[CRS Issue Brief for Congress]

92051: Poland, Czech Republic, Slovakia, and Hungary: Recent Developments

Updated November 20, 1996

Julie Kim
Foreign Affairs and National Defense Division

CONTENTS

SUMMARY

MOST RECENT DEVELOPMENTS

BACKGROUND AND ANALYSIS

Regional Issues
European Security and NATO
European Union
Visegrad Cooperation and CEFTA
Recent U.S. Policy and Assistance
U.S. Aid
Poland
Domestic Political and Economic Issues
Foreign Policy Issues
U.S.-Polish Relations
Czech Republic
Current Political and Economic Issues
Foreign Policy Issues
U.S.-Czech Relations
Slovakia
Current Political and Economic Issues
Foreign Policy Issues
U.S.- Slovak Relations
Hungary
Current Political and Economic Issues
Foreign Policy Issues
U.S.-Hungarian Relations


SUMMARY

Since the peaceful revolutions of 1989, the countries of East Central Europe -- Poland, Czech Republic, Slovakia, and Hungary -- have continued the process of transformation from eastern bloc communism to independent, democratic and free-market-oriented states integrated into Europe. Internally, successive governments have been consolidating market economic reforms and democratic institutions. Externally, East Central European countries are seeking to integrate with Western Europe and achieve membership in the European Union (EU) and NATO.

The process of transition has led to many political changes over the years. The last general elections in Poland in 1993 brought two post-communist parties to power. Former Solidarity leader Lech Walesa lost presidential elections in November 1995 to Aleksander Kwasniewski, a former Communist party leader. In Czechoslovakia, former dissidents won free elections in 1990, but growing differences between Czech and Slovak politicians led to a polarized outcome in the June 1992 elections. Czechoslovakia split into two countries on January 1, 1993. Slovakia held early elections in September-October 1994, returning to power controversial leader Vladimir Meciar. The Czech Republic held parliamentary elections on May 31-June 1, 1996, and Senate elections in November 1996, which returned to power a weakened center-right government. Hungary's first elections in 1990 brought in a center-right coalition government headed by the Hungarian Democratic Forum. Elections held in May 1994 resulted in a sound victory for the leftist Socialist Party, which opted to enter into a coalition with the Alliance of Free Democrats. In varying degrees in each country, the process of transformation has led to economic hardship and political fragmentation. All of the central European economies have experienced varying degrees of growth after a prolonged period of recession.

The international scene has also been transformed. The Council for Mutual Economic Assistance (CMEA) and the Warsaw Treaty Organization (Warsaw Pact) ceased to exist in 1991. Soviet troops were completely withdrawn from the territories of the former satellite countries. East Central European countries have been seeking closer association and eventual membership in NATO and the European Union. All are associated EU members and have applied for full membership. In January 1994, NATO launched an initiative to enhance cooperation with the east called Partnership for Peace. All of the Visegrad have participated actively in the Partnership for Peace program as a means to work more closely with NATO, but still seek NATO membership.

The United States has advanced relations with these countries since 1989 and has established and maintained economic assistance programs for them. In addition to appropriated foreign assistance, all four states receive most-favored-nation treatment and trade benefits. After the January 1994 NATO summit, President Clinton confirmed U.S. interest in central Europe's security and progress in political and economic reforms. Clinton reaffirmed U.S. commitment to the security of East Central Europe during his visit to Poland in July 1994 and in other public statements. Most recently, President Clinton asserted that NATO would expand by 1999.


MOST RECENT DEVELOPMENTS

The first round of elections for the Czech Senate was held on November 15-16. Prime Minister Vaclav Klaus' Civic Democratic Party fared well and its candidates will compete in run-off elections in 76 out of 81 constituencies. The vote was marred by low voter turnout (about 35% of the electorate) which analysts have attributed to lack of interest in the new parliamentary chamber and voter disgust with the political deadlock since the May 31-June 1 elections. In those elections, Prime Minister Klaus had returned to lead a minority center-right coalition, but opposition leader Milos Zeman of the Social Democratic Party became chairman of parliament.

On September 16, Hungarian and Romanian leaders signed a basic bilateral treaty in Timisoara, Romania. The treaty includes an explanatory footnote to limit interpretation on a controversial Council of Europe recommendation on minority rights, which is included in the basic treaty.


BACKGROUND AND ANALYSIS

Regional Issues

European Security and NATO

Poland, Czech Republic, Slovakia, and Hungary are still in a transitional stage in their foreign relations, free from their former communist allegiances but not yet fully integrated into Western institutions. The two main communist international organizations, the Council for Mutual Economic Assistance (CMEA) and the Warsaw Treaty Organization (WTO, or Warsaw Pact), were dissolved in 1991. The ultimate and unambiguous goal of all of the East Central European countries has been to join the process of West European economic and political integration and share the security guarantees of the Western military alliances.

The former Warsaw Pact countries first gained institutional access to NATO in late 1991 through the North Atlantic Cooperation Council (NACC), a forum including all former Warsaw Pact members. Central European leaders pressed the alliance for security guarantees that would come with full membership. In late 1993, U.S. officials proposed that NATO form "partnerships for peace" with non-NATO European countries, including Russia, in order to develop concrete aspects of cooperation, but not yet extend NATO's security guarantee to the partner states. At the January 1994 NATO summit, the alliance invited non-NATO European states to establish Partnerships for Peace (PFP) with NATO. Hungary, Poland, the Czech Republic, and Slovakia were early signatories to the PFP framework agreement and have since participated actively in PFP programs. All of the Visegrad countries have offered troop contributions and other forms of assistance to NATO in its Implementation Force (IFOR) in Bosnia.

