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

338. Telegram From the Embassy in Hungary to the Department of State¹

10802/Depto 6033.

Budapest, November 14, 1987, 1722Z

SUBJECT

• My Visit to Hungary.

1. Secret—Entire text.

2. We had an excellent series of meetings today with Hungarian officials, including General Secretary Kadar,² Prime Minister Grosz,³ Central Committee Foreign Secretary Szuros,⁴ Foreign Minister Varkonyi,⁵ and my official host, State Secretary Horn.⁶ I also visited the Budapest bond market, believe it or not. The free market is on its way here, and I challenged them to have a Budapest stock exchange for me to see next year. At tonight’s Marine Corps ball, I read your statement to the Corps,⁷ and tomorrow I’ll visit the giant Raba Tractor factory and, to balance things out, a nearby monastery.

3. Relations with Hungary are good and getting better. Horn and I went through a long list of subjects that presented problems last year and all have now been solved or are vastly improved. There have been a number of high level visits (you are seeing Marjai while I am here).⁸ Our bilateral trade is up 30 percent, 18 U.S. companies now operate in Hungary (up from seven in 1985), a U.S.-sponsored graduate management school is about to open, and I signed a cultural exchange agreement today. We continue an active dialogue on terrorism. Pan Am’s routing complaints have been settled and OPIC will shortly begin insuring U.S. investments. We offered and they accepted a seminar on narcotics, and, rather amazingly, we have no outstanding human rights cases. Hungary is more and more a Central European version of a Western free-enterprise country masquerading for its own protection as a socialist society. No small part of this success is due to the outstanding job Mark Palmer is doing.

4. Unfortunately, their economic conditions are not good. While Budapest is Paris compared to East Berlin or Bucharest, they are living beyond their means, external debt continues to grow. While by no means a basket case like Poland, they need to get government expenditures under control, eliminate losing enterprises and create wage differentials for the most productive people. But they have a plan, and it’s a good one. I think they have the courage to put it into effect; at least they all are willing to say so very openly and forthrightly. It includes, if you can believe it, an income tax and a value added tax, conversion of business enterprises into stock companies with subsequent public offerings, elimination of all controlled prices, free currency exchanges, etc. and all this while Lenin’s bust adorns the bond market’s wall!

5. Kadar is another amazing 75 year-old. He’s obviously in excellent shape, physically and mentally. We had a vigorous discussion, mostly on our relations with the Soviets. He takes the view, as did all the Hungarians I visited with, that we have a window of opportunity with the Soviets and that we should be more responsive. I pressed him to tell Moscow that they should move forward with at least the kind of human rights protections that Hungary had adopted, that they should get out of Afghanistan quickly, and improve their interfering conduct in places like Angola, Nicaragua and Cambodia. No one took offense at any of this. Indeed, I repeated it in my press conference at the end of the day.⁹

6. The new Prime Minister Grosz is impressive. He is reported to be the leading candidate to succeed Kadar. He appears to be pro-Western, and has a number of relatives in the U.S. If we can get clearance for a Presidential visit next year for any Eastern European, I think my candidate would be Grosz.

7. All in all, I am surprised and certainly pleased at how much Hungary has done in the past year to respond to our initiative. But they are eager to do more. They kept asking, “what more can we do to improve our relationship?” We’ll look for concrete things as next steps.

8. The leaders of the countries I have visited, I think sincerely, show great respect and admiration for the U.S. It certainly comes through loud and clear in Hungary. They have very little respect or admiration for the Soviets, but are sensible enough not to flaunt it. They continue to say that we live under two different systems, socialism and capitalism, and that this will not change. But their very definition of socialism is changing rapidly and begins to sound more and more like the free market to me. The question is not whether they will change, but whether they will change successfully. And here I have some doubts.

9. The only unsuccessful event on this leg of the trip was my meeting with Embassy employees. They are more upset at our budget reduction program than at the other posts I visited, and tend to swallow the AFSA line that it’s management vs. employees and that we’re out to cut people not programs. This needs work.

10. It’s on to Moscow on Sunday.¹⁰ Dick Schifter and I have appointments with Adamishin and Shevardnadze on human rights, and Gary Matthews and I have an appointment with Bessmertnykh on Moscow Embassy problems. Back on Tuesday¹¹ night unless the Moscow visit gets extended.

Palmer

1. Source: Department of State, Official Correspondence of Deputy Secretary of State John C. Whitehead, July 1982–January 1989, Lot 89 D 139, 11/87 EEur/USSR Trip Memcons. Secret; Immediate; Nodis.
2. See Document 339.
3. See Document 340.
4. Telegram 10808 from Budapest, November 14, described Whitehead’s conversation with Szuros. (Department of State, Central Foreign Policy File, D870939–0180)
5. See Document 341.
6. Telegram 10785 from Budapest, November 16, described Whitehead’s meeting with Horn. (Department of State, Central Foreign Policy File, D870939–0681)
7. Not found.
8. November 12. Telegram 358136 to Budapest, November 18, reported the Marjai meeting. (Department of State, Central Foreign Policy File, D870948–0979)
9. Telegram 10846 from Budapest, November 16, provided the transcript of Whitehead’s November 13 press conference. (Department of State, Central Foreign Policy File, D870941–0182)
10. November 15.
11. November 17.