Report From Hungary

<v Jeffrey Kaye>On March 15th, tens of thousands of demonstrators paraded through Budapest, the capital of Hungary. It was an unprecedented display of anti-government sentiment in a country long dominated by the Soviet Union. Many here were too young to remember the protests of 1956. Then demonstrations escalated into an uprising. Hundreds died when Soviet troops crushed the revolt. But unlike 1956, this demonstration was peaceful. More importantly, it was legal. The first test of the government's pledge to bring Western style democracy to Hungary. By having such a large crowd here today, what do you think you have proved? <v Man 1>The strengths of the independent democratic movement. <v Man 2>[speaking Hungarian] <v Jeffrey Kaye>Leaders of the opposition movement spent months planning the demonstration. Dissidents were able to take advantage of new laws, the first of their kind in the Eastern Bloc, easing constraints on political activity. Details of the demonstration were hashed out at meetings in a public restaurant. There was no need for the clandestine plotting that characterized dissident activities until this year. Authorities have also stopped cracking down on anti-government publications. Not long ago, ?Ferencz Kucich? And his colleagues had to break the law to publish an opposition journal. <v Ferencz Kucich>We started our magazine in 81 and there were some house searches and detainees shot arrests in in 83, 84. And I got fines put on me several times.

<v Jeffrey Kaye>Kucich is a leader of a legal opposition group and is one of several new political organizations. Kucich's Party recently held its first convention. The League of Free Democrats is one of many opposition groups starting to form political parties. So now this is not such a daring political act as it once was? <v Ferencz Kucich>No, no, it's not. And I think that therefore, more and more people join such an organization because of the fear that it's-- the risk is less. <v Jeffrey Kaye>Did you think a year ago that this would have been possible? <v Man 3>No, no. Not at all. Not at all. We can't believe it.

<v Jeffrey Kaye>Political changes here are happening so quickly that often the dissidents can't keep up. We spoke to one activist who told us that not long ago he had to sneak a tape recorder into parliament so he could record the session then issue a transcript, an unauthorized transcript, in newspaper form. But only two months later, for the next session of parliament, such covert measures were unnecessary. Parliament was broadcast live on television. <v Woman 1>[speaking Hungarian] <v Jeffrey Kaye>As Hungarians watched in their living rooms, parliament recently enacted laws permitting freedom of association and assembly. It also legalized strikes. The communist government is now rewriting the Constitution, promising to omit any reference to a Communist Party. And the regime says new laws will guarantee free elections and a multi-party political system. The leading force behind these changes is Imre Pozsgay, the man ranked by opinion polls as Hungary's most popular politician. Pozsgay is no dissident. He is Hungary's minister of state and a member of the Communist Party's ruling Politburo. He concedes communist rule has failed. <v Imre Pozsgay>[speaking Hungarian]

<v Translator 1>The period of the last forty two years has not proven to be a proper system. It has turned out to be an inefficient system, which is inapt to solve the problems of people have. What we need to have is a civillian society, with people having civil rights and also with market economy. <v Jeffrey Kaye>If another party gets more votes than the Communist Party, will the Communist Party give up power? <v Imre Pozsgay>[speaking Hungarian] <v Translator 1>Yes, in that case, the Communist Party will go into opposition in the Parliament and from its position as oppositional party, it will fight forces into power again. <v Jeffrey Kaye>Hungary's communist rulers did not suddenly decide to give up their monopoly of power out of the collective goodness of their hearts. One reason for the plan to move to democracy is Hungary's rapidly declining standard of living. The country's leaders fear popular discontent could easily escalate into an uprising reminiscent of 1956. They hope political freedoms will diffuse the potential for a revolution. Another factor in Hungary's liberalization is the Soviet Union. Many of the 65000 Soviet soldiers stationed in Hungary are due to be withdrawn soon. That's one symbol of the Soviet Union's pledge to give their satellite nations greater autonomy. <v Man 4>[speaking Hungarian].

