Nations in Transit - Hungary (2005)

Capital: Budapest
Population: 10,100,000
Status: Free
PPP: $5,290
Private Sector as % of GNI: na
Life Expectancy: 73
Religious Groups: Roman Catholic (67.5 percent), Calvinist (20 percent), Lutheran (5 percent), other (7.5 percent)
Ethnic Groups: Hungarian (90 percent), Roma (4 percent), German (3 percent), other (3 percent)

NIT Ratings	1997	1998	1999	2001	2002	2003	2004	2005
National Governance	N/A	N/A	N/A	N/A	N/A	N/A	N/A	2.00
Electoral Process	1.25	1.25	1.25	1.25	1.25	1.25	1.25	1.25
Civil Society	1.25	1.25	1.25	1.25	1.25	1.25	1.25	1.25
Independent Media	1.50	1.50	2.00	2.25	2.25	2.25	2.25	2.50
Local Governance	N/A	N/A	N/A	N/A	N/A	N/A	N/A	2.25
Judicial Framework and Independence	N/A	N/A	N/A	N/A	N/A	N/A	N/A	1.75
Corruption	N/A	N/A	2.50	3.00	3.00	2.75	2.75	2.75
Democracy Rating	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Executive Summary

Since 1989, Hungary has navigated an exceptionally successful transition from Communist dictatorship to consolidated democracy. The political elite that emerged at the onset of reforms has progressively learned the rules of democracy and a market economy. Yet since transition rolled out hand in hand with a variety of economic and psychological hardships never experienced before, Hungarian citizens are still negotiating their participation in and expectations about new democratic institutions. In particular, the ongoing reliance of human services on state support highlights the need for further reforms. However, one can be sure that the implementation of any new public policies will generally adhere to the rule of law.

The country continued to consolidate democratic practices and institutions in 2004. Arguably, the early resignation of Prime Minister Peter Medgyessy proved the most notable event of the year. In August, his government collapsed after several attempts in the first half of the year to mend the gradual loss of his cabinet's reputation within the delegating socialist-liberal coalition. Without prolonged turmoil, Ferenc Gyurcsany was elevated to the prime ministerial post. The new government was set up smoothly within the limits of the Constitution and with the constructive behavior of the opposition. A former Communist youth leader and front-runner of the early privatization process, Gyurcsany emerged in the fall as a proactive prime minister. Given that state budget figures for 2005 were already decided, Gyurcsany has limited room to influence real policy reforms until the next parliamentary election in 2006. Yet he has put popular issues on the agenda, such as taxing bank sector profits (from which he soon pulled back) and disclosing Communist-era secret service files and names of collaborators. At the end of 2004, it appeared likely that he and Fidesz Hungarian Civic Union chairman Viktor Orban will race as equal challengers in the 2006 elections.

National Democratic Governance. In 2004, the country experienced a turbulent constitutional challenge with the resignation of the prime minister. Demonstrating the maturity of Hungary's democratic governance system, political forces stood up for the rule of law and worked in concert toward the smooth formation of a new government. The Hungarian secret services and military are under effective civilian control, and 2004 marked the abolition of Hungary's conscript army. It is still unclear how files of the former Communist secret service collaborators are being handled, giving ample ground for ongoing accusations, but as of yet there is little public transparency. Hungary's new rating for national democratic governance is set at 2.00 owing principally to the stability that prevailed throughout the government crisis.

Electoral Process. The Hungarian electoral system adequately facilitates the free and fair succession of power among political parties of the Left and the Right. The year brought ongoing political campaigning, yet these efforts were unable to break through the general apathy of the electorate. Parliamentary by-elections were held in two settlements because previous individually elected parliamentarians moved to the European Parliament. Toward year-end, a controversial referendum stirred political discourse on two issues: whether ethnic Hungarians living abroad could receive Hungarian citizenship in a simplified process and whether the privatization of public health care institutions should be forbidden. Hungary's rating for electoral process remains unchanged at 1.25.

Civil Society. Hungary's civil society plays an important role in establishing participatory democracy at all levels of society. Funding of nongovernmental organizations (NGOs) continues to be problematic, but the establishment of the National Civil Fund created a unique funding mechanism for the Hungarian nonprofit sector. The legal framework governing civil society is generally favorable, and politics do not impede democratic citizen initiatives. There were a number of successful advocacy campaigns in 2004 organized by issue-based coalitions, but thanks to unreceptive policy makers, NGOs are still believed to have only a limited influence on public policy. Hungary's rating for electoral process remains unchanged at 1.25.

Independent Media. The media are considered to be generally free in Hungary. Controversies relating particularly to print media dominated the Hungarian media scene in 2004. Libel continues to be a criminal offense, and the recent high number of libel suits raised widespread concern. In addition, the closing of an influential print daily spotlighted the financial vulnerability of print media. The quality of journalism in Hungary is generally adequate, but the lines between factual information, analysis, and commentary are often unclear. Hungary's independent media rating declines from 2.25 to 2.50 owing to the 2004 developments in legal persecution of media and the now manifest signs of financial vulnerability.

Local Democratic Governance. Hungary's more than 3,000 local self-governments enjoy significant normative autonomy. However, their financial autonomy is highly limited and overly dependent on the state budget. Current reforms identified two directions of modernization: the creation of a "small region" level of administration and the establishment of development regions in order to make use of European Union financial resources. Minorities are still under-represented in the Parliament, and mandates held by nonminorities in some minority self-governments are a source of concern and political debate. Hungary's new rating for local democratic governance is set at 2.25. Slightly lower than the score for national democratic governance, this new rating is attributable to the financial susceptibility of local governments.

Judicial Framework and Independence. There is still a long way to go to fully implement the Law on Equal Opportunity. In-depth studies and continued media attention are required to eliminate the still widespread but often latent discrimination against the Roma. In civil proceedings, government-sponsored public defenders began providing free or government-credited legal counsel to the needy. As a result of the establishment of the highest appeal courts in 2003, the overburdened Supreme Court was able to catch up with most of its backlogged workload in 2004. Hungary's rating for judicial framework and independence stands unchanged at 1.75.

