Hungary’s “alternative suggestions” to the IMF and the European Union

It’s time to return to the IMF/EU negotiations. Yes, I know that it’s becoming boring. Very soon we will celebrate the first anniversary of Hungary’s panicky request to the International Monetary Fund and the European Union for a loan. After the initial alarm, however, Prime Minister Viktor Orbán seemed to have changed his mind and began a game that has consisted of delaying tactics while keeping up the appearance of  serious Hungarian resolve. At one point Orbán accused the IMF/EU team of dragging their heels, adding that the Hungarians are already sitting at the negotiating table and are waiting for the reluctant lenders to join them at last.

According to information received from unofficial channels within Fidesz, there is a split between those who consider a loan an absolute necessity and those who think that Hungary will be able to survive until next March when András Simor, chairman of the Hungarian National Bank, will conclude his five-year term. Simor was nominated to his post by Ferenc Gyurcsány and thus, by definition, Viktor Orbán finds him objectionable. I think that this would be the case even if Simor were more willing to cooperate with the government on monetary policy. But in March Orbán will at last have the opportunity to put his own man at the helm of the central bank, which might mean free access to the reserves of the Hungarian National Bank. At least this is what most analysts suspect is Orbán’s game plan.

I think we can safely conclude that Orbán is not in favor of starting negotiations with the IMF and has done everything in his power to slow the process. Although Mihály Varga, the man in charge of the negotiations, apparently considers negotiations a must in light of Hungary’s financial situation, I fear that it is Viktor Orbán who is the final arbiter in all matters, including the economy. It is hard to know on whom Orbán relies besides György Matolcsy because most of the economic advisers to Fidesz over the past ten years or so reject the policies of György Matolcsy as economic madness. They have either disappeared completely–like Zsigmond Járai, former central bank chairman, appointed to the post during the first Orbán administration, or have actually joined the ranks of those economists who voice their opposition to the “unorthodox policies” of György Matolcsy. If I had to guess, Orbán might still talk to László Csaba, a professor of economics at the University of Central Europe in Budapest, because he is the only Hungarian economist I know of who thinks that Hungary might not need the loan at all.

We know that the IMF/EU delegation members left a letter behind in July when they visited Budapest. In the letter they made a few suggestions as possible preliminaries to serious negotiations. The Hungarian government was in no hurry to respond. It was this Wednesday that at last the Hungarian government sent its answer to Washington and Brussels. What can we call this letter? It’s hard to say. Normally the country that needs financial help writes a “letter of intent” to the IMF, but such a letter already spells out very specific obligations the government is ready to undertake. In 2008, for example, when Hungary was close to bankruptcy, two weeks after the letter of intent was received by the IMF/EU the loan was granted. According to analysts, the letter that was just sent is not really a “letter of intent.” Rather it is another inquiry about the terms of the loan which most likely will not lead to serious negotiations in the near future.

We don’t know what it is in this letter and, according to Antal Rogán, we will not know about its content until the beginning of October. We know only that the final vote on the 2013 budget proposal was postponed, although a week or so ago Viktor Orbán insisted that the budget would be passed–unaltered–even before the beginning of possible negotiations with the IMF/EU. If that had happened, I’m almost 100% sure that there would have been no possibility of negotiations. The budget includes the much opposed transaction tax on the Hungarian National Bank in addition to a 300 billion forint stimulus package called the “defense action of jobs.” One critical problem with the stimulus package is that no funds can be found for it anywhere in the budget, save for some vague talk about the more effective collection of taxes. Surely, with a budget where the numbers simply don’t add up Hungary couldn’t start any negotiations about a loan.

According to financial analysts the 2013 budget as it now stands has a shortfall of 500-600 billion forints. Three hundred billion forints of that is earmarked for the stimulus package on which the government seems to insist, although a couple of days ago Varga said that it “could be refined,” whatever that means. Perhaps making it a bit more modest in size. The next day Varga expressed his opinion that the negotiations could start in October. We remember all too well, however, how often government officials announced that the negotiations were just around the corner and then nothing happened.

