Friday, 07 April 1995
Volume 2, Issue 70
REGIONAL NEWS
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**OSCE-RUSSIA FAIL TO AGREE ON CHECHNYA MANDATE**
Russia and the Organization for Security and Cooperation in
Europe, or OSCE, have failed to agree on a mandate for a
permanent OSCE mission to Chechnya to monitor human rights.
The deadlock yesterday has jeopardized the signing of an
interim trade agreement between Moscow and the European Union,
due for consideration at a formal EU foreign ministers meeting
Monday. The OSCE's permanent council, which is charged with
setting up the mission to Chechnya, meets regularly in Vienna.
Diplomats from Hungary, which is currently chairing the OSCE,
had set a loose deadline of yesterday for an agreement on the
mandate. The EU froze the signing of the trade accord as a
way of forcing Russia to guarantee that human rights were
being respected in Chechnya. Hungary's special OSCE envoy for
Chechnya, Istvan Gyarmati, left Vienna for Russia later
yesterday for talks in Moscow and Chechnya.
BUSINESS NEWS
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**HUNGARY BLAMES EU FOR LOW FARM EXPORTS**
Hungary's deputy agriculture minister said the country's
negative agriculture trade balance with the European Union is
threatening its traditional and vital agriculture trade
surpluses. Jeno Rednagel, in Warsaw, told an international
conference on the food industry that in the past four years
the EU's exports to Hungary have increased almost three-fold
while Hungarian exports to the EU have decreased by a third
and now amount to only 1% of total EU agriculture imports.
Hungary signed an association agreement in 1991 which allows
it to export low-duty quotas of certain foodstuffs to the EU.
But Rednagel said the agreement hasn't lived up to Hungary's
expectations. Rednagel added that Budapest is "perplexed" by
the increasing worries expressed by EU producers over
Hungarian produce flooding EU markets.
**SLIGHT DROP ON HUNGARIAN MARKET**
Hungarian share prices edged lower on the Budapest Stock
Exchange yesterday. Traders said most stocks are depressed by
a lack of major orders. The BUX index ended at 1,243.16
points, down 2.00. Some shares, including Fotex and
Pannonplast, have been sold by foreigners. Those stocks for
which there was demand, like Pick and Egis had only one or two
major buyers with moderate orders. The bearish mood was
reflected on the Budapest's new futures market, where only one
contract was concluded for the BUX index for June at 1,326.00
points, down 4.00.
BUSINESS FEATURE
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**THE HIGH PRICE OF QUALITY IN CENTRAL EUROPE**
David Fink
In the 1990's Hungary's consumer electronics market has been
flooded with western and Asian imports, posing a big challenge
to local companies. Sony, Philips, Samsung, Sharp and other
popular brands are now widely available. But despite the
tough competition, many electronic products are more expensive
than in the West. Karoly Paszty would like a new TV. But he
won't buy Hungarian.
"I would like a foreign made television, probably a Panasonic. I
have heard that this is a very good brand and my parents have
one too."
Paszty is typical. According to Mihaly Kokeny, the manager of a
Keravil electronics store, Hungarians prefer foreign made
products. Since 1990, greater access to hard currency has
helped local electronics stores meet demand and shelves are
now stocked with western and Asian products. Often Hungarians
have to buy foreign goods because local companies don't even
make products like radios and music systems. But even in the
television market, where there are two Hungarian producers,
three of the four leading brands are imports. Kokeny said
Hungarians prefer foreign brands because they're thought to be
well made and foreign manufacturers offer better after sales
service.
"If we turn to a western company with a letter from a customer
they take action right away. But for the Hungarian TV company
Videoton it takes months. This is the difference in approach
to customers."
Still, it hasn't been all smooth sailing for foreign companies.
Seung-Goo Kang is Hungary's managing director for Daewoo
Electronics, a South Korean based company. His company's
sales have gone down since the late 1980's because more
foreign firms are competing here. Another problem is the
black market. Kang estimated that in the early 1990's as many
as 40% of the VCR's sold in Hungary were smuggled in from the
West. A government crackdown has reduced that to about 10%
this year. It's easy to see why smuggled goods are
attractive. Kang said the 25% Hungarian import duties on TVs,
VCRs, radios, and music systems often increase prices by 15 to
20%. Kang added these high duties slow the growth of the
consumer electronics market here and hurt even local
producers.
"The Hungarian government has to consider that just the import
protection cannot improve the local industry. They have to
make more competition here and automatically more competition
makes the local manufacturer improve their own qualities and
improve productivity and it makes them more competitive."
