Nations in Transit - Hungary (2004)

Capital: Budapest
Population: 10,100,000
Status: Free
PPP: $4,830
Private Sector as % of GNI: na
Life Expectancy: 72
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
Electoral Process	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
Independent Media	1.50	1.50	2.00	2.25	2.25	2.25	2.25
Governance	1.75	1.75	2.50	3.00	3.00	2.50	2.50
Constitutional, Legislative, and Judicial Framework	1.75	1.75	1.75	2.00	2.00	1.75	1.75
Corruption	N/A	N/A	2.50	3.00	3.00	2.75	2.75
Democracy Rating	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Executive Summary

The last 14 years of Hungarian history witnessed one of the most successful democratic transitions in the Central and Eastern European region. Early in its transition, the country aspired to formally join the Euro-Atlantic community and has worked diligently toward that goal ever since. Hungary was invited to NATO in 1999 and has been approved to join the European Union (EU) in 2004. To meet the institutional requirements of NATO and EU membership, the country has established a sound framework for a functioning parliamentary democracy and rule of law, and for guaranteeing political rights and civil liberties, as well as private property rights, both in principle and in practice. Most of Hungary's state-owned assets were privatized by the late 1990s, establishing a capitalist market economy. The grand role of the state has not been fully reduced, however, and in many segments of society the state remains the primary provider of public goods. Improvements are necessary in such areas as combating corruption, ensuring the independence of public service media, and safeguarding the rights of minorities. To boost important policy reforms, it will be necessary to reduce the high levels of partisanship that currently impede many areas of public life.

In a spring 2003 referendum, Hungarians affirmed their aspiration for EU membership, choosing the continuation of a historical journey that was interrupted by 40 years of dictatorship. To comply with membership requirements, changes in Hungarian legislation have concentrated on constitutional amendments and bills adapting the EU's acquis communautaire. Although there are still concerns about corruption among public officials and decision makers, the new "glass pocket" anticorruption measures, introduced in 2003, demonstrate that the government is committed to fighting bribery and favoritism and increasing the transparency of public procurement processes. The excessive spending of past governments and the global recession in 2003 contributed to the budget deficit and speculative attacks against the Hungarian currency, resulting in some economic deterioration. Despite these hardships, the country soundly and optimistically looks forward to full EU membership in 2004.

Electoral Process. Since the introduction of systemic changes more than a decade ago, the Hungarian electoral system has served well to facilitate the free and fair succession of power among political parties of the Left and the Right. By only a narrow margin, the 2002 parliamentary election created a coalition of the Hungarian Socialist Party (social democrats) and the Alliance of Free Democrats (liberals) that permitted Prime Minister Peter Medgyessy to lead the formation of a new government. Consolidation efforts of the political party system continued in 2003. With no substantial outcome to date, both left- and right-wing parties aim to strengthen constituencies and boost party membership. Despite low voter turnout, the April 2003 referendum on EU membership was overwhelmingly in favor of accession. Minorities are still underrepresented in the Parliament, and mandates held by nonminorities in some minority self-governments are a source of concern and political debate. Hungary's rating for electoral process remains unchanged at 1.25.

Civil Society. A diverse and vibrant nongovernmental organization (NGO) sector contributes to Hungary's political stability. The political leadership aims to maintain a constructive dialogue with the sector. Leaving some questions open about NGO autonomy and dependency, the social-liberal government proposed in 2003 to establish a small fund with NGOs to respond to the sector's volatile financial sustainability. The four Hungarian parliamentary parties adopted a law to establish party think tanks similar in nature to German political foundations. Presumably this move aimed to help crystallize political thought, but the bill lacked transparency and prevented nonparliamentary parties from receiving additional state resources allocated for this purpose. Also, state-funded think tanks could prove redundant within the NGO sector, where transition has been successful so far. Hungary's rating for civil society remains 1.25.

Independent Media. The Hungarian media conform to international standards, and the large number of outlets precludes any control over the freedom of press and information. However, the media – particularly the press – reflect Hungary's polarized political climate. The 1996 Law on Radio and Television Services is a lingering dilemma that, instead of depoliticizing broadcast media oversight, institutionalizes the influence of politics, making them vulnerable to interference in both financial and content matters Concentrated foreign media ownership, financial restraints on print media, and the lack of journalist job security challenge the development of quality journalism. In the competition for readers, tabloids prove to be the winner. Although Internet usage is quickly spreading across the country, more growth is needed to solidify the trend. The country's rating for independent media stays at 2.25, as no significant changes occurred during the year.

Governance. The Hungarian governmental system is reasonably stable, thanks largely to the provision allowing for a vote of no confidence against the prime minister. Although the government is not free of political turbulence, Hungary's commitment to developing a Euro-Atlantic partnership stayed the course in 2003. Constitutional amendments now allow the country to react more fully and rapidly to Euro-Atlantic obligations, while two authoritative Constitutional Court rulings on parliamentary conduct will help consolidate the Parliament's monitoring role over central government. Hungary's more than 3,000 local self-governments enjoy significant autonomy. Regrettably, events at the subnational level in 2003 – namely, the lack of party consensus on the reform of self-government and the voiding of a local by-election – indicated the absence of true political dialogue. At both central and local levels, the highly qualified Hungarian public sector requires better protection from the interference of party politics. The governance rating for Hungary remains unchanged at 2.50.

Constitutional, Legislative, and Judicial Framework. Human rights and basic freedoms are thoroughly guaranteed and protected by Hungary's constitutional and legal framework, but events in 2003 highlighted the need for their further consolidation. Balancing the rights of individuals to engage in peaceful assembly and freedom of expression on the one hand, and hate speech and incitement to violence on the other, required additional and thorough consideration by the judicial system. Verdicts by the judicial branch and the Constitutional Court provided ample instruction and leadership on the issue. Statements by the president of the Supreme Court triggered a much-needed discourse concerning the boundaries between an independent and interdependent judiciary. Hungary's rating for constitutional, legislative, and judicial framework remains unchanged at 1.75.