Corruption. The bribing of public service employees and existence of nontransparent businesses closely associated with political parties continue to be problematic in Hungary, although various local anticorruption institutions and international conventions have aimed to put a stop to nontransparent practices. The country's institutional framework for fighting and preventing corruption has been strengthened in the past four years, but the implementation of these laws needs further reinforcement. Stories of the fraudulent practices of public servants and politicians dominated the news during the year. The country's rating for corruption remains unchanged at 2.75.

Outlook for 2005. Undoubtedly, the coming year for both political sides will set the stage for the 2006 elections and campaigning will become even louder. The Hungarian Parliament's election of a new president will conceivably transpire by a third-round simple majority vote, given that the opposition is unlikely to support any socialist nominees (the most likely pool). None of the necessary public sector reforms are expected to occur, primarily because of the short amount of time left on the current coalition's watch. The government and liberal civic society will continue to fight racial discrimination directed at the Romany population. At this point, it is feasible to believe that a significantly revised legislation on revealing Communist-era secret service files will boost Hungary's reconciliation with its pre-1990 past.

National Governance (Score: 2.00)

In 2004, Hungary confirmed that its democratic institutions stand firm against any foreseeable instability. During the year, the country experienced a turbulent constitutional challenge caused by the August resignation of Prime Minister Peter Medgyessy. In the immediate aftermath, all political forces worked together toward the smooth and relatively prompt formation of a new government, demonstrating the maturity of Hungary's democratic governance system.

The Parliament exercises ultimate control over the government through a constructive vote of no confidence against the prime minister. This means that the Parliament can remove the prime minister and with the same vote elect his or her successor. The events surrounding Medgyessy converged slowly in 2004 to the point where parliamentary members of the Hungarian Socialist Party (MSzP) and the Alliance of Free Democrats (SzDSz) lost political confidence in the prime minister and were prepared to invoke Article 39/A of the Constitution governing the removal of the prime minister. But the breakdown of the government eventually happened more organically.

In summer 2004, after the MSzP was defeated at the European Union (EU) parliamentary elections, Medgyessy, who was not a member of the party, explored new paths of governance to recover public support for his policies. To show his determination, he prepared to exercise his exclusive prime ministerial power to restructure the cabinet. The minister of economy, an SzDSz appointee, became one of the targets of the reshuffling, but the SzDSz firmly resisted. Rejecting Medgyessy's efforts to paint its delegate as a scapegoat, the party declared that it had lost confidence in the prime minister. After several days of hesitation, the MSzP agreed to disengage Medgyessy through parliamentary means, but in an effort to salvage his political integrity, Medgyessy preempted the official action by submitting his resignation to President Ferenc Madl.

At the height of the government crisis, President Madl and all other political forces stood by democratic principles and the rule of law. As is customary after regular elections, Madl conducted consultations with leaders from all parliamentary parties. The clear effort to prolong socialist-liberal cooperation encouraged opposition politicians to reconsider any intentions to form a government, exemplified by the comment from Victor Orban, chairman of the Fidesz Hungarian Civic Union (FIDESZ), that political legitimacy rests with the elected coalition. In this period of legal uncertainty caused by Medgyessy's resignation, President Madl upheld legislation that stipulated the prime minister had 30 additional days to serve in office. Although this clause was later voided by the Constitutional Court, it was important for the president to take a definitive stance when legal experts were divided on the legislation's interpretation, which in fact served to reduce potential instability.

The Hungarian Constitution and an effective system of institutional checks and balances reflect the country's democratic goals and meet European standards. Indeed, Prime Minister Medgyessy's spring proposals touched on a number of significant and popular constitutional issues, such as cutting the size of the Parliament and directly electing the president. But these efforts proved stillborn, as they would have inevitably rearranged Hungary's otherwise balanced constitutional political landscape and no cross-party endorsement could have been expected. Yet at his parliamentary committee hearing, the newly sworn-in minister of justice identified the need for improving governance efficiency by revising fundamental acts that require a two-thirds majority of the legislation, exemplifying how an overall revision of the Constitution holds firm on the popular agenda.

With the stated aim of improving efficiency, consecutive governments have often abused their right to propose new legislation. Using majority parties in the Parliament to rubber-stamp its proposals, the government has been able to tighten control over Parliament-elected public servants who assume key positions. In the first half of the year, the coalition approved a legislative amendment that removed the head of the Hungarian Financial Supervisory Authority. Another peculiar feature is the recent trend to appoint various governmental appointees to coordinate among line ministries on specific topics. In 2004, nine such new positions were created, among them a functionary who paradoxically is in charge of reviewing government efficiency and thus devising central governance reforms.

Despite increased public sector spending since 2001, the overarching reforms needed to sustain long-term government efficiency have not been implemented, according to a 2004 economic survey published by the Organization for Economic Cooperation and Development (OECD). Napi Gazdasag, a Hungarian business daily, reported foreign investor complaints that the maze of bureaucracy is impeding the smooth launch of their businesses, but the OECD contended that "[the Hungarian public service's] efficiency is not poor in international comparison." At the same time, the OECD warned that the sheer size of the public sector "contributes more to overall inefficiency in the economy." The more than 800,000 public servants constitute 20 percent of the total labor force in Hungary and are assiduously unionized in such areas as health care and education. The new prime minister has chosen not to antagonize this robust labor force until the elections in 2006 and has currently tabled the otherwise long-planned reforms.

The Hungarian secret services and military are under effective civilian control. Of the five specialized secret services, two are overseen by an intelligence minister "without portfolio" and three by the minister of defense. With the exception of NATO commitments, military operations beyond the frontiers of the country require a two-thirds majority in the Parliament. In 2004, the government proposed to extend the mandate of Hungarian troops in Iraq until elections were held there, but this decision lacked opposition consent. Following the original schedule, they were withdrawn toward the end of 2004. In a major development, Hungary abolished its conscript army in the fall and created a fully professional military.

