Tag Archives: Azerbaijan

The “Azerbaijan Laundromat” and Orbán’s Hungary

News of the “Azerbaijan Laundromat” scandal reached Hungary yesterday, thanks to the report of Átlátszó, a group of investigative journalists who participated in an investigation conducted by the Organized Crime and Corruption Reporting Project (OCCRP). It was a truly international effort that included Danish, British, French, Swiss, Russian, Austrian, Slovene, Romanian, Bulgarian, Estonian, Czech, and American journalists. The first short description of this money laundering scheme appeared in The Guardian on September 2, from which we learned that the ruling elite of Azerbaijan operated a secret $2.8 billion scheme to pay prominent Europeans, buy luxury items, and launder money through a network of opaque British companies.

In The Guardian article there is no reference to Hungary, but Átlátszó reported that from this enormous amount of money $7.6 million landed in Budapest in 2012 and 2013. The first installment was deposited by Metastar Invest LLP, one of the four phony companies set up to expedite Azerbaijan’s money laundering operation, in July 2012. The recipient of this and subsequent deposits was Valesco International, a company that a couple of years later conveniently ceased to exist. Where the money actually ended up no one knows.

Let’s quickly recall Azeri-Hungarian relations in the first few years of the second Orbán government. Viktor Orbán was in Baku in September 2010, participating in an energy summit, but he had a separate meeting with President Ilham Aliyev. A year later President Pál Schmitt paid a visit to Baku, where he also conducted negotiations with the Azeri president. And on June 30, 2012, Viktor Orbán, while attending the Crans Montana Forum in Baku, again met Aliyev. A few days later, sometime in July 2012, the first installment of the Azeri millions arrived in Budapest.

What happened at this meeting? Most likely it was during this encounter that Viktor Orbán was persuaded to extradite Ramil Safarov, an officer of the Azerbaijani Army who had been convicted of the 2004 murder of an Armenian officer during a NATO-sponsored training seminar in Budapest. Safarov was sentenced to life imprisonment. The Azeri government approached successive Hungarian governments several times, trying to persuade them to allow Safarov to return to Azerbaijan so he could serve the rest of his sentence in his own country. The Hungarians refused because they suspected, with good reason as it turned out, that Safarov would be pardoned as soon as his plane hit the ground in Baku.

It is hard not to suspect a connection between Orbán’s visit to Baku in June and the first installment of $7.6 million to a Hungarian bank account in July, especially since by the end of August Safarov was on his way to Azerbaijan, where he was welcomed as a national hero and set free.

Of course, this is just conjecture, but what is clear is that the Azeri government used bribes to achieve its political aims and that those who were ready to serve Azeri interests were generously rewarded. The extradition of Safarov was certainly something that merited recompense as far as Aliyev was concerned. Ever since then, Azeri-Hungarian relations have been close. Aliyev remained a grateful friend and Orbán a loyal ally. One of my posts from 2014 describes in some detail the close relationship that developed between the two countries, which at times became outright embarrassing. For example, when Viktor Orbán during his last visit to Baku in 2016 talked about “the leaders of the country who have made Azerbaijan one of the most respected and often envied countries in the world.”

The Azeri leadership also spent a considerable amount of money on European politicians who were ready to defend Ilham Aliyev’s dictatorship. I will concentrate here on one politician who also had extensive dealings with the Orbán government. He is Luca Volontè, who was one of the largest beneficiaries of Aliyev’s “generosity.” Volontè at the time was the chairman of the European People’s Party group in the Council of Europe. Italian prosecutors allege that Volontè was paid €2.4 million by Azerbaijani officials in exchange for “his support of political positions of the state” at the Council, which is supposed to promote democracy and the rule of law. The accusation is actually not new. Gerald Knaus, chairman of the European Stability Initiative, a think tank, claimed as early as 2012 that “the Council of Europe … in recent years has been captured by autocrats.”

János Martonyi, Luca Volontè, and Viktor Orbán, March 28, 2012 / Orbán’s Facebook page

It is about this time that Viktor Orbán put a photo of himself with János Martonyi and Luca Volontè on his Facebook page. By that time, Volontè had proved to be a great friend of Hungary. In January 2011 the Council of Europe held a debate on the functioning of democracy in the country. Hungary was fiercely defended by several members of the Parliamentary Assembly (PACE), among them Volontè, who criticized the proceedings against Hungary on the ground of “a lack of facts.” Any criticism of the government inside of Hungary, he argued, comes from “people who are unhappy that they were not reelected.” Otherwise, Hungary is a model democracy.

Volontè’s close friendship with the Hungarian government continued. By 2013 he was again defending the Orbán government against the monitoring committee of the Council of Europe in connection with the new Hungarian constitution. He called the criticism of the Hungarian government a witch hunt. He claimed that the critics are not even familiar with the text of the constitution. Volontè explained all this in an interview with the then pro-government Magyar Nemzet.

By that time, Volontè was most likely a paid agent of the Azerbaijani government, and I wouldn’t be at all surprised if he also offered his services to the Orbán government, which was in considerable trouble both in the European Parliament and in the Parliamentary Assembly of the Council of Europe.