Since the Orbán government does not want to increase the financial burden on the population, analysts are almost certain that the “alternative suggestions” contained in the letter are temporary measures that would increase taxes on business. That move, however, would further reduce the investment rate that is already very low and is becoming lower with each passing day.

László Kövér, another strong man in Fidesz, also announced that the IMF cannot demand political conditions. Well, perhaps the IMF can’t, but the European Union certainly can. Népszabadság‘s reporter in Brussels gained the impression that “political guarantees” are expected. Kövér, who spent yesterday in Strasbourg at a meeting of the presidents of national parliaments, found out that if Hungary wants money it will have to fulfill certain political expectations. He was told in no uncertain terms that, although each country has to solve it own economic problems, if that country needs the assistance of the European Union there are certain rules the country must obey. Kövér was also informed that the Orbán government must satisfy the concerns of the Venice Commission of the Council of Europe about Hungarian law and must follow the generally accepted norms of the EU.

All in all, I don’t expect a speedy agreement between Hungary and the IMF/EU. I suspect that the letter the Orbán government sent will not satisfy the European Union’s political demands. And as long as Hungary doesn’t play by the rules it won’t receive any money, as Kövér was told. The European Union is edging toward closer integration and Hungary’s war of independence for greater sovereignty is not welcome in Brussels. And the EU politicians are less and less inclined to tolerate the rogue states within the confines of the Union: Hungary in the last two years and Romania in the last few months.

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petofi
Guest

Let’s now give thanks for madcap Orban and what he has wrought: the tighter integration of the EU probably owes a lot
to Orban’s persnickety obstructionism. It will now be ‘put up or shut up’ and the dire step of removing Hungary may just wake the sleeping electorate up.

oneill
Guest

If you follow Orban’s rhetoric, it seems that Hungary is proposing to do the IMF a favour- bit like if I were to go into the bank manager on Monday telling him “Yes, it probably it would be nice to borrow some money from you but, as you should know, my finances will be shortly in great shape… so tell you what, I will tell you on what conditions I’ll accept a loan from you.”

Louis Kovach
Guest

Just a few points. Hungary did not apply for a loan, but for backstop guarantee funding. There is a difference.

Secondly, it is very presumptious that Hungary had anything to do with the EU attempts to create better economic cohesion primarily in the Eurozone. The EU has much larger economic problems than Hungary. I gravley doubt that Hungary was even considered when the big wigs dicussed the closer economic integration. Contrary to popular beliefs, the world does not rotate around Hungary……it is strange how the kuruc megalomania spreads into leftist circles…….

Paul
Guest
A little OT, but petofi’s comment re the EU sparked the thought… The annual conference of the UK Independence Party (UKIP) is underway here in the UK and today there was much on the radio about their chances of being elected, etc. UKIP are a right-wing loony party, somewhat akin to the polite wing of Jobbik (if such exists), and, under normal circumstances, would have remained firmly on the political fringes until they inevitably faded away. But they are currently riding the wave of strong anti-EU feeling here in the UK and have a very effective leader who makes them seem far more reasonable and electable than they would otherwise be UKIP don’t have any MPs, thanks to our out-dated non-proportional electoral system. But they do very well, somewhat ironically, in European elections (because these are semi-proportional, and tend to be treated as not ‘proper’ elections – so the usual national Labour/Tory politics don’t apply). They are also in the position, thanks to their current high poll ratings (just under 10%) of being able to prevent Tory MPs from getting elected in marginal seats, by splitting the right-wing, reactionary vote. Because of this, and because we have both European elections… Read more »
Paul
Guest

Louis Kovach :
Just a few points. Hungary did not apply for a loan, but for backstop guarantee funding. There is a difference.
Secondly, it is very presumptious that Hungary had anything to do with the EU attempts to create better economic cohesion primarily in the Eurozone. The EU has much larger economic problems than Hungary. I gravley doubt that Hungary was even considered when the big wigs dicussed the closer economic integration. Contrary to popular beliefs, the world does not rotate around Hungary……it is strange how the kuruc megalomania spreads into leftist circles…….

