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

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

10660/Depto 4065.

Budapest, October 18, 1988, 1424Z

SUBJECT

• Deputy Secretary Whitehead’s Meeting With General Secretary Karoly Grosz, October 17, 1988.

1. Confidential—Entire text

2. Summary. In an October 17 meeting with Deputy Secretary Whitehead, General Secretary Grosz noted Hungary’s interest in obtaining U.S. assistance in encouraging businessmen to come to Hungary because of the country’s need to obtain the expertise necessary to transform an outdated economy into a modern one. Grosz argued that there was no danger of the reform process slowing down although there was no unanimity in the country about the correct pace of reform. He supported a clash of opinion, arguing that it would result in a new point of view. Nonetheless, economic relations were not sufficiently dynamic and there was a shortage of time. Grosz also reviewed Hungary’s establishment of relations with Israel and South Korea and participation in the Iran-Iraq peacekeeping force. He argued that Hungary would withstand all criticism of these acts because it believes in what it is doing. In response to the Deputy Secretary’s question regarding Hungarian voting practices in the UN, Grosz responded that in determining its vote, Hungary looks to its national interest and not how other countries will vote.

3. Participating in the meeting were Ambassador Palmer, EUR DAS Thomas Simons, NSC Senior Assistant Nelson Ledsky and EconOff (notetaker). Hungarian participants were Deputy Minister Laszlo Kovacs and US Desk Officer Gabor Horvath. End summary.

4. Deputy Secretary Whitehead opened the meeting by noting that he had talked to much of the GOH top leadership and had heard a variety of views. Some observers, however, believe that there is a danger that the reform process may be in danger of slowing down. Nonetheless, the economy was doing better and he hoped that the GOH would move forward aggressively. Here Gorbachev was a good model. As the Hungarian economy becomes more market-oriented, there are many ways in which the U.S. can help. For example, an IBM manager would be coming to Hungary to encourage U.S. investment in Hungary and the International Executive Service Corps could help bring American management skills to Hungary.

5. General Secretary Grosz [garble] that his visit to the U.S. was viewed as successful by both the party and the government. This had been publicly proclaimed, and, as a result, there was [garble] the United States on the part of Hungarian businessmen. There was, however, a mild lack of confidence in the Hungarian economy by others although it was difficult to tell how much was related to Hungary and how much to the socialist world. This would not disappear overnight, but as businessmen come to Hungary, the dialogue will improve. Such events as the meeting of the American Society of Travel Agents in Budapest will help give a human face to events in Hungary. The U.S. could further help by encouraging businessmen to come to Hungary. Money was available, thus, intellectual help is the most important because it is difficult to get the expertise necessary to transform an outdated economy to a modern one. Grosz noted that he was grateful for U.S. support.

6. Grosz stated that while the Deputy Secretary had noted the danger of reform slowing down, he did not believe that this would occur. Nonetheless the country was split. Half believes that reform is moving too fast, half believes that it is moving too slowly. Half of the party believes that socialism is being sold out, while half believes that the current policies are not up-do-date. This is natural, however, because the country is in a transitional stage. The danger is not one of the reform slowing down, but rather of not managing issues properly. For example, prices do not reflect values, and the wage system does not work. The problem is how to manage these issues. Grosz argued that Hungary is not following Gorbachev’s style which is based on a certain tradition and is suitable to a large country. In Hungary, he wants a new style in which those closer to the truth will prevail. Thus, there should be a clash of opinion. Already the government was getting more petitions than the paperwork it generated. There should be an intellectual result of this spiritual happening. Grosz noted that while he was not nervous about political relations in Hungary, he was nervous about economic relations because production was insufficiently dynamic. All want to distribute what no one has produced. This must change.

7. Grosz stated that in its international policies, Hungary adheres to the Helsinki Final Act and stands up for human and ethnic rights. Hungary had resumed relations with Israel out of conviction, and not because of profit. Hungary had also sent 15 officers to participate in the Iraq-Iran peacekeeping force out of moral obligation. It had also resumed relations with South Korea. In these issues, Hungary would withstand all criticism because it believes in what it is doing. Now the socialist world is dividing into two camps and Hungary is in the group that wants reform and good relations with all.

8. The Deputy Secretary noted that it was the U.S. hope that, with Hungary leading the way, the other countries would follow. He asked Grosz to review Hungarian practices in one area—its voting practices in the UN where Hungary votes with the Soviet Union. Grosz responded that there was no case in which Hungary had voted against its principles. Deputy Minister Laszlo Kovacs noted that Hungary had abstained on certain occasions. Grosz noted that in deciding issues, the Council of Ministers often has serious debates and arguments, but that the question of how the Soviet Union will vote does not come up. Grosz stressed that Hungary looks to its interests and not how others will vote. As an example, Kovacs noted that Hungary had decided that if the Arabs attempt to obtain the withdrawal of a member of the Israeli delegation, Hungary would not participate. Grosz added that in Vienna, there are also serious quarrels, but in regard to conventional arms reduction, Hungary wants to be first because it is in its national interest. He noted that for him, “even two soldiers are too many.”

9. DAS Simons noted that in an earlier meeting, one Politburo member had noted that the situation today was the reverse of the situation in the sixties. Then there was more bread, but less freedom. Today, there will be more freedom, less bread. Grosz responded that the economic situation today was worse than in the sixties because of the new demands and expectations for goods like cars and color televisions. As a slogan, he would prefer more freedom and greater economic potential. But economic freedom must be coupled with intellectual freedom. For ten years, no incentives had been set to encourage higher performance and it was difficult to set an immobile crowd into motion. He noted that there was a positive reciprocity between “more bread and more freedom.” While the leadership has patience, there is a shortage of time. Grosz then noted, as he frequently does, that it is only twenty months before he retires. Then he will be able to meditate.

Palmer

1. Source: Department of State, Records from Ambassador Thomas W. Simons, Jr., Lot 03 D 256, Chron, October 1988. Confidential; Immediate; Exdis. Sent for information to Eastern European posts and the Mission to the United Nations.