Tag Archives: corruption

Ahead of the election: LMP and DK are off and running

In case you missed it, today is the official beginning of the election campaign, and two opposition parties, LMP and DK, gathered their troops to energize them. The keynote speaker for LMP was the party’s candidate for the premiership, Bernadett Szél. At the gathering of DK politicians, activists, and party loyalists the chief attraction was Ferenc Gyurcsány.

After reading the available summaries of Szél’s speech and listening to the live performance of the chairman of DK, I came to the conclusion that the two events bore little resemblance to one another, although I don’t quite know what to make of Népszava’s description of LMP’s meeting as “more of a theatrical performance than a rousing party event.” The LMP gathering was advertised as an “assessment of the past year,” the kind of annual event that Viktor Orbán introduced in imitation of the American State of the Union Address. Whether in power or in opposition, Orbán has kept giving these speeches every February. Not surprisingly, opposition party leaders like Gyurcsány and now Szél opted to follow his example.

Szél said that she had originally planned to assess the Orbán government’s performance over the last year, but she was forced to face the fact that this is a well-nigh impossible task because the Orbán administration’s achievements are practically nonexistent, with the possible exception of good economic figures largely due to EU subsidies. The government is a house of cards built on propaganda. Education, healthcare, and social welfare lack ministries, but two years ago the government created a ministry (commonly referred to as the propaganda ministry) whose only task is to create a world that doesn’t exist. Otherwise, she promised higher salaries and “an economy built on an excellent education system.”

She talked about the importance of the coming election, which “is not just about the next four years” but about “the following decades.” She said that Fidesz leaders desperately cling to power because they know that after a failed election they will not just be in opposition but “they should be prepared for years in jail.”

As for LMP, according to Szél, “we are the ones who couldn’t be bought, couldn’t be blackmailed; we are the ones who have endured and who have not become thieves.” I assume this means that all other opposition parties have been bought, blackmailed, and become thieves. She accused the other opposition parties of “dishonest compromises,” a favorite phrase of LMP politicians. They often repeat, as was repeated on this occasion as well, that they are ready to sit down and talk, but they are not ready for “dishonest compromises.”

On the basis of the few articles I read, I don’t think this speech before an audience of 200-300 people made an appreciable difference as far as LMP’s chances are concerned.

DK’s meeting had a very different, more intense flavor. Similarly to Viktor Orbán, Ferenc Gyurcsány’s key concept was “harc” (fight, combat, battle). This combat, this duel will be against Orbán and Fidesz. He called Orbán “a predacious shark who didn’t need a son-in-law to become depraved; he is debased by his lonesome. It is in his blood.” Orbán’s sins taint the whole country, and “those who let that happen in silence will be sinners too.” Therefore, Hungarians must shake themselves free of Orbán. “Only then can the righteous enter the gate of the Lord.” This is a slightly altered version of Psalms 118:20 and typical of the kinds of metaphors Gyurcsány likes to use. The election will also be a fight for a future United States of Europe.

Source: MTI / photo: Zoltán Máthé

People who participate in talk shows either complain about the lack of party programs or point out that no one reads long party programs. One also hears that the message is often unclear. One must use simple language, the kind of language Viktor Orbán introduced to political discourse, they argue. Well, Gyurcsány presented a list that he placed within a cleverly constructed framework. One doesn’t need 500 days; one day is enough to act decisively and change the present situation drastically. Of course, this is ridiculous, but his hourly timetable makes the changes seem more dramatic. Here is what Gyurcsány would like to achieve after Orbán is gone.

 9:00—We will remove Péter Polt from his position and join the newly established EU prosecutor’s office.

10:00—By changing items in the budget we can immediately raise the salaries of doctors and nurses by one-and-a-half times and double the number of CTs and MRIs.

11:00—We will turn in the draft proposal of a new electoral law; those who have never lived in Hungary should not be able to vote.

12:00—The minimum wage should be raised to at least subsistence level.

13:00—We will inform the government in Kiev that we abrogate the earlier agreement and are ending the Ukrainian pension business.

14:00—We will make pension corrections that will be adjusted according to economic growth.

15:00—We will carry out the sequestration of the oligarchs’ assets.

16:00—Basic internet service will be free.

17:00—We will change the law on education and restore compulsory education to the age of eighteen.

18:00—We will review the agreement with the Vatican; the privileges of the churches will come to an end; a separate committee will examine cases of child molestation.

