PM declares mission to tie his country's future to Asia

PUBLISHED : Tuesday, 13 September, 2005, 12:00am
UPDATED : Tuesday, 13 September, 2005, 12:00am

Take an average-sized country, give it membership of the best organisations, a well-educated workforce, good growth rate, above-average infrastructure, a central location for market access, and put a charismatic, self-made millionaire businessman at the helm. If this was a computer simulation game called 'Nation Builder', the player should be deeply satisfied.

But back to reality in the central European country of Hungary, which has all those attributes, there is concern rather than satisfaction. Globalisation has meant that one more unavoidable ingredient is necessary - Asia.

That was why Prime Minister Ferenc Gyurcsany and five members of his cabinet were in Hong Kong on Saturday at the end of a four-day visit to China. In July, a similarly high-powered delegation made a sweep through Singapore, Indonesia and Vietnam.

Although Mr Gyurcsany's country achieved its long-held ambition of joining the European Union 16 months ago, it has found that for economic development, the benefits are simply not enough. Worse, neighbours such as Romania and Ukraine offer cheaper labour, meaning Hungary is getting increasingly by-passed by investors.

To an entrepreneur, thrust into his country's leadership perhaps as much for business skills as politicking, the obvious choice is to look east while keeping the other eye firmly west.

'We have achieved one of our most important historical goals by joining the EU,' Mr Gyurcsany said. 'But it would be a tremendous mistake to close ourselves in to the EU. Our foreign trade leans us to Europe, but to dynamise our economy, we need new markets.

'Your region - Hong Kong, China, Southeast Asia - is the most dynamic regional economy. We have to be here.'

The constant stream of national leaders and delegations passing through China and its neighbours proves Hungary is not the first to think this way. But given its success since shaking off communism and emerging from behind the 'Iron Curtain' of Soviet influence 15 years ago, it would seem the nation least likely to need such help.

No country is more centrally located in Europe and therefore, accessible to other markets. Landlocked, Hungary borders Austria, Croatia, Romania, Serbia and Montenegro, Slovakia, Slovenia and Ukraine. By the standards of Europe's biggest economies - Germany, France, Britain and Italy - Hungary's annual economic growth rate of 4 per cent is impressive - 2 per cent higher than the average. But with per capita income just half of those partners, leaders concede more growth is needed before Hungarians can match the standards of their western neighbours.

Foreign investment was strong throughout the 1990s, but has started to tail off. Germany, overwhelmingly the biggest investor, has had sluggish growth and there is no end in sight to that nation's economic woes.

Inflation has been reduced from 14 per cent in 1998 to 7 per cent, but unemployment has doggedly remained at about 6 per cent.

Then there is the problem of 5 per cent budget and current account deficits, which could jeopardise the country's plans to join the Eurozone by adopting the euro as its currency in 2010. Reducing the figure to 3 per cent by 2008, as planned, requires a creative solution.

That's why Mr Gyurcsany, who took office a year ago, has started introducing himself to his Asian counterparts. On his first trip to China last week for talks on strengthening bilateral economic and political ties, he took his foreign, economics, telecommunications, cultural and regional development ministers.

A fluent English speaker, he gave a lecture at Peking University, held talks with business people and met organisers of the 2008 Beijing Olympic Games. He signed a deal on cereals trade with the mainland, reversing a 1977 ban, and in Hong Kong inked a memorandum of understanding on cultural ties.

'We're looking for new opportunities, markets and technologies,' he said. 'We offer ourselves as a hub in terms of a logistics, research and development centre and so on.

'We are not the cheapest country in terms of wages, but we are the best for productivity. We lead in competitive analysis in central Europe.'

Nonetheless, Hungary remains a hard sell, literally caught between west European nations trying to emerge from a decade of lacklustre economic performance and vibrant economies to the east offering significantly cheaper labour.

There are other debates - about how a formerly communist nation can so easily cosy up to one whose leaders firmly adhere to communism and another, started by the US, about the old and new Europe.

While at university studying economics in the 1980s, Mr Gyurcsany, 44, was a communist youth leader. His graduation coincided with the collapse of communism, though, and instead of politics he went into private enterprise. He became a millionaire through buying state assets in the early years of privatisation and is now among the 50 richest people in Hungary.

Mr Gyurcsany entered politics in 2002 as a political adviser to the former prime minister, Peter Medgyessy, and was made sports minister the following year. He was chosen by the Socialist Party to succeed Mr Medgyessy, who resigned when tensions flared with the Free Democrats, the Socialists' coalition partners.

Despite his communist roots, he didn't want to be drawn into discussion about how he felt about dealing with communist China.

'I don't have any business with Chinese politics,' he said. 'We are co-operating in international institutions and international affairs, but very unequivocally, we would like to concentrate on business and economic affairs.'

Like numerous other central and eastern European nations, Hungary is an ally of the US, and until March had 300 troops in non-combat roles in Iraq. But the prime minister disputed theories that Europe was divided and could get by without the US.

'In a very simple way, Europe needs the military capacity of the US, but the US needs the political capacity and support of Europe for preventing insecurity,' he said. 'We have to co-operate - this is the only way ahead.'

Co-operation was also the only way he saw resolution of a recent row between the EU and China over cheap clothing imports. He approved of a deal struck to delay quotas for a year, although he said it was only a temporary solution.

'Whoever believes in a free market has to accept that sometimes there are goods, companies and people who are better than us and more competitive,' Mr Gyurcsany said, explaining that Hungary's textile industry had been obliterated because it had not been able to keep up with competition. 'It's a great challenge for the whole European textile industry.'

He hoped his country's links to China would be an advantage to growth. More than 10,000 Chinese lives there and the nation has adopted a policy of dual Chinese-Hungarian language in schools to cater for their education needs.

Interacting with China was essential because of its increasing influence and although Hungary's future was as part of Europe, it was important that good relations also be made with the mainland.

'Without China, we are not able to understand the future of the globalised world.'