A year later I became even more suspicious when an ugly attack was launched in Hungary against Professor Charles Gati after the publication of his article “The Mask is Off,” which originally appeared in The American Interest and a day later in Hungarian Spectrum. It was written after Viktor Orbán’s infamous speech about building an “illiberal state” in Hungary. Orbán wasn’t expecting such a violent reaction to his honest admission of his plans, and the Fidesz media tried to distinguish between the American and the European understanding of the word “liberal.” It was at this point that Luca Volontè was called upon as a true “European voice.” He must have had considerable government help with his long article titled “Hands Off Hungary!” because he seemed to be too familiar with the Hungarian political scene at the time.

Volontè is no longer in politics. He is running the Novae Terrae Foundation, which “commits itself to defend human rights conceived according to natural law.” But he still has time to write long articles in praise of Viktor Orbán. The last such article appeared in Magyar Hírlap on March 18, 2016 with the title “Hungarian Spark: Prime Minister Viktor Orbán has the clear wisdom to outline the conditions of the epoch-making challenges ahead.” It is a propaganda piece which ends with this line: “I’m sure that I’m not the only one who can proudly say how good it is to meet true people and to know them as my friends, whom I hope to meet again in the country of St. Stephen soon.” Volontè’s wish was fulfilled because he visited Hungary in November 2016, giving a lecture on “The relativization of European values” at an international conference in Szeged organized by the Szeged-Csanád Bishopric and the Polish Consulate in Szeged. A few months later he was back in Hungary, this time for the World Family Summit held in May 2017, where he participated in a panel discussion on “Pro-family Activities in the World.”

This afternoon Magyar Idők published a surprisingly straightforward account of the Azeri bribery scheme with the title “Three-billion dollar fund for Baku’s plans: The threads reach the Parliamentary Assembly of the Council of Europe.” The $7.6 million deposited in a Budapest bank was of course omitted from the summary, but the article to my great surprise included a mention of Volontè as one of the accused. My question is whether these revelations will have any bearing on the currently overfriendly Azeri-Hungarian relations.

September 6, 2017

Extradition of Yerzhan Kadesov to Kazakhstan, with Hungarian assistance

In order to understand the ins and outs of today’s post about the extradition of Yerzhan Kadesov, a Kazakh national, from Hungary to Kazakhstan, I’m afraid I have to start with Mukhtar Ablyazov, the founder of Democratic Choice of Kazakhstan (DCK), a political party which was supposed to be a counterforce against the regime of Nursultan Nazarbayev, the Kazakh dictator who has been in power ever since 1984. Soon enough Ablyazov was accused of embezzling $5 billion from Bank Turan Alem (BTA).  He fled the country and settled in France, where he was subsequently detained by French authorities. Russia sought his extradition, but the human rights groups Amnesty International and Human Rights Watch took up his case. Last December he was released on the grounds that Russia had a political motive in making the extradition request.

Yerzhan Kadesov / Source: Interfax.kz

It was not only Ablyazov who fled Kazakhstan but several of his colleagues, whose extraditions were also sought and denied for the same reason. One of the lesser associates of Ablyazov was Yerzhan Kadesov, who escaped from Kazakhstan in 2009, first settling in Ukraine. After a while, however, fearing that the pro-Russian Ukrainian president Viktor Yanukovych might extradite him, he moved to Hungary in 2012. Two years later Kazakhstan issued a warrant for his arrest, and in 2016 the Hungarian authorities detained Kadesov on the grounds that he was a national security risk. A Polish human rights group called Open Dialogue Foundation moved into action on Kadesov’s behalf. They released an urgent call to stop the extradition, pointing out that there is a good possibility that “Hungary is in the service of the Kazakhstani dictator” in handling the case.

Kadesov’s case is closely tied to that of Zhaksylyk Zharimbetov, Kadesov’s supervisor at BTA, who in January 2017 was kidnapped by Kazakhstani security forces in Turkey, where he enjoyed refugee status. Soon enough Zharimbetov began “to reveal Ablyazov’s crimes.” Based on his testimony, the Kazakh court sentenced Ablyazov to a 20-year jail term in absentia.

The Kazakh authorities seem to be using Zharimbetov to convince other fugitives to return to Kazakhstan. This is what happened in Kadesov’s case. It seems that the Hungarians helped the Kazakhs in their endeavor by allowing telephone calls from Zharimbetov to Kadesov while Kadesov was in jail in Hungary. Moreover, Kazakh diplomats in Budapest were free to visit him. But ODF claims that Hungarian human rights organizations were prevented from providing legal assistance to the incarcerated Kadesov. The Kazakh fugitive steadfastly denied his guilt for about six months, but in the middle of June he confessed and asked to be extradited to Kazakhstan. ODF claims that Kadesov was pressured via threats to his relatives in Kazakhstan “with the knowledge and assistance” of the Hungarian authorities.

Index also got hold of the story, though fairly late in the game. Index’s source, I assume, was the Polish ODF. In the middle of June Index sent inquiries to the ministry of interior concerning the Kadesov case but got no answer whatsoever. This surprised the journalists because in the past they always got answers, even if they were fairly meaningless.

The first thought that came to my mind when reading this story was the Hungarian decision to extradite Lieutenant Ramil Safarov to Azerbaijan. During the summer of 2004 NATO’s Partnership for Peace organized a two-month program for officers from the member states in Budapest. Both Armenia and Azerbaijan joined the Partnership when it was established in 1994. The young officers were supposed to study English in the Hungarian capital. Ramil Safarov, an Aziri national, purchased an ax locally, and one night when the Armenian officer Gurgen Margaryan was asleep, he brutally hacked him into pieces. He practically severed the Armenian officer’s head. During his trial Safarov freely admitted that his only reason for killing Margaryan was that he was an Armenian. He showed no remorse for his crime. In addition, while in jail he attacked the guards, for which he received two and a half years in a separate trial. In 2006 the verdict was announced: he received a life sentence for premeditated murder.

