321. Report Prepared in the Bureau of Intelligence and Research1


(C) Summary

French President Mitterrand’s visit to Budapest, scheduled for July 7–9, is likely to boost Hungary’s image as a “model” East European country, as well as its evolving reputation as a credible broker between the East and West European parties and governments. The Mitterrand visit is the first to communist Hungary by a French President. As a follow-up to party leader Kadar’s April trip to Bonn, it could result in a new high in Kadar’s 26-year tenure, during which he has gone from pariah to statesman.

Under Kadar, Hungary has gradually structured its domestic political and economic policies to the point that they are clearly the most [Page 1005] liberal of any Warsaw Pact country. This has enhanced the country’s political acceptability by the West, but it has increased the regime’s sensitivity to being touted openly as a model for the rest of Eastern Europe. Not even Soviet praise, including by Brezhnev himself, of some aspects of Hungary’s post-1956 agricultural and economic reforms has helped make its “model” role less ambivalent.

* * *

Regime Cautiously Accepts Accolades on Model Role

(C) Hungary’s media exude national pride and satisfaction over the West’s perception of its continuing political and economic successes. Nevertheless, the country’s leadership is not enthused about being tagged as a model, especially for Poland, despite the fact that Hungary has been out in front of most of its Warsaw Pact allies in dispensing advice to the Poles.

(S/NF/NC/OC) In Bonn April 26–28, party chief Kadar, lauded by Schmidt as a statesman, appeared appreciative of Schmidt’s support of his “experimental” reform policies but asked the FRG Chancellor not to describe Hungary as a model lest it heighten Moscow’s anxieties and invite a “severe crackdown.”
(U) Deputy Premier Aczel, in a Paris interview with L’Humanite on April 28, welcomed the “world’s better image” of Hungary but downplayed the applicability of Hungarian-style socialism to conditions elsewhere.
(U) Deputy Premier Marjai, during his US visit (April 30–May 13),2 stressed that Hungary sought to share “experiences” and “approaches” with Poland but deferred to the Poles themselves on specified “forms” for a solution of their problems.

(C) Marjai, who signed the instruments on Hungary’s entry into the International Monetary Fund (IMF) while in the US, also reaffirmed that reform policies would continue, albeit at a possibly slower pace. At the same time, he sought to underscore Hungary’s uniqueness in the “process of differentiation” under way in Eastern Europe.

(U) The Marjai visit provided an additional patina of success for the regime. The Deputy Premier’s meetings with President Reagan in Knoxville3 (where Hungary is the only Warsaw Pact country to have an exhibit at the World’s Fair), Vice President Bush, Secretary of State Haig, and other top US Government and business leaders represented [Page 1006] Hungary’s highest level of contacts with US leaders since 1946, when the non-communist Prime Minister Ferenc Nagy visited the US. (Secretary Rogers visited Budapest in 1972 to sign a consular agreement;4 Secretary Vance traveled there in 1978 in connection with the return of the Crown of St. Stephen;5 Hungarian Deputy Premiers Valyi, Szeker, and Huszar visited the US in the 1970s, but met only with cabinet-rank officials.)

West European Ties Enhance Hungary’s Image

(C) The upcoming Mitterrand visit should further bolster Hungary’s image, especially that of Kadar, as an interlocutor between East and West. The Hungarian party leadership has steadily cultivated relations with the French Socialist Party (PS) in recent years. Mitterrand, who met Kadar in Budapest in 1976, has spoken approvingly of Kadar’s capacity for overcoming the opprobrium associated with his role in the Soviet suppression of the 1956 revolt and achieving economic and social progress within the confines of the Soviet sphere.

(C/NF) Much of the spadework for the Mitterrand visit has been accomplished. French Minister of State for Economic Planning and Development Michel Rocard and PS First Secretary Lionel Jospin met with Kadar in Budapest March 11–12 and April 26–29, respectively. Aczel, in Paris last month ostensibly to plug the publication in French of one of his books, presumably discussed plans for the visit. These discussions—Mitterrand’s first with an East European politician since his election—reportedly were highly cordial. (French Foreign Trade Minister Jobert discussed further arrangements during his June 10–11 visit on bilateral trade issues.)

(C) Kadar’s meetings with Rocard and Jospin centered on economic issues. Hungarian reform economists participated, among them Rezso Nyers, founder of Hungary’s “New Economic Mechanism” (NEM) which was initiated in the mid-1960s. Kadar intimated that Hungary’s domestic economic interests demand an even more independent economic foreign policy (exports, half of which are sold to Western and Third World countries, generate nearly 45 percent of Hungary’s gross national product). He emphasized to Rocard the importance of broadening and hastening reforms to increase efficiency and profitability as a basis for expanding trade with the West, hence Budapest’s entry into the IMF. He admitted privately that the Soviets were not enthusiastic about the latter move.

