One almost never knows Viktor Orbán's schedule ahead of time. So it was something of a surprise when I learned on October 3 that Viktor Orbán had delivered a speech about the "political and economic cooperation" between Hungary and Saudi Arabia and that the speech was delivered in Riyadh.
From the speech we learned that ten years ago Orbán had led a large delegation to Saudi Arabia with the aim of forging closer ties between the two countries, but due to the lost elections and the subsequent mistaken direction of the socialist governments' foreign policy this initiative "came to naught."
After talking to King Abdullah bin Abdul-Aziz Al Saud the Hungarian delegation "was authorized to discuss matters of agriculture, water management, health care, education, and sports." The Hungarian reporter on the scene was especially interested in finding out whether there was any plan for Saudi financing of Hungary's sovereign debt. Viktor Orbán's answer was cautious. He mentioned a mysterious "Swiss-Hungarian banker active in the Arab world" who is preparing such cooperation. Orbán admitted that relations between the two countries are hampered by the lack of a direct flight between Riyadh and Budapest, but it became quite clear that Malév is in no position to accommodate. If there is no direct flight "Saudi tourists, those who would like to take advantage of Hungary's health facilities and business" will not come to Hungary. It was a great surprise to hear about all those sick Saudis coming to Hungary to be cured when as far as I know Saudi Arabia provides free and most modern health care to all its citizens. In any case, Miklós Szócska, undersecretary in charge of health care, was in the delegation.
On October 4 Orbán delivered a speech to members of the Saudi Chamber of Commerce in which he painted a glowing picture of Hungary's prospects in the next few years. He made an allusion to his admiration of authoritarian governments like Saudi Arabia and China where it is so easy to do business. He announced that "Europe at the present moment is incapable of change and therefore the continent can look forward to crisis-filled years full of tension." However, he quickly added that this is not true about the whole continent because "in the next five to ten years" the growth of the European economy will be produced not by Western European countries but "by the Central European region between the Baltic Sea and the Adriatic." And in that region "Hungary will occupy center stage."
He especially emphasized the new tax code which will provide the simplest, most transparent system with the lowest tax rate in Europe. He pointed out that the government will change the educational system, health care, and the system of old-age pensions.
In parting, Viktor Orbán praised his trip as "extremely successful" and said that several agreements had been signed. Quick economic success is especially expected in the fields of health care and agriculture. The Hungarian reporter again asked about Saudi interest in buying Hungarian government bonds and Orbán's answer was evasive. He said that György Matolcsy led a delegation to negotiate with the governor of the Saudi Central Bank and "they agreed in a few things." Whatever that may mean.
He described his delegation to Saudi Arabia as "the advance guard" that managed to revive Saudi-Hungarian relations. This metaphor of "advance guard" signals to me that perhaps the results of the trip were less spectacular than the Hungarian prime minister would like us to believe.
The glowing terms in which Orbán described the state of the Hungarian economy have a sense of unreality about them. He assured his audience that in a year or so "Hungary will be very competitive." But the present reality doesn't promise such a bright future for the country, especially not in the next year or two. The new flat tax, which Orbán extolled in Riyadh, has led to a shortage of tax revenue that has caused further austerity which in turn has resulted in a slowing of consumption. In spite of all the extra revenues confiscated from banks and private pension funds the government will be most likely unable to meet the promised 2.8% budget deficit for 2011. The 2012 budget also rests on shaky grounds. The government is calculating on the basis of a 2.5% economic growth. Even the most optimistic forecasts talk about 1.5%, but the majority of economic think tanks predict an anemic 0.5% growth in GDP, perhaps even a shallow recession. Most predict hard times for 2012.
The forint has been steadily losing value to the euro and the Swiss franc. Yesterday it spiked above a level not seen since January 2009– 300 forints to the euro. Moody's is thinking about downgrading seven Hungarian banks. Moreover, most of the banks are no longer willing to lend money because of the risks involved given the state of the Hungarian economy and the unpredictability of the Orbán government. The construction industry is practically dead and the situation will be even worse if the government stops building shopping centers as LMP demands.
I wonder how much the Saudis bought of the rosy economic picture painted by Viktor Orbán. I suspect they know as well as the rest of us who read foreign assessments of the Hungarian economy that this boasting is a desperate act of bravado.