The functioning of both the intelligence and the military has been questioned constantly throughout Hungary's transition period. In the spring, center-right media reported on criticisms that the intelligence minister allegedly faced at a meeting in the United States. Security experts commented perpetually, and by and large disparagingly, on the ongoing armed forces reform and policy makers' shortsighted inability to orchestrate an army adequate to twenty-first-century security challenges. The importance of transitional justice that is to say, reconciling with the country's Communist-era past has been the focus of a fierce public discourse lingering since 1990. But the legislation is insufficient, and as yet it is far from transparent how the files of former Communist secret service collaborators are being handled. The current legislation originally adopted in 1994 to cleanse the political system is practically worthless, as it was crafted with the intention to disclose only a fraction of the dossiers accumulated before 1990.

Currently, the standard practice is for unidentified persons to leak information to the press from the heaps of undisclosed files. A group of liberal thinkers and politicians published an open letter in April calling for "amnesty to the documents." Instead, throughout the year the media continued to refer to allegations or documents about a handful of well-known people, including an influential left-wing media critic and a right-wing singer, both of whom eventually admitted to spying for the former regime. In the same fashion, accusations erupted in December around the right-wing mayor of Kaposvar, a southwestern Hungarian city.

Electoral Process (Score: 1.25)

Overall, Hungarian elections are repeatedly deemed free and fair, but there are deficiencies in the legal framework governing the electoral process. In 2004, considering the upcoming by-elections and potential referendums, the Constitutional Court called the Parliament's attention to insufficiencies in the Law on Elections and urged the Parliament to regulate how Hungarian citizens abroad could cast their ballots. Provisions to ensure these particular voters' rights in line with the Constitution have not yet been resolved permanently; only ad hoc political compromises allowed their participation in the 2004 elections.

Hungary formally became a full member of the EU on May 1,2004, and Hungarians' first political act within the EU quickly followed in June. In order for Hungary to take part in the European Parliament's (EP) decision making between 2004 and 2009, Hungarians voted for 24 representatives to the EP from lists set up by domestic political parties. The parties paid particular attention to this election because they considered it a rehearsal for the 2006 national parliamentary elections. As a result of the voting, only four parliamentary parties cleared the 5 percent threshold for representation in the EP. With only 38.5 percent voter turnout, the governing MSzP gained 9 seats, while the major oppositional conservative party, FIDESZ, sent 12 members to the EP.

The relatively low turnout in the EP elections favored two smaller parliamentary parties. During the campaign, the liberal SzDSz distanced itself from its senior coalition partner, the MSzP, and successfully won enough support from liberal voters to pass the 5 percent threshold. The 7.74 percent gain translated into two mandates for the SzDSz in the EP. On the conservative side, party chairwoman Ibolya David of the Christian-Democratic Hungarian Democratic Forum (MDF) gained one EP mandate. Consequently, David announced a more independent direction for the MDF, while the internal opposition sought closer ties with FIDESZ. The MDF's struggle over the relationship with FIDESZ eventually led to the exclusion of its internal opposition from the parliamentary faction and the resulting split in the MDF. It is uncertain whether the split increases or harms the MDF's chances of remaining in the Parliament after the 2006 national elections.

Membership in political parties is rather low about 1 percent of the electorate. According to a 2004 study of the Hungarian Gallup Institute, only 13 percent of the population trusts political parties; 75 percent does not. Thus, the year saw further evolutions on the political scene that helped both the Left and the Right expand their constituencies. On the Left, Prime Minister Medgyessy announced constitutional and electoral proposals in the spring; these proposals, such as setting up a common list of the four parliamentary parties for the EP elections, accelerated a decreasing trend in the MSzP's public support, which dropped to its lowest level since coming to power. The party's subsequent struggle to reverse the tendency triggered the replacement of the prime minister and the party's entire leadership, including its chairman.

On the Right, FIDESZ's "National Petition" campaign in advance of the EP elections targeted a wider audience than the party had previously reached. Going against privatization, an increased cost of living, and affluent government politicians, FIDESZ attempted to reach out to traditional left-wing voters. Beating MSzP by 13 percent, FIDESZ was overconfident later in the year at the midterm elections and referendum. During 2004, FIDESZ had to face the challenge of mobilizing more voters than its traditional conservative base, but the party has not yet been successful.

Later in the year, the parties kept voters rapt with heated political discourse over a controversial December 5 referendum, which considered two questions. The first was a citizenship issue initiated by the World Federation of Hungarians (WFH), a worldwide nongovernmental organization (NGO) dominated largely by right-wing Hungarians living abroad. The other question concerned privatization and was proposed by the Worker's Party, the successor to the Communist Party. Voters could decide on two issues: whether ethnic Hungarians living abroad should be able to obtain Hungarian citizenship more easily and whether it should be forbidden to privatize real estate where public health care operates. Although the latter question concerned institutions, the parties treated the question as if it were about services, creating uncertainty among the public.

Beyond the concrete questions, the referendum was a tool for political combat between the two main parties, both of which played heavily on voters' emotions. FIDESZ campaigned for "yes" on both issues, claiming that citizenship is of national interest and national unity and voter participation was a moral duty. MSzP, on the other hand, called for two "no" votes and built its campaign on fears of the extra burden on state-financed social benefits that would result from possible immigration to Hungary. The voices of the two smaller parties were barely heard in the debate. SzDSz was in favor of the "no" vote, while MDF supported "yes" on citizenship and "no" on halting privatization. Low voter turnout invalidated the results, yet because the final "yes" votes outnumbered the "no" votes, the debate did not end on December 5. Claiming widespread irregularities, the WFH filed a complaint with the Supreme Court, which ordered a recount in more than 1,000 constituencies.

