György Lázár, the author of today's post, is a Hungarian-American investor. In the past he was senior consultant for Silicon Valley technology firms, Wells Fargo Bank, and Bank of America in California.
When recently an IMF delegation arrived in Budapest to discuss the sad state of Hungarian finances, they expected that Hungarian officials would be ready and willing to discuss the budget numbers. Prime Minister Viktor Orbán had other things in his mind. He flew to South Africa to watch the World Cup soccer final with his pal, OTP boss and billionaire Mr. Csányi. When he finally met the IMF delegation, he told them that Hungary was about to regain its financial sovereignty, and he wouldn’t let the IMF stick its nose into budget details. The IMF bureaucrats were stunned and left.
His fellow Fidesz party members love Mr. Orbán’s tough talk. They have an absolute majority in the Parliament and prefer fast and simple solutions to complex problems. The older folks always overcomplicate the finance stuff. Mr. Bence Rétvári, a 31-year-old lawyer and Orbán’s junior minister, has suggested a moratorium on foreclosure. He conducted no impact studies and had no consensus with the real-estate industry. Mr. Orbán cannot let greedy bankers foreclose on late mortgages! The Parliament unanimously approved the law which banned all foreclosure in the entire country until April 15, 2011! Some say the moratorium will increase real-estate deflation and result in a cascading collapse of mortgages.
Mr. Antal Rogán, another young turk, suggested the reduction of financial reporting requirements for state owned companies, to “increase transparency”. He probably never heard about “off-balance-sheet-accounting” or about the collapse of Enron. Now in Hungary it is legal (almost mandatory) to hide state company losses. When Mr. György Kopits, a U.S. trained economist and ex-IMF official, protested, Rogán told him he should mind his own business. Ironically Mr. Kopits is supposed to oversee Hungary’s budgets.
When IMF officials asked Mr. György Matolcsy how he will finance the new giant real estate management company which is supposed to purchase foreclosed apartments and lease them back to the very same people who defaulted on their mortgages, he explained that the state will provide guarantees; absolutely no money is needed for this scheme.The IMF reminded him that Fannie Mae and Freddie Mac went bankrupt on similar guarantees. Matolcsy explained that that is a bad American example and noted that Hungary doesn’t need rich American uncles to do this financial exercise.
Mr. Orbán and his loyal team don’t seem to care or understand much about finances; they are experts on political strategy. Mr. Orbán knows that the IMF and the EU badly need a success story and Hungary is still relatively well managed; it could easily be one. He also made a clever fuss about his central bank chief’s astronomical salary. The European Central Bank, the IMF and the EU have all fallen into Orbán’s trap. They are lined up behind Mr. Simor. Now Mr. Orbán calls them the “little bankers club,” protecting each others' salaries. He scored points here. The last thing the overpaid Eurobureaucrats want is to discuss their outrageous salaries. Even the rating agencies, Moody’s and Standard & Poor’s, might make fools of themselves. If they lower Hungary’s rating, Orbán has a good argument that Hungary today has one of the lowest budget deficits in the EU, and in the recent stress test Hungary’s banks came out on the top.
Orbán’s unusual high-wire act might work, but he must avoid Hungary’s debt downgrade to “junk”. This is easier said than done, because the debt is currently under review and the other shoe can drop at any moment. A sovereign debt downgrade, with a run on the forint or on the banks will probably finish his government.
In the meantime he assured his fans that his decisions are not based on ideology, but on "common sense". He also introduced his new political slogan, "National Centrum." In a TV interview he confessed that he personally came up with the phrase.