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(C/NF) Mitterrand, who espouses a differentiated policy toward East European countries, is nevertheless expected to reiterate his critical views of the East’s stance on Poland. The French publicity buildup of Kadar’s and Mitterrand’s apparent determination to refurbish French-Hungarian relations suggests hope for a “special relationship,” with Hungary such as existed between Gierek’s Poland and Giscard’s France. There are no indications that the Hungarians would feel embarrassed by such a development or that they would seek to discourage it.

(C) Kadar’s visit to Bonn and his hosting of Mitterrand reflect his resumption of personal involvement in promoting relations with West European parties and governments. From the time of his 1960 UN visit until his attendance at the Helsinki conference in 1975, Kadar had been almost a recluse on the international scene. His first formal visit to the West, to Austria, occurred in 1976; it was followed by visits to Rome and the Vatican (where he conferred with Pope Paul VI) in the same year, Bonn in 1977, and Paris in 1978. The Polish crisis seems to have revived his interest in such travel: the Hungarian leadership clearly has become seriously concerned over the implications of the West’s economic sanctions against Poland and the USSR. Enlisting the FRG’s support for Hungary’s then-pending bid to join the IMF and obtaining financial assistance were reportedly high on Kadar’s Bonn agenda.

(C) Aside from these considerations, Kadar may have had such personal motives as ensuring continued international recognition of his policies and demonstrating his intent to seek their institutionalization beyond his tenure. (Kadar, second only to Bulgaria’s Zhivkov in tenure as a party chief in Warsaw Pact countries, turned 70 on May 26.)

The Whys and Wherefores of Hungary’s Model Role

(C) Hungary’s much-heralded model image has both political and economic facets. The regime’s policy of national reconciliation, closely identified with Kadar, has effectively neutralized the internal dissidence that contributed to the outbreak of the 1956 revolt. Under the slogan “who is not against us is with us,” adopted in the early 1960s to encourage an alliance between communists and non-communists, Kadar has generally been successful in fostering political stability as well as a liberal economic and cultural atmosphere.

(C) The agricultural and economic reforms initiated since the mid-1960s have resulted in administrative decentralization and bureaucratic retrenchment; the interaction of market forces in setting price, production, and investment levels; and the institution of profit incentives. Recent innovations include the expansion of small-scale private enterprise and the unification of tourist and commercial exchange rates (which helps move Hungary in the direction of its goal of achieving limited convertibility of the forint in a few years). These reforms have continued against [Page 1008] the backdrop of the regime’s austere policies of the last two years, the result of external economic conditions and payment obligations.

(C) Initial criticism of Hungary’s reforms by several of its Warsaw Pact allies gave way to grudging admiration, and lately to talk of emulation. During a visit to Budapest in 1979, and at the CPSU congress in February 1981, Brezhnev himself lauded the economic reforms and urged that they be imitated by others. Soviet media have also been complimentary, noting that Hungary’s agricultural reforms have been studied by visiting Soviet teams. The agricultural reforms have helped boost production and thereby fortify Hungary’s image as a land of abundance at a time of shortages elsewhere in Eastern Europe. Pravda in February 1982 detailed Hungarian successes in monetary policy aimed at directing investments into production for export, stimulating the development and introduction of new products, and encouraging savings and investment by the population.

(S/NF/NC/OC) Hungary’s reforms did not necessarily spark those recently undertaken in Czechoslovakia and Bulgaria (which has its own form of NEM), but they were taken into account. Romania reportedly resents the attention given to Hungary’s reforms. A group of Chinese experts visited Hungary in 1980 to study the applicability of Hungary’s agricultural reforms to the Chinese economy.

(C/NF) Besides Brezhnev, Soviet Premier Tikhonov has commented favorably on the Hungarian economic model. During a third-country representative’s visit to Moscow in May, Tikhonov specifically pointed to the “Hungarian way” in a discussion of possible solutions for Poland. Tikhonov’s remarks were interpreted to mean modest political and economic reforms combined, of course, with Poland’s continued adherence to the Warsaw Pact, Council for Mutual Economic Assistance (CEMA), and the dominance of the Polish Communist Party. Soviet East European specialist Davydov advanced a similar scenario in a recent conversation in Moscow, although he also opined that the Hungarian model probably would not fit Poland.

(C/NF) In any event, Tikhonov’s remarks left open the question of whether the adoption of repressive measures were necessary prerequisites, as had been the case for Hungary. Such measures endured in Hungary until at least the early 1960s, when the regime effected various amnesties for political prisoners and subsequently launched its national conciliation policy in tandem with a campaign to recoup its international standing.

