INTERVIEWER: Okay this is role 10852 an interview with Mr. Miklos Nemeth. Now first of all can I take you back to 1988, beginning of 1989, and could you tell me why did you think it was necessary to embark on economic and political reforms in Hungary, what had gone wrong in Hungary that had made those reforms necessary?

MIKLOS NEMETH: In a nutshell, everything had gone wrong. Everything.

INTERVIEWER: Sorry could you say it again, I think we missed that bit, what had gone wrong?

MIKLOS NEMETH: In a nutshell, I would say that everything had gone wrong by the time in the political and economic life of the country, in 88, when I was asked to accept the invitation to be the Prime Minister for the transition the country was in a. close to an abyss, close to a total crisis situation. Economically we accumulated by that time a huge debt. The debt service was really a number one issue for me to be tackled at that time. Politically the country, all, all the key players within the country realized that there is no way to get a better life by reforming the socialist model. It was not publicly said, but informally when you attended a meeting, be that a private one with your friends, or a quasi-official one, that was quite clearly stated across the board. So the country was close to a real crisis situation and my job was to tackle that.

INTERVIEWER: Now what were your aims then in terms of the reform at that time?

MIKLOS NEMETH: We started in the field of economy with quite important step to liberalize the economy you know. We were the first government who started elimination of the subsidies, the consumer prices of course were increased, that was not a popular step perceived by the population as a crime against them especially the Trade Unions stood up and cried out against those reform steps. Then on the political side we presented a democratic package to the parliament. That parliament was dominated by party members. More than 70% of that then time one party called Socialist Workers party, mmm in another word the communist party, dominated that parliament, but the government presented the democracy package as a necessity trying to avoid the worst, you know rescheduling of the debt of the country and at the same time, we have used that situation to pave the way for a democratic transition.

INTERVIEWER: So your conclusion in order to have reforms, economic reforms it was also necessary to have

MIKLOS NEMETH: To have political reforms at the same time yeah, yeah that was crucial decision that the government didn't did not focus just on the economic side, but parallel with the economic reforms we started some work on the political side too, so that has led to the presentation of the democracy package in the Parliament, which was not cleared or agreed by the Politburo or the Central Committee that was the product of the government or certain key players of that government.

INTERVIEWER: Right, now can you tell me do you think that in pushing for this as a solution to Hungary's problems that you were at all influenced by Gorbachev's either his change of policy regarding the, the socialist states, or by the reforms that were also taken in the Soviet Union at that time?

MIKLOS NEMETH: yes and no, no because we have started the whole process much earlier than the others, the socialist countries in Hungary in the late 60s we have, we did introduce the new economic policy, the new economic mechanism that was the famous buzz word for it, when we practically eliminated it out of the central planning system the grab, the control of the enterprises. We have introduced the incentives, the market forces, in the late 60s. In the early 70s of course the party, when they at that time the leaders at that time realized that this had gone too far you know they took the wind out of the boat and they practically stopped the reform process. That action, that stupid decision nearly toppled the debt burden on the country by the, by the late early 80s or the late 70s and coincidentally the Soviets those years invaded Afghanistan then the Martial law imposed on Poland by Jaruzelski created a quite new situation for Hungary. Because the bank withdrew the money, from, from even from Hungary, so we really faced a real crisis at that time. and then we, read the young Turks within the party. We did use that opportunity to convince the leadership that the only way out of this crisis to present our replications to the IMF and the World Bank and we did it. We survived. Then later on, when we are in the mid-80s when it was absolutely clear for everyone who played any role in the economic reform process or in the political reform process, that we have to go back to the crossroad, where the country really lost its fate and its future, namely in the late 40s when the Soviets invaded the country. Until that point we had multi party systems, we had parties representing the different groups of the country, and more or less we had a functioning market economy. Now if you realize this and draw the right lessons you realize the situation, the dangerous situation and you draw the right from the picture [coughing] and the next step to discuss how we achieve it. Hmm? And here comes into the Hungarian picture the emergence of Gorbachev who was a in the mid 80s a quite fresh voice for everyone. He wanted, he visited Hungary in 85 to 86 as a, as a Secretary responsible within the party for agriculture and the agricultural policy. He spent nearly 3 weeks in Hungary studying the achievements and the results and that was the first time when I, when I saw him in action, not that sort of stupid old guard representative from the politburo, who really asked the real questions. No we really liked his presence in Hungary. [coughs again]. Sorry about this, something, I have to cough it out.