<v Jeffrey Kaye>So days before their demonstration without any apparent fear of reprisal, organizers mapped the route of the protests. In the past, Hungarian revolutionaries rallied to demand freedom of the press. In that tradition, these leaders selected the headquarters of state run Hungarian television as a focal point. <v Man 1>We have to score political points and an actor will agree to that. And then, in the name of the crowd, [inaudible] will hold a transference. <v Jeffrey Kaye>A banner. <v Man 1>A banner. Sorry. A banner saying free Hungarian television. <v Jeffrey Kaye>The dissidents rally was set for March 15th, the day of revolutionary significance in Hungary, one often marked in the past by illegal protests. But this year, the government jumped on the bandwagon and announced its own demonstration. The move was true to form. As opposition groups pick up steam, the Communist Party seems to be coopting its rivals programs at party headquarters. Officials are trying to outmaneuver the opposition in the battle for public approval. Even a notorious hardliner like ?Janosch Baratz?, one of the just purged Politburo members took up the banner of reform when we spoke to him last month. <v Janosch Baratz>[speaking Hungarian]

<v Translator 2>We just issued last Saturday our new action program and I was in charge of drawing it up. This will be the first time an official party communique uses the statement that we're a Reform Party, a party of reform if you like. <v Jeffrey Kaye>So now it's hip to be a reformer, in fact, Reform is the title of a popular new tabloid published jointly by the Communist Party of Hungary and a West German capitalist. Reform is so popular that one newsstand owner was reluctant to put his last copy on display for Interpreter [inaudible] and me. <v Translator 2>Because they would attack the stand. Look, look at the man they would attack to stand. <v Jeffrey Kaye>Why? <v Translator 2>Because it's so much in demand. <v Jeffrey Kaye>But can we take a look at it? <v Translator 2>Yes, of course. <v Jeffrey Kaye>This issue contained a front page story on communist reformer Imre Pozsgay a gossip column and minor exposes about official corruption. So what's the big deal about this magazine? It seems very tame. <v Translator 2>Freewinds, a smell of a smell of winds of change, I would say, or the feeling of winds of change that a lot of these titles couldn't have appeared two years ago.

<v Jeffrey Kaye>Dissidents are slowly becoming accustomed to seeing the government they long battled appear to adopt their ideas. Activist Ferencz Kucich tempers his skeptical view of the Communist Party with optimism. <v Ferencz Kucich>It's not the first time the party says they made mistakes and now they start the new age. <v Jeffrey Kaye>But the question is, do you think there will be free elections in Hungary? <v Ferencz Kucich>If I didn't think it I wouldn't-- wouldn't be active in politics. Of course, I, I, I believe. <v Jeffrey Kaye>Government officials promise contested elections by 1990. But right now, opposition organizations are small and unsophisticated. Their appeal doesn't reach beyond the intelligentsia. If there were an election today, a free election, who would you vote for? <v Man 5>[speaking Hungarian]

<v Translator 1>I have no idea. I don't know. <v Man 6>[speaking Hungarian]. <v Translator 1>Who can you trust? I don't know because I don't know them. I'm not a politician. I guess I'm just an electrician. <v Jeffrey Kaye>Battling to overcome public apathy, opposition activists prepared banners on the eve of their demonstration. Slogans such as Down with Leninism were designed to remind the public that the communists were not always the party of reform. The next morning, the government was trying hard to disguise that fact. An estimated 30000 people gathered in Budapest for the official demonstration. The Communist Party issued a manifesto using Democratic slogans. <v Speaker>[trumpets play]. <v Man 7>[speaking Hungarian]. <v Jeffrey Kaye>Communist Party reform on [inaudible] got an enthusiastic reception when he stressed one of the dissidents main points, a demand for Hungarian autonomy from Moscow. The same day the demonstration organized by the opposition drew some 50000 people, a much bigger turnout than the official rally. Cooperative authorities held back traffic as protesters jammed into the square outside the television station. They unfurled a banner reading free Hungarian television. <v Actor>[speaking Hungarian].