If you think this is a ‘leftist circle’ you are clearly not reading all the comments!

But, odd, isn’t it, that a blog entirely about Hungary should be, well, entirely about Hungary.

We know you’re a buffoon, Louis – there is no need to for you to constantly confirm it.

Louis Kovach
Guest

Paul: “We know you’re a buffoon, Louis – there is no need to for you to constantly confirm it.”

Sticks and stones……..:-)

Paul
Guest

“Sticks and stones……..:-)”

Just to confim – you do realise you’re on the internet, don’t you?

petofi
Guest

Louis Kovach :
Just a few points. Hungary did not apply for a loan, but for backstop guarantee funding. There is a difference.
Secondly, it is very presumptious that Hungary had anything to do with the EU attempts to create better economic cohesion primarily in the Eurozone. The EU has much larger economic problems than Hungary. I gravley doubt that Hungary was even considered when the big wigs dicussed the closer economic integration. Contrary to popular beliefs, the world does not rotate around Hungary……it is strange how the kuruc megalomania spreads into leftist circles…….

Man, you’re one stubborn simpleton, ain’t ya? First off, who ever believes Orban’s characterizations? Oh yes, YOU do.

About the second part: you, quite naturally, misunderstood.
I made the point that Orban’s behavior probably contributed a spur to the EU tightening the rules. Not Hungary’s economy which is tantamount to a spit in the ocean, but Orbans anti-democratic behavior which is a challenge to the whole structure of the EU. Under the new rules, Hungary will have to choose between an-off-the-rocker Orban or membership in the new EU.
Pick wrong and the country will surely be living in the 19th century again!

petofi
Guest
Paul : A little OT, but petofi’s comment re the EU sparked the thought… The annual conference of the UK Independence Party (UKIP) is underway here in the UK and today there was much on the radio about their chances of being elected, etc. UKIP are a right-wing loony party, somewhat akin to the polite wing of Jobbik (if such exists), and, under normal circumstances, would have remained firmly on the political fringes until they inevitably faded away. But they are currently riding the wave of strong anti-EU feeling here in the UK and have a very effective leader who makes them seem far more reasonable and electable than they would otherwise be UKIP don’t have any MPs, thanks to our out-dated non-proportional electoral system. But they do very well, somewhat ironically, in European elections (because these are semi-proportional, and tend to be treated as not ‘proper’ elections – so the usual national Labour/Tory politics don’t apply). They are also in the position, thanks to their current high poll ratings (just under 10%) of being able to prevent Tory MPs from getting elected in marginal seats, by splitting the right-wing, reactionary vote. Because of this, and because we have both… Read more »
Jano
Guest

Eva: Just a typo, I guess the other strong man is László Kövér not János

Pete H.
Guest

Perhaps the signals sent from Washington yesterday were meant to coincide with the meeting in Strasbourg.

http://www.politics.hu/20120921/washington-urges-hungary-to-heed-democratic-obligations/

Member

On this subject. Fidesz requested Attila Mesterhazy, the head of the MSZP and Janos Veres the Financial Minister in 2008 to give full details about the deal IMF deal between Hungary and the IMF Hungary in 2008. They want to know why did wages and pensions decreased following the deal or if there were any austerity measures that were introduced on the Hungarian people as the condition of that loan.

