Hungary’s position vis-à-vis the IMF: It will not be an easy ride

I assume nobody is surprised that the Hungarian media is buzzing about yesterday’s announcement that the government has decided after all to approach the IMF for “an insurance policy.” This was indeed an unexpected development because it was only three days earlier that György Matolcsy said in parliament: “That organization with a three-letter name [IMF] is against every such measure that would assist the people to escape from the trap of the banks. Therefore one must have an economic policy that is not based on its strictures but formulated against them.” After such words it must be difficult to crawl back to the maligned IMF and beg for money.

Since I wrote my article yesterday the English-language version of the communiqué has become available. A few choice sentences might give us a glimpse into the mindset of the Orbán government:

In the past one and a half years we have renewed Hungary’s economy. During the period of renewal we focused on gaining economic freedom and rearranging Hungary according to national interests. To this end, we had to keep a distance from every kind of influence, thus we had to cancel such old-type forms of cooperation which had been obstacles to our economic independence…. The results of these actions are obvious by now.  Taxes on labour have decreased, the savings of pensioners have escaped the attacks of speculators…. Government debt, which was almost 82 percent of GDP in 2010, has been reduced to 74 percent calculated on the basis of 2010 exchange rates….We have arrived at a turning point. From now on we need to focus on boosting growth…. In order to spur growth we first and foremost have to protect our independence. It means that Hungary should be financed by markets, but it is hindered by the protracted crisis of the Euro-zone. Therefore a new type of cooperation with the IMF, adapted to our economy which as been transformed on the basis of our national interest, could be a potent instrument which would increase our financial and economic independence instead of hindering it like the old one. … In this way we will have the opportunity to kickstart economic growth according to the original schedule.

Well, one must admit that this is a masterpiece. Too bad that the translators at the Ministry of National Economy couldn’t come up with a better English text. But the message is clear: the economic policies of the last year and a half have been a resounding success. However, because the Euro-zone is such a mess (and only for that reason) Hungary has to get help from that cursed IMF.

The cartoon that appeared in today’s Népszava sums it up well:


Caption: We successfully completed our war of independence. We signed an armistice and now it is time for the peace treaty.

György Matolcsy today made his pilgrimage to the Budapest headquarters of the IMF but it was a speedy visit. The whole thing didn’t last longer than two or three minutes. He most likely shook hands with the people and handed over his written request for negotiations.

Viktor Orbán said a few words about this for him surely a very embarrassing affair on Hungary’s public radio station. He emphasized in the interview that “nobody can limit Hungary’s economic sovereignty.” Well, if the Hungarian prime minister honestly thinks that he will get a line of credit without any strings attached, he is dead wrong. Otherwise, he pushed the responsibility for the IMF bid to his “right hand,” György Matolcsy. In his version of the story, now that the great successes of the last year and a half are over the government asked the minister of national economy to work out a plan for the next phase of this Hungarian success story. And behold, Matolcsy on his very own “decided that an important part of such a plan is economic insurance policy (biztosítás).” Orbán may have misspoken; he may have wanted to say “economic security” (biztosíték). Members of the media have been having great fun with this alleged incorrect word usage, saying that surely the IMF is not in the insurance business. But I suspect that what the prime minister wants really is akin to an economic insurance policy: if Hungary starts to burn the IMF pays. But just as an insurance company doesn’t check on the homeowner’s fire prevention tools and doesn’t demand behavior that would minimize the risk of a fire, so the IMF shouldn’t meddle in Hungary’s economic policy.

Lajos Kósa was in a very uncomfortable position early morning today on MTV. Most likely the interview had been arranged ahead of time to cover the new law on local government that is being discussed in the House at the moment. Instead he was faced with questions about the pending IMF negotiations. One must know that it is almost impossible to shut Kósa up in interview situations. But this time he kept repeating the expression “How shall I say.” Indeed, he simply couldn’t say anything intelligent about why Hungary is suddenly seeking the help of the IMF.

The new kind of “insurance policy” the Hungarian government seems to be seeking simply doesn’t exist. The IMF offers three credit options:

(1) The Flexible Credit Line that is indeed without conditions. The FLC is reserved for countries “with very strong fundamentals, policies, and track records of policy implementation.” For example, Poland has such an agreement. Surely, Hungary doesn’t fall into this category.

(2) Then there is the Precautionary Credit Line which is for “countries with sound fundamentals and policies, and a track record of implementing such policies” but that “may face moderate vulnerabilities.” This is again not a likely option for Hungary.

(3) At last there is the possibility of receiving an SDR (Special Drawing Rights), an ordinary stand-by-loan, the kind Hungary received in October 2008. In this case the IMF will need a commitment from the Orbán government to follow the agreed-upon economic measures that the IMF deems a necessary precondition for an SDR agreement.

Therefore everybody suspects that the negotiations will be rough going given the history of the relationship of the Orbán government with the IMF. And if Orbán has to give up too much of his much touted economic independence he might think that the political price is too high. As he said only a few days ago to a small group of people at the London School of Economics: “If the IMF comes, I’ll go.” Now his opponents are waiting for him to fulfill that promise. As they say, “We could kill two birds with one stone.”

As it is, the opposition parties are demanding fundamental changes in the composition of his government. Jobbik wants new elections. LMP wants Matolcsy’s head. MSZP is expecting the resignation of Viktor Orbán in addition to that of Matolcsy. Ferenc Gyurcsány (DK) insists on the resignation of the whole government. He suggests that Fidesz form another government that can start a new, sensible economic policy.