INTERVIEWER: That's fine, that's a very good answer.

MIKLOS NEMETH: And he clearly stated in his interviews to the press that time that he did see a lot in the Hungarian example and development what he would like to see happening in Russia or within the Soviet Union, so that was a quite encouraging remark by a quite high ranking political leader of the former Soviet Union. the Hungarian leadership at the party level, did not respond well to the emergence of Gorbachev and later on when he became the Secretary General of the Soviet Communist party, our .leaders were frightened by the new voice and by the policies of Gorbachev. So instead of responding positively and saying that hey guys this is an excellent, unique opportunity to go further ahead with our Hungarian policies, the political leaders responded very coolly and with caution and when my government took over the driving seat the first thing I wanted to make clear publicly to the public and to the party leaders that this government is not accountable to the party, accountable to the parliament. You know that was to some extent a tick vis a vis the party leaders because they knew that 72% of the member of the parliaments belonging to the parties so via the party members of the parliament, they can put some pressure on the government or they can control the government. But step by step we eased that strong control and we succeeded to push through all the key reform policies and packages be that economic or political or.

INTERVIEWER: Can I just pick up the question of the relationship with the Soviet Union again. You went in march to meet Gorbachev, now had there before then in your mind been a concern to make clear exactly what the Soviet reaction should be, bearing in mind what the Soviet reactions had been in previous times, I mean particularly the memory of 1956, did you have, did you feel that you, well how did you actually manage, what was your strategy? Did you feel you had to take into account the Soviet reaction and can you describe what Gorbachev's reaction was at your meeting?

MIKLOS NEMETH: I visited Moscow at the end of March of 89, and on my list I got quite important issues to be cleared or discussed with the Soviet leaders. And by that time the idea of having multi-party system in Hungary was discussed and endorsed even by the central committee of the Hungarian Communist party. So after that crucial discussion and decision, it was just a question of time when Hungary will organize the first free elections after 47. In may in June, we pushed through the democracy package so quite important new bills been agreed by the parliament and in March when I visited Moscow, the key bills or laws in draft format, were ready for presentation. That time I did not know when the first free election based on multi party system will be organized in Hungary. The fixed, the date was not fixed. But based on the preliminary information on the new parties the absolute necessity to have an election soon, gave me an important, a unique opportunity to challenge Gorbachev on certain key issues. And when I raised the question with him quite bluntly that I don't I said, "I don't know as of this moment, when we will have the first elections. But knowing that you stationing in the territory of the country roughly 80,000 soldiers, and having in mind the experience of 56 when your tanks crushed the revolutionaries and all the forces who fought that time for freedom, and assuming for a second that at the end of that free elections that you're friends, the party, is in power currently, will lose, they'll be voted out, how will you and the Soviet leadership will react to this. Will you repeat the '56 exercise or not?" And Gorbachev without hesitation responded quite clearly to me " I don't agree with the introduction of the multi party system in Hungary, but that's not my responsibility, that's your responsibility." and he said quite clearly that he will not support the similar route and policies in the Soviet Union. "But I can tell you one thing for sure" he said "There will be no, if I am not toppled, or kicked out of power, and I am sitting here, and the Hungarian Socialists Workers party will be losing the election and voted out of power, there will be no instruction or order by us to crush it down." So that was a quite important message in Moscow, what I heard from him. So in this regard, his role and his policies influenced the Hungarian reform process, of course that was quite encouraging message, or news to be heard by us.