On Monday, July 17, Thanos Arvanitis, head of the IMF delegation, and Barbara Kauffman, head of the EU Commission’s delegation, accompanied by Iryna Ivashchenko, the IMF’s Budapest representative, paid a visit to Mihály Varga, the minister without portfolio in charge of the long-awaited negotiations for a stand-by loan for the financially hard-pressed Hungary.
It is worth taking a quick look at the road that led to this event. The decision to turn to the IMF was made on November 16, 2011, and in December the government announced that negotiations most likely would start “around January 10, 2012.” In February we were told that “negotiations will start in March and end in April.” In May government officials in charge of the negotiations talked about a June date for the beginning of the talks and optimistically predicted that by July there would be an agreement. By the end of June the date changed again. This time Mihály Varga talked about October as a concluding date. Today there are analysts who think that there might not be an agreement at all, or if there is it will be next year.
A skeleton IMF-EU delegation has already arrived in Budapest, but it is unlikely that we will learn much about their work because no information will be given to the media during the talks. We know because the IMF made it clear on June 12 that negotiations will be about extending a stand-by loan and not the precautionary loan that the Hungarian government hoped to get. The difference between the two is that a precautionary loan comes with no supervision whatsoever whereas in the case of a stand-by loan officials of the IMF check the country’s balance sheet every three months. Last December there were preliminary talks between the Hungarian government and the IMF-EU, but they broke down over this issue. The Hungarian negotiating team refused to accept a stand-by loan while the IMF was not ready to give Budapest anything else. So, that much is clear. If there is money there will be supervision.
The reporters stood in the scorching heat outside of Mihály Varga’s office watching the arrival and departure of the three-person delegation. They noticed that it was a short visit. Less than an hour. They also reported that one of the National Economic Ministry’s undersecretaries, Gyula Pleschinger, was present. His boss, György Matolcsy, made sure that he wouldn’t have to talk with the members of the delegation. Off he went on his summer vacation. His boss, Viktor Orbán, did the same. And it cannot be a coincidence that Antal Rogán, leader of the Fidesz parliamentary delegation, also began his summer holiday on Monday although he was involved in negotiations with Iryna Ivashchenko over the last eight months.
The well-informed Ildikó Csuhaj of Népszabadság managed to find out that the Hungarians, at least for the time being, are refusing any change in the flat tax or the newly introduced transaction tax. She also learned that Viktor Orbán doesn’t want to talk to the IMF-EU delegation until “the home stretch.” And even then his signature will not appear on the final contract. I don’t know what the customary procedure is, but knowing Viktor Orbán I don’t like the sound of this alleged refusal of the prime minister to pen his name to the document.
After the delegates’ visit to Varga, they immediately headed toward the building of the Hungarian National Bank where they will be talking not only with the bank chairman, András Simor, but also with bank officials specializing in various aspects of the country’s financial situation. They will also visit the National Economic Ministry to talk to the top echelon of officials. In addition, they plan to talk to economists who act as advisers to Viktor Orbán. And there will be a meeting with Mayor István Tarlós of Budapest.
It seems that the delegation chiefs also had time to talk to financial experts of the opposition parties: Tamás Katona, formerly undersecretary of the Ministry of Finance and a member of MSZP, Péter Róna, an American trained economist and adviser to LMP, and István Varga, representing Jobbik. All three men are members of the supervisory board of the Hungarian National Bank. The board consists of seven members headed by Zsigmond Járai, finance minister in the first Orbán government and chairman of the central bank between 2001 and 2007.
Járai used to be a loyal friend of Viktor Orbán and Fidesz, but in the last few months he has expressed his dissatisfaction with the Orbán government’s economic policies. Therefore, it is somewhat strange that Járai felt compelled to write a letter to Iryna Ivashchenko explaining that these particular members of the board in no way represent the position of the Board. Whatever “they uttered during the negotiations must be considered their private opinion.” Róna immediately responded. “It is true that we don’t represent the Board, but Mr. Járai is wrong that our opinions are only private opinions. They are minority opinions within the Board.”
According to Népszabadság, these three men approached the Budapest office of the IMF and expressed their concern over the extension of the transaction tax to the financial transactions of the Hungarian National Bank. As Róna said, “there is no economist in the whole wide world who wouldn’t think that this tax would be a violation of the separation of monetary and fiscal instruments.”
And what did Mihály Varga say after his meeting with the delegation chiefs? When asked what will happen if there is no agreement between the Hungarian government and the IMF-EU delegation concerning even the key numbers in the budget, he said: “According to the classic model there are three possibilities. Either we will get up from the negotiating table and say that if we cannot agree on even these numbers then let’s take a break and sit down again later. The second possibility is that the Hungarian government believes in the delegation’s numbers, but at the moment I don’t consider this option probable. The third variation is that after all it will be we who manage to convince them, especially after the GDP numbers of the second quarter are available, and then we can continue with the negotiations.”
If what I hear from leading economists is accurate, I doubt that the Hungarians will be able to convince the members of the delegations about the viability of the 2012 and the 2013 budgets because the numbers simply don’t add up. Thus, if Varga is right about the “classic model,” I suspect that the first option is a likely outcome, although it may not be the government negotiators who will take a break but the IMF-EU delegation who will let the Orbán government contemplate the universe for a while.