Between 2006 and 2012 the Azeris tried to convince the Hungarian government to let Safarov serve his sentence in Azerbaijan, but the Gyurcsány and Bajnai governments steadfastly refused the request, knowing full well that he would immediately be released since the Azeri government and people considered Safarov a national hero. However, after Péter Szijjártó’s visit to Azerbaijan in June 2012, a deal was struck between the Orbán government and the government of Ilham Aliyev for Safarov’s release from Hungarian custody. And indeed, just as predicted, Safarov was greeted at home as a national hero and immediately received clemency from the president. The minister of defense bestowed on him the rank of major.

A Kazakh fugitive who is extradited today won’t be as fortunate as Safarov. Other countries where Kazakh fugitives sought shelter–Great Britain, Spain, the Czech Republic–have all refused to extradite them to Kazakhstan and/or Russia. Hungary is the odd man out. I assume that by now Kadesov is already in a Kazakh jail, where apparently he can’t expect a fair trial. Of course, this case will not create such an outcry as the Safarov case did. After all, it was a murder case. Safarov’s release by the Hungarian government also had serious diplomatic consequences. After the incident the Armenian government broke off diplomatic relations with Hungary, adding that “the Armenian nation will never forgive” Hungary for what happened. Diplomatic relations between the two countries haven’t been restored since.

On the other hand, Hungarian relations with Kazakhstan have been close ever since 2012. Who can forget Viktor Orbán’s speech during his visit to Kazakhstan: “We believe that we are equal partners within the European Union but originally we were strangers there. When we go to Brussels, we have no relatives there. But when we come to you in Kazakhstan we are at home. This is a strange feeling that people have to go to the East in order to feel at home. Therefore, it is always with great pleasure that the Hungarian delegation comes here.” Surely, one cannot say ‘no’ to such a good friend. Denying extradition might spoil their wonderful friendship.

August 10, 2017

Azeri and Russian companies in charge of the Aquatic World Championship’s information technology

I already wrote a post on the escalating cost of hosting the Aquatic World Championship. I collected a few figures, going back to 2014, on the estimated cost of the project when the organizers assured the country that only 23 billion forints would be needed for the whole project. A year later, in May 2015, Magyar Közlöny, the official government gazette, revealed that the government had put aside about 50 billion forints to cover the cost of the two-week event. So, within a year, the estimated outlay doubled. The swimming center that was supposed to be “the new miracle” and “the jewel” of Budapest and that was originally estimated to cost 8 billion forints turned out to be a 33-billion “depressing parking garage,” to quote László Szily of 444.hu. By mid-2016 expenses had reached 90 billion forints.

In May 2017 Miklós Seszták, minister for national development, who is in charge of the project, came out with a new figure. The cost of hosting the Aquatic World Championship will actually be 130.6 billion forints. Index described this announcement as a “bombshell” since no one had dared to contemplate a price higher than 100 billion before. Seszták insisted, however, that, despite that enormous amount of money, the actual staging of the event will cost Hungary only 43.36 billion. How did he come up with that figure? No one really knows, but he refused to include about 85 billion forints in the total cost because, according to him, several big projects, like the rebuilding of the lower wharf on the Pest side or the reconstruction of Margaret Island would have been done sometime in the future anyway.

That was the situation at the beginning of May, but as of yesterday the cost went up a tad more, like by another 35 billion forints, because the figures Seszták revealed at his press conference didn’t include two important items: the technology necessary to broadcast the world championship and the installation of powerful broadband interconnectivity. According to people in the know, these two projects are actually among the most expensive. In addition, the organizers will provide 1,400 cell phones and 600 laptops for use by the athletes, representatives of FINA, and volunteers.

Antenna Hungária, a state-owned telecommunication company, was the “contractor” for these jobs. It hired, without any competitive bids, four Hungarian and two foreign companies to provide the necessary software and hardware for the event. The 35 billion forints didn’t come from the sum put aside for the project but was given, somewhat surreptitiously, to Antenna Hungária outright. Yesterday I detailed the way in which the Orbán government helped ORÖ (Országos Roma Önkormányzat) cover its debts at the end of last year when it gave away 300 billion forints to its favorites. As far as Index knows, Antenna Hungária was also on the receiving end. It got a “gift” of 23 billion so it could hire domestic and foreign companies with a knowledge of internet technology to undertake these jobs.

The people of Budapest and Balatonfüred, one of the other venues, will be the beneficiaries of the free wi-fi which is being installed all along the Danube between Batthyány tér and Margaret Bridge. This will be a permanent installation with long-lasting benefits. But, as usual, there are some questions concerning this project.

Installing the system is WandaFi, an Azeri company with headquarters in Baku. Two Azeri businessmen, Rafik Abasov and Anar Aligioulov, established it in March 2016. WandaFi, according to the promotional material available on the internet, is “an automated engine designed exclusively for hotels, restaurants, and cafes.” A rather strange choice for this particular job because it is supposed to be “a unique marketing tool” that allows hotel and restaurant owners to “get to know” their customers. It collects data that in turn allows the owners to offer personalized services and promotions. In brief, the software is capable of collecting personal data on those who happen to be in the area being monitored. This particular capability worries the opposition parties and the socialist chairman of the parliamentary committee on national security.