19:00—We will raise the family allowance by one third; in the case of single-parent families it will be a 50% raise.

20:00—We will introduce free electricity, gas, and water for minimum basic needs; above that, it will be zoned according to usage and the consumers’ economic situation.

Of course, this is a pipe dream, but it has the advantage of being short and clear. One could argue about some of the items that were included in the list of most important tasks, for example, the Ukrainian pensioners or the privileges of churches and a committee on child molestation. But these items are important for DK because the party has realized that they have great appeal for the electorate.

As for the best possible turn of events, I think Gyurcsány hopes for results that might give the opposition parties an opportunity to sit down and contemplate a coalition government. As he put it, in that case he will lead DK’s delegation to choose a prime minister who best represents the people and who is trusted by the electorate.

I will be curious what the next public opinion polls have to say about the standing of the parties. Viktor Orbán in his speech to Fidesz members of parliament expressed his misgivings about MSZP getting enough votes to become a parliamentary party. Considering that Fidesz spends a great deal of money on very frequent polls, it is possible that they know something that we don’t.

February 17, 2017

The spectacular business career of Lőrinc Mészáros

On January 2 HVG published a short article with the title “The new year barely begun, Mészáros already grabbed more than one hundred billion.” Of course, they were talking about the “fabulously talented” Hungarian businessman, former pipe fitter, mayor of the village of Felcsút, and Prime Minister Viktor Orbán’s friend or, what more and more people believe, his front man, Lőrinc Mészáros. The information about this latest grab came from the Public Procurement Authority, according to which Mészáros and Mészáros Kft. got the job of reconstructing a 15.7 km railroad line between Százhalombatta and Ercsi, which will cost 49 billion forints. The same company, together with Euro Asphalt, will build a waste disposal system in Ózd at the other end of the country for 4.3 billion forints.

A few days later, on January 10, Válasz reported: “Hang on! Suddenly Lőrinc Mészáros owns 203 companies.” Anyone who’s interested can now look at the list Válasz put together. Less than a year earlier the same internet site recorded only 103 companies owned by this business wizard, whose assets have grown faster in ten years, especially in the last three years, than Facebook’s. When journalists asked Mészáros about his striking outperformance, he responded that “it is possible that I was smarter than Zuckerberg, don’t you think?”

The Hungarian media had lots of fun with Mészáros comparing himself to Mark Zuckerberg

Most of the amassed wealth has come from the European Union. Átlátszó calculated that between 2010 and 2017 Lőrinc Mészáros and his family won public tenders worth €1.56 billion, 83% of which came from EU funds. I might add that of the 203 companies Mészáros and family own, only nine have been the recipients of public procurements, but they were richly rewarded. All told, they won 97 public tenders, half of which were open tenders where the Mészáros firms had no competition whatsoever. A list of the public tenders won over the years can be seen here.

The English-speaking world was introduced to Lőrinc Mészáros’s fantastic business acumen last summer when Bloomberg published an article about him. The story that caught the eye of journalists was that stock in a Hungarian company called Konzum Nyrt., whose sales in 2016 had dropped 99 percent and whose debt ballooned, a year later, after Mészáros bought a 20% share of the firm, grew fifty-fold on the Budapest stock exchange. The article noted that in three short years Mészáros had become the fifth richest man in the country.

It doesn’t matter how emphatically Viktor Orbán insisted during a parliamentary debate that Lőrinc Mészáros is not his front man (stróman in Hungarian), an overwhelming majority of Hungarians are convinced that behind him and some of the other oligarchs is Viktor Orbán himself. Only a tiny minority, 6% of the adult population, can’t imagine that such a connection exists, while 78% consider a connection “very probable and/or possible.” Even Fidesz voters suspect their party leader is hiding behind hand-picked oligarchs. Among them, 31% believe in his innocence, but 60% are either certain (10%) or consider it possible (50%) that the prime minister is heavily involved in the corruption scheme which the majority of voters consider systemic. Of course, opposition leaders like Ferenc Gyurcsány of DK and Viktor Szigetvári of Együtt are convinced that the richest Hungarian today is Viktor Orbán.