Beyond PFP, the issue of NATO enlargement has become a central issue within the alliance. NATO approved of a study on the implications, or the "how and why," of enlargement, on September 20, 1995. The study did not specify countries or set a timetable for enlargement. Many central European leaders have indicated that they expect NATO membership prior to membership in the European Union. In December 1995, NATO ministers called for "individual dialogues" with prospective members. In June 1996, NATO confirmed that it will determine the next steps in the enlargement process at the December 1996 ministerial meeting.

Meeting before 12 prospective alliance members in Prague on March 20, 1996, U.S. Secretary of State Christopher affirmed that NATO enlargement was "on track." Christopher stated that no nation should ever again be consigned to a buffer zone or relegated to another nation's sphere of influence. NATO is to consider the next steps in its December ministerial conference. In April, NATO Secretary-General Solana toured central European capitals. He reiterated that NATO enlargement will happen, but did not specify particular countries or a set timetable. He also spoke of the need for a "strong bond" between the alliance and Russia. In October, President Clinton affirmed that new countries should join NATO by 1999.

European Union

The other primary foreign policy goal of the four East Central European countries is closer association with and eventual membership in the European Union (EU, formerly the EC). The EC signed association agreements with Poland, Czechoslovakia, and Hungary on December 16, 1991, which called for greater economic cooperation, expanded trade relations, and economic and political integration. The EC agreed to abolish trade barriers for industrial goods on an asymmetrical basis, but did not establish a timetable for accession. Poland's and Hungary's association agreements went into force in February 1994. The Czech Republic's and Slovakia's came into force in February 1995 (Czechoslovakia's accord had to be renegotiated after the federation's split). Bulgaria and Romania also concluded association agreements, as have, subsequently, the three Baltic states and Slovenia.

In June 1993, EU leaders formally invited the then six associated countries eventually to join the Community when conditions permitted, and pledged to make new trade concessions to improve access to EU markets, and to strengthen political ties. Trade in industrial goods, steel, and textiles was to be liberalized in timed stages (1995, 1996, and 1997, respectively). EU countries have maintained large trade surpluses with its six associated countries, and central European leaders have complained that their market access to EU countries remains limited. Hungary was the first associated member to apply formally for full EU membership on April 1, 1994; Poland followed on April 8; Slovakia in June 1995; and the Czech Republic in January 1996. In April 1995, EU foreign ministers met with their central European counterparts as part of the EU's "structured dialogue" with associated countries, and previewed the White Paper on EU membership requirements. The Commission approved of part of the White Paper on May 3, 1995. The report identifies and prioritizes measures that need to be undertaken to align the prospective member states' economies with the single market. In December 1995, EU leaders agreed to treat all aspirant members equally, indicated that negotiations could begin within six months after conclusion of the inter-governmental conference (expected in mid-1997), and called on the Commission to prepared individual evaluations of prospective members prior to full-scale negotiations. In March 1996, Hungary followed the Czech Republic in joining the Organization for Economic Cooperation and Development (OECD), an international club of advanced industrial nations. Poland was invited to join on July 11, 1996.

Visegrad Cooperation and CEFTA

Poland, Czechoslovakia, and Hungary soon after 1989 prioritized improving regional relations. A February 1991 summit of Polish, Czechoslovak, and Hungarian leaders in Visegrad, Hungary, began an ongoing process of policy harmonization and political consultation. The so-called Visegrad countries have consulted regularly on numerous issues of mutual concern and have been closely involved with other regional groupings, such as the Central European Initiative (CEI), among others. The Visegrad initiative has since largely shifted its focus from political ties to economic cooperation and trade liberalization. On December 21, 1992, the Visegrad countries signed the Central European Free Trade Agreement (CEFTA), outlining a scheme to lift custom duties and quotas in three stages from 1993 to 2001. CEFTA came into force on March 1, 1993. The foreseen free trade zone is intended not to interfere with the goal of joining the EU, but to increase trade among them, similar to the example of the EFTA countries. At a meeting on January 23-24, 1995, in Warsaw, CEFTA countries agreed to accelerate the removal of certain trade barriers. They agreed to cut tariffs on agricultural goods by 50% beginning in 1996, and by 100% by 1998. In a summit meeting in Brno on September 11, 1995, CEFTA prime ministers agreed to accept Slovenia as a member by January 1, 1996, and later, Bulgaria and Romania. They also agreed to consider liberalization of capital movements and services. CEFTA leaders affirmed their commitment to expand the group at their September 13-14, 1996 meeting in Slovakia.

Recent U.S. Policy and Assistance

Since the democratic revolutions of 1989, U.S. Administrations have advanced relations with the entire region. Governmental and private contacts with the new regimes in central Europe have expanded considerably. Many U.S. policymakers have expressed a continuing U.S. interest in securing central and eastern Europe's paths to democracy and market economic systems, and expanding this trend eastward.

In response to increasing calls to extend NATO's security guarantee eastward, the Clinton Administration proposed, and NATO approved in January 1994, the Partnership for Peace (PFP) program with non-NATO European countries. In July 1994 in Poland, Clinton reiterated his position that NATO's expansion was a question not of whether, but when and how, and denounced the notion that the East Central European region was consigned to any sort of buffer zone. President Clinton presented a "Warsaw Initiative" proposal of $100 million for FY1996 to advance the Partnership for Peace program and support greater military cooperation. Shortly before the 1996 U.S. elections, President Clinton asserted that "the first group of countries" should be full-fledged members of NATO by 1999. In Congress, various legislative proposals expressed the view that more explicit support in the security sphere and more promising signals on NATO enlargement should be extended to East Central European countries. In October 1994, Congress passed the NATO Participation Act, which authorized the President to provide excess defense articles to eligible countries, especially the Visegrad states. In February 1995, the House passed the NATO Revitalization and Expansion Act, which recommended early NATO membership for the Visegrad countries. Later Congress deleted any specific reference to individual countries eligible for NATO membership from this measure. P.L. 104-208 (September 28, 1996) included the "NATO Enlargement Facilitation Act of 1996." It named Poland, Hungary, the Czech Republic, and Slovenia as eligible to receive military assistance.

