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December 22, 2016
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March 19, 2012
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December 30, 1949
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Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 1N#ELIQWX 2 ! 4 CLASSIFI9110N CENTRAL INTELLIGENCE AGENCY REPORT' INFOIRMATIO REPORT CD NO.. COUNTRY Hungary DATE DISTR. 30 -Dec. 1949 SUBJECT Hungarian Heavy Industry NO. OF PAGES 8 PLACE ACQUIRED DATE OF I NO. OF ENCLS:. (USTED E zLOW) SUPPLW.MENT TO REPORT NO. T311G DOCUEIUYYT COuTAIB:] EWFOU:IATION APFaCTINOTDB BA'I~ DCLAL DGPIINIIS OP TBR UNITED OTAT69 CITNIN rum UWADINO OF T311t 04011 ACT U* D. II. O.. D/ ADD $2. AS APSE$OFD. ITS TBAIBI4196ION OS TI2 DHVBIATIOD CP ITS CONTHDTO IN ADT MANNED TO AN UNAUTOOHITBD PI:3SOIi IS P20- R10IT2D DV CAW, RBPRODUCTIOr3 OP Tots FOOLS is FBOOIS ED. only half the requi ements? It was necossa r to vl~lnn a reorg.nization and ternative but to r a e tt?o^e plants state prorerty. The %TI"i u as created to take care of t'iis s"_tuation which Sins also broutht about by the following contributing factoro. Five large conpanies, which previously had been com. - petin with each of#=er, were. unable to attain the desired outrut until their production ha(' been coordinated under a unified rarstar'e: ent. There was a need of reor, vnization. The production program was primarily deter- nined by the requir rents of 'Soviet reparations. and by reconstruction work, and the insta?latios an_? the rroduction rotontial of the -plants tau:Ld greet THIS IS UNEVALUATED INFORMATION The General Sit'n National: za.tion of ' 'Tungarian Industry began in 1946 with the coal nines and the heavy industry.i Then, in the sprint; of 1941", nearly all industry was nationalized under ! ,he law ? rich provided for the nationalization of all entorn rises =rith r?we than 100 er-ployee and of the Most vital industries enrloyinn less than 100 workars. As a result of this, six of the largest plants producing a-iok t of the iron and steel and cost of the machinery and ships were placed under the Heavy Industry Center (UIK). The nowt important recon- struction work (coryunications) and the reparations to be aid to the USSR and to Yugoslavia were rI,o be taken. care of by these plants wzich, due to war darsages and to the inflatio. rrivate carital was unable ?t in+,n nrrs.:11)etj.on ro.r;a.(iiv or to bring to a hi;h rate of rroduction. The state. thus had to intervene o The state, or rather the governnent, which was already half Comrnuni st, had no inclination to h?,lp private capital with loans, so that there seas no al- redistribution of -szrk a?-,.ono; the various giants. . this was realized during the fir-t half of 19, 50X1-HUM 2. The ,success of heavyy incuc);ry was the pride of the Hungarian gove4nnento Its production attained pre-czar levels and in sore fields even exceeded it. But this was brought atout by treat oncrifices . Hungarian econony ,->a s urdened by the large budgetary allocations which were set aside for heavy industry, to the detrir-.ent of'. other branches of national econor r., Theo anounts bene- fited nriiarily the recipients of reparations - with Via `'ovi of Union in the fore. During the first year, no -great change in the or7 of plants took place. Each plant retained itn ^ILa .aFgonont an.-7 ,adnini.stration, stn' only listrihution of the 1 v-York anon' the c'.iff-rent rlanto and the raw rater i Lls allocations .-sere that jo') of 11-ho _ TI`C. :even the for-par ropre nentative body of _ CLASSIFICATION S%CR " STATE P pV 4 NsFw : mss PISTRIDUTIO V ~~1 ~E.f 7Y f a{t Ff3i ?)[aja rT -~, Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 C};ANTRAL INTELLIGENCE AGENCY MAVAG personnel is 23,000 at the present. The most important production figures for 1941 were as follows: Pig iron Raw steel Cost iron Cast steel Forging: Sheet iron Railroad engines Agricultural machines Metal constructions 12,000 tons 18,000 n 2,000 800 2,000 9,000 60 1,000 500 per month " tq tt tt tt n tt tt " n tt per month per Month tons per month Manfred Weiss Plant at Ceopel near Budapest Forging and rolling mills, forging and stamping shops, drawn steel tube shops, metal goals, bicycles, motors, tools, sewing machines, agricultural machinery. Before the war, the plant also manufactured ammunition and air- craft. During the war,, the plant also built several huidred lint tanks, cross-country vesicles and trucks. In 194/ a the plant as seriously damaged by bombing and suffered from other war damage and from dismantling by the 'Russian troops.. It was rebuilt through large investments and at the same time enlarged. he first Hungarian aluminum plant was also associated with this enterprises, but since its capacity was low, the new aluminum plants are more important. The plant employs 21,000 persons at present. Its most important produce ion figures as of the end of 1947 Twere: Rat steel 12,000 tons per month Cant iron 21000 I tt n Ca?tt steel 200 "" 5 tt Fo-,dings and stampings 19500 " tt ro Drawn products g,000 " n at Ag~?icultural products 1,500 (sic) per month Tools 200 tt t: ca n Bicycles 5,000 Bicycle motors 700 " et rt n Setring machines 1,000 3) Rimamurany Ozd Steel Mills (RIMA) at Ozd (Northern Hungary) Forging and rolling mills, foundries, forging and stamping shops, with 14,000 e>m- p3.oye6s at present. The