Átlátszó came out with a fascinating article in December that tried to put the wealth of Orbán’s oligarchs into historical perspective. They picked the three richest men in the country in 1935: Count László Károlyi, Count Sándor Festetics, and Prince József Habsburg. Their wealth in pengő, the Hungarian currency at the time, is known, but it is hellishly difficult to translate that into today’s forints. Átlátszó asked two economists to come up with some comparable figures. Their results were wide apart, but in both cases they were only tiny fractions of Lőrinc Mészáros’s estimated wealth. Péter Szakonyi, who maintains an annual list of the 100 richest Hungarians, told Átlátszó that “there has never been anyone who got from zero to 120 billion in three years.” Indeed, in the last three years Mészáros has seen an exponential growth in his wealth.

There is no end to the Mészáros story. It doesn’t seem to bother Viktor Orbán that more and more people consider him a crook who through Mészáros is amassing a fortune. Just yesterday it was all over the media that Mészáros’s three children, who in 2015 established a company called Fejér-B.Á.L. Zrt., a construction company, had just won a public tender for the new building of the University of Physical Education. As for the company’s name, B stands for Beatrix, Á for Ágnes, and L for Lőrinc, Jr. According to their website, the company currently employs 120 construction workers and 27 office personnel. The company will share the job with Magyar Építő, one of the favorite companies of the Orbán government. It is this company that is in the process of building the new Ferenc Puskás Stadium and did the work on the Ludovika Campus. Both of these projects are extremely close to Viktor Orbán’s heart. The job that the Mészáros children got, at least on paper, is worth 1.2 billion forints.

The Mészáros children have every reason to smile

The Hungarian edition of Forbes described Mészáros’s wealth as something he didn’t take away from someone; he didn’t acquire it through his business acumen; he simply received it through the good offices of the prime minister of Hungary, who for one reason or other finds this man useful for his purposes. This simple pipefitter must play a key role in Viktor Orbán’s scheme to build his own financial empire. Mészáros is also used to increase the government’s presence in the Hungarian media through his purchase of regional newspapers. From the outside, this relationship between Orbán and Mészáros is hard to fathom, but I’m sure Orbán knows what he’s doing.

January 21, 2018

Financing of Hungarian sports: court rules it must be transparent

Even small victories can lift anti-Orbán hearts nowadays in Hungary. Thanks to the recent decision of the Kúria, Hungary’s highest judicial body, Viktor Orbán was rendered a defeat that must have hit him hard. At risk is what he considers to be one of his greatest achievements, the Felcsút Football Academy.

Transparency International spent a considerable amount of time and energy investigating the government’s lavish support of sports and came to the conclusion that the sports financing system the Orbán government established is rotten to the core. In the course of its investigation Transparency International also ascertained that the “absolute winner of the whole system is the village of Felcsút and its football club.” Felcsút has become the symbol of everything that is wrong in Viktor Orbán’s Hungary. It is a village of 2,000 people with one of the most lavish football stadiums, which can seat 4,500. The club uses all sorts of tricks to entice people to attend the club’s games, usually to no avail. The stadium is practically empty most of the time. In fact, according to those in the know, Hungarian football is dead, and the incredible amount of money that was poured into the game was an utter waste. Hungary’s FIFA standing is the same as it was before.

Over the years people have tried to find out how much money was being spent on sports, mostly football. But the system is intentionally complicated in order to hide the exact amount that comes from two main sources: direct grants allocated for sports in the budget and something called Társasági Adókedvezmény/TAO (Corporation Tax Allowance), introduced in 2011. Corporations can get a tax break if they support one or more of five sports: football, handball, basketball, water polo, and ice hockey. Money allocated to support sports is considered to be part of the tax owed. Thus, all money that is donated to these sports is a direct loss to the central budget. Since 2011, according to the latest estimate, 330 billion forints of corporate tax money was diverted to sports organizations. Or, put another, more shocking way, in the last six years the Hungarian state has given up one out of every nine forints in tax revenue.

From this money 128 billion went to football clubs and 86 billion for handball, while the rest was shared by basketball, water polo, and hockey. Viktor Orbán has been insisting for years that TAO is not public money and therefore no one has the right to learn about the sponsors, the recipients, and the amount of the money donated.

Interest in Hungarian football–Debrecen Stadium, which can seat 20,000. Cost €40 million

Transparency International, being convinced that the tax allowance is public money, asked the ministry of human resources for their allocation figures, which was denied. Transparency at that point sued the ministry. In the first instance, Transparency lost the case. The decision was based on tax secrecy. In addition, the judge didn’t consider the requested data to be of public interest. On appeal, however, the decision was reversed. Tax secrecy as a reason for denying access to the information was discarded, and the court ruled that the TAO monies are, after all, considered to be public funds. The ministry then turned to the Kúria, and on October 25, 2017 the decision of the appellate court was upheld.