There is good news from Hungary as minster Mihaly Varga told Hungarians on Duna TV that although the flat tax did not help to start up the Hungarian economy, first or last people’s refrigerator will break down, first or last people will change down their television set. “Just because someone does not purchase something, the time will come when maybe they will have to do it.”
I am glad to hear that the Hungarian economy will be saved, and such a good plan is in place.
..and no, this is no joke http://hvg.hu/gazdasag/20120921_Hutoszekrennyel_es_tevevel_peldalozik_Var#rss

petofi
Guest

Some1 :
On this subject. Fidesz requested Attila Mesterhazy, the head of the MSZP and Janos Veres the Financial Minister in 2008 to give full details about the deal IMF deal between Hungary and the IMF Hungary in 2008. They want to know why did wages and pensions decreased following the deal or if there were any austerity measures that were introduced on the Hungarian people as the condition of that loan.
There is good news from Hungary as minster Mihaly Varga told Hungarians on Duna TV that although the flat tax did not help to start up the Hungarian economy, first or last people’s refrigerator will break down, first or last people will change down their television set. “Just because someone does not purchase something, the time will come when maybe they will have to do it.”
I am glad to hear that the Hungarian economy will be saved, and such a good plan is in place.
..and no, this is no joke http://hvg.hu/gazdasag/20120921_Hutoszekrennyel_es_tevevel_peldalozik_Var#rss

So much bloody posturing by Orban (and his minions). Already the suggestion that the previous loan brought on reduction in pensions which may not be the case at all–the sickening mindset
of Fidesz and Orban.

LwiiH
Guest
Louis Kovach : Just a few points. Hungary did not apply for a loan, but for backstop guarantee funding. There is a difference. Secondly, it is very presumptious that Hungary had anything to do with the EU attempts to create better economic cohesion primarily in the Eurozone. The EU has much larger economic problems than Hungary. I gravley doubt that Hungary was even considered when the big wigs dicussed the closer economic integration. Contrary to popular beliefs, the world does not rotate around Hungary……it is strange how the kuruc megalomania spreads into leftist circles……. Ahh, I see OV’s rhetoric does work…. The IMF clearly stated that what Hungary was asking for doesn’t exist. The IMF was clear that supervision would be a requirement. I said this in March and I’ve said it in June, there will be no deal with the IMF. The policy cost is just too high for OV to pay. Supervision would bring and end to the “fairy tale” and other doings. I think Eva is spot on in that the longer this drags out the closer OV gets to the central bank’s reserves and then it’s bye bye IMF. Or so he believes. As on financial… Read more »
cheshire cat
Guest
Petofi (and Paul) “I don’t understand this anti-EU thing. Wasn’t getting rid of borders and a single currency a good thing? Why blame the system because some members are cheats?” It’s not because some members are cheats. The UK have never been that keen on the whole EU project in the first place. They never bought into the security, common values, cultural unity thing. They only wanted the benefit of the common market, right from the beginning. It is a shame in a way, because if Britain had been an active, dynamic member from the start, British interests could have been much more strongly taken into account. Britain could have been just as powerful within the EU decision making as Germany and France. But they preferred not to and now it’s become a vicious circle: the more the core decide about the directions and important strategies, the more Britain feels left out; the more they feel left out, the more hostile they grow, the more hostile they are, the less they count etc. On the other hand, it’s understandable, because the British never really see themselves as part of Europe. They are confident that even in this globalized world, they… Read more »
1qaz
Guest

Louis Kovach :
Just a few points. Hungary did not apply for a loan, but for backstop guarantee funding. There is a difference.

When studying personal guarantees in second year of law school, our professor’s mantra was: “he who provides a personal guarantee pays!”

This has proved an enduring truth.

petofi
Guest
cheshire cat : Petofi (and Paul) “I don’t understand this anti-EU thing. Wasn’t getting rid of borders and a single currency a good thing? Why blame the system because some members are cheats?” It’s not because some members are cheats. The UK have never been that keen on the whole EU project in the first place. They never bought into the security, common values, cultural unity thing. They only wanted the benefit of the common market, right from the beginning. It is a shame in a way, because if Britain had been an active, dynamic member from the start, British interests could have been much more strongly taken into account. Britain could have been just as powerful within the EU decision making as Germany and France. But they preferred not to and now it’s become a vicious circle: the more the core decide about the directions and important strategies, the more Britain feels left out; the more they feel left out, the more hostile they grow, the more hostile they are, the less they count etc. On the other hand, it’s understandable, because the British never really see themselves as part of Europe. They are confident that even in this… Read more »
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