Lesson for Hungary's Rulers: 'It's the Economy' Results of May 24 Elections Spotlight Popular Discontent with the Market Reforms in East European Countries

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You don't have to venture far from the swank hotels, office buildings, and boutiques of central Budapest to see the underside of Hungary's exhausting transition to the free market.

A few blocks' walk to the south or east and you're again surrounded by decaying turn-of-the-century apartment houses and the tired, worried faces of the country's nouveaux poor: young, working- class parents and their children crowded into the grandparents' apartment; old men carefully dressed in threadbare shirts and ties picking through garbage bins; teenage thugs out running errands for the local mafia boss.

It's a scene repeated across Hungary, from the rusting steel towns of the industrial northeast to the grinding poverty of the farming villages on the Hungarian plains. These are constant reminders that despite Hungary's emergence as Eastern Europe's leading economy, nearly 2 million people - a fifth of the population - live in poverty. On May 10 and again on May 24, those people got a chance to express themselves at the voting booth in Hungary's two-stage general elections. For the third time since the fall of the Berlin Wall, the electorate turned out the governing parties in favor of those promising an end to the seemingly endless agony of the country's economic transition. In the process, voters have likely ushered in an era of greater political instability for Hungary and its neighbors. Who's in, who's out The big winners are a bizarre electoral alliance of the center- right Fidesz, or Young Democrats - who favor free-market economic policies - and the Smallholders, headed by Jozsef Torgyan, a populist demagogue who champions strong state subsidies and protection for the countryside. Their only common bond seems to be their distrust and criticism of the Socialist Party, the renamed Communists, which regained power in 1994. Both Mr. Torgyan and the likely next prime minister, Young Democrats leader Viktor Orban, have taken the present government to task for not doing enough to protect the rights of ethnic Hungarians in neighboring countries. The Socialists fell victim to the central problem for would-be reformers in the new democracies of Eastern Europe. To put their economies in order, they must implement policies that cause short- and medium-term pain for most people, who then vote them out of power. Even in comparatively well-off nations such as Hungary, an extremely successful economic and foreign affairs performance is no guarantee of electoral support. Four years ago, the Socialists won a landslide victory by promising a kinder, gentler reform process. Instead, the government earned praise from economists, diplomats, and foreign investors for slashing spending and domestic consumption, reducing inflation, and devaluing the currency. In the process, Hungary has experienced one of the region's most remarkable economic turnarounds, outpacing the Czech Republic and Poland. No 'trickle down' "Unfortunately Hungary's macroeconomic gains haven't translated into improvements in the lives of ordinary people, and often quite the opposite," says Budapest-based political analyst Tibor Vidos. …