The current political power distribution is the result of the 2002 parliamentary elections, but as conflict of interest laws do not allow holding national and EP mandates simultaneously, 13 national parliamentary seats had to be filled in the Parliament after the June EP elections. For the EP seats, elections were held using a proportional representation format where the entire country made up one electoral district. For the 386-seat unicameral National Assembly, 176 members are elected from single-seat constituencies, 152 from regional, and 58 from national party lists by proportional representation. Out of the 13 vacant seats in 2004,11 were filled from party lists.

For the two single-seat mandates of Szecseny and Sopron, midterm national by-elections were called in the fall. In both towns, second-round voting was necessary because turnout in the first round did not reach the minimum 50 percent requirement. The FIDESZ candidate won the Parliament seat in Szecseny. In Sopron, the MSzP candidate receded the runoff after being accused of distributing vouchers to pensioners in his campaign, further increasing absenteeism and the consequent invalidation of the results. Until by-elections are repeated in 2005, the one mandate from Sopron remains vacant.

On the national level, ethnic minorities and women are under-represented in the Parliament. Out of the 386 seats, women won 35 in the 2002 elections. Three went on to serve as cabinet ministers in the MSzP-SzDSz government. Four Roma representatives won seats in the Parliament in 2002 from party lists as a result of prior commitments and agreements between the two largest parliamentary parties and Hungary's largest minority group. But the Parliament has not yet achieved formal representation of Roma and other minorities in Hungary as required by the Constitution. Significantly, Hungary sent the first ever Roma representatives to the EP.

Civil Society (Score: 1.25)

Hungary's civil society plays an important role in establishing participatory democracy at all levels of society. Advocacy groups, trade unions, business organizations, and professional associations are trying relentlessly to bring the interests of their respective constituencies before the national government, while many voluntary local associations and service providers connect citizens and government on the local level. Internationally renowned scholar Eva Kuti summarized the strengths of the sector in a September interview in Népszabadsï¿¡g, saying that "nonprofit organizations became determinative and inescapable players of many aspects of life."

The legal framework governing NGOs is generally favorable, and politics do not impede the formation of nonregistered democratic citizen movements or petition campaigns. The State Audit Bureau's report in 2003 found problems not with NGO registration, but with the lack of a transparent and comprehensive administrative tracking system. Despite the over 400,000 estimated volunteers contributing to NGOs, the government delayed the introduction of a new Law on Volunteers that would finally provide legal recognition and protection to volunteerism.

According to the most recent statistics of the Hungarian Central Statistical Office, more than 20,000 foundations operate without endowed capital, relying mostly on current donations, and 45 percent of NGOs survive on a mere 500,000 forints (US$2,500) or less per annum. Earned income constitutes over 50 percent of their annual income, which suggests that many NGOs are de facto businesses without the actual capability to distribute profits among their members.

Funding of civil society organizations continues to be problematic, but a modest positive trend in increased revenues can also be reported. Between 2000 and 2003, the increase of the total income of the sector grew by close to 50 percent, from 495 billion forints (US$247.5 million) to 731 billion forints (US$365.5 million). Revenues from state resources increased to over 40 percent from the previous 28 percent, although the majority of state funds are directed at state-established institutions. A consortium of indigenous NGOs uniting training, capacity building, and institutional support programs launched the Hungarian operation of the Trust for Civil Society in Central and Eastern Europe. The trust is a joint initiative of prominent U.S. private founders aiming to bridge the funding gap for civil societies in a select group of post-Communist states until they are mature enough to compete for sponsorship on the EU level.

The establishment of the National Civil Fund (NCF) brought a unique state funding mechanism to the Hungarian nonprofit sector in 2004. Allocated from the state budget and managed by elected NGO representatives, the fund offers primarily institutional support to NGOs. Opinions diverge, however, as to the long-term utility of the NCF. Statistics indicate that on average, Budapest-based NGOs were in a better position to tap NGO funds but that the NCF alone was more likely to sponsor grassroots groups. So on the one hand, the NCF suggests a promising avenue to contribute to the sustainability of grassroots-level NGOs; on the other hand, analysts have warned of the increasing trend of NGO dependency on the state at a time when private support to the sector is shrinking. Also, Magyar Nemzet raised concerns about serious conflicts of interest, revealing that the decision-making bodies of the recipient NGOs often overlap with their delegating members.

Though there is ample room for improvement, philanthropic behavior is gradually embedding in Hungarian society. According to a 2003 study of the Nonprofit Research Group Association on philanthropic attitudes of corporations, almost two thirds of entrepreneurs report some form of giving. Another 20 percent was considering future giving. Businesses are more likely to invest in institutions that address the causes of the socially disadvantaged, such as education, children, and the health sector. On the individual level, besides widespread volunteerism, the so-called 1 percent legislation, whereby individuals may donate 1 percent of annual income tax to a charity, continued to be the principal mechanism for personal contributions to civil society. But a few private foundations and awards were also set up by domestic businesspeople.

A number of advocacy campaigns were organized in 2004 by issue-based coalitions. Environmental activists conducted a large protest campaign in January against plans by the Ministry of Defense to install a radar facility in southern Hungary, a commitment the country made to NATO. Public support of environmentalists motivated the government to establish an independent expert body that reviewed the project. In April, women's groups celebrated the hard-fought draft on domestic violence, but it proved too early. Soon after, the Ministry of Justice requested to delay parliamentary debate, arguing that the bill required more work. If entered into force in 2005, the new legislation would sanction the restraining order as a new measure against spousal brutality.

Public attention to NGO initiatives throughout the year revealed diverging tendencies in assessing their advocacy potential. Observers of the third sector consistently emphasize that the ability of NGOs to influence public policy is still limited. But a court maintained that NGOs had the constitutional right to express views in the Parliament building, even in the form of interrupting floor debate. And in an interview in summer 2004, constitutional lawyer and media pundit Gyorgy Kollath asserted that investors should "pick up the glove dropped in front of them," referring to the recent wave of neighborhood initiatives and various civic protests with the potential to undermine future infrastructure projects. The mixed results and conflicting views on the advocacy potential of NGOs add to the opinion that Hungarian democracy is too immature to reconcile the principally representative nature of politics and direct citizen involvement in democratic practices.

