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	Hungary: Bridging Eastern and Western Europe Hungary is a landlocked country in Central Europe, roughly the size of Indiana. The country has 10 million inhabitants, 2.5 million of which live in or around the capital city of Budapest. Hungary is a highly centralized country, with most of the economic activity located in or around Budapest. Debrecen and Miskolc are the two most populated Hungarian cities after the capital, each with a population of about 200,000. Cities with over 100,000 inhabitants include Szeged, Pecs, Gyor and Szekesfehervar. The size of the economy in 2007 was $208 billion on purchasing power parity, comparable to that of New Mexico. The per capita GDP was $20,700. Hungary has had a long and turbulent history. It was settled in 896 AD by Finno-Ugric nomadic tribes originating from beyond the Ural Mountains in Central Asia. The closest linguistic relative to Hungarian is Finnish, and the language has little in common with neighboring Indo-European languages such as Slovakian, Serbian, Romanian or German. Hungary reached statehood in 1000 AD under the rule of King Stephen I. It was thoroughly plundered by the Mongols in the 13th century, occupied by the Turks for 150 years starting from the 15th century, liberated by the Austrians in the 17th century only to be made part of the Habsburg empire for 250 years. It was then occupied by Nazis in 1944, liberated and then oppressed by the Soviet Union in 1945, and finally freed by massive worldwide political changes in 1989. On October 23, 1989, 33 years to the day after the outbreak of the short lived and tragically ending 1956 revolution, the People's Republic of Hungary became the Republic of Hungary. In 1996 the country became a member of OECD; in 1998 it joined NATO and on May 1, 2004 it became a full member of the European Union. Hungary has found its place in the world once again. The complex history has left a legacy that affects the way Hungarians deal with the East and the West. Traditionally a crossroad between the two, the country now draws its strength from being able to offer the advantages of both. Hungary lost two thirds of its land area and population after being defeated in the First World War, ending the dual Monarchy of Austria-Hungary and an era that many consider nostalgically to have been the golden age. The country has few natural resources and prior to the First World War, Hungary's economy was mainly based on agriculture. The fertile floodplains of the Danube and Tisza rivers resulted in the country becoming the bread basket of the Austro-Hungarian Empire. In the interwar period, emergence of light manufacturing industries contributed to growing urbanization. Little of the industry and infrastructure survived the Second World War. After the Communist takeover in 1947, the three and five year economic plans placed strong emphasis on the development of heavy industries. Privately owned industries were nationalized and farmers' plots were concentrated into large collective farms, according to the then prevalent views of Stalinist self-sufficiency. In 1968, economic reforms relaxed a number of restrictions, and allowed for a limited number of small, privately owned businesses to operate. Following the collapse of Communism, a recession resulted in the early 1990s from having to transform the economy from central planning and state ownership to a free economy and privatized companies. Only in 2003 did the size of the economy reach 1989 levels – but by that point, it was a leaner and meaner economy, able to compete on the world markets. Today, the services industry accounts for almost two thirds of Hungary's $208 billion GDP; industry contributes about a third and agriculture about three percent. Hungary's economy is mainly driven by exports, with about 75% of its trade partners being members of the European Union. In contrast, 65% of its 1989 trade partners were COMECON countries. The key to Hungary's success was foreign investment – over $60 billion has been invested into the economy since 1989, about a third of which was by US companies. The largest US investors include GE, Alcoa, General Motors, Coca-Cola, Ford and IBM. The United States is Hungary's sixth largest trade partner. In recent years, foreign investment has gravitated away from manufacturing. Multiple service centers have opened up to take advantage of Hungary's geopolitical location and highly educated workforce. In retrospect, forced heavy industrialization under Communist rule caused long lasting economic damage – but emphasis on education and health care provided long term benefits. In April 2006, an incumbent government was re-elected for the first time in Hungary's post-Communist history. The center-left government lead by Prime Minister Ferenc Gyurcsany is a coalition of the socialist MSZP and the liberal SZDSZ parties. The newly elected government sought to redress Hungary's budget deficit, estimated at 9.5% of the GDP for 2006. These measures included raising taxes, reducing public sector expenditures and an unpopular austerity package that reduced subsidies on gas, electricity, and pharmaceuticals. The government's aim was to reduce budget deficit to 8% of the GDP by the end of 2006, to 5% by the end of 2007 and to 3% by the end of 2008. Should these plans succeed, Hungary would be able to meet the convergence criteria required to adopt the Euro currency by 2011. Inflation declined from 14% in 1998 to 3.6% in 2005. As a result of higher taxes and other price increases, inflation in January 2008 reached 7.1%. The Hungarian National Bank estimates that, as a result, GDP growth in 2008 will be between 2-3 percent, below regional and European averages. 8.1% of the active population was unemployed in January 2008, although generalized figures tend to hide regional differences. In the Budapest – Gyor – Szekesfehervar triangle, where the majority of foreign investment had concentrated, there is now an occasional lack of qualified workers and employees. Some companies, such as Nokia or Suzuki, employ ethnic Hungarians living on the other side of the Slovakian border, while some others transport employees by bus from Eastern Hungary. The education system is also gearing up to provide employees of the future with skills required by a knowledge-based economy. In 1990, there were about 100,000 college students – in 2007, there were already over 400,000. US companies wishing to do businesses in Hungary can take advantage of the very favorable exchange rates between the dollar and the Hungarian forint. Central European countries can be a significant stepping stone into the European Union for US companies that may not want to tackle their European competitors head on at their home turf. For companies wanting to take advantage of the thriving market in the Hungary, they are in luck! The Division of International Trade is leading a trade mission to the Czech Republic and Hungary June 16th-20th. Space is limited, so call your local Trade Manager today to learn more or visit our website at http://www.exportvirginia.org/events/. You can also call the mission leader, Terri Noll, at (804) 545-5764 or contact her via e-mail at tnoll@yesvirginia.org for more information. Mr. Sandor Geszti will be the main contact in Hungary for arranging companies’ meetings. Mr. Geszti is affiliated with EasyLink Business Services. EasyLink is a leading Central European consultancy providing professional market research and market entry services to foreign companies seeking sales, investment or sourcing opportunities, commercial intelligence and/or business partners/customers in the CEE region.