<v Jeffrey Kaye>An actor yelled out the dissidents manifesto. What do the Hungarian people want? He asked. A free, independent, democratic Hungary. A throng of reporters took note. Demonstrators wondered how the government controlled media would depict the protests. That evening, activist and writer ?Janusz Kurutz? sat with friends to watch the coverage. The reports dealt first with the official celebrations, then moved to the protests. <v Hungarians>[speaking Hungarian]. <v Jeffrey Kaye>In the 30 minute special program, at least 20 minutes were devoted to the opposition's activities. Were you happy with the coverage? <v Janusz Kurutz>Yeah, very much. Very much. <v Jeffrey Kaye>You got everything you wanted? <v Janusz Kurutz>Yes. Yes. <v Jeffrey Kaye>The demonstrators continued into the evening. Thousands carried torches across the Danube for a final rally. But to exert power, the opposition will have to go beyond organizing demonstrations to developing political parties. Their challenge will be to win voters away from the reborn Communist Party and a regime that now wears the mantle of reform. <v Speaker>[transition music]

<v Reporter 1>Next, we look again at Hungary, another Soviet satellite that is beginning to reflect the openness and restructuring proposed by Mikhail Gorbachev. Last week, our report focused on political reforms in this East Bloc nation, a trend advanced today by the start of a promised Soviet military withdrawal after more than 30 years of occupation. But Hungary is also experiencing economic changes. The country's Communist Party boss and the prime minister are squabbling publicly over whether radical reform should be imposed under a state of national economic emergency. Jeffrey Kaye of public station KCET Los Angeles recently visited Hungary. This is the second of his two reports. <v Jeffrey Kaye>At the foot of Budapest's Freedom Bridge on the Bank of the Danube River sits Karl Marx University of Economic Sciences. The 800 men and women who gathered here recently did not come to listen to Marxist dogma. Instead, delegates from all over Hungary assembled for the first legal convention of an opposition political group in 42 years. In the back of the auditorium, a banner of the Hungarian Democratic Forum here, the icon of communist economic.

<v Man 8>[speaking Hungarian] No more. No more. <v Jeffrey Kaye>Karl Marx's legacy, the Communist Party still holds sway, but anti-communist rhetoric is now commonplace in Hungary. You have so many people killed in classes that Karl Marx University professors such as Tamas Backsai lecture on free market principles. <v Tamas Backsai>You need a real onus in the form of private ownership, joint stock companies, limited liability companies where there are people who are vitally concerned about the maintenance of the property. <v Jeffrey Kaye>Hungary has long been taking baby steps towards economic reform. The country has encouraged consumerism and allowed some free enterprise. Its system has been dubbed Frigidaire socialism. It developed after the 1956 Hungarian uprising was crushed by Soviet troops. There was an unwritten bargain between the regime and the public. The government would provide Hungarians with the highest standard of living in the Eastern Bloc. In exchange, the people would accept the political system. Nowhere is the promise of Hungarian consumerism better exemplified than Vaci Street in Budapest. The street is always crowded day or night. It's Budapest's Fifth Avenue. It's Rodeo Drive. It represents the promise the Hungarian government has made of a high standard of living. But it's a promise the regime can no longer keep. The government borrowed heavily to finance Hungary's relatively comfortable lifestyle. In doing so, it eventually plunged the Hungarian economy into a crisis. Do you have another job?

<v Translator 1>[speaking Hungarian].

<v Man 9>[speaking Hungarian]. <v Translator 1>I must have another job because I can't make ends meet with three children these days from year to year. <v Jeffrey Kaye>Can you buy the food that you want? <v Woman 2>[speaking Hungarian] <v Translator 1>No, not very much. You have to see what to spend when. Everybody's suffering a lot in the economic situation. The greatest problem is that pensions are very small and people cannot make their living out of it. <v Jeffrey Kaye>Poverty is rising. Two million people, almost a fifth of the population, live below the official poverty level. This woman is one among thousands in Budapest to have their gas or electricity cut off because they can't afford the bill. Did you complain? <v Translator 1>[speaking Hungarian]. <v Woman 3>[speaking Hungarian]. <v Translator 1>We haven't got anywhere to complain. Because anywhere you'd go, they would only refuse your complaints. They would say pay for it, but how can you pay? <v Jeffrey Kaye>The Hungarian public has been hit hard by a combination of rising prices and high taxes. The economy is deteriorating because the government can no longer afford to keep plowing subsidies into inefficient money losing state industries. The country owes Western banks 18 billion dollars. So now when Western diplomats meet Hungarians, there is strong pressure for Hungary to put its economic house in order. <v Mark Palmer>Is this your third or fourth reception tonight?