Why the organizers could find only a very young Azeri company to do the job I can only guess. One possibility is that one of the satisfied customers of WandaFi is Buddha Bars, a chain of restaurants in Hungary. The Budapest Buddha Bar is owned by two Jordanian investors who are on excellent terms with Viktor Orbán. Or perhaps the ministry of foreign affairs and trade in its eagerness to develop good relations with Azerbaijan, a country Orbán has been courting for some time, looked specifically for an Azeri company capable of doing the job. Anar Aligioulov, the co-owner of WandaFi, was formerly co-chairman of the board of R.I.S.K. Co., which is described as “one of the leading IT companies in the Central Asian and Caucasus markets.” President Ilham Aliyev and Aligioulov know each other. So, it is possible that the Azeri government called the Hungarians’ attention to WandaFi.

The other foreign company is a Russian startup called Marsatpro, which produces software designed to organize sports events. It handles the registration, arrival, departure, and lodging of the participants. But, if Index is correct, this time Marsatpro is responsible for navigation software to be installed in the Audis that will be provided to representatives of FINA. At least Rashit Khairullin, the 31-year-old software designer and head of the company, does have some experience with large sporting events. Apparently, he was involved with the 2013 Summer Universiade in Kazan. This was indeed a large event: 10,400 university athletes from 162 countries participated in 13 mandatory and 14 optional sports.

Still, both are odd choices for the jobs they are ostensibly responsible for. Index tried to find out more about these two foreign companies as well as the four Hungarian ones, but no one is willing to talk.

July 11, 2017

Hungary quits the Open Government Partnership in a huff

Yesterday the Associated Press reported the Hungarian government’s decision to quit the Open Government Partnership (OGP), “a multilateral initiative that aims to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance.”

OGP was formally launched on September 20, 2011, when the eight founding governments (Brazil, Norway, the Philippines, South Africa, the United Kingdom, and the United States) endorsed OGP’s Declaration and announced their countries’ action plans. Since 2011, 62 other countries joined, including Hungary, which signed its letter of intent on July 10, 2012. In this letter of intent the Orbán government declared that “it attached the utmost importance to cooperation with civil organizations.” It was the Ministry of Public Administration and Justice under Tibor Navracsics that represented the Hungarian government in this particular undertaking, which claimed at the time that “it supports the effective implementation of the OGP commitments.” It also promised “in person consultations with the civil organizations and experts regularly on a monthly basis.”

These were the promises, but according to the recollections of the participants, after the initial good working relations “the process started to slow down as the document reached the political level.” The final commitments were vague and greatly weakened. By 2014 it was clear that the Hungarian government’s “sole purpose with its membership was the opportunity to communicate its devotion to open government” to the international community.

Hungary is the second country whose government is not ready to abide by guidelines set by the Steering Committee of OGP and endorsed by them. The first country to leave OGP was Putin’s Russia, which had joined the organization in April 2012. A year later, on May 17, 2013, the Russian government informed the group of its decision to leave. Russia’s participation in this group was dubious from the very beginning, but there were other countries whose commitments to the ideals of OGP were also questionable. OGP acknowledged in February 2014 that Lithuania, Malta, and Turkey had failed to meet their commitments as members of the Open Government Partnership. Warnings were issued to these three states. In addition, the Steering Committee redefined standards for suspending members. “Two warnings in a row would trigger a discussion about continued membership of OGP countries” that create hostile environments for civil society.

By October 2014 new rules were in place that made suspension of membership practically automatic if any country limits the freedom of information; limits the activities of civic groups; favors civic groups attached in some way to the government; limits the freedom of expression and freedom of assembly; limits freedom of the press, independence of the media, or engages in the intimidation of media owners. 444.hu’s eagle-eyed reporters noted the OGP’s tightened rules for suspension, adding that they are tailor-made for Viktor Orbán’s Hungary.

The first victim of the new suspension rules was Azerbaijan. In March 2016 the Criteria and Standards Subcommittee recommended the move because “such constraints are evident in the laws on grants, non-governmental organizations, incarceration of NGO activists and journalists” that would precipitate “OGP’s response policy.” At that time, it was noted, “similar NGO complaints that the Hungarian government is restricting civil society remain under consideration.” In addition, Turkey was suspended in September 2016 because it had failed to deliver a National Action Plan since 2014.

Prior to this time the Orbán government had begun a war against Hungarian nongovernmental groups, financed mostly by the Norway Grants but also by the Soros Foundation. The government accused these NGOs of representing foreign interests and proceeded to raid their offices. At that point four leaders of NGOs decided to follow their colleagues in Azerbaijan and launch a formal complaint against the Orbán government. Fanny Hidvégi of the Hungarian Civil Liberties Union, Sándor Léderer of K-Monitor Watchdog for Public Funds, Miklós Ligeti of Transparency International Hungary, and Júlia Keserű of the Sunlight Foundation wrote a letter to the members of the OGP Steering Committee. The letter is available on the internet.