Independent Media (Score: 2.50)

The media are considered to be generally free in Hungary, although controversies related to print media dominated the Hungarian media scene in 2004. Although the overall quality of journalism in Hungary is generally adequate, the lines between factual information, analysis, and commentary are often unclear. Libel continues to be a criminal offense, and the recent high number of libel suits raised widespread concern. In addition, the closing of an influential daily broadsheet spotlighted the financial vulnerability of print media. In Freedom House's annual Survey of Press Freedom, Hungary has been rated "Free" since 1998.

In 2004, an appeals court upheld a 10-month jail sentence (suspended for 2 years) for editor Andras Bencsik and upheld an 8-month suspended prison sentence against Laszlo Attila Bertok, a journalist from the right-wing weekly Demokrata. The latter case was brought by a member of Parliament (MP) after the weekly alleged that his testimony contributed to the death sentences of four individuals following the 1956 revolution. The Organization for Security and Cooperation in Europe (OSCE) representative on freedom of the media, Miklos Haraszti (a liberal Hungarian media politician elected to the post in 2004), raised concerns about journalists receiving prison sentences for libel and called on the minister of justice to prepare a legislative reform that would decriminalize libel and defamation. Meanwhile, many in the country agreed with Supreme Court president Zoltan Lomnici that compensation in favor of the plaintiffs in civil libel cases seemed somewhat low.

The OSCE's media representative and local media organizations also criticized Hungary for using secrecy laws to arbitrarily prosecute Rita Csik, a left-wing journalist at Nepszava, on a charge that could result in a prison sentence of up to five years. The journalist was charged with "deliberate breach of a state secret" after she wrote a story quoting a police memorandum that cited criminal evidence collected on an MP. The parliamentary commissioner for data protection and freedom of information stated that the document was unlawfully classified. The OSCE media representative called the indictment "a dangerous attack against one of the basic freedoms (and obligations) of the press, which is to report on all facts and documents of public importance."

In the run-up to the EU elections campaign, a journalist of Index.hu a Hungarian electronic news portal attended in disguise an MSzP meeting for party campaign managers. The journalist reported that party activists were called on to perform campaign infringements. Interestingly, MSzP officials never denied what was reported but only objected that the journalist had sneaked into a nonpublic party event. The Association of Hungarian Journalists (MUOSZ)'s ethics committee president divided the Hungarian media with his controversial statement, which argued that the journalist's behavior was not only unethical, but in breach of the party's personal rights a statement that basically violated the principles of free press.

The media landscape is dominated by market forces in Hungary. The German media company Axel Springer is active in the local newspaper market, owning 9 regional dailies out of a total of 25. In the various counties, local papers are particularly important and have managed to hold on to their monopolies; their total circulation exceeds 750,000 copies a day, which is about the same as that of the national daily papers put together.

In October, Ringier, the Swiss media giant, closed down one of the most respected daily broadsheets, Magyar Hirlap, on business grounds. The European Federation of Journalists sharply criticized this closure as evidence of how the concentration of media ownership threatens media pluralism. A few days after Ringier's decision, Magyar Hirlap's previous editorial staff launched the daily A Pont. A couple of weeks later, the editorial team and domestic companies bought the Magyar Hirlap trademark from Ringier and renamed the new paper with the old title. Although the closure and sale did not go smoothly, it showed that in fact there is a market for Magyar Hirlap and that pluralism wasn't weakened. Still, the process demonstrates the financial vulnerability of print media. That said, the Hungarian public appears to be much more concerned about the influence of the national political elite on the press and electronic media than the market effects resulting from a high degree of foreign ownership.

The 1996 Law on the Media introduced commercial broadcasting and broke up the monopoly of state-controlled public service channels. The law established the National Television and Radio Board (ORTT), a regulatory and supervisory body whose members are delegated by political parties. The ORTT monitors the activities and programs of public and commercial broadcasting stations and grants licenses and broadcasting frequencies. Half of the members of the boards of trustees of the public service broadcasters' presidium are appointed by governing political parties, the other half by the opposition, leaving too much room for political interference in public service broadcasting. Although all parties are aware of the need for reform, there's not enough political will to transform public service media into a modern, financially independent outlet free of political influence.

Since public television attracts only about 10 percent of viewers and has been on the edge of bankruptcy for years, the rationale for maintaining six state-sponsored stations is questionable. Hungarians receive information primarily from private TV channels, most of which are foreign owned. Besides the three state-supported channels, two commercial stations RTL Klub (affiliated with the Belgian-French RTL-UFA) and TV2 (owned by a Hungarian-American-Scandinavian consortium) also reach the entire population. There are also several commercial cable and satellite channels, such as the foreign-owned radio stations Slager and Danubius or the thematic television stations like Sport 1, Filmmuzeum, Spektrum, and Hir TV.

Hungary has over 200 local or regional public, commercial, nonprofit, and cable radio stations, most of which limit their programming to entertainment without significant original news content. The dominant national news agency is the state-owned Hungarian Telegraph Agency. Its monopoly is broken by a few small-scale, alternative Hungarian-language agencies such as the Roma Press Center, the only nonprofit news agency dedicated to covering Roma minority issues.

Television and radio broadcasting on the Internet have become increasingly popular, yet only 21 percent of the adult population reported using the Internet by 2004, reports the GfK Polling Institute. Though low, the figure indicates a significant 40 percent increase over the last year. The government's Sulinet Express program continues to narrow the digital divide between Hungary and other EU countries by reducing computer prices with tax breaks for households, contributing to an Internet-friendly environment.