<v Jeffrey Kaye>[inaudible] <v Mark Palmer>We're honored, we're honored. <v Jeffrey Kaye>The American ambassador, Mark Palmer, says the U.S. has imposed an ultimatum regarding future assistance. <v Mark Palmer>And we are prepared to be helpful, but we're not prepared to continue the wasteful practices of the past, dumping large loans into this country or any of these countries which are then wasted. If the Hungarians do the right things with their own reforms, we will assist through the World Bank, through the International Monetary Fund, where we're the largest donors. We will help them and American banks will help them, too. But it's got to be a new way, not the old wasteful dumping of good money after bad. <v Jeffrey Kaye>In response to pressure, Hungary is promising drastic changes. The government is encouraging foreigners to buy in to state owned firms, and it's begun that most capitalistic of institutions stock ownership. As a result, businessman Janos Rudas has bright prospects. He runs the kind of business Hungarian reformers are trying to encourage. Scitel is a profitable computer company financed jointly by Hungarian venture capital and by an Italian business partner. Rudas, the company's managing director, plans to introduce stock options for his employees. <v Janos Rudas>[speaking Hungarian].

<v Jeffrey Kaye>That way, said Rudas, the workers will have a direct interest in the firm's development and profitability. Then, if their work is good, they can live well. One of Scitel's current projects is to develop an electronic display board. It's for an Italian railway to post arrivals and departures. Rudas toured the Hungarian factory where Scitel will buy the hardware for the system will. Workers here make only a dollar an hour. Their cheap labor means Scitel can undercut European competitors. Rudas plans to drum up more foreign business, then sell Scitel shares on the new Hungarian stock market. So you are saying goodbye to socialism, hello, capitalism? <v Janos Rudas>No, I think it's-- it's-- it is a form. <v Jeffrey Kaye>It's just a different form of socialism? Not necessarily-- <v Janos Rudas>It's a new form of socialism, I think. <v Jeffrey Kaye>Right. You don't want to call it capitalism. Right? <v Janos Rudas>Right. <v Jeffrey Kaye>Some of Hungary's budding capitalists show up every Tuesday morning at 10 on the second floor of the International Trade Center on Vaci Street. That's where the weekly meetings of the new stock exchange take place. Traders make the vast majority of their deals over the phone and don't seem to attach too much importance to these meetings. On this day, dealers began 10 minutes late due to rain, and some had difficulty following the proceedings.

<v Zsigmond Jarai>[speaking Hungarian] <v Translator 1>I want to buy it. I want to buy it, not sell it. Me too. <v Jeffrey Kaye>This session lasted 30 minutes. Traders did only one hundred thousand dollars worth of business. Right now, the stock exchange represents more of a change in style than in substance. The 25 traders buy and sell not for individuals, but for what is becoming Hungary's most powerful institutions banks. One of them is Budapest Bank, located just down the street. This is where the president of the stock exchange works. Zsigmond Jarai, a top manager here, says that despite some symbols of a free market place, the state still owns and operates the country's economic machinery. Right now, most of the trading is done by banks, correct? <v Zsigmond Jarai>Yes, that's correct.