After considering the complaints submitted by Hungarian NGO leaders, OGP proposed several remedies that the Orbán government should adopt. It suggested the establishment of a Permanent Dialogues Mechanism (PDM) within sixty days that would ensure the participation of the relevant government agencies and interested civil society organizations. What must have especially irritated the Orbán government was that “all members of the public will be kept informed about all core aspects of the national OGP process—and especially know well in advance … about the key moments to provide inputs and discuss priorities.” OGP demanded five so-called Smart Recommendations that the Orbán government would never accept: monitoring of public disclosure practices of local government and state-owned enterprises; reviewing party and campaign financing regulations; revising the freedom of information regulations; revising regulations on classified information; and launching e-procurement. For easy access to this document, I am attaching it in full at the end of this post.

After reading these “recommendations” I’m not at all surprised that the Orbán government accepted the odium of withdrawal. A semi-autocratic, illiberal government of the kind that exists in Hungary today would never agree to such demands.

So, let’s see how the official government media explained the decision. Magyar Idők justified the Hungarian decision by citing OGP’s “one-sided criticism” of the Orbán government based on the unfair accusations of “civilians financed by George Soros.” These NGOs serve foreign interests and have been spreading false stories about the Hungarian government. Transparency International and TASZ, the Hungarian equivalent of the Civil Liberties Union, had complained to the organization about the Orbán government already in October 2012, shortly after Hungary joined OGP. In January 2013 K-Monitor allied with TASZ and TI in a new attack. And here was the latest one. It was high time to quit this unfair organization.

In the opinion of Szilárd Németh, deputy chairman of Fidesz, Hungary’s abandonment of the organization “actually sheds a very positive light on us because we do not want to participate in an organization where members carry on a conversation among themselves after which they single out somebody whom they are trying to keep at bay with one-sided reports, distortions of facts, with documents prepared by phony civil organizations mostly financed by George Soros.” It was a good decision, “a lovely gift for the time when they can get together again and they can nod against Hungary.” Németh is referring to the Open Government Global Summit, which is being held at this very moment in Paris.

The opposition’s interpretation of the move was predictable. They pointed out that the Orbán government no longer cares what the world thinks of it because surely, following in Russia’s footsteps, they are practically admitting that they are corrupt to the core. Zsolt Gréczy, DK’s spokesman, said that Hungary’s eventual suspension from the organization was inevitable. But the country’s withdrawal from the organization a day before the beginning of the Global Summit was unnecessary in that Hungary was not facing suspension at this time. The demands the organization made on the Orbán government, however, were more than the “proud Magyar” could stomach.

♦ ♦ ♦

December 8, 2016

Viktor Orbán and his entourage in Baku

Not so long ago I wrote about Viktor Orbán’s fallacious theories regarding the direct connection between economic growth and authoritarian regimes. He looked at some of the countries that had plenty of gas, oil, and in some cases minerals and attributed their economic success in recent years to the nature of their regimes instead of to their natural resources. Ever since he became prime minister in 2010 he has been shamelessly courting the dictators or autocrats of these countries, only to discover that some of them are currently in deep economic trouble. One of these countries is Azerbaijan. I will not go into the details of the shocking deal Orbán made with President Ilham Aliyev concerning the fate of an Azeri murderer who was serving his sentence in a Hungarian jail. Anyone who’s interested in the particulars can find plenty of information on this blog.

At one point Orbán was even hoping that Hungary would issue bonds in Azeri currency, the manat, but the idea died a quiet death. And a good thing it did since the manat, which was worth 350 forints in January 2015, today trades at only 182 forints. Azerbaijan is in a deep recession (3.3%) with a 12% deficit and an inflation of 14%. I read somewhere that it is unable to pay for military equipment it ordered from Russia and the Russians are getting antsy.

Hungary, however, remains a steadfast ally of Azerbaijan. Not only did Viktor Orbán, his wife, and practically half of the Hungarian cabinet visit Aliyev in Baku, but it was announced during the trip by Foreign Minister Péter Szijjártó that the Hungarian Export-Import Bank has opened a $200 million line of credit to Azerbaijan to expand bilateral economic cooperation with Hungary. Aside from this announcement, the Hungarian media couldn’t discover any earth shattering reasons for the trip, certainly nothing concrete regarding “bilateral economic cooperation.” Although Viktor Orbán tried to give the impression that Azeri-Hungarian trade has soared since the Orbán government decided to treat Azerbaijan as a “stable partner, ally, and friend” of Hungary, the truth is that Hungarian exports to Azerbaijan today are only slightly above where they were in 2009. In fact, between 2010 and 2012 they decreased dramatically. Azeri exports to Hungary during the same period were flat.

Members of the cabinet nonetheless keep insisting that Azeri-Hungarian bilateral economic cooperation will be important to Hungary’s economy. Mihály Varga, minister of economy, spoke fleetingly about cooperation in the energy field, pharmaceuticals, and healthcare. Varga went on to emphasize Azerbaijan’s fantastic development in the past few years and stressed that the country is “the most important partner” in the South-Caucasian region. Which is not to say much. Hungarian exports to Azerbaijan amounted to a mere $65 million. Sándor Fazekas, minister of agriculture, chimed in, claiming that “Azerbaijan is the most promising agricultural partner of Hungary” because “since 2012 our exports to the country have quadrupled,” but, again, given the low level of trade volume that doesn’t mean much.

The Hungarian politicians felt obliged to say something about the changed circumstances of the Azeri economy. As Szijjártó cryptically put it, “we must place Azeri-Hungarian economic cooperation in a different dimension.” A Mandiner opinion piece sarcastically remarked that the “new dimension is the $200 million line of credit extended to Azerbaijan.”

