Hungary and the IMF

The news that an IMF delegation headed by Dominique Strauss-Kahn himself would visit Budapest today reached the Hungarian media on January 9. Origo, an Internet paper, reported it first. The news item was based on a press release by the International Monetary Fund. The press release didn't reveal details of the visit except that Dominique Strauss-Kahn, managing director of the IMF, "will visit Budapest on January 13, 2009 to discuss with senior officials the global economic environment and Hungary's progress on the IMF-supported economic program." It also mentioned that in addition to Prime Minister Ferenc Gyurcsány, Finance Minister János Veres, and Central Bank Governor András Simor "he [was] also scheduled to meet with the leader of Fidesz, Mr. Viktor Orbán, a group of legislators, and several other prominent representatives of Hungarian society." This brief description didn't quite satisfy the editors of Origo. Perhaps, they said, the IMF is dissatisfied with Hungary's economic program and perhaps its negative attitude weighed on the Hungarian forint. The next day, on January 10, Portfolio, another Internet paper dealing with finance and the economy, headlined its article on Strauss-Kahn's visit: "Did the Dissatisfaction of the IMF Drag Down the Forint This Week? The Answer Will Come on Tuesday."

Interestingly enough no other paper picked up this juicy story in the next couple of days. However, early on January 12 Tibor Navracsics, the leader of the Fidesz parliamentary delegation, wrote a blog on the subject. He referred to the Origo article and repeated the "worry of some analysts" that the drop in the Hungarian forint has something to do with the IMF's dissatisfaction with the Hungarian government. He claimed that Strauss-Kahn was coming to Budapest not to discuss the general economic situation and to talk about Hungary's progress on the the IMF-supported economic program, as the press release stated. Rather, he assumed that the trip was prompted by dissatisfaction with the Hungarian government. But Navracsics was cunning enough to cover himself in case it turned out that Hungarian financial analysts were wrong and that the IMF was quite satisfied with the Hungarian government's performance. He therefore resorted to a favorite Fidesz theme: one socialist scratches the back of another socialist, to paraphrase the English saying. After all, Dominique Strauss-Kahn most likely is coming to talk with old friends. Strauss-Kahn was "an old and trusted member of the French Socialist Party, finance minister in the Jospin government." And he continued: "He must be just as familiar to the Hungarian negotiators as Joaquin Almunia, financial commissioner of the European Union, who as a socialist politician filled several ministerial positions in the Spanish government." Anyone familiar with the Hungarian scene can immediately translate that. Almunia helped the Hungarian socialists in 2006 when he postponed a final convergence proposal from the Hungarian government after the Hungarian national elections. The socialist Almunia helped Gyurcsány, the socialist prime minister, and perhaps Strauss-Kahn will similarly help him although he and his government didn't fulfill their obligations vis-à-vis the IMF.

But that was nothing in comparison to an article that appeared yesterday in Index, another Internet newspaper with a large readership. I must say that Index is not my favorite source of news and I hope it will soon be clear why not. The author, Roland Baksa, suggested that the Hungarian economy was in a death spiral and that the IMF was intervening to protect its loan. The headline was: "The IMF is Expecting the Introduction of New Restrictions or Will Withdraw the Loan." Baksa claimed that the  Hungarian government already knows that there will be a 200 billion forint shortfall next year. Referring to "experts" who refused to give their names, he said that the deficit would be larger in 2009 than in 2008. In fact, the Hungarian situation is so dire that the IMF abandoned its normal schedule that would have monitored its loan to Hungary in February and came a month early. According to the anonymous experts Strauss-Kahn will make the Hungarian government choose: either further cuts or return the IMF funds.

This morning István Hamecz, an economist who is closer to Fidesz than to MSZP, repeated most of the "facts and figures" of the Baksa article. He appeared on ATV's morning interview program and, after listening to him, I wouldn't be at all surprised if he were one of the anonymous experts. He claimed in this interview that the projected deficit (2.7%) is in danger and hence the weakening of the forint. He also talked about the 200 billion forint shortfall and predicted that there will be further restrictions that will certainly hurt the country's economic recovery. According to him Strauss-Kahn's visit to Budapest "shows the seriousness of the situation."

That was this morning before Strauss-Kahn met with Gyurcsány, Veres, and Simor. At it turned out, most of the dire predictions about the IMF's dissatisfaction with Hungary's performance turned out to be baseless. Tomorrow I will tell the next chapter of the story. (Unfortunately, these stories never end.)

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“The government was prepared to take steps to ensure meeting the 2.6% of GDP deficit target for 2009 if needed, finance minister Janos Veres declared cited by Dow Jones . He implicitly acknowledged the risk for shortfall in budget revenues due to overestimated GDP growth and inflation but emphasized that these shortfalls would be compensated for by other measures. In particular, the minister admitted that actual inflation outcome in 2009 could be lower than the 4.5% y/y average inflation for 2009, projected with the 2009 budget but provided no such comments on updated GDP forecasts. The budget counted on an economic contraction of 1% y/y in 2009. Potential action to revise the budget for the current year was to be taken after the publication of the EC interim forecasts on Jan 19. In his words, the budget deficit for 2008 stood at 3.3% of GDP with an error margin of 0.2pps under the EU ESA95 methodology. As we reported earlier, the cash-based deficit of the general government, excluding municipalities, was also 3.4% of GDP for the year. Veres further stated that the finance ministry did not plan to issue government bonds in the next few months due to the low… Read more »

NWO, you seem to add to the fearmongering that Eva has repelled and rightly so. In this economic climate, large, stable economies have to make corrections on the go. This is happening in Hungary and not some kind of “crisis” that Fidesz and his hand-controlled media would like us to believe.
I wonder how much damage was done to the reputation of the country because of these fabricated “news”. Who will pay those damages? The Hungarian electorate, no doubt about that. Fidesz will pay dearly at the election booths for these damages one day.


Telling the truth is not fearmongering. The country is in the midst of a deep crisis. It is worse in Hungary than in Poland, Cz, or Slovakia to name just a feww peer countries. The PM even acknowledged the worsening conditions today.
Anyone who has read my posts knows that I do not admire nor support FIDESZ. But they are correct in assessing the urgency of the situation. They are also generally wrong in their approach to resolving the crisis. On the other hand, Gyurcsant more often than others says the right thing. He just seems incapable of actually implementing most of the things that need to be done. So there.

Odin's lost eye

You are quite correct in your analysis of the Hungarian Government’s position. Gyurcsány has a terrible problem. In order to what is right he has to find a way of doing it without FIDESZ calling another referendum and ‘scotching’ the whole thing. I have long thought that all Orbán wants is to be Prime Minister again and to hell with Hungary and its people. They can go back to the Stone Age as far as Orbán is concerned.