<v Jeffrey Kaye>And who owns the banks? <v Zsigmond Jarai>That-- the banks are owned partly by the state and partly by different institutional investors, which can only do so by the state. So indirectly, the banks are owned by the state. <v Tamas Backsai>It is very difficult to say whether it is legal reform or not because we don't know to what it needs. At the present time as the owners of the biggest banks or controlling majority is in the hands of the state, the Ministry of Finance. Therefore, it is in that sense not the real McCoy. <v Jeffrey Kaye>So the challenge for the reformers of Hungarian industry is to institute the real McCoy or the Hungarian equivalent to move beyond cosmetic to structural change. But there are major impediments. And one example demonstrates why Hungarian reform has become bogged down. The Ganz Mavag Engineering Company in Budapest has lost money steadily. Last year, the government decided to make an example of Ganz. It forced a portion of the firm into bankruptcy four banks, including the Budapest Bank, took it over. Now bank officials must face the hard decision the government avoided whether or not to liquidate the firm and fire the workers. <v Zsigmond Jarai>We are looking for a new management. We are looking for a new technology and for some partners who can change the management of the company.

<v Jeffrey Kaye>And if you can't find them? <v Zsigmond Jarai>If you cannot find it, because in the end the company produced losses, you can close the company and you can-- <v Jeffrey Kaye>Close the company, fire the workers. <v Zsigmond Jarai>Yes, and it's a very difficult decision. But in some cases we have to do it. <v Jeffrey Kaye>That's easy to say and another thing to do in a country ruled by a party that has espoused the dictatorship of the working class for the last 42 years and where unemployment until recently was illegal, Hungary's main reformers, communists as well as dissidents acknowledge that economic dislocation will be necessary in order to restructure the economy. The Communist Party's leading reform advocate, Imre Pozsgay says it's difficult for the government to summon the political will. <v Imre Pozsgay>[speaking Hungarian]

<v Jeffrey Kaye>Hungary must close money losing factories and lay off workers, said Pozsgay. But according to the principles of our system, unemployment is not permissible. We've got to destroy an old fashioned value. Established values are being challenged as new political parties flex their muscles. But the government's calls for democracy might derail its economic reforms. The reformers are promising massive joblessness, and Hungarians may be less than eager to vote against their own self-interest at the ballot box. <v Reporter 2>For an American perspective, we return now to Ambassador Mark Palmer, whom you just saw in that report. He was in Washington yesterday and I interviewed him shortly before he flew back to Budapest. Mr. Ambassador, I assume these developments, the moves towards political pluralism and towards a free market economy are music to American ears, is that right? <v Mark Palmer>Absolutely. And particularly to somebody like me who has been working on these countries for 30 years through a lot of very long gray nights. Right now, it's quite wonderful what's happening as the president said in his speech.

<v Reporter 2>You said in that report that we've just seen, we're prepared to be helpful. How would the US as a government be helpful? How will the Bush administration encourage these developments? <v Mark Palmer>Well, the major problems that-- where we can help is in the economic area. And the president talked about encouraging American investment and providing OPIC coverage, which is investment guarantees to American companies that want to come in. We also-- the government can help by opening up our market to Hungarian or Polish exports. Basically, what we can do is to help them become like Spain or South Korea, a commercial country, a country that makes its own way. <v Reporter 2>No, no more direct aid. From what you said, I gather no more direct aid in terms of U.S. loans or USA directly. <v Mark Palmer>That's right. They've had a lot of loans in the past 20 years. They've had the equivalent of a Marshall Plan, these countries, and they're now strangling on the payments that they have to make on those loans. So more debt is not the answer for these countries. Radical restructuring and getting on with a normal market economy is the answer. <v Reporter 2>How deep is the-- does the consensus run for this radical restructuring in Hungary, would you estimate? Or is it something that's confined to the urban intelligentsia at the moment?

<v Mark Palmer>No, I think it goes into the countryside among most Hungarians. It's very strong. There's a feeling that the old model isn't working. So at a rhetorical level, there's strong support. The problem comes when it cuts into you as an individual, you as a factory, you as a worker, then there's a lot of resistance. Unemployment is not something people want to look out easily. Reduction of subsidies to an individual farm or to an individual factory is a hard thing to contemplate. But at the level of ideology of philosophy and policy, there's almost universal support. <v Reporter 2>Does it require the enthusiastic support of the mass of workers to to work this kind of reform? <v Mark Palmer>Yes, because otherwise they can go on massive strikes and bring the whole thing to a halt. So unless the country moves behind this, there isn't going to be radical reform. <v Reporter 2>So what are the incentives going to be for the workers and farmers to support this if it means actually giving up whatever kind of security for some of them, whatever security they've had up to now?

