NEW ECONOMIC PROGRAM OF THE HUNGARIAN GOVERNMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00810A003300480010-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 22, 2016
• Document Release Date: January 8, 2010
• Sequence Number: 10
• Publication Date: January 15, 1954
• Content Type: REPORT

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CENTRAL INTELLIGENCE AGENCY
INFORMATION REPORT
Hungary.
This Document contains information affecting the Na-
tional Defense of the United States, within the mean-
ing of Title 18, Sections 793 and 794, of the V.S. Code, as
amended. Its transmission or revelation of its contents
to or receipt by an unauthorized person is prohibited
by law. The reproduction of this form is prohi25X1
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REPORT
New Economic Prograam of the
Hungarian Government
DATE DISTR.
NO. OF PAGES 6
REQUIREMENT NO. RD
REFERENCES
,THE SOURCE EVALUATIONS IN THIS REPORT ARE DEFINITIVE.
THE APPRAISAL OF CONTENT IS TENTATIVE.
(FOR KEY SEE REVERSE)
11 The Crisis in ea Txld2strsr,_
a. Since the-first half of 1953, Hungarian heavy industry has been in the throes
of an acute crisis. Symptoms of this crisis appeared even earlier, but were
camouflaged by Pa^ty propaganda attributing failures and shortcomings to enemy
intrigue and fe.?ti .ty management and organization on the part of the directors
of the state undertakings.
b. As against the official Party propaganda, leaders of the Party and heavy, industry
have for some time been making reluctant admissions of 25X1
shortages of primary raw materials in industry and the inferior quality of
products. Simultaneously they have admitted the falling off in agricultural
production.
c. These veiled admissions werep however, only a feeble attempt to oonceal the real
nature of the crisis facing heavy industry as a result of the insufficienayy and
inferiority of such basic raw materials as coal, coke, iron ore, etc.
2. SS'k ort ge n fi ,lity Def; en 3,
The following examples will give some indication of the extent of the shortages and
the inferior quality of available stocks.
as Eie tr P, 1e~r
As a result of lack of coal supplies power, plants have been unable to supply
sufficient current. The present situation is reflected in measures introduced
in September 1953, restricting general consumption in households by cutting off
current for a period of 2-3 hours every morning and afternoon,
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STATE I X ARMY I X (NAVY
AIR
FBI AEC
(Not.i Washington Distribution Indicated By "X"I Field Distribution By "ik".)
ORR Ev
15 January 1954
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b, Coal
The shortage of coal has always been chronic., but at the beginning of September
1953, it-became so acute that even industrial plants had to cease work for 1-2
hours per day?
o. Coke
1.) The coke shortage, which was felt very strongly in the first half of 1953,
presents the gravest problem to iron works and foundries.
2.) Coke produced locally in Hungary contains so much sulphur that it is imprac-
ticable for smelting purposes. Coke supplied by Czechoslovakia and Poland
is too fine-grained (kleinkernig) and lacking in solidity (mit minderer
Festigkeit ausgebrannt) to be of any use in blast furnaces and foundries.
3.) Had not supplied high quality coke., foundries would have been 25X1
forced to cease work in June or July, 1953.
4.) The production of coke for smelting by a special. process from brown coal
is planned at Komlo. Successful laboratory tests of this process have been
carried out, but production has not yet started. When it does finally start
the Komlo coke production has been earmarked exclusively for the Stalin Iron
Works, at Sztalinv4ros.
5.) Zolt&n Vs, former head of the State Planning Office, is now in charge of
the Koml coke project.
d. 5cra Ikon'
1.) This is so scarce that the Goverrunent has been forced to organize throughout
the country increasing numbers of so-called iron-collecting days and weeks.
2.) From time to time scrap iron has been received but 25X1
these deliveries cover only about 20-25% of requirements.
3.) A further serious problem for plants working with Martin furnaces is caused
by the unclassified state of scrap iron. As a result of this, and the fact
that foundries receive parts of scrapped machinery in large pieces (due in
turn to the scrap iron depots and foundries having no machines to break up
these large pieces), furnaces use too much material, the output is low, and
the quality is very bad.
e. Iron Ore
1.) Iron ore coming from the USSR is so fine-grained and dusty., and contains so
:much silicon acid (Silicium Saure) that it has proved impossible to extract
even medium quality steel from it,
2.) Martin furnaces cannot be properly fed with refreshing (erfrischenden rein)
ore, At the same time production is boosted by "work competitions" to such
an extent that it is impossible to comply with production regulations.
