A territorial dispute on Hungary's capitalist frontier

After the Iron Curtain fell, Austrians gazed east and spotted cheap room to grow. Hungarian farmers looked back, and they saw a way to survive by selling a few acres.

Now, these farmland deals are causing consternation in Budapest. Hungarian Prime Minister Viktor Orban says that up to a quarter, almost 173,000 acres, of the land in three counties is foreign-owned, and he has vowed to reverse that.

Throughout Eastern and Central Europe, foreign land ownership is a sensitive issue. It raises fears of economic domination by well-heeled Western Europeans, even as Hungary and other aspirants negotiate entrance into the European Union, Europe's exclusive economic club.

Officials here say that, in selling off tracts at firesale prices, Hungarian farmers have undermined the country's effort to restart family farming, which came to a halt after Communists collectivized agriculture. But the farmers maintain that they had little choice but to sell after their government left them stranded on the frontier of capitalism.

"The government provides no help," says Viktorne Magyar, who sold part of her acreage in southwestern Hungary to an Austrian farmer in 1990. "There's no money for new farm equipment or seed.... No one can take a loan from a bank, because the interest rates are so high."

Like other farmers close to the Austrian border, Magyar sold land deeded to her by the government as part of its post-communist economic transformation. "I have no regrets," she says. "I needed the money.... We had nothing."

Mr. Orban says that what began as an effort to revive private farming in Hungary turned into a bargain bonanza for land-hungry Western Europeans. In Hungary, a hectare of farmland (2.47 acres) currently fetches between $100 and $170 dollars says Zoltan Szerkeres, president of the Hungarian Real Estate Association. Land prices in Austria are at least 10 times that, experts say.

Alarmed by the number of foreigners buying up land, Hungary outlawed such sales in 1994. But Hungarians began circumventing the ban through the use of so-called "pocket contracts." Such deals remain off the books, meaning they are not registered with Hungary's Land Registry Office, says Mr. Szerkeres. Most of the transactions take the form of leases, beneficiary agreements, and purposely undated sales. The idea is to keep the contract, "in the pocket," away from the prying eyes of the state until a time when such sales are allowed again.

Now, Orban and his government have vowed to search out and nullify illegal land sales made after 1994. The Hungarian government has set aside some $17.7 million to buy back illegally purchased farmland.

"The problem with this fund is essentially the government is going to compensate Austrians who broke Hungarian law," says Tamas Kiss, a Budapest political commentator who has been following the issue closely.

Orban has also promised more government support for Hungary's beleaguered farmers, many of whom barely make a living on small tracts of land.

In July, Orban and some of his top cabinet members visited Magyar's village of Kalocfa, some 130 miles southwest of Budapest and 20 miles from the Austrian border. He told the 206 residents: "If foreign farmers are unwilling to give up unlawfully acquired land, they can expect the law to crack down on them."

Austrian officials have generally declined to comment, though some have dismissed Orban's threat as bluster ahead of a key nationwide vote next year. Others wonder how Hungarian officials can distinguish between illegal land deals and legitimate sales.

Austria's agricultural attaché in Budapest, Ernst Zimmerl, says that, according to his data, the amount of arable land owned by Austrians in the three western-fringe counties - Gyor-Moson-Sopron, Vas, and Zala - is no more than 12 percent, not the 25 percent cited by Orban.

Franz Stefan Hautzinger, president of Austria's Burgenland Chamber of Agriculture, says, "This chamber will give maximum legal assistance to any Austrian farmer who purchased land via so-called 'pocket contracts' since 1994."

Hungary, which has more than 28,000 square miles of farmland, has secured a seven-year ban on the sale of such land to foreigners once it joins the European Union, which could happen as soon as 2004. Hungarian Justice Minister Ibolya David says she expects land prices to jump up by "10 to 15 times," once Hungary joins the EU.

Hungary and other EU aspirants want the ban to fend off what they fear could be a massive selloff of land to wealthier West Europeans, who as fellow EU members would face essentially no barriers to buying land in new EU states to the east. Such grace periods are not uncommon. When Sweden joined the EU in 1995, it put restrictions on land sales to foreigners. The restrictions were phased out by 1999.

Meanwhile, frustation in Hungary's farming sector grows. After the collapse of communism, Hungarian authorities either returned collectivized land to former owners or auctioned it off as part of privatization efforts. Many who had labored on the collective farms were left with meager plots or with nothing. Hungarians who acquired or reclaimed larger tracts faced other problems.

"It was difficult, much as it is today, to receive money from banks for agriculture, because the banks are not sure in the return on the money," Szerkeres says. "A big majority of the land is in little parcels, and today with such little parcels it is difficult to cultivate the land economically."

Though many young Hungarians have moved to cities, about a third of the country's population of 10 million remains directly or indirectly employed in agriculture, Kiss says. Some observers point out that the Austrians help the local economy by hiring Hungarians to work the land.

The Hungarian government says it is willing to buy land at a "fair price" from Hungarians who don't want to farm it. Officials say they will also do more to help people living in rural areas. But Magyar, like others in Kalocfa, is not convinced. "It's all politics," she says. "The politicians have made the same promise before."