Corruption. Since 2001, various local anticorruption institutions and international conventions have aimed to put an end to nontransparent practices in Hungary. The country's institutional framework for fighting and preventing corruption has been strengthened, and a comprehensive anticorruption strategy was begun under the previous Fidesz-led government. The current cabinet's "glass pocket" anticorruption measures have yet to yield clear results. In 2003, Hungary experienced its largest banking and money-laundering scandal, which involved the embezzlement of public funds. This and other events during the year contributed to the public's perception of widespread corruption in the country. The country's rating for corruption is unchanged at 2.75.

Outlook for 2004. The most significant event of 2004 will undoubtedly be Hungary's formal accession to the EU. The economy will be challenged to overcome the instability experienced in 2003, while the nation's institutional framework will be tested in the new international environment. In promulgating a formal stance on hate speech, the government will rely upon the Constitutional Court to play a central role. Hopefully, the political rift in Hungary will be overcome as it looks ahead to approving key legislation, such as reforms that restructure the system of local administration. Importantly, the rigorous EU acquis and continued public scrutiny should boost anticorruption efforts and improve the status of the Roma minority in Hungarian society.

Electoral Process (Score: 1.25)

The electoral law has not been altered significantly since its passage in 1989. Representatives to the 386-seat unicameral Orszaggyules (Parliament) are elected for a four-year term by popular vote under a mixed electoral system; 176 members are elected in single-seat constituencies, 152 from regional party lists by proportional representation, and 58 from national party lists.

A second round of voting is required only in single-seat constituencies where none of the candidates win an absolute majority in the first round. Membership in political parties is low – only about 1 percent of the population. It is relatively easy to form a party in Hungary, yet out of the more than 200 political parties registered in the last decade, approximately half ceased to exist within one or two years or have been transformed into civic associations.

The most recent national legislative elections were held on April 7 and 21,2002, and drew unprecedented voter turnouts of 70.5 percent in the first round and 73.5 percent in the second. Only four parties cleared the 5 percent threshold for representation in the Parliament, the least number to do so in post-Communist Hungary. The elections resulted in a center-left coalition government headed by the post-Communist Hungarian Socialist Party (MSzP) with 178 seats and the liberal Alliance of Free Democrats (SzDSz) as a junior partner with 20 seats. The conservative Fidesz-Hungarian Civic Party (Fidesz-MPP) received 164 seats, while its former coalition partner, the Christian-Democratic Hungarian Democratic Forum (MDF), gained 24 seats. For the first time since 1990, no independent candidate was elected to the Parliament.

The narrowly divided 2002 elections stimulated a heated political and public discourse. The center Left questioned the center Right's commitment to democracy, while the center Right employed populist rhetoric and claimed that the Left worked against the interests of all Hungarians, including those living abroad. After the victory of the MSzP-SzDSz coalition, Fidesz, with its newly formed Citizen's Circles – an organizational network aligning disillusioned right-wing voters – challenged the election results with a mass nationwide protest. The political polarization between the Left and the Right only deepened after the elections, further penetrating most areas of public life.

While in office, former prime minister Viktor Orban had attempted to unite opposition parties and associations under a single catchall party. As part of the process of transforming into a people's party, Fidesz-MPP changed its name to Fidesz-Hungarian Civic Union (Fidesz-HCU) at its congress in May 2003. However, the mission of Fidesz-HCU to unite all right-wing parties under its umbrella has not yet been achieved and prospects for its success are waning, primarily because of MDF resistance to developing closer ties with Fidesz-HCU. Additionally, the poorly coordinated Hungarian Justice and Life Party (MIEP) has lost many of its supporters to the newly emerging right-wing Movement for a Better Hungary (Jobbik), originally a civil society organization that gained a controversial reputation for its resistance campaign in the 2002 postelection agitation.

In 2003, the left-wing MSzP attempted to alter its public perception through a change of name, logo, and headquarters; in this way, Prime Minister Medgyessy hoped the party would be able to shake off its post-Communist label and redefine itself as a social democratic party synonymous with national peace and consensus. Unfortunately, the hoped-for transformation failed to materialize.

The Hungarian president has limited and mostly ceremonial powers. Under the Constitution, the president is elected by a two-thirds majority of the Parliament for a maximum of two five-year terms. Since June 2000, Ferenc Madl has served as the second president of post-Communist Hungary; he will complete his term in 2005. An internationally renowned conservative law professor, President Madl has remained popular since taking office.

Minorities and women are still underrepresented at the national level. Out of the 386 seats in the Parliament, 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 as a result of preceding commitments and agreements between the two largest parliamentary parties in Hungary and its largest minority group. Despite these efforts, the Parliament has yet to achieve real representation for Roma and other minorities in Hungary as required by the Constitution. However, the Rights of National and Ethnic Minorities Act of 1993 guarantees the 13 minority groups living in Hungary the right to establish national and local minority self-governments. The basic tasks of these minority governments are to organize the activities of minorities, respond to their needs, and help to preserve their culture and ethnic identity.

In 2003, there were problems associated with the elections to the National Gypsy Self-Government. Because of irregularities resulting from the country's questionable and highly criticized minority election system, the Supreme Court ruled that the elections were to be repeated. During the second election, candidates of the MSzP-leaning Democratic Roma Coalition won an overwhelming 52 out of 53 seats. This result marked the end of the eight-year domination of the other major Roma political bloc, the Fidesz-leaning Lungo Drom.