plant was slightly damaged by the retreating Germans, but the damage was quickly repaired. Production figures as of the end of 1947: Pip;- iron 19,000 tons per -month Ray= steel 25,000 " tt n Cart iron 800 n " Cart steel 400 " it Fox?gings and stampings 350 Sheet iron 17,000 " at 4) Ganz & Co., Electromechanic Products, Railroad Cars, and Shipyard at Budapest Consists of three plants: the machine plant, the railroad car, and electrical equipment plant at Budapest, and the shipyard at Ujpest aiear Budapest. The !iachine factory builds Diesel engines and 'eneraator gas engines, gears, smelt- ing and roiling eq".u.ipment, turbines, pumps, reduction motors, brick moulders, threshing machines, railroad cars, and self-propelled railroad cars. The electrical egiaipm)nt Plant manufactures generators, dynamos, electric motors, Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 SECRET CENTRAL INTELLIGENCE AGENCY -4- transformers, circuit breakers, and electric meters. The shipyard builds barges (500 to 1000 tons), river boats, boats for the Danube shipping (1200 tons) dredges, metal structures, bridges, boilers, pulleys, foundry equipment, and steam hammers. During the war, the plant also made several hundred light tanks., shells, and anti-aircraft instruments. The shipyard has built 4 ships of 2500 and 4000 tons. In 1944, the plant machinery was aliitly damaged by bombing and the electrical equipment plant was parti- ally destroyed during the siege of Budapest. Most of the damage has been repaired, and the plant has 10,000 employees at present. Production figures as of the and of 1947 were: Motors 50 per month Dnnrious machinery 200 " Railroad cars 300 ALses 4 Eliectric motors and generators 500 n " Ts.?ansformers 200 n n Electric motors 2,000 n " Ships 20 year B&'idges 6,000 Cast Iron 19400 tons per month Crest steel Forginpa 400 Hungarian Railroad Car Factory, GyBr (RABA). Construction of railroad cars, bridges, motors for self-propelled railroad cars, trucks, and buses. In 1944, the plant was badly damaged by bombing and most of it had to be rebuilt. At present it employs about 5,000 ,iorklers. Productions figures as of the end of 19473 5) RP4lroad cars 200 per month Ti xcks and buses 50 " Ttal structures 3,000 " year Cost steel 350 tons per month Forgirigs 300 " 5O The heavy industry plants not associated with the NIX are the Lang factory, the Hungarian Steel Mills, and the Hofherr-Schrunz Works; the last two em- ploy 2000 workers each. Lang produces Diesel engines and generator gas motors, steam turbines, steam engines, boilers,. equipment for chemical plants, and metal constructions. The Hungarian Steel Mills make mostly steel forgings and stampings and steel alloys. Hofherr-Schranz produces agricultural machinery and tractors, but, in comparison to the NIK plants, its production is. very small. After the organization of the Hungarian industry, the aluuntnum industry was made part of the chemical industry. Hungarian > ixite reserves, assuming a production of 1 million tons per year, will last 200 or 300 years. At present, not even half of that amount is being exploited, because the domestic aluminum plants are not capable of treating that much are. Prior to the occupation of Hungary, most of the bauxite went to Germany. It is planned now to increase the exports to the USSR as soon as sufficient Danube shipping facilities are available. During the war, a plant for treating. bauxite was constructed on the Danube between Eaztergom and Komarom, with an annual production capacity of 60,000 tons of aluminum. This plant was not completed during the war and was also damaged by bombings, but it was put Into operation during 1948. The plant at Magarovar has a capacity of a`1rost 10,000 tons. There are also aluminum plants at Csepel, Ajka, and Szekeefehevar, all'of them in the mining and industrial SECRET Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 CENTRAL INTELLIGENCE AGENCY -5- region between the Danube and Lake Balaton. Present production seems to be around 60,000 tons per year. It was planned to increase production through the use of cheap eltsctrio poeaer to be obtained from Yugoslavia. Agreements had been concluded frith Yugoslavia ,for the construction of 1 droelectric plants which would transmit power to Hungary, but these agreements are sus- pended at the present, TheFlnaneial. Situaty on._$ru ~ R Outside of the natic:nalized steel mills (MAVAG), the former plants of Lang, Ganz and Hungarian Steel Mills., the interests of the Hungarian Credit Bank, RIM atd RABA belonged to the Hungarian Commerce Bank, and the Mt4 plant was in the hands of the Weiss family, although, during the war, bank capital also acquir -d an interest in it. The banks also furnished the neces- sary credits for the plants, while NAVAG was maintained by the State. Most of the plants operated at considerable loss.: in the period between the two wars, and MAVAG, especially, was a heavy burden on the State treasury. The situation began to Improve in 1936, and by the outbreak of the war, most of the plants more showing a profit; heavy industry obtained its maximum profits during the war. After the collapse, the companies found themselves in an extremely bad situation. Although production had already started in 1943, war damages, lack. of raw materials, and lack of work. discipline permitted only a low level of production. In the same