Every time Orbán visits a country that is not exactly a democratic paradise the Hungarian media, with the exception of sycophantic publications like Magyar Idők, Magyar Hírlap, and Pesti Srácok, point out Orbán’s servile gestures toward his hosts. This trip was no exception. Csaba Káncz, formerly an advisor to the European Union, wrote that Orbán’s trip to Azerbaijan will not produce any tangible results,“it will [only] bring shame to the country.” One of the reasons for this shame is that Orbán and his wife lay a wreath on the grave of Heidar Aliyev, father of the current president of Azerbaijan, and his wife, Zarifa Aliyeva. The elder Aliyev’s political career was infamous. As first secretary of the Azeri communist party he ruled the country uninterrupted between 1969 and 2003 when he appointed his son to be his successor. Since 1995 there has been not one free election in the country. The last election, in 2014, was so free and fair that the results were announced the day before the actual election. Currently there are more than 100 political prisoners in Azerbaijan.

Led by Viktor and Anikó Orbán the Hungarian delegation is visiting the grave site of Heidar Aliyev and his wife

Led by Viktor and Anikó Orbán, the Hungarian delegation visits the grave site of Heidar Aliyev and his wife

In light of Azerbaijan’s dictatorship (in force ever since 1920) it was jarring that the Hungarian prime minister praised “the leaders of the country who have made Azerbaijan one of the most respected and often envied countries in the world.” People rarely appreciate the success of others, but sooner or later hard work brings triumph, and of late Azerbaijan’s “weight and prestige have grown.” Looking at it from the vantage point of Europe, Azerbaijan is successful and “committed to cooperation between East and West.” Surely, Orbán didn’t want to say much about Azerbaijan’s current economic and financial woes. He merely suggested diversification, in which “Hungary can be a useful partner” and which will make Azerbaijan even more successful and stronger.

A pilgrimage to the grave of the elder Aliyevs wasn’t enough groveling before the Azeri dictator. Viktor Orbán decided to honor the wife of the president, Mehriban Aliyeva, who serves as chairperson of the Aliyev Foundation named after Heidar Aliyev, by conferring on her the Commander’s Cross of the Order of Merit. And then the Hungarian entourage packed up and left. Another pretty useless and very expensive trip.

March 7, 2016

No, Viktor, illiberalism is not the key to economic growth

Today’s post was inspired by an article that appeared yesterday in 444.hu with the intriguing title “We only wanted to open the doors to Eastern dictatorships, but they were blown away by the Curse of Turan.”

What is the Curse of Turan? It is legend according to which Hungarians of the eleventh century were cursed by their pagan shamans when they abandoned their old faith for Christianity. And what about Turan? According to Persian mythical tradition, it was the name of an area which today is known as Turkistan.

We have spent countless hours discussing Viktor Orbán’s firm belief that western civilization and its market-based economy are on the decline while the eastern illiberal, autocratic, dictatorial regimes are thriving economically. They will eventually overtake the West. Orbán projected the recent spectacular growth in some of the Asian countries into a linear trend that might last–well, forever. He kept repeating that we live in a new world which only he was astute enough to discover. And he began making pilgrimages to these thriving eastern countries, courting them, praising their dictators so shamelessly that some Hungarians were outright embarrassed. He went so far as to return an Azeri murderer to Azerbaijan, although he must have known that he would be greeted as a national hero at home for killing an innocent Armenian army officer in Budapest.

This is what happens when someone with limited knowledge of the economic and political complexities of the world acquires unlimited power and begins to implement his idées fixes. Orbán’s theory was based on wrong assumptions and a flawed model. These countries’ economic growth was not due to the illiberal nature of their regimes, as Orbán believed, but to other economic factors–in most cases, to the commodity boom. Most of the countries Orbán so admired were flush with natural resources: oil, natural gas, and important minerals. As long as gas and oil prices were high, the political leadership of these countries was satisfied and did next to nothing to diversify. This is what happens when, as a result of the preponderance of state enterprises, no truly free market economy can develop that would ensure a healthier economic mix.

Viktor Orbán put enormous effort into his “Eastern Opening” project, with few results to show for it. 444.hu examined Hungarian exports to six countries east of Hungary between 2009 and 2014: Azerbaijan, Kazakhstan, Saudi Arabia, Turkey, China, and Russia. Hungarian exports to Turkey grew slightly, the others either stayed the same or actually decreased. 444.hu describes trade with Azerbaijan, Kazakhstan, and Saudi Arabia as microscopic. Investments from these same countries are so insignificant that the Hungarian National Bank doesn’t even record their size. But even Russian, Chinese, and Turkish investments are minuscule, only a few billion, which is very small indeed as a share of total foreign investments in 2014, which was 2.5 trillion forints.

The percentage of the six Eastern countries in Hungarian export between 2009 and 2014. Source: KSH

Hungarian exports to the six eastern countries between 2009 and 2014 as a percentage of total exports. Source: KSH

In the past Viktor Orbán’s admiration of Azerbaijan’s economic accomplishments knew no bounds. In April 2014 he compared Hungary’s  modest 3% growth to the fabulous Azeri growth of 17% between 2003 and 2010 and, after that, 5-6% percent every year. But a little more than a year and a half later Azerbaijan is in grave economic trouble. On January 28 Bloomberg reported the start of negotiations between Azeri officials and the IMF and the World Bank for a four billion dollar loan. The discussion centered around the liberalization of the economy and the improvement of the business climate in exchange for the money. Although the Azeri finance minister insisted that they are in no immediate need of the four billion dollars, the facts don’t support his claim. “The Azeri central bank moved to a free float on December 21 after burning through more than 60% of its reserves last year to defend the national currency … the manat which nosedived by about half last year and slumped further to record lows this month.”

