OMRI DAILY DIGEST
No. 100, 24 May 1995

NATO EXPANSION CAUSES ANXIETY IN THE WEST. NATO plans to expand eastward
are causing anxiety in the West, according to Russian Foreign Ministry
spokesman Mikhail Demurin, Interfax reported on 23 May. Demurin cited a
letter that several former American ambassadors sent to U.S. Secretary
of State Warren Christopher which stated, "admitting Poland, Hungary,
and the Czech Republic would exacerbate instability and consolidate in
Russian public opinion the view that the U.S. and the West do not seek
to integrate Russia into a new European system of collective security
but instead to isolate, surround, and subdue it." Demurin said security
could be better strengthened through the development of a new security
model for the 21st century launched at the December 1994 OSCE summit. --
Michael Mihalka, OMRI, Inc.

OSCE TO CONVENE CHECHEN PEACE TALKS. Hungarian diplomat Andre Erdes flew
from Budapest to Moscow on 23 May to deliver a message to participants
in the OSCE-mediated talks on resolving the Chechen conflict scheduled
to take place in Grozny on 25 May, according to Interfax and an OSCE
press release of 23 May. On 21 May, the OSCE had extended an invitation
to the talks to representatives of the Russian Federal authorities, the
Chechen Committee of National Accord headed by Umar Avturkhanov, and
Chechen President Dzhokhar Dudaev. All parties have reportedly accepted
the invitation; Dudaev, who on 22 May asserted that  he would never
agree to talks with either Avturkhanov or Chechen Prime Minister
Salambek Khadzhiev, has nominated former Chechen Prosecutor-General
Usman Imaev to be his representative at the talks. It is unclear whether
Dudaev still insists on a withdrawal of all federal troops from Chechnya
as a precondition for participating. -- Liz Fuller, OMRI, Inc.

[As of 1200 CET]

Compiled by Victor Gomez

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Wednesday, 24 May 1995
Volume 2, Issue 100

REGIONAL NEWS
-------------

**SOROS FOUNDATION TAKES HEAT IN BALKAN DISPUTE**
  What used to be Macedonia and is now known as the Former
  Yugoslav Republic of Macedonia, or FYROM, has turned against
  billionaire financier George Soros.  FYROM is accusing Soros
  of interfering in its internal affairs.  Staff of his
  Foundation in Skopje have been openly rebuked for articles and
  statements allegedly criticizing the slow pace of democratic
  reforms in the former Yugoslav republic.  Official criticism
  of Hungarian-born Soros has been particularly sharp over his
  attempts to mediate in Skopje's dispute with Athens over the
  use of the name Macedonia, the same as that of a province in
  northern Greece.  Athens blocked international recognition of
  FYROM after it broke with Yugoslavia, saying its use of the
  name Macedonia implied territorial ambitions against the Greek
  province.  Under a United Nations compromise it is currently
  known as FYROM.  The Skopje daily Nova Makedonija attacked
  Soros last Friday for proposing a new name for the country,
  Slavomakedonija.  The billionaire was also criticized by the
  paper for publicly suggesting that the world expected FYROM to
  be the first to make concessions to Greece as a goodwill
  gesture.  Soros has supported Skopje in its dispute with
  Athens, loaning the government $25 million to buy oil when
  Greece imposed a trade blockade two years ago.



BUSINESS NEWS
-------------

**BUDAPEST BANK CAPITAL CONTROVERSY RESOLVED**
  Hungary's State Securities and Bourse Supervision authority has
  fined Finance Minister Lajos Bokros $168 for his failure to
  make public a major cash injection to Budapest Bank when he
  was chief executive officer.  The bank was fined about $8,400
  for the same reason.  The state-owned Budapest Bank received a
  $100 million capital reserve transfer from the state holding
  company last February, but shareholders weren't told about it
  within the required 48 hours.  The cash injection was agreed
  to late last year as part of the government's attempt to make
  the bank more attractive to a number of foreign banks
  interested in buying it.  Right now, the state owns more than
  68 percent of the bank.  The cash, in the form of state
  securities, is due to be repaid to the government by the end
  of this year if the bank is privatized.  Bokros, who has faced
  calls for his resignation over the capital injection, told a
  news conference two weeks ago that the transaction had been
  kept secret to avoid triggering speculation in the state
  securities' market and in over-the-counter trade in Budapest
  Bank shares.


**EBRD PREZ GIVES HUNGARY THUMBS UP**
  The President of the European Bank for Reconstruction and
  Development ended a two day visit to Hungary yesterday.
  Jacques de Larosiere held meetings with top government
  officials, including Prime Minister Gyula Horn, President
  Arpad Goncz and Central Bank Chief Gyorgy Suranyi.  de
  Larosiere thinks the government's proposed austerity plan will
  get Hungary's economy on track.

  de Larosiere said he was worried about the pace of economic
  reform in Hungary last year.  But he added he's been reassured
  by Hungary's new privatization law and the planned austerity
  package.  de Larosiere said these spending reforms will reduce
  inflation and interest rates, giving a boost to Hungary's
  investment climate.