Local Governance (Score: 2.25)

Local government reform was one of the first and most successful transition laws in Hungary, and the country has been a pioneer in modernizing the subnational government system in the region. Still, the system requires further reform to enable the subnational units to be financially viable and to procure and administer EU structural funds.

According to Article 42 of the Hungarian Constitution, "Local self-government is the independent and democratic management of local public affairs that affects the community of local citizens, the exercise of local authority in the interest of the local population." Every village, town, and county (and the capital) has the right to freely administer local affairs autonomously. As a result, the local government system is highly fragmented, with 3,158 municipal and 19 county local governments in a country with a population of less than 10 million. Municipalities provide various services in each settlement, while county self-governments provide public services with regional character. There are seven countrywide local government associations, as local authorities have the right to form representative organizations for the protection and promotion of their common interests.

The process for electing local self-governments every four years has generally been free and fair. Although it is difficult to recruit enough candidates in smaller villages, there is generally competition for local government mandates. Mayors and local representatives, as well as their partners and children, are required to declare their assets. The 2002 conflict of interest regulations for mayors and local representatives became a focus of attention in 2004. Budapest mayor Gabor Demszky had to give up his membership in the EP after the head of the Capital Public Administration Office (FKH) declared that holding the two positions simultaneously would be a conflict of interest. The same conclusion seemingly led to the dismissal of FKH's previous head, but ironically the decision has been upheld by the successor of the dismissed head of the FKH.

While the legal autonomy of local governments is well protected, their financial autonomy is highly limited, and they rely heavily on state subsidies. A frequent complaint from local governments is that while providing only a fragment of the necessary financial means, the Parliament continues to assign new duties to municipalities. Others say that the state's sole duty is to create opportunity for local revenues. Although municipal governments can raise income by levying local taxes and fees, only one third of their revenues comes from local taxes. County local governments have no right to levy taxes. Among municipal governments, 91 percent represent less than 5,000 people, while 54.3 percent have populations below 1,000. According to Glen Wright, an intergovernmental fiscal relations adviser for UN and World Bank projects, these local units generally cannot sustain the level of services mandated to them, as they usually are not economically viable with adequate local economic activity.

According to the Tocqueville Research Center, a nonpartisan Hungarian institute specializing in comparative political analysis at the subnational level, small local governments have a greater tendency toward elitist top-down governance and are less responsive to citizens' needs than larger local governments. Because local government finances are often opaque and unaccountable, the state has no trust in their capacity to handle money adequately and may silently begin the recentralization process. Social institutions that could make local leaders accountable are weak or do not exist in smaller municipalities. Only 23 percent of municipalities have media outlets independent from local government subsidies, and there are none in 58 percent of Hungarian municipalities. The National Development Office's Operative Program aims to fully implement the tools for e-administration on the local level.

Citizens are particularly active on the local level in Hungary through various NGOs and local initiatives, but their participation in public affairs through local governments is limited. Between local elections, citizen participation in the decision-making process is guaranteed at a minimum by one yearly public hearing set by the Law on Local Government. Out of the 22 local referendums held in 2004 almost half of them required by law because of territorial changes low voter turnout invalidated the results in 12 cases.

Pressured by the EU to approximate the subnational model of the EU financing system, Hungary is conducting further reforms and has identified two directions of modernization. With the creation of 168 "small region" units of administration (instead of the fragmented municipalities) and the establishment of 7 larger development or statistical regions for EU funds utilization, the reform also aims to increase public service quality. The legally defined 168 small regions are meant to have three important dominant functions: the performance of local governmental public services, state administration tasks where local knowledge and expertise are necessary, and the operation of regional development functions.

The 1993 Law on the Rights of National and Ethnic Minorities guarantees Hungary's 13 recognized minority groups the right to establish national and local minority self-governments. However, the law left their legal status unclear. The basic tasks of these minority governments are to organize the activities of minorities, respond to their needs, and help preserve their culture and ethnic identity. Minority self-governments are financed by the state budget, but there is no central coordination of allocations.

Besides the lack of financial autonomy, the system of minority self-governments faces other problems. Any registered voter in Hungary can vote in elections for local minority self-governments, regardless of their ethnic identity. As a result, some minority self-governments can be elected by those who do not in fact belong to the minority community. At the local level, 1,841 minority self-governments were elected in fall 2002. However, many of the elected representatives lacked true ties to the specific minority. The Parliament has been considering measures to combat "ethnobusiness" or the practice of nonminorities holding positions in minority self-governments to gain personal business advantages and benefits through the registration of minority voters.

Judicial Framework and Independence (Score: 1.75)

The Hungarian Constitution, Constitutional Court, Parliament-elected ombudsmen, and ordinary courts are effectively safeguarding fundamental rights and freedoms. The Roma, however, remain the most vulnerable stratum of society and suffer massive discrimination. Although it appears that affirmative action is consistently off the agenda, other means have increased in 2004 to address the still widespread but often latent discrimination against the approximately 600,000 Roma living in Hungary. To put an end to racial discrimination in the elementary education system, the Ministry of Education introduced a new policy entailing special subsidies to schools with a considerable number of Romany children. As a component of a 570 million forints (US$2.85 million) EU Phare program-sponsored project, the Ministry of Youth, Sport, and Equal Opportunities launched a month-long media campaign in November to raise public awareness about racial discrimination against the Roma.

Paradoxically, although the country has experienced the problem for many decades, there has been little sign of public policy based on systematically collected evidence until the last few years. In 2004, results of government-sponsored, in-depth studies were released that contradicted stereotypes entrenched in the society. For example, according to a Delphoi Consulting survey, the idea that Roma families raise many children is a myth, and their traditional, kinship-centered social networks are in fact fading away.

The media continue to play an important role in addressing the Roma problem as well. Published reports disclosed the circulation of an "ethics" textbook designed for children in the eighth and ninth grades that depicted the Roma as a social stratum with a higher probability of committing criminal acts. Less than 10 percent of the 80 publications analyzed attempted to explain the Roma problem in depth, generally focusing on Roma segregation in the labor market, and only one of these publications correlated negative stereotypes with the phenomenon.