Concurrently with Transparency International’s suit against the ministry of human resources, Demokratikus Koalíció (DK) sued Viktor Orbán’s Academy in Felcsút for the release of all contracts for jobs that were financed by TAO money. Felcsút apparently received about 14 billion TAO forints in the last six years. In July 2016 the Székesfehérvár Court ruled in DK’s favor, but Felcsút Academy had no intention of obliging and appealed. In February 2017 the Budapest Appellate Court also ruled in DK’s favor, but for a different reason from the Székesfehérvár Court. While the lower court considered TAO to be public money, the appellate court based its verdict on the non-profit status of Felcsút Academy. Felcsút Academy was obliged to turn over all documents relating to TAO funds within 15 days. Felcsút Academy again appealed the verdict, and thus the case ended up in the Kúria for a final decision. On November 15 the Kúria ruled that Felcsút must provide details of how they spent the enormous amounts of “public” money. The verdict could have been predicted because a month earlier, in connection with the Transparency International case, the Kúria had already declared TAO funds to be a public resource.

Index described the verdict as “the final and humiliating defeat of Orbán’s football academy.” János Lázár’s reaction a day later amply showed what kind of a country Hungary has become in the last six or seven years. During Lázár’s usual press conference on Thursday, when asked his opinion of the Kúria’s decision, he said: “There is a judge in this country who is very angry with Hungary’s government and Fidesz. His name is András Baka. Because of his changed official status, he has been greatly offended, and for some strange reason all TAO cases end up on his desk. I wouldn’t want to suppose that any bias would have influenced the judge, who on numerous occasions publicly criticized Fidesz and the government.”

Let’s stop here for a moment and go back to 2011, when the Hungarian Supreme Court became the Kúria. The chief justice at the time was András Baka who, prior to his appointment in 2008, had been a judge at the European Court of Justice for Human Rights for 17 years. Although he was considered to be a conservative judge, he became worried about Viktor Orbán’s so-called judicial reforms. He objected, for example, to the forced early retirement of judges, which gave the government a free hand to fill about 300 positions that became vacant as a result of the new law on retirement. Orbán desperately wanted to get rid of Baka and eventually came up with a good excuse. Baka hadn’t been a judge in Hungary for five years. His 17 years with the European Court of Justice were not considered relevant. Baka turned to the European Court of Human Rights and eventually was awarded about 100,000 euros, which naturally the Hungarian government, or to be precise Hungarian taxpayers, had to cough up. Baka couldn’t return to his old post, which had been filled by someone else, but he was reinstated, I’m sure grudgingly, as one of the leading judges in the Kúria.

The Kúria’s answer to Lázár was brief and to the point. They will not comment on politicians’ statements concerning their activities, but the spokesman explained that the assignment of cases is determined a year ahead and given to judges according to their professional specialties.

Unfortunately, I’m not at all sure that this is the end of the story because János Lázár intimated at the press conference that it was time “to make order” as far as TAO is concerned. To make order to me means that they will most likely come up with some modification to the law that would prevent the public from learning where that incredible amount of money has gone.

November 17, 2017

Viktor Orbán is losing his cool

Trump’s uncontrolled outbursts seem to be contagious. While in the past Viktor Orbán showed considerable restraint when giving interviews or answering opposition members of parliament, in the last couple of weeks he has given vent to his frustration and anger.

Friday, during his regular morning radio interview, he lashed out against the European Commission, repeating himself, calling the legal opinion released by the European Commission an object of derision, a document that one cannot discuss without laughing. If Hungary accepted this document, it would become the laughing stock of Europe. He went on and on. Then yesterday, he accused Ákos Hadházy (LMP), who has spent years fighting the endemic corruption of the Orbán regime, of corruption himself. Pressured by the European Commission and by Hadházy’s dogged pursuit of his government’s systemic corruption, Orbán no longer seems capable of exercising self-control.

I have been following Ákos Hadházy’s political career ever since he first appeared on the national scene. He reported on a local corruption case in Szekszárd, a small town, where he was a Fidesz member of the city council. Since then, Hadházy, now co-chair of LMP, has focused on uncovering corruption cases. Just the other day, he said in an interview that he had held more than 80 “corruption infos.” Once a week he stands in front of the cameras and reports on yet another horrendous case. Each of these cases involves millions if not billions of forints. Hadházy estimates that in the last seven years the “Fidesz clientele” stole about three trillion forints of the subsidies Hungary received from the European Union. In his assessment, all work performed is at least 30% overpriced.