U.S. Aid. In 1989, Congress passed and the Administration approved the "Support for East European Democracy Act of 1989" (SEED, P.L. 101-179), which authorized a total of almost $1 billion for Poland and Hungary for FY1990-FY1992. Poland and Hungary were made eligible for Overseas Private Investment Corporation (OPIC) and Export-Import Bank loans, and for the General System of Preferences (GSP). The SEED Act authorized the establishment of private Enterprise Funds to promote private sector activities in Poland and Hungary (and later with other East European countries). Subsequent to the SEED action and in response to other changes in the region, additional assistance has been provided by the President and Congress, and extended to other Eastern European countries. The United States also supported multilateral assistance through the World Bank, IMF, and European Bank for Reconstruction and Development (EBRD).

U.S. assistance programs to Central and Eastern Europe continue to emphasize economic growth, democracy building, and improving quality of life. For FY1996, $480 million in assistance for Eastern Europe was requested by the Administration. Congress approved $324 million for Eastern Europe, and $70 million for the EBRD in P.L. 104-107. For FY1997, Congress appropriated $275 million for Eastern Europe and an additional $200 for Bosnia reconstruction, in P.L. 104-208. P.L. 105-208 also authorized $60 million for NATO enlargement assistance.

Poland

Domestic Political and Economic Issues

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Poland established the first non-Communist-led government in the Warsaw Pact on the basis of an historic roundtable agreement between the communist government and opposition in April 1989. In the lower house of parliament, the Sejm, 35% of the seats were open for free elections, while all of the seats in the newly created Senate were freely contested. The first elections in June 1989 brought a resounding victory for Solidarity. The new parliament elected Communist Party leader Wojciech Jaruzelski as President. Solidarity leader Lech Walesa nominated Tadeusz Mazowiecki to be Prime Minister. Poland swiftly launched a radical "shock therapy" economic reform program designed by then-Finance Minister Leszek Balcerowicz. In 1990, factional differences within Solidarity, especially between Lech Walesa and Prime Minister Tadeusz Mazowiecki, led to the formation of a number of Solidarity offshoots. Lech Walesa won direct presidential elections in December 1990.

In Poland's first fully-free parliamentary elections in October 1991, the Democratic Union (a post-Solidarity party) "won" the extremely fragmented vote with about 13% of the vote. 29 parties in total entered the Sejm, ushering in an extended period of party and parliamentary impasse, political scandal, and an increasingly divisive political environment. After a Democratic Union-led government lost a vote of confidence on May 28, 1993, President Walesa dissolved parliament and scheduled new elections for September 19, 1993. The elections brought former Communists and Communist-allied parties into power. With 52.1% voter turnout, the Democratic Left Alliance (SLD) won 20.4% of the vote; the Polish Peasant Party (PSL) won 15.4%; and the Democratic Union won 10.6%. Only three other parties, including Walesa's "non-party" party (BBWR), made the electoral hurdle. The SLD and PSL signed a coalition agreement on October 13, 1993; combined they hold majorities in both the Sejm and Senate. A government under Waldemar Pawlak of the Peasant Party was sworn in on October 16, 1993. However, the Pawlak government found itself at odds with President Walesa over many issues. Utilizing brinkmanship tactics, President Walesa pressed for Pawlak's removal. On February 7, 1995, the ruling SLD-PSL coalition agreed to replace Pawlak with Sejm Speaker Jozef Oleksy of the Democratic Left Alliance. The Sejm approved Oleksy's government on March 4. Oleksy's government program prioritized budgetary reform, curbing social spending, reducing unemployment, and privatization. Finance Minister Kolodko's "strategy for Poland" remained the government's blueprint for economic policy. Poland's economy, the first in the region to experience growth in 1993 and continues to record strong GDP growth.

President elections were held in October-November 1995. Former Communist official Aleksander Kwasniewski defeated incumbent President Lech Walesa in the second round, winning 51.7% of the vote against Walesa's 48.3%. Walesa, whose popularity had been quite low for some time, surged in the final weeks before elections, as many Poles apparently saw Walesa as a counter-weight to the post-communist dominated government and parliament. Kwasniewski, who campaigned under the slogan, "let's choose the future," emphasized social-democratic values, professionalism, and cooperative rather than confrontational tactics. Kwasniewski was inaugurated on December 23. Kwasniewski's swearing-in, however, was largely overshadowed by an espionage scandal centered around alleged contacts between the Soviet KGB and Polish Prime Minister Oleksy, who is of the same party as Kwasniewski. On December 19, outgoing Interior Minister Andrzej Milczanowski submitted documents to the military prosecutor's office pointing to an ongoing collaboration between Oleksy the Soviet KGB. Oleksy refuted the charges, calling them a "dirty provocation," but resigned on January 24, 1996, after the prosecutor-general announced formal investigation into the matter. Kwasniewski accepted Oleksy's resignation on January 26; Oleksy was promptly elected to be leader of the Social Democratic Party (within the Democratic Left Alliance). On April 22, the military prosecutor announced his decision to close the investigation against Oleksy, citing lack of reliable evidence. Kwasniewski appointed deputy parliamentary speaker Wlodzimierz Cimoszewicz of the SLD to be Prime Minister on February 1. Parliament approved of the Cimoszewicz cabinet (SLD-PSL coalition) on February 15 by a vote of 273-87, with 28 abstentions.