At the local level the figures are somewhat better, with 3,158 minority self-governments elected in fall 2002. However, many of the elected representatives lacked any true ties with the specific minority. According to the latest Hungarian Telegraph Agency census data, no minorities could actually be found in approximately 50 settlements where minority self-governments were elected. 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.

In spring 2003, Hungary held a historic referendum to decide whether or not to proceed with European Union (EU) accession. Among the 10 candidate countries, Hungary is considered to have the highest rate of popular support for accession. Prior opinion polls confirmed this, forecasting a 60-70 percent turnout on referendum day. According to the National Elections Office, 83.76 percent of the votes cast were in favor of EU accession, but in contrast with expectations, only 38.22 percent of all eligible voters turned out for the referendum. Nevertheless, because the required minimum turnout was only 25 percent, the referendum result was binding and enabled Prime Minister Medgyessy to sign the EU Accession Treaty at a summit in Athens. With European Parliament elections scheduled for 2004, full EU membership marks the completion of Hungary's reintegration into Europe.

According to a joint study by TARKI and Szazadveg, two Hungarian independent think tanks, the low referendum turnout resulted from "inadequate campaign communication" as well as the perception among the electorate that EU membership was a fait accompli. The government's costly (about US$13.5 million) "Yes" promotional campaign left no room for counterarguments and was targeted specifically to wholehearted supporters instead of all potential voters; thus, citizens could not sufficiently ascertain the advantages and disadvantages of EU membership from the campaign materials. Moreover, the opposition did not seem committed to EU membership, and their eventual stand for "Yes" was neither loud nor timely enough to influence voters. The deep ideological divide between the Right and the Left convinced many voters that the referendum was in effect a demonstration for or against the current government.

Civil Society (Score: 1.25)

Hungary's vibrant civil society is a major contributor to the country's democratic stability. Official data of the Central Statistical Office indicate an ever strengthening Hungarian nongovernmental organization (NGO) community. The sector grew from 15,954 registered NGOs in 1990 to four times that number by the end of 2003 – and the trend escalated dramatically between January 1 and September 30,2003, when more than 1,000 registered and operating nonprofit institutions were added. Experts, however, estimate that as much as 20 percent of registered NGOs are not truly an active part of civil society – some groups are dormant, while others are established by businesses to exploit tax exemptions. Nonetheless, the importance of the massive proliferation of NGOs should not be underestimated.

The country's solid legal framework governing NGOs aids their establishment and operation. The Law on Associations, adopted in 1989 along with earlier constitutional reforms, provides reasonably easy requirements for forming associations, and registration can be denied in only a few cases. However, because of their financial characteristics, foundations are subject to more regulation. In addition, since volunteerism is currently not recognized by the Hungarian legal system, it is essentially considered illegal work. In 2003, NGOs – led by the Hungarian Volunteer Center – continued to advocate for legal recognition of volunteer work.

In 1997, the Parliament passed a law that allows NGOs with public benefit status – a category similar to the U.S. 501(c)3 – to receive tax relief. In the same year, taxpayers were permitted to earmark 1 percent of their personal income tax liability for NGOs. While corporate philanthropy is still a rare phenomenon, Hungarian taxpayers increasingly are taking advantage of the 1 percent allowance: the value of such donations reportedly doubled from US$13.5 million in 1999 to US$27.3 million in 2003. From the standpoint of NGO tax relief, this amount (which represents no more than 1 percent of total annual revenues) is not significant; however, the law is facilitating an increase in philanthropy among Hungarian citizens.

In 2003, the current government adopted a far-reaching strategy dedicated to meeting the financial needs of NGOs. For quite a while, observers have warned that the financial vulnerability of NGOs and political interference by the Hungarian government will weaken the civil sector. Although the sector as a whole sustains overall vitality, the 2002 U.S. Agency for International Development's Sustainability Index indicated negative trends over the past five years, especially in terms of NGO financial viability and advocacy.

The Medgyessy government attempted to respond to these deficiencies by proposing a national body to serve as both a redistribution and official advocacy mechanism between NGOs and government. NGOs protested loudly, insisting that such a body would diminish their autonomy in matters of advocacy. Thus, the advocacy component was cut from the government's proposal and lawmakers focused solely on NGO financial viability. After an intensive, year-long public debate, the Parliament unanimously adopted the Law on the National Civic Basic Program in June 2003.

The resulting National Civic Fund (NCF) is an innovative funding instrument that may also prove to be a Pandora's box. On the one hand, the NCF will help small NGOs meet basic institutional needs. On the other hand, critics note that the NCF concept involves a complicated electoral process and raises theoretical concerns about relations between NGOs and the state.

The 17-member National Civic Council will provide general oversight of fund resources and set the basic eligibility criteria and priorities. The operative arms of the fund responsible for announcing requests for proposals and grant awards are designated as "colleges." These will comprise NGO, parliamentary, and ministerial delegates, the majority from NGOs. A formula for "civic nomination" was crafted to ensure fair representation of NGOs by both geographic and professional divisions in the colleges of the fund. All nominees proposed in this manner would participate in national and regional electoral colleges and vote to delegate NGO representatives to the council and the colleges. The fact that elections were delayed until 2004 reveals that this complicated electoral system is problematic. Further, the law is noticeably brief on provisions for conflicts of interest and the participation of partisan NGOs.

In addition, the amount of NCF funding does not represent an extremely high increase in revenues for the entire sector. The new law stipulates that the state will match the total donations with at least the same amount collected via the 1 percent tax deduction mechanism. That estimate for 2004 is approximately US$27 million. Considering the small fraction these 1 percent revenues represent and the fact that funding to NGOs from various state resources was already as high as US$145 million in 2001, the new NCF contributions will likely be modest. Furthermore, the NCF's explicit alliance between state and nonstate actors in Hungary validates Central European University law professor Andras Sajo's observation of a "constitutionalized dependency" on the state in all spheres of private and community life.