Lately, Hadházy has been working on two cases, both involving healthcare. The first one was a program that was supposed to set up “mentor houses” for premature babies and their parents in Szeged, Kecskemét, and Gyula. A foundation was established for the purpose, called “I Arrived Early Foundation,” which received 1.2 billion forints from the European Union. Since it was such a large project, Hadházy asked for details. It turned out that less than half of the money was allocated to the program itself. The rest was designated for the maintenance of the foundation. Money was spent on most likely overpriced rentals, legal advice, laptops, telephones, several printers, and very high salaries for the “coordinators,” while the 40 mentors received only about 50,000 forints a month.

It turned out that two other very similar projects received about half the amount that “I Arrived Early Foundation” got, and they managed quite well. Mind you, they didn’t pay 50 million forints for “legal advice.” In fact, they got along just fine without it. While a methodology study cost the “I Arrived Early Foundation” 50 million, the other foundation managed to get one for 8 million.

Hadházy stirred up a hornet’s nest by investigating this particular foundation. János Lázár’s wife is one of the board members of the foundation, and Hadházy suspected that the unusually generous financial support given to the foundation was not entirely independent of Mrs. Lázár’s presence there. Soon after the “corruption info” in which Hadházy announced the foundation’s suspicious expenditures, he found himself in the crosshairs of Zoltán Balog’s ministry, which awarded the money to the foundation, and the Office of the Prime Minister, headed by János Lázár. Nándor Csepreghy, Lázár’s deputy, assisted by the government paper, Magyar Idők, led the attack. Magyar Idők published several articles accusing Hadházy of being a heartless man who compared these premature babies to newborn puppies. Hadházy, who is a vet in private life, did in fact compare the weights of some of these babies to newborn puppies, and he was quite accurate. A newborn puppy is about 500 grams, just like the smallest premature baby. Csepreghy, in defense of his boss, called Hadházy an “ignorant scoundrel.” Lázár at one point offered his wife’s retirement from the foundation, but as far as I know nothing of the sort happened. Naturally, the foundation explained away all of its expenses.

The second case was even more clear cut. The National Healthcare Services Center (Állami Egészségügyi Ellátó Központ/ÁEEK) issued a tender for several ventilators. General Electric and three Hungarian firms submitted bids. The Hungarian firms were actually just wholesalers, and their bids were a great deal higher than General Electric’s. The three Hungarian firms offered to sell the ventilators for a price between 1.7 and 1.9 billion forints as opposed to GE’s offer of 1 billion forints. ÁEEK tailored the tender in such a way that only one bidder could win the tender. Predictably, GE lost the bid, but the company decided not to take the decision lying down. The American firm turned to the Public Procurement Authority (Közbeszerzési Döntőbizottság), which ruled in GE’s favor. ÁEEK had to pay 50 million forints. Bence Rétvári, undersecretary in the ministry of human resources, subsequently denied that the procurement was rigged.

Ákos Hadházy addressing Viktor Orbán in Parliament / Source: ATV

The GE affair was the topic of Ákos Hadházy’s weekly corruption info. János Lázár seemed to agree with Hadházy that those who were involved in the case must be investigated. So, emboldened by Lázár’s reaction, Hadházy brought up the case in parliament yesterday when Viktor Orbán by house rules had to be present and was obliged to answer questions. Hadházy asked the prime minister who was right: János Lázár or Bence Rétvári. Orbán flew off the handle. He accused Hadházy of lobbying for GE. “A representative stands up in the Hungarian Parliament lobbying for a company. How much money did you receive for this? How dare you? How dare you lobby for a company in the Hungarian Parliament during an ongoing public procurement? Especially, on behalf of a foreign company. Now, I have been sitting here for many years, but I have not seen a case more corrupt than this, shame on you!” He also ordered an “investigation” of Hadházy right on the spot.

Hadházy doesn’t seem to be intimidated. He will sue Orbán for slander. Otherwise, he wrote a defiant note on his Facebook page in which he pointed out that Orbán, with his outburst, “kicked a three-meter self-goal” by calling attention to the fact that they want to steal billions from the “dying hospitals.” He said that Orbán’s claim of “an ongoing public procurement” is a lie since the Public Procurement Authority already closed the case. Otherwise, he is looking for the day when Orbán will have to apologize to him. Well, in his place I wouldn’t hold my breath.