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f. Coal, Coke and Iron Ore
1.) 'Plants usually have only 24 hours reserves of coal, coke and iron ore.
2.) Recently the railroads have been ordered to transport these materials
on passenger and express trains.
g. Nickel. Chromium and a ity Steel
1.) For the past year there has been a serious shortage of nickel and chromium,
and-of steel containing nickel and chromium alloys. As a insult it has been
impossible to add the prescribed quantities of nickel and chromium to steel
alloys.
2.) Quality steel, containing special alloys, may only be used with special
permits. These are issued on the recommendation of committees of experts.
3.) Even special materials can frequently not be produced because the alloys
required for them are not available?
4.) Instead of steel containing nickel or chromium, use is being made of a
so-called "utility steel".
5.) About 12 committees of experts have been set up to solve the problem of
finding a substitute for quality steel, with promises of special premiums
for successful results.
6.) The shortage of nickel and chromium is most strongly felt in connection
with surface protection. Machines and machine parts, previously coated
with nickel and chromium, are now frequently merely painted. Experimental
use is being made of phosphates and bonderization (sic) with a view to
solving this particular problem.
7.) A large delivery of bicycles to China was recently rejected as a result of
poor nickel finish.
h. Copper and Brass
There is a great shortage of these. Usually only 50% of the requirements of
plants are allotted, and even these irregularly. This causes most serious
difficulties in the high frequency and telecommunications industries.
i. Ball Bearin s
l.) This is one of the taost critical of all shortages, and is felt particularly
in the production of vehicles and machine tools.
2.) Ball bearings) Imay only be used with special license. It fre- 25X1
quent% happens that when these are given there are no ball bearings available,
3.) In spite of.the fact that large quantities of bearings are obtained from
the USSR (an average of one carload daily), these do not t 25X1
meet demands. Their quality is also unsatisfactory.
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;'Arsons for Shortages
The following are the main reasons, in order of importance, for the shortages
described above.*
as The cessation of deliveries
b. The reduction of coke deliveries from Poland, and iron-deliveries from Czecho-
slovakia
Repercussions to the N Government Program
a. 'It was against the bs.ckground of this crisis in heavy industry that the Chair-
man of the Council of Ministers, mire Nagy made his speech on 4 July 1953,
announcing the Goverrnuent$s new economic program. The speech caused the wildest
speculation among vast sections of the uninformed public. There was general
agreement that the new program was in some way connected with Malenkov?s advent
to power and Berials downfall. In fact Nagy's speech was made a few days before
Beriaas arrest. However, it was generally assumed that his pending disgrace was
known in advance to the leaders of the Hungarian Goverrmient.
be Throughout Hungary the speech was received with enthusiasm. Everybody expected
and hoped for a change for the better. Only those who were dealing with indus-
trial matters were skeptical, having no clear picture as to what was to happen
and how. -Nagy stressed in his speech that the success of his. program depended
.on the total, fulfilment of all plans. Industrial experts saw clearly that if
plans were.not reduced and the supply of raw materials not improved, there could
be no change. In~fact9 up to the end of September 1953, there was no material
change,
c. Following Nagyos speech work came to a virtual, standstill in government offices
and undertakings while everybody discussed'the future. It was particularly
interesting to observe the attitude of Party members. They had obviously not
yet received their directives and were anxious to avoid all questioning. However,
some of the bolder elements began asking whether all they had been taught in Party
courses was false, and in particular the repeatedly stressed doctrine that the
development of heavy industry is the cornerstone of socialism. There were some
even who talked of making Rakosi the scapegoat for the crisis. Many asserted that
he had left his private villa; others talked of his going to Bucharest to take
over the leadership of the Cominform. A reorganization of the Party Secretariat
at this time seemed to confirm these rumors.
d. Meanwhile goverrma.ental officials, and particularly those working in the ministries
concerned with industry, waited td see what changes were to be introduced. When
they asked questions about the future and their new duties, they were told that
the Planning Office had not yet worked out the'figures. Finally, towards the
end of duly 1953 an announcement was made to the effect that investments in heavy
industry would..kaave to be reduced, but simultaneously all plans must be completely
fulfilled, as this was a precondition to the carrying out of the new program.
Particular emphasis was laid on the fulfilment of export plans, and the special
importance of western exports as a means for earning foreign currencies, was
stressed, /
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Defective quality of imported raw materials.
