Hungary.

Capital: Budapest

Head of State: Ferenc Madl (since August 2000) President elected by the National Assembly for a five-year term

Head of Government: Prime Minister Peter Medgyessy (since May 2002) Prime minister elected by the National Assembly on the recommendation of the President

Parliament: The National Assembly (Orszaggyules) has 386 seats; members are elected by popular vote under a system of proportional and direct representation to serve four-year terms. There is no second house

POLITICS

The governing coalition is led by the Hungarian Socialist Party, and appears to be fairly stable. Peter Medgyessy, a banker and former finance minister, was sworn in as prime minister in May 2002, some five weeks after fiercely contested elections. The Socialists won 178 seats in parliament and negotiated a deal with the liberal Free Democrats, who had 20 seats. The coalition gives them a combined majority of just 10 seats over the previous conservative alliance led by Viktor Orban. Prime Minister Medgyessy is not a member of any political party; he was asked to lead the Socialists after months of destructive infighting.

The government is working to resolve several legacies of a bygone era, such as pollution and discrimination against the Roma (Gypsy) minority, and to tackle the problems of corruption, money laundering, and organized crime.

Largely as a consequence of the carving up the Austro-Hungarian Empire after the first world war, several million ethnic Hungarians live in neighbouring countries. Hungary introduced a controversial Status Law in 2001. It referred to this group as part of a "united Hungarian nation" and granted them rights to work; study, and claim health care in Hungary temporarily. Hungary's neighbours criticized the law as interfering with their sovereignty and discriminating against other ethnic groups, while the EU objected that it breached equal opportunities regulations. The law was amended in the summer of 2003 but it remains to be seen whether or not the changes go far enough to satisfy the critics.

ECONOMY

Among the former-Communist states of Central and Eastern Europe, Hungary has been one of the most successful at adapting to capitalist economics. The private sector now accounts for 80 percent of the state's GDP. The national debt was upgraded in 2000 to the second-highest rating among all the Central European transition economies. Inflation and unemployment--both priority concerns in 2001--have declined substantially. The key short-term issue is the reduction of the public-sector deficit from its Current 6% of GDP to 4.5% in 2003 and 3% in 2004. However, some analysts say the government is being too optimistic in its debt-reduction predictions. In the short term, strong private consumption growth should sustain real GDP growth, close to three percent.