Viktor Orbán and a new “speculative attack” on Hungary

Viktor Orbán, after taking the profits of the banks, supermarket chains, and telecommunication companies, began piling new taxes on businesses and individuals. But it is still not enough. His latest idea seems to be to raid the foreign currency reserves of the Hungarian National Bank. Naturally, András Simor, the governor of the bank, will have something to say about this latest “unorthodox” plan of the Orbán government.

What Hungarians think of these endeavors is well documented in this caricature:

 

Look, they are taking the thief that way!

All this came to light last Friday, the day the prime minister makes his weekly appearance on the Hungarian public radio station, MR1. During his first administration these weekly conversations used to be on Wednesdays on the Hungarian public television station. He himself picked the reporter who wouldn’t give him any trouble. No difficult questions. In fact, the softball questions only furthered his agenda. He would, with the help of the reporter, propagate his political messages to a wide audience.

The new Friday sessions are organized in very much the same way. The willing reporters are described in Hungarian as “podiums for the microphone.” Last Friday, the day after the announcement that Hungary must return to the IMF for a loan, Orbán skipped his chat with Gábor István Kiss, the reporter. I guess he couldn’t face the world. But this past Friday he was there with all sorts of “announcements.” People could perhaps take solace in the prime minister’s words that “the latest serious speculative attack was successfully averted” by his government, but Hungarian citizens might have been frightened to learn that the prime minister is preparing himself for another similar attack. Moreover, the most interesting part of this announcement was that Orbán seems to know exactly when the attack will occur. “A few days after the middle of December.”

Since we all know that the financial markets don’t work the way Orbán thinks they do and that “speculators hiding in the dark” are not conspiring to attack Hungary, we must conclude either that Orbán is planning something the international financial community is not going to react favorably to or that he knows that something unfavorable will happen in mid-December as far as Hungary is concerned. The question is what.

There are many guesses on the subject circulating in the Hungarian media. One is that Fitch will downgrade Hungarian government bonds to junk status in mid-December. Another is that the 2012 budget will be passed at about this time and the international markets will realize that the budget is not based on realistic figures. A third possibility is that the Hungarian government is planning to increase the number of people eligible to pay off their forex mortgages at a much lower exchange rate than current market rates. Not long ago the Orbán government urged employers to lend a helping hand to their employees in this endeavor by giving them tax-free bonuses up to 7.5 million forints. If this generous offer on behalf of the employers is expanded to state employees, the cost to the budget might be as high as 1.3 trillion forints.

Finally, there is yet another possibility that hasn’t been mentioned in the Hungarian media as a possible reason for “the speculative attack” on Hungary. That is a raid on the Hungarian National Bank’s foreign currency reserves amounting to 35 billion euros. But let’s take a step or two back in time.

It seems that the International Monetary Fund is not eager to negotiate with György Matolcsy. They trust him so little that the IMF insisted that the request for negotiations be signed by Viktor Orbán himself. And the Hungarian delegation will be headed by Tamás Fellegi. In order to save face the explanation for this unusual change of personnel was that at the prime minister’s orders György Matolcsy must work on a new plan: the National Economic Growth Plan. So, he is just too busy to get involved with the negotiations. But for economic growth there must be new investments and for new investments one needs money. The Hungarian government certainly has no extra money. In fact, it doesn’t even have enough to get by next year. However, there are the foreign exchange reserves which are “lying about” in the Hungarian National Bank. These were Orbán’s exact words: “lying about.” He added that Matolcsy and Simor must agree on “the inclusion of these resources in the economic growth” of the country.

However, these reserves cannot be used to stimulate the economy. Moreover, although György Matolcsy did have a conversation with András Simor, the governor of the central bank, according to Simor himself the topic didn’t even come up during the consultation. I can easily imagine, given the haphazard way this government functions, that Viktor Orbán opened his mouth without first learning about the possibilities of tapping into the forex reserves of the Hungarian National Bank. Perhaps he was thinking about the possibility of announcing by mid-December the final shape of the National Economic Growth Plan which would include the use of the central bank’s reserves. The announcement of such a plan would further shake the trust of the international financial community in the Orbán government.