<v Mark Palmer>Well, that's where I think American investment and American companies can play such a critical role because they can provide role models for the future. They can show today how double wages could be paid in an efficient plant. Levi Strauss, McDonald's hamburgers, Schwinn bicycle, all American operations now going in Hungary pay much higher wages because they're much more efficient and they're run on basically Western lines. So one way to convince the workers to make this jump into another system is by showing them how it could work and how they would be better off. <v Reporter 2>And the incentive for the American companies is that the wages would be low. <v Mark Palmer>That's right. And because Hungary is right next to the U.S., the largest market going towards 90 too the largest market in the world. So you've got Hungarian low wages, high educational standards, the third highest high school in math scores in the world after-- after Japan and South Korea. Four of the five inventors of the US hydrogen bomb, Teller [inaudible] all went to the same high school in Budapest. These are a very bright people and unleashed with the right economic system, they could explode the way Spain has been exploding. <v Reporter 2>If reforms-- these reforms do not work, what happens is that another form of experiment or a reversion to Stalinist sort of stolidity?

<v Mark Palmer>Well, stolidity, I think, is the right word. I'm not sure that it would be real Stalinism. I think going back that far is very difficult now. But stagnation, political and economic is possible. If they don't have the courage to get on with it now, they will just sink into stagnation. As we've seen with so many other countries in that part of the world, they have only one way to go either ahead or they're just going to fall further and further behind. <v Reporter 2>The Hungarians appear to want to go further than even Mr. Gorbachev's reformers in terms of multiparty government and actually abandoning socialism to a large degree. Is that right? I mean, they seem to want to go a lot further than the Soviet Union is heading. <v Mark Palmer>I think the direction is the same for Gorbachev, for the Polish leadership and for Hungary. But you're right that the Hungarians are out ahead of everybody else in virtually every area, whether it's a multi-party system, where today you have six or seven new political parties that are already functioning, trade unions, you have a lot of new trade unions. The private sector is growing very rapidly in Hungary. So there are lots of areas in which they are way ahead. And I think they will stay ahead. They feel that they're European, that they're not behind the curtain. And physically, the Iron Curtain now between Austria and Hungary is coming down. And the numbers of Hungarians crossing into Austria every week is incredible. Not since fifty six have there been so many Hungarians going across into the West and coming back after they bought their-- their consumer goods. <v Reporter 2>You know, they are actually going to take down the fences in the minefields.

<v Mark Palmer>That's right. They've started to dismantle already the electronic barriers in the wires. <v Reporter 2>From what you can read in your vantage point in Budapest, is the Hungarian movement to go more radically towards the Western forms? Is that-- does that sit well with the Kremlin, do you think? <v Mark Palmer>With some in the Kremlin? It definitely sits well. When you ask Soviets to rank order their favorite countries in Eastern Europe, they they rank order them, Hungary, Poland and then the others in descending order, depending on how Stalinist they still are. So it-- clearly for Mr. Gorbachev and his closest advisers, Hungary is the model. It's a country from which they can learn and they are encouraging them to go further, not to leave the Warsaw Pact, not to abandon socialism, but to go further with radical political and economic reforms within that framework. <v Reporter 2>So to come back to what you were discussing a minute ago, you think this is a good place for American investment? <v Mark Palmer>Absolutely. Both because Americans can make money. A number of companies are doing extremely well there, but also because of the political importance of our being present. Also, I'd like to see more American companies come and sell American goods. It's a good market for American companies to sell stuff made in the United States <v Reporter 2>Are other Western countries being exploiting the opportunities more aggressively than American companies are at the moment?

<v Mark Palmer>The West Germans are traditionally more present, and so they continue to be somewhat more aggressive. But American companies are playing catch up ball fairly well. When I went there two years ago, we only had six American companies with offices in Budapest. Today we have 40. So it's coming. It's happening. <v Reporter 2>Well, Mr. Ambassador, thank you very much indeed for joining us. <v Mark Palmer>Thank you.