But some Hungarian producers said they're meeting the challenge.
David Fenner is a projects manager at Videoton. He said since
1990 his firm's share of the TV market has more than doubled
from 16 to 40%. He said Videoton has achieved western quality
standards while other eastern European brands haven't.
Videoton is even planning to sell in the West.
"Large scale and global reach has some very strong benefits. One
of the things Videoton is going to attempt to do is build on
those scales and move outside of Hungary. That'll happen with
a partner or on its own as Videoton's strengths increase and
eastern products strengths decrease."
For now, foreign companies are still tough competitors in
Videoton's home market. Hungarian consumers' preference for
imports seems unlikely to go away soon. But if Hungarian
companies become efficient enough to undercut the foreigners'
high prices they might have a fighting chance.
SURVEY
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**THE PSHYCOLGICAL SIDE OF ECONOMIC REFORM**
By Duncan Shiels
The UN Economic Commission for Europe's report on the economies
of the region said there are encouraging signs of growth,
notably in Poland, the Czech Republic, Slovakia and Slovenia.
But it also warned that capitalism may bring social
instability. Paul Rayment headed the Geneva team of experts
who wrote the report. He began an interview with CET by
adressing the current mood of disillusionment among those who
thought the move to a free market economy would lead to a
higher standard of living. Rayment explained why the
so-called transitional recession has lasted so long.
Rayment: People really thought that, you know, you could create
a market, well at least in 1989, 1990, they thought you could
create a market economy pretty quickly by sort of liberalizing
prices, liberalizing trade and getting a program of
privatization up and away. And somehow this would release all
sorts of pent-up energies and the whole process would come
very quickly. And I think what we saw was that the old
mechanisims of coordination and the central planning system,
however inefficient it may have been, that broke down very
quickly and at a much faster rate than you could rebuild, or
build, the coordinating mechanisms of the market. And I think
that played an important role in the recession, the fall in
output being very much greater than anybody expected.
CET: People presumably on both sides, also some western
economists too. We're not just talking about the governments
of the region itself?
Rayment: Yes, very much. And I think there was both an
extrapolation, if you like, of many of the policies that were
adopted in the west in the 1980s which focussed on
deregulation, privatization and so on. But these were taking
place within predominantly market economies where assets were
predominantly privately owned. I mean I think in the United
Kingdom one was talking about reducing the share of publicly
owned assets from of 12% to eight or nine. So it was a very
small movement. And to think that similar effects, you know,
would take place in the eastern countries and the formerly
centrally planned economies seems to us somewhat of an
illusion.
CET: Now at the beginning of the process, foreign direct
investment and privatization were seen as the "great white
hopes", if you like, of reform. Now the results of foreign
direct investment, or the amount, has varied enormously within
the region, Poland, for example, which has relied on a lot
less foreign investment than Hungary. The results of foreign
investment are not that clear, are they?
Rayment: No. I think the hopes of foreign investment were
really tied up with this optimistic view at the very
beginning. You have, basically, global capital markets now
and capital is moved all over the place. Because of
communications, foreign investors can locate all over the
world and therefore they look to see whether the rate of
return in different locations are competitive. If, for
example, they go in with expectations of a fairly high rate of
growth or a fairly fast rate of recovery from recession and,
as I said a moment ago, those expectations were there in '89
and '90, then the recession goes on much longer, the demand
isn't there and their unit costs are going to be higher than
they would have expected. In other words their profitability
is going to be lower then they expected and they will look
around for compensation for that. And I think we've seen that
a bit in the transition economies where large companies then
turn round and expect increased rates of protection against
competetive imports, for example.
CET: Is the lesson from this then that we should be looking at
domestic resources, domestic initiatives in stimulating the
economy, rather than looking for foreign investment, rather
like perhaps Poland has done, a little more?
Rayment: Well, I think that you've got to get the domestic
framework, the domestic policies right. It's true, I think
people do exaggerate sometimes the role of foreign investment.
Again, if we go back to the '89 and '90 period, people saw the
foreign investor as some how spearheading the transition, but
the Polish case is an interesting one because Poland has had
very little foreign investment compared certainly with
Hungary, for example. And yet Poland is the country which is
now showing fairly steady and accelerating growth, or at least
since '92.
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A tovabbterjesztest a New York-i szekhelyu Magyar Emberi Jogok
Alapitvany tamogatja.
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