Of course, it is also possible that Viktor Orbán is simply talking through his hat. This wouldn’t be the first time. Or, I’m sure, the last.

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An
Guest

This just shows OV’s total lack of understanding how financial markets work… a smart and responsible politician does not predict speculative attacks against his country’s currency, as predictions like that can easily become self-fulfilling prophecies.

Guest

Hm, so I should wait with exchanging my €s into HUF until Christmas …
We already do this once a month – every time hoping that we get the best exchange rate possible for the period …

Paul
Guest

An – maybe that’s what he wants? Then he can say “told you so – they ARE attacking us!”.
He’s mad (and desperate) enough.
If I had money in Hungary, I’d get it out. It won’t be long before all Orbán’s easy targets have been drained and he starts ‘nationalising’ people’s savings.
As it happens, I DO have money in Hungary, all tied up in bricks and expanded polystyrene. So much for putting my redundancy money into a ‘safe investment’…

Wondercat
Guest

Under what authority might those reserves be expropriated from the central bank, and to what purpose might they be diverted?
The speculations presented are interesting because they are alarming. But I should like to see a route, a mechanism, proposed before I agree to be alarmed.

Paul
Guest
I wonder if this is what sparked OV’s thinking: “Zoltan Csefalvay, minister of state at the economics ministry, said. “We have reduced public debt from 81 per cent to 76-77 per cent, the reserves at the central bank are twice what they were in 2008…” This is from an article in the FT – which also predicts that the IMF loan to Hungary will be a standard SBA (stand-by arrangement) – in other words “funds (that) are disbursed in tranches, with the recipient able to draw on the tranches only after having to pass each successful review”. The article goes on to say: “The major reason Hungary will have to go to the IMF and accept whatever conditions it sets is due to the very difficult external financial conditions,” said Zoltan Torok, economist at Raiffeisen Bank in Budapest. “Hungary needs to refinance some €4.6bn in external debt next year and if conditions deteriorate it’s going to be almost impossible. Hungary needs the security of an IMF loan.” “Peter Rona, an economist and adviser to the Hungary’s IMF negotiating team in 2008, said there was “no question” that any support had to be in the form of a stand-by arrangement. “It… Read more »
Member

“…that he knows that something unfavorable will happen in mid-December as far as Hungary is concerned. The question is what”
Christmas?
Knowing his paranoia amd the conspiracies he’s seeing currently behind every corner, he probably suspects Santa is in cohoots with those evil no-good speculators.

Paul
Guest

And Jesus was a Jew, after all…

Ron
Guest

oniell: “…that he knows that something unfavorable will happen in mid-December as far as Hungary is concerned. The question is what”
Christmas?
It is normally that from December 17 to January 2 (or the first Monday of the new year) each year and for the summer July 17 till August 20 the country closes for business.
I assume is not different this year.
So basically he is saying whatever happens after December 17 is not my fault as the country is attacked.
But what he needs to say is that whatever happens after December 17 nobody is there to solve the problem (if they could solve the problem)

Kirsten
Guest

Wondercat, a change in the MNB law could be a good start, and what to do with it is: sell and use for current expenditure, or: sell and use for repayment of debt (would at least reduce the debt). But as the level of reserves may affect the inclination of investors to keep money in Hungary and therefore the exchange rate, a reduction in the foreign debt through the sale of reserves could lead to a further depreciation of the forint and may ultimately have the same outcome as the ‘reduction’ of debt through the nationalisation of pension funds in the past years: only at the exchange rate of 2010, debt converted into forint would have been reduced, at the new, depreciated exchange rate, the foreign debt in terms of Hungarian GDP need not decline much, while the reserves are gone.

Paul
Guest

Is this reserve physical money? Is their a vault stuffed with forint/dollars/gold? If it’s not in forint, then presumably its value (in forint) rises as the currency collapses?