October 10, 2017

A few gems from Viktor Orbán’s “strong and proud” Hungary

There are just too many topics that have piled up in the last few weeks that deserve at least a mention. So I decided that today’s post would be a potpourri.

Lex Felcsút

Hungarians like to use the Latin “lex” for “law” when a piece of legislation proposed by the Orbán government is specifically designed to circumvent already existing legal constraints or has been enacted for the specific benefit or disadvantage of individuals. Here are a couple of examples. When Viktor Orbán wanted György Szapáry, who was over the age of 70, to be Hungary’s ambassador to Washington, he simply changed the law, raising the upper age limit for diplomats. When he wanted Zsolt Borkai, an Olympic champion and former lieutenant colonel in the Hungarian Army, to become a Fidesz member of parliament, the five-year moratorium on members of the armed forces for political office was lowered to three. Thus, Lex Borkai.

In 2015 the Demokratikus Koalíció sued FUNA, the foundation that runs the Felcsút football academy, after the foundation refused to release all the documents between January 2013 and November 2015 that pertained to the billions of tax-deductible forints the foundation received from large corporations. The foundation’s position was that the money certain sports clubs receive this way is not considered to be “public money.” The Székesfehérvár court didn’t agree. It ruled that the so-called TAO money in support of sports facilities (Corporate Tax Program) is considered to be public money and instructed FUNA to provide documentation of their finances. FUNA appealed, but in February the Budapest Appellate Court ruled that the books of the foundation for the required period should be made public. The ruling this time was based not on the public nature of the TAO support but on FUNA’s designation as “a publicly useful nonprofit” (közhasznú) organization. Within 15 days FUNA was supposed to deliver the documents to DK.

Those who had been distressed over this murky set-up full of opportunities for corruption were thrilled. “Here is the end,” said Magyar Narancs in February 2017. But not so fast. Nothing is that simple in Orbán’s Hungary. First of all, 15 days came, 15 days went, and no documents arrived. At that point the Demokratikus Koalíció sued. And the case was moved to the Kúria, Hungary’s highest court, for a final decision. There is no decision yet, but the government doesn’t leave anything to chance. On June 27 Magyar Nemzet noticed a small change in the TAO law enacted by parliament a few days earlier. Sports organizations are henceforth no longer designated as “publicly useful nonprofit” entities. If the appellate court decided that the documents must be released because FUNA is a publicly useful organization, the way to deal with this problem is simply to abolish the designation. That’s why this latest fiddling with the law is called Lex Felcsút.

The Poster War

Another perfect example of Fidesz inventiveness when it comes to legislation is the recent law nicknamed Lex Simicska. After a couple of abortive attempts, the Fidesz majority pushed through a law that should have required a two-thirds majority by amending a piece of existing legislation that needed only a simple majority. President János Áder dutifully signed a clearly unconstitutional law. You may recall that these Jobbik billboards, the target of the law change, featured not only Orbán but also Lőrinc Mészáros and Árpád Habony. Jobbik made the right decision when it included these two on their posters. Only yesterday Iránytű Intézet (Compass Institute) released a poll on the popularity of Habony and Mészáros, in addition to that of politicians. These two are at the very bottom of the heap. Habony is most likely seen as the symbol of Fidesz’s very aggressive method of communication, while Mészáros is the symbol of corruption. Clearly the Hungarian people like neither.

A 2010 Fidesz poster right next to Hungária Circus in Hatvan / Source: 24.hu

Lajos Simicska’s firm, Mahír, gave a substantial discount to Jobbik, which Fidesz tried to portray as concealed party financing. But selling advertising spots is like any other business venture where there are no fixed prices. Sometimes they are cheaper–for example during winter. Sometimes they are more expensive–for example, at election time. And, I assume that in certain circumstances personal preferences may play a role. For example, in Jobbik’s case, Simicska’s by now intense hatred of Viktor Orbán must be taken into consideration. Or, conversely, when Simicska worked hand in hand with Viktor Orbán for the good of Fidesz, he gave, as we all suspected, a very good price to his own party. In fact, at the very beginning of the 1990s Simicska purchased Mahír for that very purpose.