On July 11, Finance Minister Kolodko signed a membership agreement with the Organization for Economic Cooperation and Development (OECD). Poland will be the 28th member of the club of developed economies after the agreement is ratified by the Sejm.

Foreign Policy Issues

Since 1989, Poland has sought to integrate with the West, forge new relations with the Soviet successor states to the east, and promote cooperation with neighboring states. A primary foreign policy priority has been to gain closer association with and eventually full membership in EU and NATO. While former President Walesa at first criticized the alliance's partnership proposal as inadequate, Poland has since participated actively in PFP. Poland was the first country to submit its individual partnership program on July 5, 1994, and hosted PFP's first joint military exercises in September 1994. In September 1996, French President Jacques Chirac proclaimed before the Sejm that Poland should be a member of the EU by 2000. Similar to other central European countries, foreign policy issues did not appear to play an influential role in the Polish elections, and the return of former communists to power has not diminished core foreign policy priorities. President Kwasniewski has emphasized continuity in Polish foreign policy, as has the government under Prime Minister Cimoszewicz. After the November 1995 presidential elections, Dariusz Rosati became Foreign Minister and Stanislaw Dobrzanski was named Defense Minister. Polish officials have rejected Russian proposals for a security guarantee in lieu of NATO membership. Similarly, NATO Secretary-General Javier Solana, in Warsaw in April 1996, spoke against any kind of partial, non-military, membership in NATO. President Kwasniewski made his first state visit to the United States in July 1996 seeking to promote Poland's candidacy for NATO membership and overall Polish-U.S. relations, as well as Polish-Jewish relations.

U.S.-Polish Relations

During the Cold War, U.S. relations with Poland were somewhat closer than with most East European countries under communism. Following the 1989 Roundtable Accord, President Bush expanded relations with Poland and pledged economic assistance. Poland has received substantial economic assistance under the SEED Act of 1989, about $805 million through September 1995. A Polish-American Enterprise Fund was established to develop Poland's private sector. The U.S. Commerce Department has designated Poland as a significant emerging market for U.S. exports. U.S. exports to Poland approached $1 billion in 1993, much larger than any other East European country. In addition, U.S. investment in Poland is among the highest.

Poland's relationship with NATO has become a focal point in U.S.- Polish relations. In an address before the Polish Sejm on July 7, 1994, Clinton emphasized the U.S.' commitment to eventual NATO expansion, as well as U.S. support for Poland's transition. He pledged a new U.S. aid package of over $200 million. An additional $25 million was designated for Poland's participation in the Partnership for Peace program. Clinton met with Walesa again in June 1995, at the anniversary of the signing of the U.N. Charter, where he stressed the importance of fighting anti-Semitism. Meeting with former President Walesa in June 1996, Senate Majority Leaders and Republican presidential candidate Robert Dole called for greater U.S. leadership in expanding NATO to central Europe, and introduced legislation intended to facilitate Poland and others' eventual membership in the alliance. In September, U.S. officials pressed for Poland to participate with the sale of tanks in the U.S.-led train-and-equip program of military assistance to Bosnia. Trying to accommodate an existing Polish agreement with the EU to uphold a boycott of arms to the Balkans, Polish officials stated that they wished to participate in the U.S. program "at the lowest possible levels."

Czech Republic

Current Political and Economic Issues

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Prior to 1989, the hardline Communist leadership in Czechoslovakia was one of the most resistant to reform in Eastern Europe. In late 1989, the Czech and Slovak protest movement swelled to many thousands, leading eventually to the peaceful end of communist rule in Czechoslovakia. In December 1989, dissident playwright Vaclav Havel was named President, and "Prague Spring" (of 1968) communist leader Alexander Dubcek became parliament chairman. Czechoslovakia's first free elections were held on June 8, 1990. The Civic Forum and its Slovak counterpart, Public Against Violence, won an impressive victory, while the former communists gained only 13% of the vote. Vaclav Havel was reelected President by the new Federal Assembly, and the new government began a radical overhaul of the country. Continuing progress, however, became stalled by discord between the Czech and Slovak lands. Many important tasks, such as drafting a new constitution and an inter-republic accord, became subject to Czech-Slovak disagreements. Although many people in both republics favored continued unity, sharp differences over the future shape of the federation persisted, in part because of the disproportionate impact that economic reforms had on each republic; for example, unemployment soared in Slovakia, but remained low in the Czech lands.

The next federal and state elections were held on June 5-6, 1992. Vaclav Klaus' Civic Democratic Party (ODS) in the Czech republic, and Vladimir Meciar's Movement for a Democratic Slovakia (HzDS) in Slovakia, won the largest voting shares, though neither won outright majorities in either republic. Klaus, architect of the CSFR's tough economic reforms, emphasized continued economic austerity and support for the federation; Meciar campaigned for much greater Slovak sovereignty and independence if necessary, as well as a slowing down of economic reforms. After the elections, rounds of talks between Klaus and Meciar, who each became heads of government in their respective republics, quickly shifted focus to dissolving the federation. A series of agreements defining new Czech-Slovak relations after the agreed date of separation, was signed in late October. On November 25, 1992, the Federal Assembly narrowly adopted legislation dissolving the union and itself on January 1, 1993.