year, inflation occurred which caused the companies to lode their operating capital. However, the greatest losses were caused by reparations which, for the most part, had to to borne by heavy industry. The USSR computed the reparations in terms of 1939 prices, and de- liveries at the prevailing price. In that manner, the plants were reimbursed by the Reparations Office, in charge of regulating the deliveries for the State treasury, only for one-half or one-third of their production costs. The State granted credits to the aornpanies until it took them over in. 1946. At that time, they were indebted almost. to the full value of their assets. After nationalization, the: losses continued to increase, mostly for the following reasons: a. Plant eapaeitieer were only partially utilized. b. Production costa increased, because of the increasing bureaucracy and the growth of the administration. R3MA 50 " M.W. 10 " Ge;nz 5 " I ;BA - 3 " c. The output of the workers was only 70 or 80% of the pre-war level. d. Because of the high cost of living, wages had to be increased (on an average of 15 percent after the stabilization), while the prices of the main products of the heavy incustry.remained the same. e. The plants which had previously produced expensive machinery and exported it at mod prioc:s mostly to the West and overseas, had lost their export markets and had to turn to cheap mass-produced goods for the East. At the and of 194.6,. the Reparations Office owed 103 million forint (the official rate of exhange, $i - 15 forint, the actual rate, 1 - 20 to 22 forint) to the RIK plants alone for their deliveries, and in 191+7, it could pay off only half its debts. The Froc'+.uction deficit of the NIK plants for 1947 was: I. VAG 17 million (profit) 89 million In the program of tYe 1947 Three-Year Plan, 86 million were used for invest- ments, and another 150 million have been earmarked for this purpose during 1948. SM~3zF-T Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 CENTRAL INTELLIGENCE AGENCY -6- According to the NIF management, the value of the production at the beginning of 1947 reached 67 million per-month, with 65,000 workers employed, while by March 1948 production had reached a monthly value of 168 million, with a per- sonnel of 72,000. On the other hand, the 1948 prices are higher than those of the past year, so that the real value of increased production is less than the figures indicate. The deficit was overcome, and at the one. of 1948, production was to reach 200 million per month. Thus production should be high enough to cover the investments planned under the Three--Year Plan for the NIK plants. According to the above data, the pre-war production of 1938 has already been exceeded by 2 peroetit, but, in reality, this ~s not the case, since the figures were based on the official rate while the real value is approximately 20 percent less. It should alto be noted that the plants worked at full speed only during the war, most of them with three shifts, and that the production figures ex- ceeded those of 19% by 60 to 100 percent. Such production fiP;ures could not be obtained at present even with the plants working at maximum capacity; first of all because: of the lower individual output, secondly, because less expensive products cre being made. The production goal set for the heavy in- dustry in the Three-Year Plan may be realized in 2f years. 50X1-HUM 9, Before the war, heavy industry supplied the domestic market and also ex- ported goods having an annual value of 60 to 80 million ngS (15 to 18 million dollars) These exports brought in large sums of sound foreign currer:cy. Items exported were mostly machinery, railroad engines, motors, finished metal and electrical products. During the first years of the Soviet occupation, the only supplies to the domestic consumers went to public enterprises, primarily for'rebuilding communications. A large part, approxi- mately 25 percent of the reparations to be furnished, had to be supplied by heavy industry, so that some plants had to work almost exclusively on repara- tions contracts. At a result, exports tent down nearly to zero. Since 1947, heavy industry has ieaumed exporting, but mostly only to the Soviet Union and Yugoslavia, countries which, in order to have reparations deliveries continued, have ordered the necessary products (mostly only railroad equipment and elec- trical apparatus) ov the basis of reciprocal trade agreements. Because of Hungary's need for v tai materials from the West and also for Western currencies, the government is therefore insisting on the resumption of former trade relations with the lest. Contracts for the shipment of motors, bicycles, and sewing machines are about to be concluded with South American countries The value of the exports should be about 150 to 200 million forint -8 to 10 million dollars) per year. 50X1-HUM Raw Material Suroliv_ 10. The most Important iaw materials required by Hungarian heavy industry were sulr?lied before the war, by neighboring countries, but its greatest supplier, Gerrany, no longer tixists. Coal comes mostly from domestic mines, but coke must be imported. After the war, coke was imported from Poland for it chile, but deliveries were halted in 194.7 and the Soviet Union has promised to supply it. Iron ore came mostly from Czechoslovakia, crude iron came from Germany and from Rumania. At present, domestic production