Now we know how good a price Fidesz got from Simicska in 2010 when the whole country was plastered with Fidesz posters. Someone made sure that 24.hu got all the documentation covering Fidesz’s deal. Fidesz paid 63% less than Jobbik did for its recent billboards. One billion forints worth of advertising was purchased for 23 million! That’s a real bargain, all right. But that’s not all. Fidesz ordered 4,700 billboards for 23.2 million forints, and they got an additional 1,300 posters gratis. Thus, Fidesz had 6,000 billboards and posters as opposed to MSZP’s 2,000 posters and Jobbik’s fewer than 500 during the 2010 election campaign. But, of course, these parties didn’t have such a generous benefactor. Nor did they have such well-funded party treasuries.

State support of parochial schools

I just read that the Orbán government spends 200,000 forints on children who attend parochial schools and only 54,000 on those who attend public schools. If all children were considered equal, public schools should receive 112.5 billion forints more than they get now. I feel very strongly about this issue, and I find the trend of passing public schools gratis to various churches unacceptable. The kind of education children receive in parochial schools, given the extremely conservative nature of Hungarian churches, may have an adverse effect on Hungarian society as a whole. Moreover, how can the Orbán government justify that kind of discrimination against most of its own young citizens?

Shooting galleries for school children

I left the best for last. Even the Associated Press reported about two weeks ago that Hungarian educational authorities are currently evaluating the installation of shooting galleries in schools to increase the variety of sports available to students. Officials of the Klebelsberg Center insist that the idea has absolutely “nothing to do with aggression and violence.” I saw a high-ranking official of the Center talk about this plan with great fervor in a TV interview, but about two weeks later came the denial. Márta Demeter, formerly an MSZP member of parliament, asked István Simicskó, minister of defense, about the veracity of the news. He flatly denied any such plans. He claimed that the Klebelsberg Center’s inquiries from school principals about appropriate locations for shooting ranges have nothing whatsoever to do with “the long-range defense development program” of his ministry. I’m sure that the Center’s inquiry and Simicskó’s earlier plans of building shooting ranges all over the country are connected. I also suspect that reactions to the notion of putting firearms into the hands of 13-14-year-olds were so negative that the great plan had to be abandoned.

Conclusion

That’s all for today, but I think these few examples are enough to demonstrate that something is very wrong in Viktor Orbán’s “strong and proud” Hungary.

July 2, 2017

Today’s extra: “Observer” on the enrichment of György Matolcsy & family

The corruption cases which grab the public attention are usually the big ones – the Quaestor broker firm with more than HUF 100 billion missing, the MET natural gas deals profits worth approx. HUF 150 billion realized offshore, the Residency State Bond affair with another HUF 130 billion revenue taken offshore, etc.

Corruption in Hungary, however, is so widespread that it is impossible to follow the hundreds of “ordinary” frauds, embezzlements, misappropriations and other corrupt practices flourishing in the Orbán regime. General statements like this are sometimes questioned for the perceived lack of substantiating evidence, although few readers bother to go into any details if such evidence is presented.

Three investigative reporting articles were published in Magyar Narancs (January 19, February 9, and February 23, 2017) and then in English in The Budapest Sentinel (April 25 and April 27, 2017) and offer this resume which condensed the main points from all three articles and set them in chronological order adding some comments.

The articles investigate the dubious affairs of Orbán’s “right hand,” currently deep in the pockets of the Hungarian National Bank as its chairman.

GM started his political career by joining the Hungarian Communist party, MSZMP, but in 1989 immediately jumped onto the conservative bandwagon becoming political undersecretary of the prime minister’s office in 1990. The political “flexibility” of GM proved to be coupled with an even greater moral flexibility.

The TA foundation

“A continuous and central feature in the story of the enrichment Matolcsy and his family … is a mysterious and opaque state-founded foundation, the Tulajdon Alapítvány (TA) … set up in the early days after the change of regime in November 1990 by the Antall government’s privatization agency (ÁVÜ). … GM, who was quickly “kicked out of prime minister József Antall’s inner circle” was instrumental in setting up TA with the help of ÁVÜ and became its secretary and director of the institute it operated.”

Source: mszp.hu

“The foundation accumulated enormous sums of money … [as the state paid them high fees, e.g.] 3.5 million to put together a publication on opportunities in Hungary for foreigners, while writing reports on experience in the privatization of individual state companies for 300,000 forints each. …[when] the average monthly wage in Hungary was 18 000 forints.”

In 1997 TA set up the Privatizációs Kutató Kft firm where GM, Ms Marianna Harczi and Sándor Kopátsy jointly owned a 10% stake, but only Harczi’s name appeared in the Company Registry and she acted on behalf of the trio.

