The more I read some of the comments the more convinced I’m becoming that many of you seem to be unaware that in the last few years the IMF has drastically changed tactics. They no longer insist on austerity measures that would place an undue burden on the lower strata on society. Rather, their policy makers concentrate on sound economic and financial policy that should be adopted by the governments in financial need. They want, for example, structural changes that would eliminate waste and would ensure the efficient handling of the economy.
Anyone who is interested in finding out how these negotiations between governments and the IMF are conducted should listen to an interview with János Veres, former minister of finance and a member of the negotiating team that worked out the details of the IMF loan in 2008. From the interview it becomes clear that it is the government that first puts forth a proposal. Then the IMF negotiating team begins discussing the details in order to hammer out a deal that is acceptable to both the government and the IMF. Once the details are settled the negotiating team sends the proposal to Washington where the final decision is made. In 2008 the recommendations were accepted without any further demands or discussions.
When Veres was asked what kinds of demands the negotiators had, he related one that stuck in his mind. The IMF wanted to put aside 300 million dollars in case Hungarian banks needed rescuing. The Hungarian negotiating team didn’t think it was necessary but the IMF insisted. Eventually, the home team decided to relent. As it turned out, a few months later three Hungarian banks needed government assistance.
Now, after a few days of mulling over this latest turn of events, it is becoming clearer why Viktor Orbán kicked out the IMF. Anyone who thinks that I am using overly strong words in describing the IMF’s departure should read the Index‘s list of what government officials have said about the IMF since May 12, 2010. The most outrageous and most often repeated description of the IMF’s departure came from György Matolcsy who on May 3, 2011 was talking about the IMF’s “kipaterolása” from the country. “Paterol” comes from Yiddish and refers to a rough way of “removing” someone from the scene. Perhaps in English we would say: “sent them packing.”
So why did Viktor Orbán send them packing? We know from the Hungarian participants themselves that the first reason was that the IMF wasn’t going to approve the Hungarian government’s “nationalization” of the private pension funds. The IMF officials actually considered the Hungarian pension plan an ideal system that should be followed by other European countries. Second, the IMF objected to the very high levies the Hungarian government extracted from banks, telecommunication companies, and foreign supermarkets. Since then three trillion forints stolen from more than three million people are gone. Banks eked out only meager profits last year, and they are now either unwilling to or incapable of lending money. And finally, the EU found the extra levy on telecom companies illegal according to European law.
But let’s go further. What would have happened if the IMF were not “sent packing” when Hungary spent 500 billion forints (of IMF money) to purchase MOL shares on which the government has already lost a bundle? And they would certainly have objected to Matolcsy’s latest brainstorm of letting people pay off foreign exchange mortgages at a steeply discounted forex rate. Another burden on the already barely functioning banks.
All these moves which were or would have been opposed by the IMF are actually digging the grave of the Hungarian economy. They were self-inflicted wounds that could have been avoided if the two men largely responsible for the country’s economic policy knew the first thing about economics and finance. Mutt Damon was perfectly right when he questioned György Matolcsy’s credentials. In a comment he asked how such a stupid man could get that far. Matolcsy received his degree at Karl Marx University in 1977. At the time there was something called “ipari kar” (industrial faculty) which Matolcsy attended. In the English version of Wikipedia “ipari kar” is translated as “Karl Marx University of Economy of Industry.” Totally incomprehensible. Whatever the curriculum, I’m sure that it bore little resemblance to what was being taught at Harvard, the University of Chicago, or the London School of Economics at the time.
The caption reads: This is Stalin’s left ear and there is Orbán’s right hand.
In his speech yesterday, which has been watched with horror by Hungarians all over the world, we can see a totally uneducated man who threw together a speech which students were forced to attend because they had to write an essay on the great man’s weighty thoughts on economics. Instead they heard an incomprehensible speech. They learned, for instance, that China is one country but not really because there are numerous tigers within it. And that the ancestors of today’s Hungarians according to Persian and Byzantine sources were great at “brain surgery.”
Of course, he is not the only one in the government who doesn’t know what he is talking about. There is the great educator, Rózsa Hoffmann, who gave a lecture about the connection between the Hungarian language and Hungarian dignity. The example she gave turns out to be linguistic nonsense. Anyone who’s interested in Hoffmann’s misconceptions should read Klára Sándor’s excellent piece in Galamus entitled “House of Cards on Sand.” The problem is not that Hoffmann doesn’t know about the fine points of etymology but that she is intellectually lazy. People in important positions are spouting off all sorts of nonsense. This is not the way to run a country.