Given the important issue at stake, it is surprising that little political debate has taken place concerning the establishment of party foundations. Before the summer 2003 recess, parliamentary parties adopted a law to establish public policy institutes for party caucuses. The four-party motion was quickly expedited toward passage, with no time given to a discussion of the pros and cons of this German-style institution.

One rationale for this bill was a belief that it would help "whiten" gray-zone campaign financing caused by current rules that set rigid limits on state resources. The fact that the law refers only to those parties currently occupying seats in the Parliament raises questions about such good-faith measures. Supporters of the idea contend that because the Hungarian party system badly needs a strong foothold in society, the measures would help to educate citizens about political ideas as well as provide legal channels for additional funding to the parties.

It is true that public attitude toward party politics is generally negative, but creating party foundations to reverse this trend is a source of concern for three main reasons. First, the new party-affiliate players could further support the conviction that NGOs are tainted by party politics. Second, in the current antiparty climate, NGOs might strongly resist the idea of making party think tanks automatic beneficiaries of comparatively generous state resources (up to US$4.5 million per year). Finally, up to now Hungarian think tanks have developed organically. Most economic institutes have chosen a for-profit structure and have staked out impressive advocacy positions in the economic discourse. In this battlefield of ideas, nongovernmental political think tanks balance their economic counterparts and effectively crystallize various contemporary strains of economic and political thought. Therefore, the introduction of party think tanks might prove a double-edge sword, with unintended negative consequences.

The process of creating and joining unions is free of governmental intrusion, though membership figures have been decreasing since the early 1990s. From 4 million members in 1990, the total current membership of the six largest national trade union confederations is some 600,000, according to the weekly economic magazine Heti Vilag Gazdasag (World Economic Weekly.) Unions take an active part in discussions with representatives of the government and the business community at the tripartite National Interest Reconciliation Council. Yet in deciding upon substantial reforms, the government keeps unions at a distance.

Without prior consultation with the unions, the government commenced a policy of public sector layoffs and an across-the-board cut in state spending in September 2003. Also in the fall, the MSzP-SzDSz government received harsh criticism from unions and the opposition for the so-called hospital bill, a health care liberalization program. Conversely, the government coalition feared that by obstructing this privatization bill, the unions and the opposition aimed to halt its entire reform agenda. Toward the end of the year, the unions received media criticism for their weak bargaining efforts in 2004 budget talks.

Independent Media (Score: 2.25)

The large number and variety of media outlets in Hungary prevent any single interest from dominating information or public opinion. In Freedom House's annual Survey of Press Freedom, Hungary has been rated "Free" since 1998. State television and radio, however, are still not fully free of political influence and have been a battlefield for political interest groups since the collapse of Communism.

The 1996 Law on the Media introduced commercial broadcasting into the market and broke up the monopoly of the 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. The law has been severely criticized, however, for leaving too much room for political interference in public service broadcasting.

At the crux of ongoing political and professional debate are the boards of trustees of the public service broadcasters MTV, Hungarian Radio, and Duna TV. Half of the members of the board's presidium are appointed by governing political parties, the other half by the opposition. After the 1998 elections, various conflicts over the proper distribution of seats among opposition party delegates left only government appointees sitting on the presidium. In 2003, the situation improved somewhat but was still far from ideal. The two opposition parties could not agree on the distribution of seats: MDF with its 24 mandates in the Parliament requested half of the opposition seats on the presidium. Fidesz-HCU, with 164 parliamentarians, considered that number unfair and abstained from voting. This allowed the MDF to delegate all opposition members. According to the Eotvos Karoly Institute, a think tank led by the former data protection ombudsman, the current situation is not an actual violation of the Law on the Media but disrespects the principles of political fairness and the law's intention to make sure each party caucus delegates presidium members.

In addition to the presidium, NGO representatives sit on the board of trustees, whose selection of members in 2003 was also an occasion for controversy. One-third of the 262 organizations that applied were disqualified from the lottery to select 21 delegates for MTV and Hungarian Radio and 23 delegates for Duna TV. Some of these organizations, which had supplied board members in the past, sympathized with the current opposition. Their exclusion, therefore, was believed to be the result of political interference. Others noted that qualification was restricted to those organizations that met all requirements of the law, such as being a professional organization with a nationwide network.

Since public TV 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. The Constitutional Court ruled that the state media shall be independent both in operation and finances, yet these networks (including three nationwide radio stations) continued to be disproportionately dependent on state resources in 2003. Although all parties are aware of the need for change, so far only a few modifications necessary for EU harmonization have been passed. An entirely new Law on the Media is scheduled for adoption in 2004, but it remains to be seen whether it will transform public service media into a modern, financially independent outlet free of political influence.

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. New to the Hungarian market, Hir TV broadcasts only news, commentaries, and reports. Financed by Hungarian entrepreneurs, the channel aims to provide a broader spectrum of opinion in the media (including more conservative views). The launch of Hir TV has been a promising development in Hungarian media because it demonstrates that market-based news sources are viable, thus challenging arguments that state intervention in the media is required to create balance (for instance, Mr. Orban's proposal in 2002 to have two state media channels, one for the Left and one for the Right).

There are also several commercial cable and satellite channels, such as the foreign-owned radio stations Slager and Danubius. There are over 200 local or regional public, commercial, nonprofit, and cable radio stations, most limiting their programming to entertainment without significant original news content. The dominant national news agency is the state-owned Hungarian Telegraph Agency (MTI). 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.