Member

The FX reserves are the primary weapon against attacks on the domestic currency. The country can buy it’s own currency to stabilize it’s value. Talking about the weakening Forint and thinking about lowering the reservers is nonsense. It’s like “We expect to be attacked! Let’s sell the tanks!”.
Somebody mentioned earlier the Orban government may try to play out the scenarios from the early 2000 Argentine economic crisis. My guess is they don’t want to wait – they want to steer the Titanic to the iceberg intentionally. They will make the Forint collapse, then default on the interest payments.
When the inflation will starts going out of control, they will soon freeze the bank account to stop the population to move the money out of the country.
Then they will throw their arms in the air, blame the whole thing on the recession and wait for help. The question is what will happen when the riots will start. Will they resign or suspend civil rights, including elections because the country needs stability?
Well, anyway the standard disclaimers apply to everything I write – that is I’m just hobby googler. But the history of the Argentine crisis is a really interesting reading.

An
Guest

@Paul: Most of it is foreign currency (not sure which currency, my guess is that it’s Euro or a combination of Euro and USD), plus some gold and SDR (not-physical money, created by the IMF). So yes, the vaults are mostly stuffed with euros and dollars. Hope its not all euros; I’m a little worried about the euro. Tough it still looks better than the forint.

An
Guest

@Mutt Damon: “The FX reserves are the primary weapon against attacks on the domestic currency. The country can buy it’s own currency to stabilize it’s value. Talking about the weakening Forint and thinking about lowering the reservers is nonsense. It’s like “We expect to be attacked! Let’s sell the tanks!”.”
You are right, and there are only two reasons to contemplate such a move. One, is that they do not want to save the forint, (as you pointed out, that’s indeed a crazy plan), two, they are idiots and do not know what they are doing.
Well, they won’t be able to use the national bank’s reserve without Simor’s approval (the president of the national bank) or they have to remove him. They’ve been working on his removal for a while.

Member

The Argentine precedent is a frightening one because some people actually think that what Argentina did was a good idea. They defaulted on their debts in December 2001. Wikipaedia has a table showing the effects on poverty levels in the country at:
http://en.wikipedia.org/wiki/Argentine_economic_crisis_%281999%E2%80%932002%29
Within 11 months of the default the economy reached its nadir with 57.5% of the population on the poverty line and 27.5% at a level of poverty that they had insufficient money to afford to eat properly. While the idea of standing up to the IMF sounds quite macho, doing so at this type of price is insane.

Paul
Guest

The Argentinian ‘approach’ is the financial equivalent of dealing with near-fatal cancer with both chemo AND radiation therapy. You might, just, live, but you go through seven types of hell to get there and you carry the scars for life.
If OV and his loony chums are seriously contemplating ‘doing an Argentina’, then things are even worse than I thought they were – and that really is saying something.
Mutt – “The question is what will happen when the riots will start. Will they resign or suspend civil rights, including elections because the country needs stability?£
Rhetorical, I trust? We all know the answer.
An – thanks. I now have quite an interesting image in my mind! Not sure about the Euro v Dollar argument though. If you look at the history of the two currencies since the Euro’s birth, the Euro has been pretty steady and gradually gained, whereas the Dollar has been all over the place.
Perhaps CHFs would be the answer? Now that would be ironic!

An
Guest

@Paul: ” I now have quite an interesting image in my mind!”
Picture this:
The Bank of England is custodian to the official Gold reserve of the United Kingdom and many other countries. The Vault, which is situated beneath the City of London, covers a floor space greater than that of the second-tallest building in the City, Tower 42, and needs keys that are 3 feet long to open.[36] The Bank of England is the fifteenth largest custodian of Gold Reserves, holding around 310 tonnes.[37
http://en.wikipedia.org/wiki/Bank_of_England

