Oct. 2 (Bloomberg) -- Budapest Mayor Gabor Demszky, once jailed by the communist regime, beaten by police and forced to drive a taxi to make ends meet, yesterday overcame his toughest challenge in his 16 years as an elected politician.

The 54-year-old won a fifth term with 46.9 percent of the vote to 45.2 percent for his challenger Istvan Tarlos, the narrowest margin since local elections resumed in 1990. The ballots had became more significant after government efforts to cut spending and raise taxes became the focal point of the worst violence since Soviet tanks crushed an uprising 50 years ago.

``We won this one in headwind,'' Demszky, who is backed by the country's governing coalition, said on public television today. ``My rival had an excellent result.''

Demszky is the longest-serving mayor of any European capital, and the only one Budapest has known since communism ended in 1989. The victory was a bright spot in the local elections for Prime Minister Ferenc Gyurcsany's Socialist Party, which governs in a coalition with Demszky's Alliance of Free Democrats.

The Socialists lost their majority in 15 of 19 county assemblies and mayoral posts in nine of the 22 largest cities. The opposition Fidesz party will control 18 county assemblies and 15 of the largest cities, according to the results.

Fidesz raised the bar on the elections, calling it a referendum on Gyurcsany and his economic reforms mainly aimed at trimming the budget deficit, which is running at the largest in the European Union when compared with the size of the economy.

``This has symbolic significance,'' said Attila Juhasz, a senior analyst at research company Political Capital. ``Conquering Budapest would be a gigantic result for the opposition, because they could then say that even the traditionally leftist Budapest voted against the coalition parties.''

Leaked Admission

Frustration among Hungary's 10 million population turned violent Sept. 18 after a tape leaked to the media from a closed Socialist Party meeting recorded Gyurcsany admitting to lying about the economy to win parliamentary elections last April.

Gyurcsany subsequently angered voters after winning the election by raising taxes and the costs of energy and medicine.

The public's rejection of the ruling parties should lead to Gyurcsany's resignation, the formation of a caretaker government and a new vote, according to Fidesz. Protests culminated last week with more than 10,000 protestors on the streets of Budapest. Some clashed with police and burned cars.

``If the results of the Oct. 1 vote show that Hungarian people reject the package, then the prime minister must go and take the package with him,'' Fidesz Chairman Viktor Orban said at a Sept. 19 press conference, before the vote.

Nothing to Show?

Demszky is also contending with growing discontent about his work as mayor. The people of Budapest complain about the city's roads, the state of public transport and lack of cleanliness.

His campaign was dealt a blow when one of his pet projects, the purchase of the world's longest streetcars for what the city says is the world's busiest tram line, ended in a debacle as the new trains from Siemens AG repeatedly broke down. People are also increasingly looking for a fresh face.

``There is nothing he can show for in 16 years,'' said Gabor Toth, a 34-year-old entrepreneur, sipping coffee with friends in a downtown shopping mall. ``There's just no way to know whether it could have been done better. There's nobody to compare him to.''

Demszky argues Budapest is more dynamic since he took over running the capital, which has a population of about 2 million.

``It was a boring, gray, industrial, mostly blue-collar city 16 years ago,'' he said in a Sept. 11 interview. ``Now it's a white-collar city of services, commerce, finance and tourism.''

Keeping his job was also made easier by a lack of opposition. Fidesz hasn't fielded its own candidate for mayor since 1990, backing another conservative politician in 1994 and 1998. Independents ran in 2002 and this year.

Radio Free Europe

Before running for Budapest mayor in 1990, Demszky was known from illegal broadcasts on Radio Free Europe, he said. He was expelled from law school for organizing a demonstration, and even though was later allowed to finish his studies, the blot on his record prevented him from finding a job as an attorney.

He made ends meet as a taxi driver, which he continued illegally with his East German-made Trabant for years. In 1979, he signed a proclamation demanding the liberation of Czech dissenter Vaclav Havel and helped start a foundation to aid the poor -- in a country where poverty didn't officially exist.

Two years later, Demszky traveled to Poland, where the Solidarity movement was in full bloom and learned the trade of printing illegal publications. That activity, which included spreading 4,000 copies of ``My Happy Days in Hell,'' poet Gyorgy Faludy's account of his life including a stretch in a Hungarian labor camp, attracted more attention from the authorities.

``I was public enemy No. 1,'' Demszky said. ``And that's why I became mayor. The connection is clear.''

To contact the reporter on this story: Balazs Penz in Budapest at bpenz@bloomberg.net.

Last Updated: October 2, 2006 04:57 EDT