Orbán also sang the praises of Kazakhstan in June 2014. He found the achievements of the country in the last fifteen to twenty years absolutely spectacular. According to him, “the importance of Kazakhstan in the world economy will grow year after year.” Well, that forecast hasn’t panned out either. Because of falling oil prices Kazakhstan’s export income dropped by two-thirds after 2013. This year analysts predict a recession. The Kazakh currency, the tenge, crashed in a spectacular fashion in the middle of 2015. Bloomberg remarked that “Kazakhstan is a textbook case on why economies must diversify” and added that “powered by natural resources ranging from oil to uranium to copper, including the world’s largest proven zinc deposits, the economy has remained hamstrung by corruption and political controls.” Political control, which Orbán believed to be a necessity for economic growth, is in fact an impediment according to economic analysts.

Orbán was also very enthusiastic about the prospects of the Turkish economy. Western analysts, however, are less sanguine. Al-monitor, in an article written in August 2015, said: “Any one of the following problems would ring alarm bells for an emerging market: a slowing economy, rising inflation, distrustful citizens exchanging local currency deposits for dollars whenever possible, a rising tide of violence scaring away foreign tourists and hurting hard currency reserves, and concerned foreign investors eyeing the exit because of a bearish stock exchange and a possible hike in interest rates by the US Federal Reserve. Not content with just one, Turkey is facing all of those headaches and more.” The Turkish economy is still growing by about 3% per annum, but given the growth of the Turkish population this is considered to be a weak performance.

It was at the beginning of 2014 that Orbán visited Saudi Arabia and, as usual, lauded the greatness of the country and its leadership. Saudi Arabia has nothing but oil to export, and if the price of oil falls precipitously for a longer period of time the country is in trouble. At the moment the yearly deficit is 20% of the GDP. Foreign currency reserves are dwindling, and the Saudi princes are becoming visibly nervous. They are entertaining all sorts of measures that may or may not work. There are analysts who predict that the government of the House of Saud may collapse in the not too distant future.

Russia, which also relies heavily on its natural resources, is in trouble as well. As The Economist said a few days ago: “Russia’s economic problems move from the acute to the chronic.” Between mid-2014 and today Russia’s exports and government revenues collapsed. Its GDP shrank by nearly 4%; inflation was close to 13%. The ruble lost half its value against the dollar in 2014 and, after rebounding somewhat at the beginning of 2015, now stands at 80 rubles to the dollar. In March 2014 the exchange rate was 36 to 1. The latest is that Russia is exploring an international bond issuance, which signals that there is a shortage of funds as the economy heads for a second year of recession.

Finally, 444.hu reminds its readers of Orbán’s words at the Chinese-Central-Eastern European Summit in November 2015: “In the past there were many who had doubts about China’s long-term economic future. It was then widely held that the strengthening of the Chinese economy was only a temporary phenomenon and that the financial crisis would undermine its economic growth. But today we see exactly the opposite of this prediction. China is marching along with a permanent and sustained development, and we all know that it will soon be the strongest economy in the world.” But China’s economy is slowing, and worse may come in the wake of the greatest construction boom and credit bubble in recorded history. As an analyst described that bubble: “An entire nation of 1.3 billion has gone mad building, borrowing, speculating, scheming, cheating, lying, and stealing.” He called it a “monumental Ponzi” scheme. In any case, China’s economic growth in 2015 was the slowest in 25 years, and its economic decline is probably even more serious than its questionable figures indicate.

So much for Viktor Orbán’s belief that illiberal leaders are the only ones who know the secret of sustained economic growth.

Another “strategic partnership”: This time with Azerbaijan, a model to follow

While we have been preoccupied with American-Hungarian and Russian-Hungarian relations, the dictator of Azerbaijan, Ilham Aliyev, arrived in Hungary for a visit, his third in four and a half years. Not too many high-level western visitors can be seen in Budapest lately, so Orbán must be satisfied with Azeri dictators and the like. Orbán himself is not welcome in western capitals, and therefore his official trips usually take him outside of the European Union and North America. He visited Baku twice, and I understand he will be going again to strengthen the “strategic partnership” he forged between Hungary and Azerbaijan, two countries that have a lot in common: both are extremely corrupt and both are led by autocratic leaders whom outsiders describe as mafia dons.

In September 2012 I wrote three posts (September 1, 2, and 3) on the Orbán government’s decision to release Ramil Safarov, an Azeri army officer, from the Hungarian jail where he was serving a life sentence for the brutal murder of an Armenian officer in 2004. The crime was perpetrated in Budapest, where both men spent a couple of months in a training program organized by NATO’s Partnership for Peace Program. The Azeri government made several attempts to convince the Hungarian authorities to release him into their custody. But because Safarov was considered to be a national hero the Gyurcsány and Bajnai governments, fearing that once Safarov stepped onto Azeri soil he would not spend a minute in jail, denied the requests. Not so the second Orbán government, which in the hope of Azeri goodwill and economic support decided to strike a deal with Aliyev, the Azeri dictator. To this day we don’t know what the Hungarian government got in return for the release of the “ax murderer,” as he is called in Hungary. According to rumors at the time, Viktor Orbán made the decision to extradite Safarov in exchange for the Azeri purchase of Hungarian bonds. The deal was struck under the watchful eye of Péter Szijjártó, and final approval came from Tibor Navracsics, the minister of justice who currently serves as one of the EU commissioners in Brussels. This dirty deal was the beginning of a great friendship between Aliyev’s Azerbaijan and Orbán’s Hungary.