Foreign media companies are also very active in the local newspaper market, and only a small portion of daily papers are locally owned. The German media companies WAZ and Axel Springer have 13 regional dailies out of a total of 25 in Hungary. In the counties, local papers are particularly important; their total circulation exceeds 800,000 copies a day, which is twice that of the national daily papers. Among the four national daily political papers, Nepszabadsag is the most popular, with a daily circulation of 215,000, followed by Magyar Nemzet (100,000), Magyar Hirlap (50,000), and Nepszava (37,000).

Magyar Nemzet sympathizes with Fidesz-HCU, while the other three papers are closer to the MSzP-SzDSz coalition. Over the past few years, the circulation of national daily political papers has been declining. Though relatively new to the market, tabloids have competed successfully for readers' attention. Blikk and Metro, for example, have increased their circulation to over 300,000 each. Two financial and one sports daily can also be found in the market. Besides tabloids, hobby and women's magazines dominate the magazine arena. There are English-language weeklies, including the Budapest Business Journal, the Budapest Sun, and the recently introduced Budapest Times, as well as weeklies in German and Italian.

Because ownership across media sectors is limited by the Law on the Media, the German Bertelsmann Group, which owns 49 percent of RTL Klub, had to sell its Nepszabadsag shares. By 2003, Ringier, the Swiss media giant, accumulated 49 percent of the national daily paper market with the quality dailies Nepszabadsag and Magyar Hirlap, the tabloid Blikk, and the sports daily Nemzeti Sport. Ringier added 17.7 percent to its already 49.9 percent share in Nepszabadsag. This move raised concerns about the concentration of foreign media ownership and was vetoed by the Economic Competition Authority.

Foreign investment and the high concentration of foreign media ownership in Central and Eastern Europe are usually perceived by some politicians and media organizations as a problem. The European Federation of Journalists (EFJ) also expressed concern about the pervasive presence of European media groups in the region and about "the gap between practices in the country of origin ... and those in media operations in CEE countries." By contrast, the Hungarian public appears to be much more concerned about the influence of national political elites on press and electronic media than the market effects resulting from a high degree of foreign ownership.

Among Hungary's most important journalist associations are the National Association of Journalists and the Community of Hungarian Journalists. A number of other organizations exist for specialized groups such as publishers and broadcasters. Though the quality of journalism in Hungary is generally adequate, much of the media is challenged by unprofessional reporting. In 2003, there were two major instances concerning journalist credibility. First, 168 Ora, a political weekly, presented a press conference with French president Jacques Chirac as if it were an exclusive interview.

Second, in fall 2003, a few days after the death of Ede Teller, a forged letter ascribed to this Hungarian-born Nobel Prize winner appeared in Nepszabadsag containing stark criticisms of the Fidesz-led opposition. Additionally, several suits were successfully brought against Magyar Nemzet. In other instances of unethical reporting, some journalists on both the Left and the Right tended to publish fabricated accusations and rumor as fact, which undermines professional journalistic standards and credibility. In support of Hungarian journalists, the 2003 report of the EFJ criticizes poor working conditions such as lack of job security, inadequate social protections, and tax issues.

Television and radio broadcasting on the Internet have become increasingly popular, yet only 18 percent of the adult population reported using the Internet by the end of 2003, reports MTI. Though low, the figure indicates a dramatic 20 percent increase over six months. The high cost of Internet access (particularly local toll charges) and the falloff in numbers of computers purchased have kept Internet usage from rising. To remedy the problem, however, the government launched a series of projects to further expand the information technology sector. Following negotiations between the government and private phone and Internet service providers, subscription fees have been reduced by 25 percent. Also, the government's Sulinet Express program aims to narrow the digital divide between Hungary and other EU countries by reducing computer prices with tax breaks for households with students and teachers. These steps are gradually creating an Internet-friendly environment.

Governance (Score: 2.50)

Hungary's constitutional framework and inherent checks and balances effectively prevent any branch of government or single political coalition from gaining exclusive power. Yet since the first freely elected Parliament was inaugurated, such temptation continues to be high for all political parties that form majority caucuses in the Parliament and hence dominate the executive branch. Although the current Constitution still bears the stamp of the former 1949 Soviet-era document, the direct outcome of the 1989 roundtable discussions and the political compromise made in 1990 between the MDF and SzDSz parliamentary parties allowed for significant reform of the basic law. This resulted in a modern European constitution reflecting the country's liberal democratic goals.

In principle and practice, the nucleus of lawmaking and representation in Hungary is the 386-member Parliament. In 2003, it adopted 135 laws, half of which represent entirely new legislation. In spite of this, the desire to comply with EU and NATO membership requirements prompted the approval in 2003 of additional constitutional amendments that reduced some of the Parliament's power. In July, the Medgyessy government introduced a far-reaching package of constitutional reforms. Significantly, the changes empower the government to authorize troops on foreign peacekeeping and humanitarian missions, thus addressing NATO's repeated concern that Hungary should meet the obligations stemming from NATO's collective defense clause.

Though the authorization of military operations abroad is the sole right of the Parliament, reaching consensus between the two main political blocks to ensure a qualified majority has always been a protracted process. There is general unanimity among politicians across the political spectrum about the country's Euro-Atlantic orientation, yet in the polarized political climate of recent years, the opposition parties have been inclined to obstruct military authorization. In 1999, MSzP was hesitant to support involvement in NATO's mission in Yugoslavia. Fidesz demonstrated similar reluctance in 2003 at the height of the crisis in Iraq.