Of course, for the time being Viktor Orbán doesn’t have to worry, but I was a bit surprised that János Lázár, the head of the Fidesz parliamentary delegation, refused to comment. I suspect that he learned about the impending negotiations with the IMF from the newspapers like everybody else. Fidesz’s website is not exactly expansive on the subject either. It quotes Kósa’s mutterings about Hungary’s economic sovereignty and Orbán’s meaningless words about the “opening of a new era.”

Just yesterday Ipsos came out with a new public opinion poll. Fidesz has lost 1.8 million voters.

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Paul
Guest

He had eight years to plan all this, what was he doing in all that time – just salivating at the thought of putting Gyurcsány in jail?
Where are you, JB? This is obviously all our fault, I just need you to explain exactly how it is.

Paul
Guest

To continue the theme of the previous thread:
Agresszív kisMatolcsy is hesitating on the steps of the IMF building, about to go in, when the good fairy appears.
“KisMatolcsy!”, she exclaims, “How has it come to this? Will no one else lend you any money?”
“Quiet woman!” replies kisMatolcsy, “We always planned it this way!”

Ron
Guest

Eva: And if Orbán has to give up too much of his much touted economic independence he might think that the political price is too high.
No he will not, he will blame another country, such as Germany. Basically, he is saying if we need to adjust our growth figures from 1.5% to lower, than this is due to Germany.
http://www.realdeal.hu/20111118/pm-gov%E2%80%99t-may-%E2%80%9Cmodify%E2%80%9D-2012-growth-projection/
I must say, i am a little disappointed. I expected better spinning, than just blaming other parties. But i know, i should have known better.

Ron
Guest

A few minutes ago on Budapost:
http://budapost.eu/2011/11/imf-talks-decision-hailed-as-pragmatic/
“Nonetheless, a potential loss of political credibility is still preferable to leaving the country without a penny or devoid of credit” – writes the pro-government daily (Magyar Hirlap, copy of Budapost).
I agree with this statement, if it would be made a few months ago, but they already lost politically credibility a long time ago, and it seems that the country has no penny within a month. So this statement is a little bit late.

dvhr
Guest

The cartoon is reference to the movie “Monty Python and the Holy Grail” whose Hungarian title is “Gyalog-galopp”.

Ron
Guest

Sorry again off topic. It seems that there will be voted for a new law this coming week.
This law will introduce a president of the judges, who will appoint and fires (300) judges, set their salaries, etc.
Most likely the wife of Jozsef Szajer, Tünde Handó, who is currently the Chair of the Labor Court in Budapest, will be the new candidate.
It seems that this post is for 9 years, and he/she can only be replaced with a 2/3 majority in Parliament.
http://index.hu/belfold/2011/11/18/meg_iden_levaltjak_baka_andrast/
http://www.hatc.hu/sample_article.php?sid=12474

Paul
Guest

I’m starting to twitch every time I hear/read the phrase “2/3 majotity”!

oneill
Guest
The ad-hoc, extreme short-term nature of these kind of economic stunts are what’s most scary about the regime’s approach. It’s obvious their opinion changed over the week- they hadn’t taken into consideration the possibility of worsening figures, results and poss downgrades? I have a friend who works in one of the EU country’s embassy’s in the city and post the election they were all promised a detailed dossier as to just how Mr Orban planned to save the Magyar Nation. Bearing in mind the length of time he’d had in opposition to engage experts and the technocrats to come up with some kind of feasible rescue plan, the diplomats were on tenderhooks waiting for the Grand Solution. When it arrived it however was 80 pages of platitudes, mentions of “in the nation’s/peoples’ interest”, “20 years of economic misrule” etc etc but diddly-squat in terms of concrete plans. It was at this point that the warning bells started ringing here and further afield in Brussels. The mere fact that the IMF has even been *engaged*, however reluctantly by the regime, shows how bad a situation we really are in- all sources of present and possible finance have dried up. International invetsors… Read more »
Eva S. Balogh
Guest

oneill: “This from Reuters was interesting”
This Szakács must have spoken only to Orbán followers and true believers. Who else would think that Orbán was ever true to his principles. The guy has no principles.

Kirsten
Guest

“Government debt… has been reduced to 74 percent calculated on the basis of 2010 exchange rates.”
Highly relevant calculation. I somehow miss a hint how the exchange rate could be shifted back to the level of 2010, or are we to believe that this is what the IMF is invited to accomplish?

Paul
Guest

Given the 20% or so loss in value of the Ft since 2010, if it was 74% then, it must be close on 90% in real terms now.
Why not just borrow and enjoy – after all 100% is a much nicer number…

An
Guest

It’s 82% right now.
http://www.portfolio.hu/en/cikkek.tdp?k=2&i=23268 (in English)

Eva S. Balogh
Guest

Paul, Don’t forget they wiped off some of the debt with the stolen pensions. It stands at 82%. Exactly the same as it was at the time of the elections.

An
Guest

According to Napi Gazdasag, without taking the pensions, it would be 9.2% higher. So Paul is right, that would be about 90%.

Kirsten
Guest

Too bad. We do not know what “the markets” would have thought of Hungary without “unorthodox policies” but at least in terms of government debt the impact is somehow zero with all these nationalised pension funds, extra levies on banks etc. All effects lost because of the exchange rate. And Viktor Orban would have wished the central bank to keep interest rates even lower. What a lesson in the mercilessness of markets, and unfortunately (for OV) also in that there is no escape from it even if one tries hard. I do not see OV surviving that.

Member

“According to Napi Gazdasag, without taking the pensions, it would be 9.2% higher.”
Amazing – burn through 9.2% of your GDP and have nothing to show for it.

Paul
Guest

I wonder how many Fidesz supporters realise that their government has thrown away all the money they saved towards a pension?

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