Since then, the Hungarian government has manifested its commitment to closer economic and political ties between the two countries on several occasions. In November 2012 Hungary organized an “international conference” in Budapest to commemorate the 20th anniversary of the establishment of diplomatic relations between Hungary and Azerbaijan. In 2013 Hungary opened a Hungarian Trading House in Baku, and yesterday Viktor Orbán and Ilham Aliyev signed a “strategic partnership” agreement. Apparently this agreement encompasses the following areas of cooperation: energy, education, commercial air transport, tourism, veterinary medicine, and youth and sport. Currently trade between the two countries is insignificant and has actually been falling since 2010. Szijjártó himself talks about Azerbaijan only as a “potential economic partner” of Hungary, a partnership that will be realized once Azeri gas reaches Europe. For the time being, one hears only about the hundreds of scholarships offered by Hungary as a goodwill gesture toward these Central Asian countries. Azerbaijan just gratefully acknowledged 200 scholarships.

As usual, in the joint press conference after the meeting and signing ceremony, Viktor Orbán went overboard, praising Azerbaijan as an “example to follow” (mintaállam). By the way, when Orbán is confronted with foreign dignitaries, he is often visibly servile. He bows just a little too low, which in Aliyev’s case was accentuated by the Azeri president’s height and Orbán’s small stature. He did the same thing when the Chinese prime minister, Wen Jiabao, visited Budapest in 2011.

In his unbridled enthusiasm for the Azeri model, he even praised Aliyev’s father, Heydar Aliyev, the former KGB agent who became president of Azerbaijan after a military coup that overthrew the democratically elected president of the country in 1993. His and his family’s corruption was legendary. After his death in 2003, his son, the current president Ilham Aliyev, took over after a fraudulent election. Since then he has been reelected three times, and he can be assured that he will remain president of the country as long as he is alive: the law was changed that barred repeated reelection of the same person to the post. Wikileaks documents have revealed that American observers compared  the Azeri president to a mafia crime boss. Well, perhaps this is what Orbán had in mind when he spoke of Azerbaijan as an example to follow.

President Ilham Alyev and Prime Minister Viktor Orbán

President Ilham Aliyev and Prime Minister Viktor Orbán

In the afternoon there was an economic forum where Orbán made a speech in which he announced that “countries that have political systems that offer clear and unambiguous leadership to a given community are lucky,” indicating that he considers both Azerbaijan and Hungary among the lucky ones. Aliyev immediately picked up on Orbán’s remarks, adding that “both countries are led along a clear strategy. Hungary is defending its national interests, its independence, and its sovereignty.” How should one interpret Orbán’s reference to “clear and unambiguous leadership”?  I, for one, think that he means that in such a regime no opposition forces could possibly alter the strategy of an autocratic leader. This is certainly true of Aliyev as well as Orbán.

Today HVG posted a short note online teasing an article in its print edition tomorrow, according to which there might be “a thread that connects Baku and Budapest” in the U.S. banning of the six Hungarian officials and businessmen. According to the paper, the case involves corruption surrounding Hungarian government bonds offered for sale to Azerbaijan in 2012. My recollection is that the deal eventually fell through. The Hungarians were apparently hoping that Azerbaijan would pay Hungary back for its release of Ramil Safarov by buying Hungarian bonds through ARDNF, the Azerbaijan State Oil Fund. However,  ARDNF announced on October 9 that it had no intention of buying Hungarian bonds and that it did not plan to invest in Hungary. I still remember all the jokes on ATV about “manat,” the Azeri currency. However, there is always the possibility that some secret deal was struck over the Hungarian government bonds and that perhaps some of the money received disappeared either into Fidesz coffers or into individual pockets. The official announcement of ARDNF might have been intended simply to disavow any connection between the Safarov case and payments received by Hungary. We’ll have to see what HVG came up with.

And here is the latest. According to an unnamed Fidesz source, Viktor Orbán realized that he went too far in embracing Russia, ratcheting up his anti-EU rhetoric, and attacking the United States. According to this highly placed individual, Orbán is planning a change of orientation. From here on he will be a model of cooperation with his western allies. Well, his latest moves don’t support this reorientation. First, he just raised RTL Klub’s 40% levy to 50%, presumably to punish them for reporting negative news about the government on their very popular 6 o’clock news. This huge levy is a serious financial blow to RTL Klub, one that its German parent company, Bertelsmann, will have to absorb. Second, he wouldn’t call Azerbaijan “an example to follow” if he is preparing the ground for a change in his foreign policy objectives. And third, if he were trying to show the U.S. that he is serious about ridding Hungary of corruption, he would tell his minions to relieve Ildikó Vida and her co-workers of their duties. I believe that this piece of news is no more than Fidesz disinformation. At best, it is a new round in his usual “peacock dance.”