This morning Viktor Orbán in an interview with The Wall Street Journal claimed that currently he is facing the biggest intellectual challenge of his political career because of the economic and financial difficulties the country faces. However, he thinks that with “the economic policies we have today, the budget we have, we are on the right track.” The problem is that the IMF doesn’t think so.
The IMF yearly survey on Hungary’s economic outlook, which was released today, starts with these sentences: “External financing risks are rising in the wake of growth and financial spillovers from the Eurozone crisis. Stock vulnerabilities remain high while fiscal and external buffers are under pressure. Meanwhile, obstacles to higher medium-term potential growth–-namely poor investment growth and low labor participation-–persist. Unexpected and interventionist policy measures, many affecting the financial sector, have further increased policy uncertainty, contributing to elevated risk premia and a weakening of the exchange rate.” It sounds rather ominous. And what comes afterward is no better. Under “Fiscal policy” we read that “ambitious deficit targets remain appropriate, although their attainment may be jeopardized by deteriorating macroeconomic conditions and policy slippages. The increasingly complex tax system should be revisited to take account of medium-term growth and distributional aspects, planned structural reforms should be implemented in full, and distortions in the labor market must be avoided.”
Our war of independence has been won, we signed a cease fire and now we are ready for peace
This is a problem, isn’t it? It is becoming obvious that the International Monetary Fund sees the Hungarian situation differently from the Hungarian prime minister, who seems to be perfectly satisfied with the “economic governance” under György Matolcsy. Viktor Orbán made it clear that the person of his “right-hand man,” György Matolcsy, is not negotiable. However, some commentators, after reading the IMF report, came to the conclusion that there might be additional pressure on Orbán to part with Matolcsy.
Even more important, Hungary might have funding difficulties this year, especially if the euro crisis worsens and the economy slips into recession. The IMF survey predicts a slowing economy, including “the emergence of an external funding gap.” In plain language, the inability of the country to honor its sovereign debt obligations.
Although Orbán tries to give the impression of easy sailing once the negotiations begin, the going might be rough. The IMF most likely will insist on a review of the flat tax introduced a year ago that is largely responsible for the growing problems of the central budget. The IMF will demand a strengthening of the Fiscal Council that the Orbán government rendered toothless.
The IMF called the Hungarian government’s attention to the present lack of investor confidence after possibly inflicting “large and lasting damage” on the country’s reputation with the unilateral revision of bank contracts. The full text of the report, by the way, is available on the IMF’s website.
In addition to the report there is also an interview with Christoph Rosenberg, IMF mission chief for Hungary. Rosenberg talked about the adverse social effects of the Orbán government’s economic policies. He brought up a few examples that “overly burdened the most vulnerable.” For example, the elimination of the basic tax allowance (under the new regime people pay taxes from the first forint they earn), a steep 18 percent hike in the minimum wage, a complicated system of wage recommendations and compensations for employers, and a sharp increase of the standard VAT rate to 27 percent and excise tax hikes across the board. The IMF’s concern is that all this will lead to real income losses and reduced employment opportunities for lower-skilled workers.
This last point brings me back to Viktor Orbán’s interview with The Wall Street Journal where he announced that his government “wants a middle-class based democracy.” What can that be? If we check a good dictionary we find that the word “democracy” means “government by the people, exercised either directly or through elected representatives,” or in sociology “the practice or spirit of social equality.” But a middle-class based democracy? A contradiction in terms. The Orbán government doesn’t make a secret that its preferred sociological stratum is the better-off segment of society. The poor and the less well-off are not only neglected but they are the ones who are supposed to provide higher living standards for the upper- and upper-middle class people. A dangerous and highly undemocratic social policy.
Bad news came not only from Washington but also from Brussels. Last October Neelie Kroes, European Commissioner for Digital Agenda, set up an advisory panel to investigate the controversial Hungarian media law. The head of the panel, former Latvian prime minister Vaire Vike Freiberga, denounced the “extraordinary concentration” of power in the press under the leadership of Viktor Orbán which “undermines his nation’s media freedom.” Reiberga believes “Hungary and its leaders would be wise to reconsider the laws and regulations that they have passed so as not to stand in contravention of various fundamental principles.” Her report also mentioned the situation of Klubrádió whose frequency was taken away under highly suspicious circumstances.
Meanwhile, something very strange happened in Hungary. It turns out that Autórádió, the mysterious buyer of Klubrádió’s frequency, is up for sale. They approached three already existing radio stations, including Klubrádió. The price: a mere 200 million forints. Klubrádió declined the generous offer.
I will throw it out to you. What do you think is going on?
According to people in the know, it was Viktor Orbán himself who insisted on depriving Klubrádió of its frequency despite Media Council Chief Annamária Szalai’s warning that the case might create an international uproar. Apparently, Orbán hates Klubrádió so much that he didn’t care.
I have the strong suspicion that Orbán will not only have to bow to the economic demands of the IMF and will have to assure the European Union about abandoning his undemocratic practices but he will also have to give in on the media law. Of course, the question is whether this man is capable of turning around and being the very model of a democratic gentleman. I personally doubt it.