Since 2001, the Ministry of Justice has run a network of advocates providing pro bono legal assistance to Romany clients who encounter ethnic discrimination. In criminal cases, public defenders are available to underprivileged suspects, who are often Roma. In July, the Hungarian Helsinki Committee signed an agreement with the Budapest police chief introducing a pilot project supported by the royal Dutch government and the EU to provide legal counsel and representation for the needy at trials. As of April 2004, government-sponsored public defenders recruited mainly from the advocate and law school community began providing free or government-credited legal counsel to the needy in civil proceedings. The legislation introduced a two-step approach, but alas, the next phase whereby the socially indigent will be entitled to public defenders during litigation will not commence until 2006.

Despite the gradual improvement since 2000 due to government efforts, discriminatory practices against the Roma continue to prevail deep inside the society, and there is a long way yet to go before the recent improvements start discernibly to eradicate intolerance. The June report of the European Commission Against Racism and Intolerance stated that "Hungarian authorities [should] maintain and strengthen their efforts to improve the situation of the Roma minority, particularly in combating discrimination against Roma in the fields of health care, housing, and employment."

In its 2004 report, Amnesty International, apart from acknowledging recent developments, warned of continued discrimination. Magyar Nemzet Online reported in February about an empirical study of the Hungarian Helsinki Committee. The study found that Roma were subject to a discriminatory routine of arrests and sentencing by Hungarian police and judges, respectively. In its comments submitted to the Council of Europe (COE) in September, the NGO warned also of the likelihood of abuses against Romany during police apprehension and discriminatory housing policies of local governments. The COE's Committee for the Prevention of Torture and Inhuman or Degrading Treatment or Punishment report released in June expressed its displeasure with the confinement conditions of pretrial detainees held in police remand prisons.

July 2004 brought an important shift in legal practice. For the first time in the country's history, a court ruled in favor of two Romany claimants against a company that turned down their job applications evidently because of their ethnicity. Later in the year, in the first plea that appeared in front of the Hungarian magistrates under the new Law on Equal Opportunity, adopted in 2003, the case ended with a similar first-instance judgment.

The Hungarian legal system ensures equality before the law. In all procedures, it guarantees the use of the mother tongue and public counsel. A significantly revised criminal procedure code came into effect in 2003. Since 1998, the National Council of Justice, composed of government representatives and members elected by judges, has the authority to appoint Supreme Court and other justices. The budget proposal necessary to govern the judiciary is developed independently by the council and submitted via the government to the legislature.

The Open Society Institute's EU Accession Monitoring Program noted in 2001 that deficiencies in enforcing judgments "can weaken political support for maintaining an independent judiciary." Given their excessive degree of constitutional independence, the Hungarian judiciary and separate Constitutional Court play an eminent role in the future practice of both civic and government actors. According to the 2004 Eubarometer survey conducted by the Hungarian Gallup Institute, the judiciary is among the most trusted institutions in the country and, on average, far better trusted than in other newly acceded states.

In 2004, the Supreme Court ruled in favor of free speech, annulling a 2003 law that was to introduce new measures against incitement. Public reaction against a group of followers of the Hungarian war criminal and leader of the Arrow-Cross Party, Istvan Szalasi, vehemently refuted such behavior. In another resolution in February, the Supreme Court maintained the substantial professional independence of the supreme procurator. In December, the Budapest Highest Appeal Court stated that a decision of the Karoli Gaspar University of the Hungarian Reformed Church to expel an openly gay student from its pastoral training department was not in breach of the Law on Equal Opportunity. The court maintained that religious autonomy renders the university's decision legal and that "neither the Constitution nor the laws may interfere in the autonomy of churches."

Thanks to continued public attention focused on the judicial branch and court behavior, there were signs of strengthening the constitutional position of the judiciary, but also of the continued need for judges to live up to their positions. The last two presidents of the Supreme Court, Pal Solt until 2002 and Zoltan Lomnici currently, have both been uncompromising defenders of the judiciary's integrity and are gradually earning a reputation for the judiciary equal to those of the other branches. In August 2004, Lomnici pushed the agenda toward recognizing the political rights of judges when the chairmen of three county magistrates paid a lobby visit to two high-ranking FIDESZ officials to discuss the courts' financial needs. In response to media criticism, Lomnici argued that the judges were exercising their constitutionally limited political rights and that such behavior is endorsed even by the European Charter on the Statute of Judges. At the same time, continuously trained judges still appear to be lacking clear guidance about political behavior or appearing in public. Late in the year, a judge was reprimanded for appearing onstage at a political rally.

Since 2003, Hungarian courts operate on four levels. There are magistrates on the local and county levels with jurisdiction over their districts. The highest appeal courts with larger regional jurisdiction are based in Budapest, Pecs, and Szeged, while the Supreme Court in Budapest is in charge of issuing abstract judgments and guidance safeguarding the coherent interpretation of legislative acts. The Supreme Court also serves as an extraordinary appeal forum for cases adjudicated at the highest appeal courts. The two additional highest appeal courts to start operating as of January 2005 in Debrecen and Gyor will not, however, end the judicial reform process lingering since 1993. While there is effectively a four-tier court structure, the legislation entirely removed from the 1998 criminal procedure reform bill those passages that stipulated a two-layer ordinary appeal system, which was the legal philosophy behind the four-tier court structure.