The Czech Republic is widely viewed as one of the most successful and politically stable emerging market economy in the region. The Czech Republic remains a primary beneficiary of foreign direct investment. After the split, the Czech Republic continued its innovative method of voucher privatization of state enterprises. Over 2.5 million persons have participated in the voucher privatization program, and about 80% of Czech assets have been privatized. The Czech currency acquired full current account convertibility in September 1995.

The Czech Republic held elections for the lower house of parliament on May 31-June 1, 1996. The election campaign opened on May 15, with twenty parties registered to participate. No return to power of former communists was anticipated. Opinion polls demonstrated strong support for Klaus' party and, overall, a likely return of Klaus' center-right coalition. However, the center-left Social Democratic party (CSSD) led by Milos Zeman, which emphasized continuing social problems in the country, appeared to narrow the gap between it and the ODS in the week priors to the vote. The ODS and its coalition partners performed as well as was expected, but ended up narrowly losing its majority. The strong performance by the Social Democrats and the reduced number of parties winning parliamentary mandates translated into less than a majority for the former ruling coalition. Within the coalition, the ODS won 29.6% of the vote (68 seats), the Christian Democratic Union (KDU-CSL) won 8% (18 seats), and the Civic Democratic Alliance (ODA) won 6.3% (13 seats), totalling 99 out of 200 seats (down from 112/200 previously). The opposition Social Democrats came in second place with 26.4% of the vote (61 seats), representing a substantial increase in their standing from the last elections. On the extremes of the political spectrum, the rightist Republican party won 8% of the vote (18 seats) and the Communists won 10.3% (22 seats).

On June 6, President Havel called on Prime Minister Klaus to form a minority government. A coalition agreement between the ODS, KDU-CSL, and ODA was reached on June 27, and Vaclav Klaus was sworn in as prime minister on July 4. In return for support for the minority government, the Social Democrats won leadership positions in parliament, and CSSD leader Zeman became Speaker of parliament. Despite the agreement, CSSD leader Zeman threatened not to support the Klaus government's bid for a confidence vote on July 25. Klaus won the vote, 98-40, after CSSD deputies walked out of parliament in an expression of "toleration," but not support.

Thus, even with the return of the Klaus government, the elections wrought significant changes to the Czech political scene. Within the coalition, Klaus' ODS party may not be able to be as dominant as before, but may rather be more dependent on its smaller, at times unpredictable, partners. Secondly, the minority government will depend on some support from the opposition in order to carry out its program. This will require that the government pursue consensus tactics, and it gives the parliament a much larger role than before. President Havel may also enjoy an enhanced role in mediating between the government and parliament. Under these circumstances, it remains for the moment doubtful whether the second Klaus government will be able to carry out a full four-year term. Nevertheless, the ODS emerged as the leader in the first round of elections for the Senate on November 15 with 36% of the vote. Turnout for the first- ever Senate vote was very low at about 35% of eligible voters.

Foreign Policy Issues

After the split of Czechoslovakia, both successor states were smoothly admitted to the United Nations and other international organizations. Both Czech and Slovak officials emphasized continuity in foreign policy priorities. Many observers and Czech officials have viewed the Czech Republic's position vis-a-vis European institutions as more favorable than Slovakia's or other countries. The Czech Republic was the first post- communist country to join the OECD in November 1995. Prime Minister Klaus formally submitted the Czech Republic's application to the European Union in January 1996. Czech Foreign Minister Zieleniec and German counterpart Klaus Kinkel were scheduled to issue a joint statement on improved bilateral relations in January 1996, but could not agree to how to treat the issue of the expulsion of the Sudeten Germans after World War II, still a contentious issue between Germany and the Czech Republic. President Havel and German President Roman Herzog met in early September 1996, and indicated that a joint German-Czech declaration could be signed before the end of the year.

The Czech Republic signed the NATO's PFP framework document on March 10, 1994, and an individual partnership program on November 25. Czech officials have stated a willingness to take on all obligations of NATO membership, including financial costs. In November, Havel called Czech participation in a future NATO peacekeeping force in Bosnia "essential" for the Czech Republic as a prospective alliance member. The Czech Republic has contributed a 850-strong combat battalion to the NATO IFOR mission in Bosnia.

The June 1996 election results are not expected to fundamentally alter the Czech Republic's foreign policy outlook; however, the opposition Social Democrats have favored holding public referenda on joining European economic and security institutions.

U.S.-Czech Relations

After the 1989 democratic revolution, U.S.-Czechoslovak relations improved rapidly. Czechoslovakia quickly became eligible for U.S. assistance. Since April 1992, Czechoslovakia has had unconditional MFN trading status. The Czech and Slovak- American Enterprise Fund was founded in 1991. In March 1996, amidst charges of mis- management, the board of directors of the Enterprise Fund resigned, and the future of the fund remains uncertain. Through September 1995, U.S. obligations to the Czech Republic under the SEED Act totalled about $145 million. U.S.A.I.D. has announced that the Czech Republic, along with Estonia, would "graduate" from U.S. SEED Act assistance in 1997 and 1996, respectively.

Prime Minister Vaclav Klaus visited the United States in May 1995. In a meeting with President Clinton, Clinton praised the successful transformation of the Czech Republic. Klaus noted that the Czech Republic had reached a "post-transformation" stage. Joint Chiefs of Staff Chairman John Shalikashvili, visiting Prague in September 1995, said that the Czech army's relationship with the United States was the "most mature" among military-to-military ties. Prague hosted a meeting of leaders from 12 central European countries and U.S. Secretary of State Christopher on March 20 to discuss European security issues and NATO enlargement. In July 1996, First Lady Hillary Clinton and U.N. envoy Madeleine Albright met with Czech leaders in Prague. Mrs. Clinton promoted the building of civil societies.

