IMPACT OF WESTERN INFLATION AND HIGHER OIL PRICES ON HUNGARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000600010014-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 5
• Document Creation Date: December 12, 2016
• Document Release Date: April 13, 1999
• Sequence Number: 14
• Publication Date: February 14, 1975
• Content Type: MF

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Attached is a co of the ,
that li/;cE sent to
on 13 February 1975.
25X1A9a
Distribution: (S-b779)
Orig. & 1 - Addressee
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1 - D/U
1 - S t/P/C
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25X1A9a
14 Feb 1975
(DAT~-
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 Approved For Release 2001/12/05: CIA-RDP86T0 6~8R00060 010014-1
Fact of Western Inflation acid HigY~er. Oilprices on Huncrar
Purchases of. high-priced Western crude oil, chemical
products, sugar, and cotton resulted in a sharp decline in
Hungary's terms of trade and a record foreign trade deficit
with the West ~n 1974. During the first nine mon??hs of 1974,
'the price of Hungarian imports from the West rose 44.5$
while export prices rose only 22.4$. Moreover, Export volume
to the jYESt slumped slightly during the same period as
the Western recession and ErC import ban on meat shrank
export markets. Subsidies to offset import price increases
rose from 2~ of budget expenditures in 1973 to 9$ in 1974.
The Hungarians have responded with a comprehensive
package of remedies for 1975 inclizd.ing: (a ). a cutback
in growtiz plans especially fir industrial production and
real wages; (b) a redirection to the socialist countries for
imports by tightening credit and restricting import licenses
for imports from thra West; (c) a boost in investment in the
energy and food sec.c.ors; (d) increases in production goals
for coal, natural gas, .sugar beets, soybeans, and sunflower
seeds; and (e) a strict energy conservation program.
The Hungarian economic reform -- the only genuine
reform prvgra~n in Eastern Europe -- will be further trimmed.
Managerial freedom in planning production, foreign trade,
and investment has been eroded since the overinvestment
bi>ge and $300 millior. trade deficit with she West in 1971.
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Current problems of high world prices and a.~ eleven-month
dEficit in 1974 of $660 million 2iave led econo:,iic chief
Karoly Nemeth to call for sore direct ~:ortrol over the
economy. A complete abandoning of the reform is unlikely --
producer prices for raw materials were raised substantially
in January 1975 in order to reduce subsidies and restore
the exposure of enterprises to world market forces.
. Hungary's total consumption of crude oil in 1974
amounted to nine million tons. Two million tons were pro-
duced domestically, six million tons were imported from the
Soviet Union and about one million tons were imported fro..
the Middle East. Hungary's net i.uports of products were
about 500,000 tons. The rise in worli?1 market oil prices
caused the value of Hungarian crude oil imports from the
West to increase to $95 nillioa or about 6$ of total imports
from the West as compared with 2ti in 1973. The bill for imports was
partially offset by about $20 million in product exports
tc~ the West.
Domestic production in 1975 will remain stable and
imports will rise to slightly more tran 7 million tons. Oil
ir-iports from the j~'est will equal a:~out $110 million; product
exports will again total about $20 :.,illion. By 1980,
increased dependence on Wes;~ern oil could raise the bill.
for Western oil to more than $50~J million annually.
The major development in 1975 is t.'~e recent Soviet
decision to raise crude oil prices to its CE,tiiA trading
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partners fron- under $3.00 to about $6.50 a barrel. 'P~r-e rise
in oil prices will increase .the Soviet oil bill to F~.yx?ngat:y by
$lAS million this year -- an amount equal to 12~ of total
Fiu*:gatrian exports to the Soviet Union in 1974.
And the Hungarians can look forward to even h.~~her
Soviet oil prices after 1975. According to PolisY: Premier
Jaraszewicz, CEMA raw material and ind~istrial prir.:es will
be adjusted each year on the basis of the averagF: world
price for the preceding five years. By 1980, th.F: Soviet
oil bill could reach $500 million annually.
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