Court leaders throughout the year consistently applauded the 2003 establishment of the highest appeal courts. As a result, the overburdened Supreme Court was able to work off as much as 80 percent of its backlog of overdue suits. In May, Lomnici stated that there were extreme instances, but overall only approximately 2 percent of all cases were manifestly delayed and 86 percent of the newly logged pleas were adjudicated within one year. As chairman of the National Council of Justice, Lomnici reviewed current pending cases following a number of unfavorable 2004 adjudications at the European Court of Human Rights in Strasbourg pertaining to long trials. In early 2004, Laszlo Gatter, head of the Budapest Capital Court, reported in an interview that although 25 percent of all judges were employed in Budapest handling the same proportion of trial cases, the more than 50 percent of bankruptcy and commercial registration matters added to this workload laid an enormous challenge on judges to conduct all-encompassing reviews and at the same time conclude within a reasonable time.

Corruption (Score: 2.75)

Anticorruption legislation has been continuously improved in Hungary and meets international standards. However, the enforcement of these laws as well as asset disclosure regulations for public officials still require further commitment from official parties. On the one hand, 2004 was particularly successful in revealing cartels and fraud charges. Still, curbing corruption was not on the government's primary agenda.

The 2002 victory of the MSzP-SzDSz coalition was to a great extent a result of its anticorruption platform. In 2003, the Parliament unanimously adopted the "glass pocket" law, a new legal package designed to increase the transparency of public funds and to fight corruption through economic regulations. The law introduced the concept of public interest data and redefined the boundaries of business secrets. Despite various promising initiatives that the MSzP-SzDSz coalition introduced while in government, many anticorruption policies were discontinued in 2004.

The Ethic Council of the Republic, an anticorruption board, disbanded in 2004 after its president and other members left allegedly because of political pressure. The council was set up in 2003 by the prime minister to propose anticorruption laws and elaborate a code of conduct and norms for civil servants after three high-ranking officials from the Ministry of Education and the Office of the Prime Minister had to resign in 2002 for undisclosed, nontransparent practices. The State Secretariat of Public Finance, established in 2002 to monitor public procurement procedures and ensure transparency in the handling of public funds, was dismissed in the fall of 2004. The secretariat's primary role was to investigate alleged corruption charges associated with the previous Orban government. It was widely criticized for failing to intervene when current government politicians and institutions were accused of illegal or immoral activities.

Efforts in 2004 were effective in revealing questionable practices, such as fraud committed by public service employees and policemen. The Competition Authority revealed several cartels formed to mutually benefit from public procurement tenders. The Competition Authority fined an all-time high penalty to highway cartels in the amount of 7.43 billion forints (US$39 million), demonstrating its serious commitment to fighting the illegal use of public money.

Hungary has a reputation for being one of the least corrupt post-Communist countries. Still, "grand corruption"such as the overconsolidation of bankrupt enterprises while surpluses find their way to the ruling party for internal use has been a problem in Hungary, according to Transparency International. In Transparency International's 2004 Corruption Perceptions Index, the country maintains its score of 4.8 on a scale of 1 (most corrupt) to 10 (least corrupt). However, according to a study by the GfK Polling Institute, Hungarians give bribes to public service employees more frequently than the Central and Eastern European average. A number of doctors use state equipment for private profit. Within the health care sector, patients are often expected to pay gratitude money to public employees for provisions they are not entitled to. A January 2004 Internet campaign against such malpractices by obstetricians proved that the gratitude money issue highly annoys the public and provides ground for an ongoing discourse. That said, corruption appears to be more endemic to political parties and public decision makers.

A series of controversies involving deputy parliamentary Speaker Ferenc Wekler and Budapest mayor Gabor Demszky drew attention in 2004. In addition to using the mayoral luxury car and chauffeur while on vacation abroad, Demszky seemed to the public to be a politician accumulating advantages for his own well-being. Eventually, Demszky had to give up his EP membership because of conflicts between that role and his mayoral position. Around the same time, the media caught Wekler receiving a US$1.4 million state subsidy to support his vineyard and reported his lobbying efforts to reclassify the vineyard into a more valuable wine region. Under pressure both by the opposition and his own party, he resigned from his deputy Speaker post.

Although no independent body deals solely with corruption investigations, a number of state institutions are empowered to fight corruption. The main investigative law enforcement body is the police, while high-level corruption (involving MPs, ministers, and heads of public departments) and organized crime cases fall under the jurisdiction of the Central Investigation Department of the Office of the Prosecutor. Additional institutions with enforcement authority, such as customs and tax agencies, also have separate units to combat corruption. However, cooperation among these institutions is not yet sufficient. The State Audit Bureau of Hungary exercises ultimate financial control over all public and EU funds and is a completely independent agency reporting to the Parliament. The "glass pocket" law empowered the bureau to trace the path of public funds even through private business files and expands the circle of individuals required to declare their personal assets.

Although the commission of the EU considered the Hungarian Parliament's proposed amendment incompatible with EU law, the Parliament adopted the modifications to the Law on Public Procurement in the fall. The new bill allows local governments and other state authorities to forgo open tenders in cases where they contract state-owned companies. President Madl returned the bill to the Parliament for reconsideration in 2005.

Lobbying and corruption are not clearly separate notions in the eyes of the public, and the long-planned Law on Lobbying has still not materialized. MPs are neither banned from engaging in business activities nor restrained from assuming positions at state-owned companies before or after their mandate. The EU found insufficiencies in internal financial control systems in the public sector and was also concerned about the lack of independence and an adequate administrative framework in state institutions.

There is a high risk of corruption in political party financing. According to both the Open Society Institute and the Group of States Against Corruption, of which Hungary is a member, there is significant evidence of illegal party funding and corruption in Hungary. The operations and activities of party-based businesses lack transparency and adequate control, and there are no effective sanctions or enforcement mechanisms in place to counter illicit bookkeeping in party financing. The State Audit Bureau has recommended that the government modify the Law on Parties in order to eliminate the discrepancy over reporting systems between the Law on Accounting and the Law on Parties. The audit bureau has also raised concerns about democratic institutions being most vulnerable to hidden party financing, which weakens the accountability of institutions and public trust in the overall democratic process.

Author

Viktoria Villanyi is a program and finance officer and Roland Kovats is the deputy director of the Freedom House Europe office in Budapest.