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?5m
e. Party agitation irx'support of these aims then set in with full force. At
Party meetings there was much talk about closing of ranks in order to carry
through the new program, to intensify the fight against the enemy, and to
inorease'vigilance. Stricter political measures were introduced. Everybody
was'soreened anew, at his place of work and in the Party, Party Directorates
throughout the country, were reelected during July and August.
5. Reduced Pr2d uction .inn Heavy Industry
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1.) Armaments have become obsolete, and Hungary can now produce other goods-
2.) The Korean front does not require any further supplies;
3.) All the machine tools and installations for armaments production are now
ready'. The workers have been trained. Accordingly production can be restarted
whenever necessary,,
e. The reduction in the armaments industry has led to a slight improvement in the
supply of raw materials for the other industries.
a. In'"some-undertakings there has been a very slight reduction of production plans,
ac-ompan1?d'by great publicity; but only in such undertakings and in respect of
such products where original plans could never have been fulfilled. Thus, at
the Lenin Steel Works at Didsgyor and the Ganz Railroad Car Factory, production
pla:es-have been reduced by a few hundred tons per month and approximately one
million forints respectively, with a view to demonstrating to the workers that
the Government's promises are being carried out.
b. Apart from this and the reduction of arms production mentioned in paragraph 6
(see below), reduced production has only occurred in smelting works, and then
again merely for the reason that raw materials are scarce. Shenever raw materials
become available there is no more talk of reducing plans, but the available stocks
are used up with the utmost speed.
6. Armaments ~indust:y.
a. Slowing down of production in the armaments industry commenced at the time of
Stalin~e death. Since then it has greatly fallen off in all-arms factories, but
has nowhere stopped completely. Thus, it is a fact that about 50% of the workers
.e4loyed in plants producing arms have been dismissed or transferred during recent
months. Furthermore, factories outside the armaments industry proper,. which have
been producing component parts for arms factories, have ceased to do so.
b. The. general opinioa is that arms -production today is limited to requirements for
training purposes and for maneuvers of the Armed Forces. The real reasons for
these reductions are not h"own. The following opinions, however, are expressed
7. Reduced InLyestrnet Hea3rv__Induet=Zy
a. On the other had there has been a reduction of investments. In the metallurgical
and engineering industries investment reductions were announced at the end of
August 1953 to the staff conference of the competent ministry. Following this
announcement, investment allocations for the current year, which have not yet
been utilized, have generally been reduced by 80-85%.
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b.,Reduction of investments to date have been wholly illogical and unreasonable9
no regard being paid to technical or any other considerations., except to the
lack of raw materials and the consequent inability to carry out plans,
at, One project in which a reduction of'investment has taken place is the Budapest
subway. In, connection with this project it was decided, to build a tubing
foundry with a yearly production capacity of 289000 tons, Although 80% completed,
work has now .hopped on this foundry, as it has proved impossible to date to
import the required machinery 25X1
d. Another reason Why work has had to be suspended on the subway is the insufficient
supplies of cement and tubing-this despite the- fact that almost every foundry of
a* sixe was producing tubing for the project. The underlying reason for this
impasse is the shortage of raw iron. To assure the fulfilment of the project9
tubing was given preference over all other work in the foundries and iron works
producing its This9 however., resulted in the consumption of what little raw
iron was available.
e. The result of the investment reduction may be seen in the fact that the opening
of one section of the subway (from the Eastern Railroad Station to the Kossuth
Square)',., fixed for 19549 has been postponed until 1958. The opening of the
section from Kossuuth Square to the Southern Railroad Station9 planned for 1955,
has been postponed to 1960?
f. Investment has also been reduced in the Stalin Iron Works. The start of production
in s;ei-fain parts of the works9 which had been planned for August 19539 has been
postponed for another year.
g. The delay in stating production at the Stalin Iron Works is due primarily tos
l.)
not keeping up (with deliveries?) with the 25X1
assembly work on the spot-
.) the failure to deliver the parts to be assembled on the agreed delivery dates.
he
i. Investment reductions have also taken place in the power plants of Inota and
Tiszalak.
80, Produotion of _ Cons ear _Good
There has been no concrete evidence yet of any planned increase of production of
dohstmer goods. in particular9 there has been no increase of allocations to those
factories producing consumer goods9 which fall under the Ministry for the Metallur-
gioal and Mechanical Industries.
9o ExRe AJaes,sme,xr,t of the New . Pro ram
In the views of I the speech and new programs of Imre
Nagy is nothing more than a declaration of bankruptcy of the industrial and agricul-
tural policy of the present Hungarian Regime9 expressed and exploited with devilish
cunning for the' prolongation of its rule.
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