Foreign Relations of the United States, 1981–1988, Volume X, Eastern Europe

327. National Intelligence Estimate¹

NIE 12.5–86

Washington, May 1986

[Omitted here are the title page, table of contents, and scope note.]

KEY JUDGMENTS

Hungary has entered an important transitional period. The era in Hungarian politics associated with Janos Kadar is inexorably drawing to a close. The regime is facing some rigorous tests. Accumulating social and economic strains are serious enough that by the end of the decade Hungary will have a harder time maintaining its present image as a unique showcase in Eastern Europe for economic reform, political stability, and a relatively relaxed ideological climate. [portion marking not declassified]

The problems are many:

— The economy, suffering from one of the lowest growth rates in Eastern Europe since 1980, is still in the doldrums. Performance lags in the key export sector and debt service burdens loom into the end of the decade.

— Moscow’s trade demands have toughened in recent years. The Soviets are requiring more exports, higher quality goods, and a reduction in Hungary’s hard currency surplus with the Soviet Union. Moscow is unlikely to moderate these demands over the next several years, thus cutting into Hungarian prospects to increase their exports to the West and revive their economy.

— The economy’s poor growth prospects will impede the regime’s ability to improve living standards, which have stagnated for several years.

— Social tensions have grown to uncomfortable levels because of stagnating living standards, inflation, and growing income disparities.

— Political dissidence has been stimulated by the public’s broader contacts with the West and the younger generation’s increasing impatience with the regime over issues such as the treatment of Hungarian minorities in neighboring countries (particularly Romania), political reform, and economic problems. [portion marking not declassified]

One of the key uncertainties is how long and to what degree Kadar, who is now 74, will remain in charge. Should Kadar die, become incapacitated, or much less likely retire, the succession probably would proceed fairly smoothly at least in its early stages. Deputy General Secretary Nemeth, 63, is a strong contender and at the moment appears to be the most likely immediate successor. However, there are other strong candidates—Central Committee Secretary Janos Berecz, Politburo member and First Secretary of the Budapest party committee Karoly Grosz, Central Committee Secretary, Politburo member and economic czar Ferenc Havasi, Central Committee Secretary Istvan Horvath and Deputy Prime Minister and Politburo member Laszlo Marothy, among others:

— Should the succession be triggered soon, whoever follows Kadar probably will continue Kadar’s general political approach and the current economic reform program at least initially. “Kadarism” has worked well for too long to be reversed without major negative repercussions. Moreover, the majority of the top leadership has been carefully groomed and selected over the years because they subscribe to Kadar’s general beliefs.

— The continuation of Kadar’s general approach probably will mean that the social malaise will still be evident but Hungary will remain basically stable. Dissent, however, may be somewhat more visible as economic problems drag on and as Hungary approaches the 30th anniversary of the 1956 October Revolution this fall. The government’s use of police measures may be more common than during the 1970s, although not as repressive as in the late 1950s. [portion marking not declassified]

We question, however, whether even Kadar’s masterful tinkering with the system will be viable over the longer term if the economy shows no signs of reviving and the resultant social strains continue to grow. Piecemeal implementation of reforms will limit the gains in efficiency and competitiveness needed for improved industrial performance. Debt burdens and Moscow’s hardening trade demands will limit resources available for industrial modernization. Without an economic turnaround, troubles could deepen in Hungary toward the end of the decade:

— Economic stresses could sharpen rivalries within the leadership concerning the scope and pace of reforms. If the succession to Kadar occurs about this time, the initial smooth transition period might be but a respite before factionalism becomes more serious.

— While struggling with heightened factionalism, the regime could begin to drift, resorting to a “stop and go” approach to economic reform and ultimately deepening morale problems and accentuating social strains.

— An increase in public discontent would renew and possibly intensify the regime’s emphasis on discipline and social control. [portion marking not declassified]

Hungary’s economic and social problems will deepen during a difficult period for Moscow—a time when Gorbachev will wish to concentrate on Soviet economic problems and not assume any more burdens of his allies. Tensions between Budapest and Moscow could increase over a number of issues such as: the scope and pace of economic and political reform, commercial ties to the West, the dimensions of CEMA integration, ruble versus hard currency payments, prices for raw materials from the Soviet Union, the quality of Hungarian exports to the Soviet Union, and defense spending. [portion marking not declassified]

Despite the somewhat greater possibilities for increased strains, particularly over economic issues, in all major respects Hungary will continue to fulfill its current commitments to the Warsaw Pact. A serious crisis—one that would require the direct use or the very real threat of force by the Soviets—is unlikely. If such a crisis did develop, however, it would most likely spring from a Hungarian succession process that goes awry and/or Soviet mishandling of the leadership transition. [portion marking not declassified]

The United States has an important stake in the evolution of the situation in Hungary because it is at the leading edge of reforms in Eastern Europe. Hungary’s growing indebtedness to and economic need of the West, moreover, should continue to give the United States and other Western industrialized countries some limited leverage. Over the longer term—and particularly if Gorbachev’s program to revive the Soviet economy fails—the economic attraction of the United States and the developed West may increase even more and, thus provide a better opportunity for Western leverage in Hungary. [portion marking not declassified]

[Omitted here is the body of the estimate.]

1. Source: Central Intelligence Agency, History Staff Files. Secret; [handling restriction not declassified]. Prepared using information available as of May 14. The National Foreign Intelligence Board approved the estimate on May 15.