Slovakia

Current Political and Economic Issues

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After the January 1, 1993, split of the Czechoslovak federation, the political environment in Slovakia underwent numerous changes. During 1993, Prime Minister Vladimir Meciar struggled to remain in power while his party, the Movement for a Democratic Slovakia (HzDS), underwent splits and support from his coalition partner, the Slovak National Party (SNS), fluctuated. In March 1994, after a critical speech before the parliament by President Michal Kovac, Meciar lost a vote of no confidence, leading to his government's resignation. Jozef Moravcik, who had split from the HzDS, formed a new government comprised of his Democratic Union, the Christian Democratic Movement, and the Democratic Left Party, all formerly in opposition. However, parliament also voted to hold early elections on September October 1, 1994, giving the Moravcik government only a six-month mandate.

Vladimir Meciar's Movement for a Democratic Slovakia bounced back in elections held on September 30-October 1, 1994, winning 35% of the vote, the largest share by a wide margin, but less than a majority. Common Choice, a coalition led by the Party of the Democratic Left, fared poorly, winning only 10.4%, far less than pre-election polls had predicted. In the first sessions of parliament held on November 3-4, Meciar's party, with support from its eventual coalition partners, pushed through a series of controversial measures, including the cancellation of privatization projects approved by the former government, the dismissal of broadcasting board members, and the censuring of members of the Moravcik government, among other things. Meciar formed a coalition with the Slovak Workers Party (ZRS) and Slovak National Party (SNS), giving his government a parliamentary majority of 83/150 seats. On January 20, 1995, parliament approved the government's program for 1995 and passed a vote of confidence in the Meciar-led government. Slovakia's economic performance has continued to improve, in spite of the political fluctuations. Growth in exports and improved industrial performance resulted in strong GDP growth in 1994 and 1995.

Slovakia's economic achievements have been somewhat overshadowed by ongoing domestic political tensions. Since the last elections, Meciar's governing coalition has maintained a conflictual relationship with President Michal Kovac. Meciar, HzDS, and the other coalition parties have repeatedly called on the President to resign. In May 1995, 80 deputies in parliament approved of a non-binding vote of no confidence in the president (even though by the constitution the president can only be removed on charges of treasonous activities, and by a three-fifths majority). While thus far not able to remove the president, the coalition has passed new laws restricting the president's authority to appoint certain positions. In a bizarre incident, President Kovac's son was abducted in August 1995 and taken to neighboring Austria, where he was arrested on suspicion of international fraud, but eventually released home. President Kovac and others have implicated the Slovak secret service (SIS) led by Meciar ally Ivan Lexa in the kidnapping. President Kovac publicly accused the Slovak information service (SIS) of kidnapping his son and called on SIS director and Meciar ally Ivan Lexa to resign. Lexa countered by filing a slander suit against President Kovac. In May 1996, opposition parties led demonstrations and a motion in parliament (which failed) to remove Interior Minister Ludovit Hudek. Slovak media had broadcast an alleged conversation between Hudek and Slovak Information Services director Ivan Lexa that indicated government involvement in the Kovac kidnapping. However, on May 20, the Slovak police announced that its investigation into the Kovac case would be adjourned due to lack of evidence. In October, the police closed two related investigations, one involving the possible implication in the kidnapping of the Slovak Information Service.

On March 26, 1996, parliament ratified Slovakia's bilateral treaty with Hungary (see below), which was signed a year earlier, by a vote of 119 to 1, with 19 abstentions. Parliament passed two accompanying clauses to the treaty which discounted any interpretation of collective minority rights or collective rights to autonomy. Prime Minister Meciar had repeatedly postponed putting the treaty before parliament until the Slovak National Party, a coalition partner, agreed to support ratification provided a number of conditions were met. One was passage of a controversial law on the protection of the republic, which was approved by parliament on the same day. The law forbids demonstrations with subversive intentions and the spreading of false information damaging to Slovak national interests. Opposition groups fear that the law could be used against opposition politicians or independent journalists. The European Union later denounced the anti-subversion bill. The Hungarian coalition abstained from the March ratification vote in protest of actions undertaken by the government which undermined minority rights. For example, in November, parliament approved of a controversial language law which regulates use of Slovak as the official language of the country.

In June 1996, disagreements between HzDS and its smaller partners grew and threatened to break up the governing coalition. As the nationalist Slovak National Party criticized the government's policies on supervisory controls over privatization, the secret service, and the media, Prime Minister Meciar threatened to break up the coalition and form a minority government with support from the opposition Democratic Left Alliance. However, by the end of the month, Meciar announced agreement among the coalition parties on these issues. In late August, Meciar consulted with President Kovac (their first meeting in over a year) on proposed changes in the cabinet. Kovac accepted the proposals and appointed three new ministers. Pavol Hamzik replaced Foreign Minister Juraj Schenk; Karol Cesnek replaced Economics Minister Jan Ducky; and Gustav Krajci replaced Interior Minister Ludovit Hudek. In October, three opposition signed an agreement on cooperation, but did not form a formal coalition.

Foreign Policy Issues

In foreign affairs, succession issues were carried out smoothly and Slovakia has gained equal international standing with the Czech Republic. However, domestic political tensions appear to have tarnished its chances to join major Western institutions. After Meciar's return to power in December 1994, government officials have emphasized continuity in Slovakia's foreign policy objectives. Some observers, however, predicted that the HzDS-led government might not pursue entry into NATO and the EU enthusiastically, primarily because of its coalition partners. Slovakia submitted an application for EU membership at the Cannes summit in June 1995. The European Union has issued two demarches expressing concern about political conflicts in Slovakia. The EU warned that steps by the government to remove President Kovac could endanger democracy, and that the government's actions could have consequences for Slovakia's aspirations to join the European Union. Similarly, the United States and the European Parliament have issued critical statements on political developments in Slovakia. Slovak government leaders have rejected the international criticism. In June- July 1996, a progression of Western officials visiting Slovakia voiced concerns about Slovakia's democratic development and its potential effect on Slovakia's prospects to join Western institutions such as NATO.