is being increased to the utmost, but it cannot cover more than a part of the demand. Under the trade agreement with Yugoslavia, that country, as well as Russia, will surply iron and manganese. There is difficulty in getting supplies of copper, electric insulating material, apparatus, instruments, measuring equipment, etc. which used to be imported from the West Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 CENTRAL INTELLIGENCE AGE"TCY tools. Because of political events in Yugoslavia, export and also import of raw materials have suffered severely. In accordance t,rith the decision of the Cominform, Hungary has joined the baycott against Yugoslavia and has halted deliveries. However,, since Yugoslavia was ahead in her deliveries of raw materials, and thus. has large credits in the trade balance with Hungary, it is to be expected that she, too, will halt all deliveries. Personnel Questions 11. The heaviest losses of heavy industry, for which there, is no compensation, are the losses of key personnel. Not only the active managers of the plants, but also the qualified technicians have left. The best-km wn ones fled to the ?Jest before the Soviet occupation, the others one or two years later, after they had come to the conclusion that, althout they held a privileged position under the Communist regime, their position was untenable. Many also became victims of the purge. The strength of the Hungarian heavy industry lay in the ability of its specialists, since the plants, as compared to world industry, were neither very large nor very well equipped, but quite obsolete. Nevertheless,-the exceptional ability of the engineers was always sufficient to keep the factories on a very high level by their technical perfection. These men are now lacking, and therefore progress is impeded. At first, the members of the "anci n regime" were left at their posts by the new oovemment. These were the men t$ro would go along with any regime and who became convinced Communists where they had been convinced capitalists before. But sooner or later, one after the other, they were disr^issed to make room for a Party mem- ber. Furthermore, once the plant was running again, the Communist government had no further use for their ability. The Plant Councils and the Trade Unions gained pore and more Influence. They should have concerned 'themselves equally with the production program and the administration of business, but they limited them selves to personnel questions and cone. trated on the renoval of their hated superiors. However, the new Communist substitutes, who were charged with enforcing to the letter the prescribed quotas, were worse bosses than the men they had rep: .aced, and against them the workers were powerless. The level of individual output has also gone doom greatly, and there are many more not-qualified workers than before, and fewer specialists, since the prime ob- jec ive is no longer the manufacture of precision machinery but mass production. The wages correspond to 50 percent of the pre-war wages, but their actual value is mach less; on the other hand, greater and greater output is demanded. Pro- duction contests, backed by a great publicity, exhaust the workers. On the whole, the morale of the workers and, even more so, of the specialists, of the white-collar workers and of the engineers, is very low. F-0181=128 or 2M12-MOJA 12n As already stated, the plants are utilized almost to their full capacity, and in some cases even overworked; but despite this, because of low individual output and production of lower-grade goods, production dose not reach the high level previously attained. There can be no doubt that the rational redistribu- tion and strict deliwitation of production between plants and between the vari- ous production operations, the unified management of an enterprise employing 80,000. people, the exchange of technical experience, the suppression of compe- tition, etc., are means which stimulate production and whose advantages are un- mistakable. Thus, for instance, the production of ore in the Ozd mim)s has been increased by 10 percent in one year and the coke consumption of the blast fur- naces at Ozd and Diosgy8r has been decreased by 7 to 9 percent. Furthermore, the proper distribution of work to the different plants and the proper utili- zation of waste products have done much to increase production and reduce over- head. But at present, the possibilities are nearly exhausted. From the point of view of quality, production can hardly be improved; now plants would have to be built and the raw material supply developed. Mass production is also limited. Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8 I. CENTRAL INTELLIGENCE AGENCY -8- As far as quality and technical perfection are concerned, no great irnprove- mont has been evident and therm can be none, since there is a lack aC quali- fied personnel. Hungarian heavy industry is not geared to moo-production; it is quite similar to the Swiss macbanical industry. Primarily, it should have the place that it used to occupy in the world market due to its high technical standards. But when compared to the gigantic industry of the Soviet Union, it can never play more than a secondary role as a supplier of mass produced goods for the Eastern countries. Declassified in Part - Sanitized Copy Approved for Release 2012/03/19: CIA-RDP83-00415R003300080008-8