The Parliament exercises ultimate control over the government through a constructive vote of no confidence against the prime minister. This system, adapted from the German legislative model, leaves individual ministers essentially unaccountable to the legislative branch. The prime minister has exclusive power to restructure the cabinet. Prime Minister Medgyessy did so in 2003 and introduced among the new members a highly regarded proponent of the NGO sector as minister without portfolio for equal opportunities. The Parliament's primary vehicles for holding the executive branch accountable are questions, interpellations, and the work of various parliamentary committees. In 2003, interpellations were organized at weekly parliamentary meetings. On the one hand, this was an improvement over the Fidesz-era practice, which was to hold parliamentary meetings only every third week. On the other hand, the fact that such limitations continue to appeal to all political forces is a warning sign of degrading parliamentary prominence. With the coming demands of participation in the European Parliament, it was proposed in fall 2003 to hold meetings every two weeks.

In practice, however, the effectiveness of interpellations as a parliamentary check on the executive branch is unclear. Even if the Parliament rejects the answer, this rejection amounts to little more than a political grandstand in the absence of a compelling consequence. For example, the Constitutional Court overturned the "hospital bill" in 2003 because the Parliament readopted it in a late night session on the very day the president returned it for reconsideration. This lack of sincere political dialogue was acknowledged in a 2003 survey by the Institute for Political Sciences of the Hungarian Academy of Science. The study found that among parliamentary parties, the opinions of journalists were deemed the least relevant, with the views of other parties ranking only slightly better. In addition to standing committees, the Parliament is authorized to establish investigative or ad hoc committees. In 2003, however, the Constitutional Court annulled the provisions of the standing orders regulating investigative work of committees, finding that the current provisions were discriminatory and inhibited individuals' rights to legal defense and redress. This Court judgment, made while generalizing findings from a case concerning an investigative committee set up in 2002, is significant because the process included the inspection of all government members since 1990, exposing to public scrutiny their past involvement in Communist-era secret services.

The Hungarian governmental system includes 3,158 local and 19 county-level self-governments. New municipalities can be formed by local referendums. The 1990 legislation on local self-governments inspired a wave of new municipalities. Despite the unfavorable economic prospects for operating municipal councils, approximately 90 new entities had emerged by fall 2002. Pressured by the EU to approximate the subnational model of the EU financing system, Hungary has planned deep reforms, including the creation of smaller layers of local government and larger regional units. Completing these reforms will require political consent from the Right and the Left, which means that in the short term, a successful outcome is unlikely.

The process for electing local self-governments has generally been free and fair. However, in 2003 a county court rendered a local mayoral election void, citing confusing campaign materials from the MSzP-SzDSz candidate, unlawful campaigning in schools, and the organized transport of voters by the candidate's supporter. In the run-up to the repeat elections, the opposition Fidesz-HCU contender withdrew her candidacy as a result of threatening telephone calls. This left the race without a challenger; thus the MSzP-SzDSz candidate became mayor.

Hungarian civil servants – some 800,000 – need better protection from the political shifts that occur every four years. That is, the careers of professional civil service members are often jeopardized during changes of government. The dismissal of the Central Statistical Officehead in November 2003 is a case in point, underscoring the regularity with which political allies are rewarded with posts in public office. The previous Orban government crafted a law in 2001 intended to create a group of senior civil servants judged best qualified in the workforce; instead, Fidesz-HCU used it as a means of political remuneration. As one of its first acts in office, the MSzP-SzDSz coalition modified this legislation. The amendments sharpened the provisions to ensure the politically unbiased selection of this core officers group, especially by demanding a minimum of five years' prior service and foreign language skills. That said, in 2003 Hungary was again criticized by the EU for not complying with the principle of merit-based competition.

Constitutional, Legislative, and Judicial Framework (Score: 1.75)

In 2003, there was an unanticipated increase in public discourse over political rights and fundamental freedoms. In the first half of the year, controversial demonstrations and poor response by police focused attention on the constitutional right to peaceful assembly. In fall 2003, the limits of free expression met with further public scrutiny during the modification of instigation clauses of the criminal code and a resulting courtdecision. The reaction by the political elite highlighted an important development in Hungarian democracy – namely, emphasis on the role of the judiciary in the system of checks and balances within the Hungarian constitutional framework.

Institutions and the Hungarian legal framework guarantee basic freedoms and a wide range of social rights. A parliamentary commissionaire (ombudsman) and deputy safeguard civil and political rights. Additional deputies oversee data protection and national and ethnic minorities. Article 5 of the labor code prohibits both direct and indirect forms of discrimination. As a result of recurring international pressure, the Parliament adopted an antidiscrimination bill at the end of 2003 with provisions for affirmative action; however, the new authorities empowered to penalize violations will not function until 2005.

Article 62 of the Hungarian Constitution and the 1989 Law on the Right to Assemble ensure the right to peaceful assembly. Although inadequately detailed, the provisions for exercising this right – such as the need to provide the police advance notification and the police's limited authority to ban demonstrations – have managed to provide sufficient guidelines for rally organizers over the past 14 years. In 2003, however, police inconsistencies in authorizing demonstrations and a lack of decisive control in chaotic situations challenged its effectiveness. In February, a neo-Nazi celebration spurred much controversy as police were criticized for first banning and then allowing the gathering. In May, police hesitation to effectively separate two parallel demonstrations led to a brusque disruption of a Million Marijuana March rally by an opposing demonstration.

Arguably, the most important civil liberties issue of 2003 was the debate over free expression and incitement. In the fall, the government submitted a proposal to the Parliament to fortify the criminal code's restrictions on hate speech and incitement. This was an effort to curb communications by neo-Nazi groups as well as far-right views in the media. Coalition partner SzDSz acknowledged that the phenomenon was disturbingly widespread but opposed the bill, echoing the Constitutional Court's earlier stance, which protected the fundamental and far-reaching freedom of expression.