(S/NF/NC/OC) Kadar strengthened his rapport with Tikhonov during the latter’s visit to Budapest last December and reputedly considers Tikhonov more flexible and amenable to Hungarian policies than Kosygin. Their talks typified Kadar’s knack for cultivating ties with [Page 1009] Soviet leaders, including Andropov, who was formerly ambassador to Budapest and is now a contender for Brezhnev’s position.

A Model for Poland?

(C) There is no evidence, however, that the Hungarians have been pressing the Poles to implement unmodified versions of Hungary’s “model.” Indeed, as affirmed by Aczel:

“Socialism . . . has to be varied to be real . . . its practical form will differ from one country to the next . . . it goes without saying that socialist development of our society could not follow that of other socialist countries step by step.”

Similarly, Marjai disclaimed any attempt to do more than offer the Poles possible “approaches” based on Hungary’s own post-1956 period.

(C) But where the Hungarians draw the line on the applicability of the model thesis is not readily discernible. Throughout the Polish crisis, the Hungarian leadership has generally restrained its comments but has been active behind the scenes in dispatching top party and government officials (Aczel, party foreign affairs chief Berecz, and Foreign Minister Puja) to Warsaw to advise the Poles, especially in the aftermath of the martial law declaration last December.

(C) The regime’s caution on wholesale application of its experiences undoubtedly stems from the realization that the situations in post-1956 Hungary and Poland do not have the same causes and protagonists. For example, Politburo member and trade union chief Gaspar, who last year made a pro forma bid for a dialogue with Solidarity and also met privately with Solidarity trade union officials in Brussels, claimed that the 1956 revolt could have been avoided if the trade unions had had the competence and authority they have today. Nonetheless, he acknowledged that he (and others) had explicitly warned the Poles “within the limits of decency and propriety” that their trade unions were fatally flawed. (Gaspar frequently extols Hungary’s trade unions, which allow some active participation by workers in decisionmaking.)

(C) Berecz, who has been deeply involved in the formulation of policy on the Polish crisis and is one of the ambitious heirs-apparent surrounding Kadar, recently advanced what appears to be the official Hungarian view of what the Poles must do. Writing in the May issue of Problems of Peace and Socialism, Berecz described how Kadar faced his “dilemma” in 1956: first concentrating on “crushing the counterrevolution,” then consolidating power by reestablishing faith in the party and dealing with the “demands” and “rightful dissatisfaction” of the people. Berecz warned, however, that consolidation was marked by complications and “rearguard provocations.”

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(C) Berecz was also ambiguous on the role of “external help,” presumably to keep options open should the Soviets decide to intervene. Nonetheless, he flatly stated: “A foreign military contingent cannot manage the resurrection of a political superstructure. The effect would be illusory.” He emphasized that despite Soviet “fraternal aid” in 1956, Hungarians had to solve their own problems. (That Berecz’s didacticism could have implications for other situations, e.g., Afghanistan, may or may not have been intended.)

(C) Discussions between Hungarian party and government officials and their Polish counterparts presumably have focused on ways to refurbish the party and coopt elements of Kadar’s consensus style of rule. The Poles thus far appear receptive to Hungarian advice—Deputy Premier Rakowski’s May 3 speech before the Sejm (Parliament) urging national conciliation under the slogan “he who is not against us should be for us” mimics Kadar’s sloganeering of the 1960s.

(C/NF) The details of Kadar’s talks with Premier Jaruzelski during the latter’s April 21 visit to Budapest are not known, but Jaruzelski apparently did appreciate Kadar’s recounting of his own experiences in thwarting the 1956 “counterrevolution.” Kadar, in turn, reiterated his party’s “understanding” of the need to impose martial law in Poland. (Kadar’s outward equanimity throughout the crisis reportedly belied difficulties with the Soviets in June 1981 when the Hungarian Politburo, after several sessions, reluctantly endorsed the CPSU “warning letter” to the Polish leadership.)

(S/NF/NC/OC) In any event, [less than 1 line not declassified], Kadar specifically advised Polish party leaders to follow the “Hungarian pattern” after 1956 to build a new party with a new program. [less than 1 line not declassified] however, Kadar had no objections to the basic resolutions issued by Solidarity. But while advocating a rebuilding of the Polish party, the Hungarians continue to view the situation with concern and probably regard Jaruzelski as the only hope for any reforms in Poland.