  "The government's emphasis on financial stability will not only
  directly add to the availability of domestic savings; it will
  also help entice a continued flow of savings and investment
  from other countries.  The inflow will be critically needed to
  sustain the pace of transition and modernization in Hungary."

  de Larosiere said it'll take perseverance to regain control of
  the deficits threatening the country's ecenomic stability.
  But he added that in the long run, the Hungarian population
  will benefit from a growing, healthy economy. --David Fink


BUSINESS FEATURE
----------------

**CRITICAL DIFFERENCES BETWEEN HUNGARY AND MEXICO**
  By Nancy Marshall

  Foreign investors are following EBRD President Jacques de
  Larosiere's lead, and fears that Hungary could become another
  Mexico are fading.  Still, they aren't completely reassured
  yet.  In this week's feature with Business Central Europe, CET
  looks at the state of investor confidence in Hungary.

  It would be pretty hard for Hungary to follow in Mexico's
  unsteady footsteps.  For one thing, Hungary's political scene
  is fairly stable, especially with the appointments of National
  Bank Governor Gyorgy Suranyi and Finance Minister Lajos
  Bokros, which have been well-received.  The two countries'
  financial pictures are also quite different.  More than 90
  percent of Hungary's $28 billion external debt is long term.
  Most of Mexico's is short term, which means nervous investors
  can take their money and run at the first sign of trouble.  As
  Business Central Europe Editor Bela Papp explained, that's not
  the case in Hungary where most foreign investment is tied up
  in things like joint ventures, which can't be easily
  liquidated.

  "Most of it is fixed: greenfield sites or joint ventures, and
  that type of money is much harder to take out on short notice.
  Therefore you couldn't really have a run on the currency the
  way you did in Mexico."

  The products from those joint ventures now account for 40
  percent of Hungary's exports to the West.  So it appears that
  foreign investment is entrenched in Hungary.  That helps calm
  fears about the country's foreign debt, which now gobbles up
  40 percent of export revenues.  Hungary's current account
  deficit probably can't be whittled down much under $3 billion
  this year.  The country will have to continue attracting $1
  billion to $1.5 billion of outside investment a year to keep
  its foreign reserves from hitting dangerously low levels.
  Right now they stand at a healthy $7 billion.  It shouldn't be
  difficult to add to that because, as Papp pointed out, Hungary
  has yet to privatize some of its most attractive assets.

  "They will more than likely sell off upwards of 50 percent in
  the national electricity company.  Similarly, they plan to
  sell a big stake in Mol, the oil and gas company.  There's
  still some shares to be sold in Matav."

  Papp added that work on those privatizations began two years
  ago, so it's much more feasible to go ahead with them than
  some analysts think.  At the same time, Papp said, companies
  in Hungary that are already owned by foreigners are attracting
  new investment.  For example, car manufacturers that have come
  into the country like General Motors and Suzuki have been
  followed by companies that make components for the automotive
  industry.  In fact, GM has announced it's going to invest $180
  million in expansion of its engine-making plant and Suzuki
  plans to increase its current $280 million investment in
  Hungary.  Votes of confidence like those are sure to calm
  foreign investors already operating in Hungary, and reassure
  those considering putting their money here that this is not
  Mexico.



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date=5/23/95
type=background report
number=5-30133
title=e. Euro Economy
byline=Barry Wood
dateline=Prague
content=
voiced at:

Intro:  In Paris the Organization for Economic Cooperation and
Development (O-E-C-D) has scaled back its economic growth
forecast for Western Europe next year but it predicts continued
good growth in post-communist Eastern Europe.  V-oAa's Barry Wood
reports that economic activity is picking up in the transforming
economies which hope to soon join the O-E-C-D.

Text:  As in Western Europe, Eastern European economies will grow
by about three percent this year.  But while the O-E-C-D is
scaling back its growth forecast for Western Europe next year,
economists anticipate increasing growth in the east.

Outside forecasters, including the european bank for
reconstruction and development, the international monetary fund,
and the o-e-c-d itself, believe the recovery is gaining strength
in the former east bloc.  The consensus of the forecasters is
that east european growth should rise to four percent next year
while unemployment begins to decline.

The pace-setting economies in the east are likely to continue to
be Poland, the Czech Republic and Estonia.  Deutsche Bank
research in Frankfurt is predicting six percent growth in Estonia
next year, five percent growth in Poland and Slovenia, and more
than four percent growth in the Czech Republic and Lithuania.  In
Russia, the output decline is expected to slow to seven percent
while the output decline in Bulgaria could be  no  more than one
percent.  All of the transforming economies are expected to do
better in 1996 than in 1995.  For this year only, two economies
-- Hungary and Romania -- are expected to have lower growth rates
than they experienced in 1994.

For unemployment the forecasts are uneven.  The lowest jobless
rates are in the Czech Republic, Estonia and Lithuania where less
than six percent of the work forces are unemployed.  At the other
extreme are Buglaria with an official 20 percent unemployment and
Romania with 18 percent.

Inflation is far more of a problem in the east than in the west.
The best inflation performance in post-communist Europe is the
Czech Republic where prices this year are expected to rise only
eight percent.  The worst projected inflation rates are in Russia
(120%), Bulgaria (80%) and Romania (75%).

While the eastern forecasts are for continuing overall
improvement,  economists caution that the eastern economies need
a healthy West  European economy for sustained growth.  All of
the eastern economies are trying to shift their trade to the
lucrative markets of Western Europe.  Any prolonged economic
slowdown in the west would have an adverse impact on the east.
(Signed)

neb/bdw/skh/cf

23-May-95 11:11 am edt (1511 utc)
nnnn

source: Voice of America

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