Odin's lost eye
Guest
Professor you comment that ** “The way Orbán thinks they do and that “speculators hiding in the dark” are not conspiring to attack Hungary” **. The problem is that that is the way that Orban thinks. In his mind there is a dingy ill lit room (somewhere in Northern Europe, New York or even Tel Aviv). In that room here is a group of men, probably wearing Yamulke and Kippah, who are busy planning a next massive speculative assault on the Forint. The fun and games he is planning will be announced during the Yule tide (Christmas) holiday season. Actually this is psychologically quite a good time pull any stunt. By the time the foreign press etc have recovered from the New Year debauch. It will be very old news and the press will ‘drop the dead donkey’. My guess is that the Viktator will impose exchange control regulations and create a Bank for ‘International Settlements’ which will handle all monetary exchanges. Exchanges of Foreign currency into Forints will take some 3 to 4 months to complete. This will give the Hungarian Government free loans. Forints held outside Hungary will have to be ‘repatriated’ on a very short time scale… Read more »
Ron
Guest

Off-topic: Yesterday there were elections in Russia. It seems that Putin will have some 60% of the votes. Although there are some strange results.
With only 50% of the votes counted Putin lead with 60%. The total number of voters was 146% in the Rostov regio. In Voronezh it was 130%.
http://www.gazeta.ru/news/lenta/2011/12/05/n_2122662.shtml (use google translation)

Ron
Guest

Off topic: It seems that Malev (the Hungarian carrier) will not be taken over by the Chinese.
Now VO has a problem to find either a new party or a way to pay back HUF 100 billion is state grants by Malev to the Hungarian State. If not than most likely Malev will go into bankruptcy.
It seems that there is a secret plan lying around what to do in this case. I assume that it is a list of telephone numbers of people/corporations/countries interested in parts of Malev, so that Fidesz can make a buck or two.
In the mean time they will blame,who else, the previous governments.

Member

Dire warning “Russian communists win support as Putin party fades”. The problem is that the anti-communist sentiments were used Orban for years. Actually his only try platform that he never strayed away was to build a database of “suspected communists” and blame them. THe supreme right would never have chance in Russia, but Hungary is a different story. If Orban goes down, I am afraid Hungary will tilt to the right.
Concerning the night before Christmas “visions of attacks danced in his head” just look at the Orban ‘s portfolio and his personal interests, and you get yourself the answer. WHat is the most important question to ask from Orban and his inner circle is that what currency is he keeping his savings and investments?

Paul
Guest

An – I ended up staying up even later than normal reading all about the bloody Bank of England!
This internet is the Devil’s tool!
But odd to think in this internet age there are still heavily guarded vaults all over the world full of boxes of metal.
Does it all still depend on our simple regard for one particular metal, just because it doesn’t corrode easily and is quite hard to mine??

Paul
Guest

(OT) The Hungarian march back to the Middle Ages continues…
On politics.hu today:
Hungary scores 5th (out of 33) on a ‘radicalism’ scale (i.e. how right-wing you are). Between 2002 and 2009, sympathy with right-wing views in the over 15s more than doubled from 10% to 21% (“a practically unprecedented rise by international standards”).
Two thirds of Hungarians believe that Roma are genetically pre-determined to commit crime and wouldn’t let their children befriend a Gypsy child.
Meanwhile the ‘Christian’ KDNP propose cutting state funding of abortions.
And in Esztergom Tesco are running the buses..
http://www.politics.hu/
You couldn’t make it up.

Member

Paul: “Between 2002 and 2009, sympathy with right-wing views in the over 15s more than doubled from 10% to 21% (“a practically unprecedented rise by international standards”).
Seems to support my comment at 7:27AM

Paul
Guest

Some 1 – a week or two ago I was responding to a post where someone (not Some 1!) was speculating about Orbán going (in the ‘only way to stop Fidesz is an act of God’ sense of ‘going’), when I realised that Hungary without Orbán might actually be worse even than Hungary with him.
He has created such a division in politics and such a vacuum in ability and experience, and at the same time he has stoked up the fires of the extreme-right. He could actually be the only one who can ‘control’ it all.
It’s a VERY depressing thought.