(C) The Hungarian party plenum announcement of “understanding” the imposition of martial law in Poland was made just prior to Jaruzelski’s visit and was not as formal as might be expected: It was not issued in the form of a resolution, the customary vehicle for either support or criticism. Nonetheless, the Hungarian party was the only one in Eastern Europe to issue an authoritative statement of endorsement (albeit other parties have issued editorials supporting martial law).

(C) The Italian Connection

The same plenum statement also took a swipe at the Italian Communist Party (PCI) resolution of December 30, 1981. It labeled “unacceptable” the PCI’s evaluation of events in Poland and its [Page 1011] questioning of the world historical role and ability of socialist countries to develop and fulfill their roles. Yet the Hungarian formulation was strangely defensive, insisting that the Hungarian party was only concerned with “the principled clarification of differences” previously expressed in bilateral party talks with PCI officials, most recently between Gyula Horn, deputy chief of the Hungarian party’s international affairs department, and PCI chief Berlinguer and others in Rome last February. Horn’s conversation at the time suggested that the Soviets may have attempted to use the Hungarian party—given its acceptability by West European communist parties—as an intermediary. In any case, Hungary is the only Warsaw Pact country to have published the Moscow-attacked PCI resolution (in a specialized, non-party journal, Nemzetkozi Szemle).

(C) The Future of Hungary’s Economic Reforms

While the Budapest leadership openly basks in the favorable images its reform policies have generated, there are continuing internal debates over their future pace and scope. Some Hungarian economists fear that current reforms could be reversed should the political climate change. (They were temporarily shelved in the early 1970s.) Supporters urge an institutionalization of economic reforms: accelerated decentralization and an expansion of the “entrepreneurial spirit” to strengthen Hungary’s competitiveness on the world market and its living standard at home. Others are not opposed to economic and social reforms per se but, like Politburo member and Deputy Premier Havasi, argue against “rapid” changes and initiatives “that regard the people’s economy as a scene of ill-founded experiments.”

Premier Lazar, in a speech last November, took up the cudgels in defending the recent expansion of small-scale private enterprises. He criticized ideologically based attacks on such reforms as attempts to “mask a fear of competition . . . endangering the comfort provided by a monopoly position.” Other supporters have spoken even more boldly, albeit they are less than precise in formulating alternative courses. Jozsef Bognar, a prominent political economist, advocates a “revision of the entire system of economic government” and claims that “the sphere of decisions by the state is too great . . . and that reforms should not be just economic, but at the same time strengthen the democratic nature of society.”

What emerges from the debate thus far, as Marjai stressed during his US visit, is that Hungary does not intend to abandon its reform policies. More than likely, however, it will adhere to a gradualist approach consistent with Kadar’s style of leadership, holding at bay hardline critics who could be expected to exploit the economic dislocations that more rapid implementation of reforms would entail. Reformers may seek to take advantage of Kadar’s continued tenure by pressing for [Page 1012] more liberal policies in other spheres as well—trade unions, universities, and youth organizations. Kadar’s speech at a reception on his birthday seemed to give them a green light. Despite “difficulties”—which he did not specify—Kadar made an unusually emphatic appeal for the “protection” and “continuation” of his policies within the framework of what he referred to as Hungary’s “national common agreement and socialist understanding.” Continuing anxieties over the Polish situation do not appear to have dampened popular aspirations for further economic reforms.

Much of the success of Hungary’s economic reforms is linked to economic performance which at this juncture depends heavily on the availability of Western credits. At the moment, the specter of payment delays or even debt rescheduling threatens Hungary’s credit standing. Since April, Budapest has sought to ease its liquidity crisis with possible “bridge financing” and its entry into the IMF (which Hungary now hopes to tap for additional credits).

The policy choices facing the Hungarian leadership in the immediate future are difficult ones, all entailing further austerity measures for the population. As noted, some Hungarian economists are pressing for more reforms to create additional incentives for export. If the leadership opts instead for greater control in order to meet payment obligations, both the reform effort and Hungary’s image as an attractive economic model for Eastern Europe stand to be undermined. So would Kadar’s policy of maintaining a national consensus.

  1. Source: Reagan Library, Paula J. Dobriansky Files, Hungary (2). Secret; Noforn; Nocontract; Orcon. Drafted by James Bodnar (INR); approved by Mautner.
  2. See Documents 319 and 320.
  3. The 5-minute meeting between Marjai and Reagan on May 1 was described in telegram 119384 to Budapest, May 3. (Department of State, Central Foreign Policy File, D820231–0743)
  4. See Foreign Relations, 1969–1976, vol. XXIX, Eastern Europe; Eastern Mediterranean, 1969–1972, Document 128.
  5. See Foreign Relations, 1977–1980, vol. XX, Eastern Europe, Document 162.