Just as I predicted, the bad financial news is continuing in the wake of the announcement of the “Budget for the Protection of the Nation.” The forint is steadily losing ground to the euro, the Swiss franc, and the U.S. dollar. A couple of weeks ago as a result of the intervention of the Swiss Central Bank the weakening of the forint against the franc stopped, but in the last few days the trend reversed. Today it closed at 241.44 ft to 1 Swiss franc. The weakening of the forint against the euro is spectacular. The exchange rate reached 292 forints to the euro, a record in the last twelve months.
The Budapest Stock Exchange isn’t doing any better. MOL today lost 4.3% and OTP 3.34%. I’m following the price of MOL stock with special interest because I considered the Hungarian state’s purchase of MOL shares from Surgut a very bad investment. They paid over 23,000 forints per share and at the moment one MOL share is worth 14,495 forints. That’s something on the order of a 37%+ decline.
While all this is going on, Viktor Orbán announced that the government today “will close the age of bankers” and “will protect the people cheated by them.” His government figures that foreign currency debtors will be able to borrow money in forints. And here we are at the crux of the matter. It is becoming quite clear that Viktor Orbán is hoping to ruin the foreign banks at the expense of Hungarian ones. Mind you, OTP, for example, is mostly owned by foreign investors (85.9%) and domestic shareholders own only 14.1% of the financial institution. The Hungarian state has no stake in it. However, OTP and a couple of other domestic banks can more easily raise forints than foreign banks, so the kind of solution Orbán is talking about clearly favors OTP and Sándor Csányi, its CEO and Orbán’s close buddy with whom he can be seen at soccer games.
Viktor Orbán confidently announced in his speech a week ago that he is not worried about foreign banks leaving Hungary, but an unnamed president of a foreign bank told Origo that he doesn’t know “when the parent banks will decide that they’ve had enough, but the time might be close.” In the last year and a half these foreign banks received unexpectedly heavy blows from bank levies, from losses on loans to individuals and municipalities, and now here is the opportunity for borrowers to pay off their foreign currency loans in one lump sum at a fixed rate. The Hungarian branches keep asking for more and more capital, but by now patience is running out and their activities in Hungary are being restricted.
So, as I said, as a result of these government measures the Hungarian banks may receive a boost at the expense of foreign banks. OTP, for example, has plenty of forints since it is the favorite bank of Hungarians with saving acccounts. From the latest move of the Hungarian government OTP will undoubtedly benefit most, but there are two smaller Hungarian banks: Széchenyi Bank of István Töröcskei, another man close to Orbán, and the Gránit Bank of Sándor Demján, another Fidesz supporter. At the moment these banks are small and fairly insignificant, but it is possible that in this new situation they will be able to expand their activities.
Meanwhile Orbán keeps repeating that the flat tax–which according to most observers created the current crisis in the first place–is so successful that it will have to remain on the books for ever and ever. One way of making sure that no future government can possibly change this unfortunate tax structure is to include it as one of the “cardinal laws.” That means that the current system can be changed only with the votes of two-thirds of the members of parliament.
Yesterday Orbán gave an interview to Metropol, a free and very popular newspaper, a day after his interview with Blikk, another popular tabloid. It is clear that he would like to reach as many people as possible by talking to newspapers with large circulations. Reading these interviews, however, one comes away with the uneasy feeling that there is something very wrong with Orbán’s sense of reality. Among other startling announcements, he said that “Hungary must become one of the manufacturing centers of Europe.” Pray, how? How can anyone take this statement seriously, especially under the present circumstances?
He ended his interview by claiming that “one mustn’t think of changing the current direction because any other policy would lead us to the fate of Greece, toward the precipice.” Most economists think exactly the opposite. They claim that the current policy will lead to tragedy and the ruin of the country and that’s why there are more and more people raising their voices: “Orbán must go!”