 1953 -- was replaced in
We 'nprknti or ? .euniznet. by new plan that apparently' sehbOidd 'a reduction-
from the 1953 level. This would be the first year since the inauguration
of Communist style planning in the area that any satellite has admitted
an interruption of the steady upward climb of the production index.
Among evidences that a decline is in prospect for the year as a whole
are the following: the official statement that manufacturing industries,
the output of which had apparently declined in the first half years
claimed fulfillment of their plan for the third quarter by 100.5 percent
on the basis of an increase of only one percent over the corresponding
period of the preceding year; and the admission that per capita output
in industry during the first eight months of the year was 3,3 percent
below that of the similar 1953 period, As these months have been
characterized by a substantial reduction in the industrial labor forces
total production may have. declined at an even higher rate than
indicated by the per capita figures.
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There is gathering evidence that few of the "new course
provisions for industry have actually been put into effect. The
projected investment shifts away from heavy industry have gone largely
unimplemented with this sector still enjoying priority as against ,
agriculture and light industry; the same applies to the production of
capital equipment as against that Of consumers' goods and agricultural.
equipment. Planned 1954 total investments, originally set at a level
14-18 percent below those of 1953 were said to have been cut again by
17 percent during the third quarter of the year, suggesting that the
new planned total may now amount to only 114-billion forints or -
30 percent less than last year's investments. If, as had been indicated,
the pre-existing investment pattern has been continued -within this reduced
total, allocations to the newly favored sectors -- agriculture and light
industry may actually have been smaller than they were before the new
program was launched. Such investment cuts as have taken place appeared
to be a de facto recognition of the failure to reach specified targets
rather than a device for freeing resources for other purposes. IllustratiT
of. such reductions, hailed as an expression of the regime's concern for
popular welfare but in fact a necessity forced upon it, are the
suspension of the Budapest subway construction and. thepostponement of
a number of other large projects.
The extent to which the old pattern of production has been
Continued was illustrated by the admission that the 1954 plan for a
16 percent increase in the production of consumers' goods and a
simultaneous two percent drop in capital equipment -- in itself inadequate
to bring about a drastic change in industrial structure -- had not been.
accomplished. Nor had the proposed shift of attention, within heavy
industry, toward basic materials been implemented. The depressed status
of these industries and the ensuing possibility of a recurrence of
last winter's coal shortage -- which contributed to industrial
difficulties during that period -- was implicit in the admission that
the lag of coal production below plan had increased from 300,000 tons
in mid-summer to 450,000 tons in mid.-October, and, according to unconfirmed
reports, had risen to as much as 1,000,000 tons in early December.
Full details of the further industrial shifts contemplated under
the revised program adopted in October 1954 have not been revealed,but
it has been indicated that in 1955 output of consumers' goods and
agricultural equipement are to increase by 90 and 200 percent,
respectively over this year's level. As very little headway has been
made in these sectors, the projected increases would be but a tardy
first step toward the alleviation of long-standing shoitages of these
items. The development of these industries is to be fostered by a
revision of the system of wages and allocations designed-to eliminate
the bias toward heavy industry and by a temporary reduction of the
turnover tax applicable at factory levels so as to put operations on
a profitable basis. In an effort to mitigate some principal sources
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of cost and inefficiency, the administrative apparatus has been
drastically cut and factory managers have been vested with a greater
measure of authority and responsibility.- Under the new system, only,
basic plans of a given enterprise will be centrally established with
the determination of how to implement their tasks left largely to local
managers.
C. Consumers' Goods and Housing
The consumers' goods program, basic to the regime's bid for
popular support, has been largely a failure. There was an initial
improvement in market supplies in the wake of the announcement of
July 1953, effected by the release of government stocks and the
utilization for consumption of funds originally earmarked for other
purposes. This was, however, neither sufficiently broad nor of a
sufficiently lasting nature to provide a real incentive to the labor
force, Nor did the larger supplies of durable consumers' goods which
were to act as stimuli for agricultural production materialize. Such
consumers goods as have been put on the market were frequently of such
inferior quality that they went unsold. Also a matter for complaint is
the record of the housing program which had completed by September 30,
only 13,000 of the 40,000 &welling:units planned for the year. The
year's unsatisfactory yields of breadgrains and persistance of
long-standing meat and fats shortages,despite a claimed all-time high
in pig stocks, portend little alleviation for the near future. Nor
is there much in past industrial performance to give encouragement to
a significant improvement in consumers' goods supplies.
There have been attempts to streamline the bureaucratic network
of trade and services and to improve local supplies by encouraging local
artisans whose licensing requirements have been repeatedly eased,
and by transferring the management of local enterprises from central
authorities to local councils,
D. Labor Force and Attitudes
Labor's response to new course promises has been scarcely more
encouraging from the regime's point of view than that of the peasantry,
The launching of the new program was greeted by an upsurge of
infractions of labor discipline and a drop in productivity. These
persisted as workers became increasingly disillusioned with the
government's failure to make good on its promises of higher living
standards and better labor protection. The specter of unemployment
raised by large scale labor layoffs in August and September 1954 so
intensified the negative attitude of the population that the regime
was forced to announce, in the wake of the dismissals, apparently
unplanned pension increases and emergency measures to aid the unemployed.
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There has been little cooperation on the part of workers iith
the regimes attempt to relocate labor to labor short sectors of
the economy. Thuspthe lay-offs of administrative personnel, resorted
to as an economy measure and affecting upward of eight percent of the
White-collar force in government and nationalized enterprises,have had
little effect on persisting labor shortages in agriculture, mining, and
construction, as many of the job opportunities in these fields call
for manual types of work for which the bulk of the dismissed have neither
training nor inclination.
There is also little evidence that the government has been
succesoful in its efforts to lure back to the countryside a sizeable ?
proportion of the approximately 200,000 peasants who during the period
1949-52 left the farms for industrial employment. Nor has there been
any correction of the poor housing conditions and other social
shortcomings which have been largely responsible for the high labor
turnover in mining.
E. Foreign Trade Problems
Hungaryls chronic foreign exchange shortage and the disappearance
of the traditional agricultural surpluses have lent added urgency to
the need for imrpovement in. the output of industrial products, which
now make up the bulk of her exports. These problems may also effect
the structure of future agricultural output programs, since recent
policy statements, admitting the bleak prospects for improving grain
and livestock products output, recommend concentration on luxury
agricultural exports requiring little investment, eg. goose,livers,
poultry, wine, and paprika,
Qualitative shortcomings and non-observance of delivery schedules
has hurt the foreign market for Hungarian industrial goods, while
creation of new agricultural,exports,mould entail some delay. At the
same time, maintenance of domestic market supplies in the face of
lagging agricultural and consumerst goods programs has necessitated
imports of food and consumers' goods. For instance, the price
reductions for meats and fats effected in the spring of 1954 were
preceded by imports of livestock and lard. Hungary was also forced
this year to buy 100,000 tons of wheat from France to fulfill export
commitments to Austria and replenish domestic stocks.
The urgency of improving export possibilities exists both in
regard to possibilities for trade with the non-bloc world and in
connection with the intra-bloc trade which has come to make up the
bulk of Hungaryts foreign trade. If, as both current Hungarian and
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Soviet theoretical discussions suggest, Hungary's abandonment of more
extreme aspects of her pre-1953 industrialization program is to be
compensated by increased dependence on her bloc trading partners for
products of heavy industry, Hungary will have to make substantial
improvements in export availabilities from its existing heavy industrial
establishments and re-develop light industrial and agricultural export
lines as well,
State FD, Wash., D.C.
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