Member

@Paul. Yes I remember that conversation. It seems that Russia proves that theory. Even Egypt has shifting to the radical movements. It seems that after some form of hardship, people choose popular, but safely sound ideas. (Saving values, restoring morals. taking back jobs, supporting the “True citizens”.) Orban’s big promise turned out to be fruitless, and now the only alternative is the ultra right.

An
Guest

@Paul & Some1: I am almost inclined to say that if Hungarian’s choose that, so be it. It seems Hungarians want to learn the hard way .. because not only OV’s nationalistic, anti-foreign politics is nonsense and disastrous, but so are Jobbik’s ideas… only even more so. It seems Hungarians need to see a Jobbik government to experience how disastrous it is when nationalistic thugs with hazy chauvinistic ideas and zero understanding of economic fundamentals try to run a country based on grand schemes of “saving the nation”. Hungarians just did not seem to have learned their lesson from electing the Orban government.
I just feel very sorry for those in Hungary who are not falling in the ultra-right camp.

Kirsten
Guest
I am not sure whether going through the full circle from Horthy, Communists, Socialists, Fidesz-type conservatives to Jobbik, or for many people living today starting with the Communists, really means that lessons will be learned (automatically). For that there is too much evidence of that the lessons as regards participation, transparency, controls, respect for other opinions and other people’s rights have not been studied broadly. The ‘experience’ of Jobbik rule will only foster the opinion that “nothing ever changes”. For me the lesson should be learned by the (not so small) group of people with a ‘European’ outlook, who should try to learn from those countries that had similar difficulties before and appear to have succeeded by now (of which there are quite a number in the West of Europe). Break this vicious circle of ideas related to ‘salvation’, ‘national’ and ‘personal’ pride (also called stubbornness), the ‘national’ habit of ‘pessimism’ and ‘suffering’ (az ember/élet rossz és gonosz, which was the main lesson that I took from a church service in Budapest). I am afraid, personal experience with these ‘regimes’ in Hungary alone, will not suffice. I consider it to be an optimistic outlook that change is possible, but perhaps… Read more »
An
Guest

Kirsten, what I am saying that Hungarian society’s is so sick, that it may require a major cataclysm for people to change their ways of thinking. It’s like a disease that has to run its course.
For example,in Germany, Hitler had to run the country to the ground for Germans to realize the craziness of his ideas. Of course, I’m not envisioning anything on a WW2 scale… but there probably will be some kind of climax (with or without OV) this situation reaches, before it will start to get better.
I am not saying that those “European-minded” individuals shouldn’t do everything they can… they absolutely should. I may be wrong and it maybe it is possible to bring about change without hitting rock bottom… we’ll definitely have to work on that. Just like a doctor who tries to save the patient.

Paul
Guest

An – “It seems Hungarians need to see a Jobbik government…”
In all seriousness, what they’ve got already isn’t far from this. What with the KDNP tail wagging the Fidesz dog and Jobbik lurking in the wings.
“nationalistic thugs with hazy chauvinistic ideas and zero understanding of economic fundamentals try(ing) to run a country based on grand schemes of “saving the nation”.” – sounds pretty much like a description of the Orbán ‘government’ to me.

An
Guest

@Paul: “Sounds pretty much like a description of the Orbán ‘government’ to me.”
That’s exactly my point. The fact that people are getting disappointed in OV AND turn to Jobbik means that they are disappointed in the person and in Fidesz but not in the nationalistic ideas they represent. People fail to realize that the ideas themselves are misguided and many times untenable. Jobbik won’t be able to do a better job governing, a Jobbik government would just lead to the same type of circus or probably worse.
But, if we ever see a Jobbik government (and I hope we won’t), they are pretty much doomed to fail too… but unlike with Fidesz, there just won’t be an ultra-right alternative.
The question is how “ultra” right the country has to go for the people to finally see that the direction is wrong?

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