Since independence, Slovakia has maintained problematic relations with neighboring Hungary. Key issues hindering full normalization of relations have centered around the sizeable ethnic Hungarian minority in Slovakia, and the dispute over the Gabcikovo-Nagymaros hydroelectric dam, a joint project stemming from the Communist era. The latter dispute has been submitted to the International Court of Justice, and will be reviewed in early 1997. Underscoring mutual efforts at reconciliation, Hungarian Premier Gyula Horn visited Slovakia on August 5, 1994, and signed three minor bilateral agreements to serve as a foundation for a broader bilateral treaty between Slovakia and Hungary. Meciar and Horn signed a final treaty on March 19, 1995, on the eve of the Paris Stability Pact conference. The treaty included reference to a Council of Europe recommendation that outlines certain collective rights of minorities, including the formation of autonomous organizations. Slovakia and Hungary exchanged ratification documents, without the interpretation appendices, in Budapest on May 6, 1996. Slovak officials strongly protested the conclusions reached at the July 1996 conference of ethnic Hungarian parties in Budapest as a "step backward" in bilateral relations with Hungary (see section on Hungary, below).

U.S.- Slovak Relations

U.S. Administrations emphasized continuity of good relations with the successor states of the Czech and Slovak Federal Republic after the split. The United States has obligated over $140 million in SEED Act assistance through September 1995. Slovakia welcomed NATO's Partnership for Peace initiative, and signed the PFP framework document on February 9, 1994. After the September-October 1994 elections, a State Department spokesman expressed U.S. satisfaction with the democratic process in Slovakia as expressed in the large voter turnout in free and fair elections, and commended the expressed plans of the major parties to seek full integration with western institutions.

In March 1995, Slovak media reported on a letter to Meciar from President Clinton, in which he praised Slovakia's and Hungary's efforts to conclude a bilateral treaty that would benefit regional stability and the future of European integration. In August, President Kovac, on an unofficial U.S. visit, met with Vice President Gore and other U.S. officials. He reported to Slovak radio that the U.S. officials expressed concerns about Slovakia not keeping pace with democratic reforms. In September, Defense Secretary Perry on a visit to Slovakia emphasized the "importance of diversity of opinion in a democratic society." In October, the U.S. embassy in Bratislava followed the EU in noting concerns about political developments in Slovakia. The U.S. note reportedly stated that President Clinton was "anxious" about the conflict between the Slovak government and president. The State Department's 1995 report on human rights practices cited "disturbing trends away from democratic principles." In early April 1996, the United States and the European Union expressed concerns about limitations on freedoms contained in Slovakia's recently-passed law on the protection of the republic. In Bratislava in July 1996, First Lady Hillary Clinton and U.N. envoy Madeleine Albright emphasized that genuine democracy was a primary precondition to membership in NATO.

Hungary

Current Political and Economic Issues

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Hungary's transformation into a market economic democracy occurred gradually but systematically in the late 1980s. In 1989, the Hungarian National Assembly approved major constitutional changes and scheduled multi-party elections for early 1990. Reformers within the Communist Party gained ascendancy, and moved the government toward democratic and market economic reforms. Hungary's first free elections were held in March-April 1990. The center-right Hungarian Democratic Forum (MDF) won 43% of the vote, and the liberal Alliance of Free Democrats finished second with 24%. The Socialist Party was badly defeated although individual reform-communists were able to win seats. The Democratic Forum formed a coalition government with the Independent Smallholders' Party and the Christian Democratic People's Party, which won 11.4% and 5.4% of the vote, respectively. Joszef Antall, leader of the Hungarian Democratic Forum, became Prime Minister.

During the early years of transition, Hungary was widely viewed as a haven of stability compared to the political fragmentation evident in Poland and Czechoslovakia in 1990- 1992. Since 1990, Hungary has attracted the most foreign investment in the region. In the run-up year to the 1994 elections, the durability of the Antall government gradually wore down and the MDF became plagued by internal divisions, especially from its right-wing, and decreasing popularity. Antall's death from cancer in December 1993 appeared to symbolize the end of MDF leadership, although MDF leader Peter Boross smoothly succeeded Antall as Prime Minister. The opposition Hungarian Socialist Party, meanwhile, gained in opinion polls, overtaking the long-popular Young Democratic (FIDESZ) opposition party in early 1994. Hungary's second elections held on May 8 and 29, 1994, confirmed the trend in East Central Europe of leftist parties returning to power in democratic elections. The Hungarian Socialist Party won 54% of seats in parliament. The Democratic Forum came in third place with less than 10% of the vote. Though able to govern alone, the Socialists worked out a coalition agreement with the liberal Alliance of Free Democrats (who won 18%), on June 24, 1994, and also worked out an agreement on economic policy, emphasizing investment and savings. Gyula Horn of the Socialist Party became prime minister. President Arpad Goncz, unaffiliated, was reelected by the parliament for a second five-year term on June 19, 1995, by an overwhelming vote.