The litmus test for free expression and incitement is Hungary's adaptation of the "clear and present danger" rule, modeled on U.S. legal practice. Interpreting this rule became central to the final acquittal of Calvinist pastor Lorant Hegedus Jr. of instigation charges. In a 2001 article, Hegedus in his former capacity as MIEP deputy chairman wrote that the Hungarian nation was diluted by "hordes from Galicia" – referring to the sizable Hungarian Jewish community – and called for their outright exclusion. In November 2003, the appeals court found no direct proof of inciting hatred, a verdict that greatly disappointed many coalition politicians, NGOs, and government officials. The resolution caused some SzDSz members of Parliament to revise their positions on the criminal code amendment, which consequently allowed the Parliament to pass it.

Without the Constitutional Court's reasoned decisions, Hungary would not have been able to institutionalize liberal democratic standards quite so quickly or successfully. Individually elected by two-thirds parliamentary majority, the 11 members of the Constitutional Court safeguard basic law in Hungary. The near 300 decisions the Court made in 2002 represent a record number in its 13-year history. The Court's decision on free expression indicates the high level of effectiveness that it is commonly commended for.

Furthermore, its 2003 judgment about temporary parliamentary committees suggests that predictions of the end of an active Court era appear to be wrong. Under the leadership of new Court president, Andras Hollo, who is believed to be sympathetic to the Left, the Court seems to have returned to a more proactive role, as feared by politicians, when recently elected judges were questioned by parliamentarians at the committee hearings about their intention to be "activists." Hollo succeeded Janos Nemeth, a legal positivist, in 2003; Nemeth served until reaching the post's age limit of 70 years.

The enduring need for the Court's guidance is revealed by the often perceived collision of fundamental rights and freedoms. In an April 2003 verdict, the Court maintained that the current legal position on euthanasia – that it is allowed in its passive form – was in line with both the right to life and patients' rights to self-determination. The rivalry of human dignity and free speech will be tested again in 2004, when the Court will rule on the criminal code amendment regarding incitement. It remains to be seen whether or not the Court now believes it is time for the legal relativist European mainstream to supersede the liberal belief in the intrinsic supremacy of free speech.

The year 2003 was a cornerstone in consolidating Hungary's independent judiciary, in terms of both increasing its effectiveness and further institutionalizing democratic principles. Until 2003, the Supreme Court acted as the highest appeals forum and provided guidance and direction on universal interpretation of law to all other courts. Hungarian courts are criticized for lengthy trials. To ease the burden of the Supreme Court, three new highest appeals courts began operating in the capital and Szeged and Pecs (two major southern cities). This move created a four-tier court system, effective July 1,2003 (the new system was to have been launched in 1999, but the center-right coalition deliberately postponed it with budgetary maneuvers, leaving these courts with no revenues to cover administrative expenses).

Significantly, in 2003 the judicial branch started to take a more active role in public discourse. Though they employ well-trained judges, courts frequently face financial bankruptcy. Judges' wages were raised by a nominal 50 percent in two steps during 2003, resulting in a monthly gross salary of US$1,360 for a starting judge, according to the National Judicial Council. In spring 2003, a Supreme Court justice compelled the European Association of Judges to publicly rebuke the unsatisfactory working conditions of Hungarian judges.

More important, the new proactive behavior has encouraged closer ties between the Supreme Court and the Constitutional Court. Though until recently the judiciary and the Constitutional Court had no institutional relations, the Constitutional Court now has limited review powers according to a 2003 constitutional amendment draft: specifically, it will be entitled to annul those Supreme Court edicts that compulsorily govern lower-level courts in the application of laws. This proposal inspired the president of the Supreme Court, Zoltan Lomnici, to more openly express views related to the proposed new constitutional framework and to recommend alternatives.

In November 2003, Lomnici surprised the public with another widely disputed statement, this time about the independence of the judiciary. He claimed that criticism about certain Court decisions by government officials and public figures undermine judicial independence in the country. In contrast, a 2002 report by the Open Society Institute asserted that "there are only limited opportunities for the public to review court decisions, as access to case files is limited [and] unnecessarily limits the opportunity for public commentary to provide informal feedback to the judiciary about its professional performance." Lomnici's proclamation came during a time of loud criticism over the Hegedus verdict and a first instance decision that characterized two Roma defendants as "primitive."

Although both the previous Fidesz-led and the current Medgyessy government pledged to reverse the trend, the Roma minority still struggles to gain equal footing in Hungarian society. Especially needed are improvements that will provide equal access to public education. Based on media reports, Romany children often study remedial curriculums in conspicuously separate primary school classes. Authorities have exacerbated their minority status by declaring one-fifth of Roma children between the ages of 6 and 14 as mentally disabled. For other strata of society, corresponding figures are much lower, only about 2 percent, reports Magyar Hirlap. Prejudice undoubtedly prevails in the society, communicated sometimes through the media. Based on a survey published by the Hungarian Gallup Institute, over one-third of the population openly confesses anti-Roma attitudes. In April 2003, the media supervisory authority relentlessly sanctioned a commercial TV station for depicting Roma stereotypes in a comedy program.

The Hungarian legal system declares equality before the law. It uses the Hungarian language in all procedures and guarantees public counsel. A new law would allow additional public counsel for impoverished citizens. In July, a significantly revised criminal procedure entered force that refines distinctions in investigative authority between law enforcement bodies and prosecutors, assigning greater power to the latter. It also features the subsidiary private indictment and the option of bail for defendants. These two key legal institutions are aimed at ensuring unbiased criminal prosecution as well as relaxing otherwise overburdened prison conditions.

These improvements arrived at a crucial time, when former Fidesz-member prosecutor-general Peter Polt found himself under constant scrutiny by the Parliament's ruling coalition for allegedly impeding the prosecution of cases that compromised the reputation of the earlier Fidesz-led government. To express their distrust, coalition members of the Parliament voted down all of Polt's answers to parliamentary interpellations.