Serious strains in the coalition became evident in late 1994-early 1995 due to differences over economic policy and privatization. On March 12, 1995, the Horn government announced sweeping economic reforms designed to stabilize the economy and reduce the country's foreign debt and budget deficit. A sharp currency devaluation, import duties, wage controls in state-owned industries, and cuts in social welfare programs. The austerity measures have been hugely unpopular among the Hungarian population and have contributed to a slowing down in economic growth. At the same time, the stabilization measures have contributed to the restoration of international confidence in the Horn government's commitment to economic reform.

In January 1996, Finance Minister Bokros announced a new austerity plan targeting the public welfare system. On February 18, however, Bokros tendered his resignation on February 18 after his proposal to levy a tax on social insurance failed to get the approval of the cabinet. Bokros' resignation threatened to de-rail conclusion of a stand- by arrangement with the IMF and Hungary's entry into the OECD. On February 26, Peter Medgyessy was named to replace Bokros as Finance Minister and pledged to continue the stabilization program of his predecessor. After parliament passed a social security budget aimed at reducing the deficit, the IMF approved of a $387 million loan for Hungary in mid-March. Hungary was formally invited to join the OECD on March 29. In October, Prime Minister Horn fired the state privatization board and the ministers for privatization and trade/industry amidst corruption charges. Later, the welfare minister also tendered his resignation. The latest government shake-up has further fueled differences within the coalition, with the Free Democrats repeating earlier threats to leave the coalition.

In early September, 85 deputies initiated a special session of parliament to discuss the draft Hungarian-Romanian treaty. Opposition parties criticized the draft for not protecting the collective rights of ethnic Hungarians in Romania to the same extent as similar treaties with Ukraine and Slovakia. Government officials defended the protections included in the treaty as an "acceptable compromise." In addition, Foreign Minister Kovacs stated that the basic treaty with Romania was "an indispensable means of improving" relations with Romania (see below).

Foreign Policy Issues

Since 1989, Hungary has sought to become more closely integrated with Western European institutions. Since coming to power in 1994, the Horn government has emphasized continuity in Hungary's overall foreign policy principles and objectives, especially western integration, regional cooperation, and good relations with neighboring countries. Hungary signed on to NATO's Partnership for Peace on February 8, 1994, and approved an individual partnership program on November 15. The Horn government has emphasized support for other countries' efforts to join NATO as well. In December 1995, the Hungarian parliament approved the opening of a U.S. military base in Taszar, in southern Hungary, for NATO's Implementation Force (IFOR) operation in Bosnia. In addition, a 415-strong Hungarian battalion has served in the British-led sector in Bosnia.

A major tenet in Hungary's regional relations has been the treatment of ethnic Hungarian minorities in neighboring states (some 3.5 million). The Antall government's emphasis on the rights of ethnic Hungarians abroad was viewed with suspicion by neighboring governments, who feared that demands by ethnic Hungarians for local autonomy may undermine the legitimacy of their governments and even encourage separatism. The Horn government came into office in mid-1994 emphasizing the need for "historical reconciliation" with neighboring states. Hungary and Slovakia concluded a bilateral accord just prior to the Paris Stability Pact conference on March 20, 1995. The Hungarian parliament ratified the treaty by an overwhelming majority on June 13. An exchange of ratification documents took place in Budapest on May 15, 1996. In November 1995, following a push by Romanian President Ion Iliescu, Hungarian and Romanian officials re-opened treaty talks, which had stalled over provisions on minority rights. Romania's new education law, opposed by Hungarian parties in Romania, became a sticking point in the negotiations, and progress stalled. In mid-August, Hungarian and Romanian officials announced the successful conclusions of negotiations on the bilateral treaty. The draft treaty includes a footnote that excludes the interpretation of collective rights and the promotion of ethnically based territorial autonomy from a Council of Europe recommendation on minority rights, which is included in the treaty. Hungarian opposition parties and ethnic Hungarian groups in Romania have blasted the draft treaty as detrimental to the interests of ethnic Hungarians in Romania. Prime Minister Horn, however, has defended the draft as an important indicator of Hungary's intention to improve bilateral relations and progress in integration into Euro-Atlantic structures. The treaty was signed in Timisoara, Romania, on September 16.

In July 1996, Hungary hosted a conference with ethnic Hungarian representatives from neighboring countries. The concluding communique promoted the "creation of self- government and autonomy" for the preservation of the Hungarian identity. In response to harsh criticism from Slovak officials, the Hungarian government has stood by the statement, which they say should not be interpreted as a call for ethnic-based territorial autonomy.

U.S.-Hungarian Relations

U.S. relations with Hungary improved consistently in the 1980s. The Bush Administration launched an extensive U.S. aid program for Hungary in July 1989 which emphasized private sector development and promotion of trade and investment. A Hungarian-American Enterprise Fund was established in 1990. Hungary has become eligible for GSP and OPIC benefits, and as of April 1992 has received unconditional MFN trade status. Hungary has received substantial economic assistance under the SEED Act, totalling over $217 million through September 1995. The United States has the highest levels of foreign investment in Hungary.

Hungary signed on to NATO's Partnership for Peace program on January 8, 1994. Prime Minister Gyula Horn visited Washington in June 1995. In September 1995, Defense Secretary Perry, on a two-day visit to Hungary, noted that Hungary's was meeting the basic criteria for future membership in NATO. In December 1995, NATO opened an air base in Taszar, in southern Hungary, for IFOR troops going to Bosnia. President Clinton met with Hungarian leaders during his visit to U.S. troops en route to Bosnia in January 1996. First Lady Hillary Clinton visited Budapest in July 1996 and lauded Hungary's leadership in "bringing democratic and economic reforms to central Europe." The State Department praised the signing of the Hungarian- Romanian treaty in September 1996 and called it a "significant achievement" and "consistent with the purposes of NATO enlargement."