Corruption (Score: 2.75)

Hungary has a reputation for being one of the least corrupt post-Communist countries. Yet on a scale of 1 (most corrupt) to 10 (least corrupt) in Transparency International's Corruption Perceptions Index, the country's score has worsened from 5.3 in 2001 to 4.8 in 2003. In its 2003 Evaluation Report on Hungary, the Group of States Against Corruption (GRECO), of which Hungary is a member, notes a high level of tolerance regarding the bribing of public service employees in health care, customs, and offices issuing licenses and permits. However, the phenomenon of corruption appears to be more endemic to political parties and public decision makers.

Anticorruption legislation has been under continuous improvement in Hungary and now meets international standards. Governments have implemented various policies to improve the accountability of public officials and the transparency of state institutions. Rigorous conflict of interest clauses aim to prevent officials from serving as executives or board members at state-owned companies. In 2001, the Orban cabinet adopted the comprehensive Governmental Strategy Against Corruption, proposing revisions of certain laws with the intention of tightening loopholes and punitive measures.

The strategy amended the Law on Public Procurement and bribery provisions, adopted a Law on Combating Terrorism, and introduced measures against money laundering. Earlier, only members of Parliament were required to declare financial assets. Since 2001, this requirement was extended to other echelons of public administration and to judges. Still, there are no effective mechanisms for sanctioning incomplete or false asset reports. Also, members of Parliament are neither banned from engaging in business activities nor restrained from assuming positions at state-owned companies before or after their mandate.

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 parliamentarians, 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 Office of Hungary (ASZ) exercises ultimate financial control over all public and EU funds and is a completely independent agency reporting to the Parliament. In its 14 years of existence, the office has been considered one of Hungary's most effective tools in fighting corruption. The ASZ has no law enforcement authority but, rather, informs investigative agencies about suspected offenses revealed through its financial and performance audits.

The 2002 victory of the MSzP-SzDSz coalition was to a great extent a result of its anticorruption platform. Thus, a new State Secretariat was established in 2002 to monitor public procurement procedures and ensure transparency in the handling of public funds. Although one of the Secretariat's motives is to reveal alleged cases of corruption in the previous Orban government, it has not yet produced significant results. In April 2003, the Parliament unanimously adopted the "glass pocket" law, a new legal package to increase the transparency of public funds and to fight corruption through economic regulations.

Before this measure, most information on public procurement was hidden from the public and transactions between the government and private sector were considered business secrets. The "glass pocket" law introduces the concept of public interest data and redefines the boundaries of business secrets. Also, it requires state-funded organs to publicize contracts with businesses for amounts over US$22,000. Finally, the law expands the authority of the ASZ, which now can trace the path of public funds even through private business files, and widens the circle of individuals required to declare their personal assets.

The country has joined various international anticorruption programs. During the period covered by this report, Hungary signed two additional international anticorruption agreements, the Civil Law Convention on Corruption and the Second Additional Protocol to the European Convention on Mutual Assistance in Criminal Matters. However, foreign observers in 2003 continued to draw attention to corruption-related problems. The EU, for example, found insufficiencies in internal financial control systems in the public sector. The EU was also concerned about the lack of independence in state institutions and their ample administrative framework.

According to the Economist Intelligence Unit (EIU), dualism persists between sectors in the Hungarian economy and geographic areas. In its June 2003 report, the EIU noted that "some parts of the economy are open, competitive, and subject to the rule of law ... in other parts, ties between commerce and politics are opaque, corruption is rife, and the rule of law is weak." Regrettably, 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. Consequently, the Hungarian Gallup Institute's survey in March 2003 demonstrated that 9 out of 10 respondents considered corruption to be a serious problem in Hungary; in September 2003, more than two-thirds of the respondents believed that governmental corruption is the same as or exceeds that of the previous government.

Despite the various anticorruption policies, the government has not succeeded in improving public perception of its efforts. The year 2003 witnessed scandalous cases in different areas: corrupt policemen, customs officers, and land records registration officers were all caught on fraud charges. The Medgyessy government's commitment has also been undermined by some of its own practices that have lacked transparency. In February 2003, Elemer Kiss, minister of the Office of the Prime Minister, resigned after journalists revealed that his legal firm was in a contractual relationship with some state-owned companies. In June, three high-ranking officials left the Ministry of Education owing to the lack of transparency in procurement bids they managed.

In July 2003, Karoly Szasz, chairman of the Hungarian Financial Supervisory Authority (PSZAF), was physically assaulted by unknown attackers the day before PSZAF disclosed an illegal share transaction, which later developed into Hungary's biggest banking fraud. The case revealed money laundering involving public procurement funds at K&H Bank's brokerage, K&H Equities. Allegedly, the scandal has strong political ties. The government intended to remove Szasz for not bringing attention to the case earlier. Conversely, the opposition accused the government of using the case to remove top officials from independent bodies appointed under the previous government.

There is a high risk of corruption in political party financing. According to both the Open Society Institute and GRECO, there is significant evidence of illegal party funding and corruption in Hungary. For example, the operations and activities of party-based businesses lack transparency and adequate control. Some private businesses provide in-kind support to parties – especially during elections – which is later rewarded (by those parties, if elected) through favorable government policies and governmental contracts, according to Zsolt Enyedi of Central European University. There are insufficient controls on party financing and no effective sanctioning and enforcement mechanisms in place for illicit bookkeeping. The ASZ has also raised concerns about democratic institutions being most vulnerable to hidden party financing, as these practices weaken the accountability of institutions and public trust in the overall democratic process.

Author

Viktoria Villanyi is the finance officer and Roland Kovats a senior program officer in Freedom House's Budapest office.