 The Növekedéskutató Intézet Ltd.

 While the TA was well funded by public money GM could not simply pocket it, a fig leaf was needed. In 2001, an year in GM’s tenure as minister]… a 75% stake in Privatizációs Kutató Kft, renamed Növekedéskutató Intézet Kft., was purchased by Ms Gyöngyi László, in fact by Mrs. Matolcsy using her maiden name in an attempt to hide the real owner as there would have been a conflicts of interest. Witness the astonishing – and legally questionable stipulation in the Matolcsys’ matrimonial contract where: “The wife recognizes that the shares representing her ownership according to the company register in reality represent the property and separate assets of the husband.” The above acknowledges her role as an illegal front person, and raises the suspicion of a felony – “committing the falsification of public documents .”

 The golden eggs

 The conditions of the acquisition, the following economic results and the fall after the loss of government are very telling. In December 2000 the TA board of trustees decided to sell its 90% stake in Növekedéskutató, even if the company “had performed particularly well … achieving revenues of HUF 87 million in 1999 and 89 million the following year, with operating profits of [28% and 22%] … respectively.”

The firm was undervalued at HUF 40 million, instead of a more realistic 50 million. Moreover, 13.6 million forints in the firm were subsequently paid out in dividends to the new owners and just in time to cover almost half of the acquisition price.

It seems a very poor deal for the state to sell its 90% share of a very profitable public company for a sum equal to half year revenue or two years profit. On top of that Mrs Matolcsy was given a generous deferment and a 7 million forints of interest-free financing from the seller – TA.

Promptly the Növekedéskutató’s revenue rose by 12%, to 198 million forints in total for 2001 and 2002, but the profits skyrocketed to 118.5 52.5 million – a stunning 62% pre–tax profit. Mrs. Matolcsy received 31.7 million in dividends in the first three years realizing 60% return of on investment, or more with the effects of loan from TA – which let go the goose that laid the golden eggs. The “business” dried up with the fall of the Orbán government in 2002 – revenue crashed to HUF 15 million in 2003 bringing a loss of 20 million.

The Eurotourism Kutató és Tanácsadó Bt. partnership

In spring 2001, when Mrs. Matolcsy acquired Növekedéskutató, two firms were established whose main activity was also sociological research. Both achieved instant and never to be repeated results in 2001 and 2002 during GM’s tenure as minister.

Eurotourism was set up by the same Ms. Harczi and one of her children with starting capital of 100,000 forints. (At the time, Harczi was TA’s secretary and a member of its board of trustees, and co-owner and MD of Növekedéskutató).

In its first, incomplete year, the new firm promptly raked in HUF 42 million in revenue with a 27 million or a dazzling 64% of operating profit, surpass even this in the following two years, raising its revenue to HUF 65.5 million with 53.6 million or a miraculous 81.8% operating profit. All achieved, according to its reports, without employees and hardly any subcontractors, i.e. by Ms. Harczi alone.

With GM’s departure from his ministerial position in May 2002, similarly to Növekedéskutató case, “the firm’s revenue was a flat zero for two years and until 2015 inclusively” the firm had an annual average revenue of 2.4 million with practically no profit.

Despite the miraculous profits in 2001 and 2002 “according to the financial figures, Ms. Harczi never once took a dividend from the firm, while according to the contract she carried out her duties as managing director without remuneration.” In January 2006 Mrs. Matolcsy became “the internal partner with a 90% stake, … In September, Harczi divested her remaining 10% and finally exited, GM’s older son, Máté Huba took her place.”

Incredibly Harczi “divested her share in the firm on both occasions for its nominal value of HUF 100 00 in total, while at the end of 2005. .. Eurotourism’s own capital stood at 51.5 million forints, with total liabilities of half a million … The real value of the partnership was without doubt somewhere around 51 million.” This explains Ms. Harcz’s actions – she was a front for the Matolcsys.

The Eurocon Tanácsadó és Szolgáltató Bt Partnership

The Eurocon case is almost identical with the above described one. The partnership was set up by Dóra Újvári and János Tornallyay in 2001 with initial capital of HUF 80,000. Similarly to Eurotourism, this new firm from nowhere immediately performed outstandingly well: its revenue for 2001-2002 was HUF 62.4 million forints with 25.4 million or 41% operating profit.

Similarly, after the end of GM’s tenure as minister for the economy, the firm’s revenue plunged to an average of 10 million for the period 2003 to 2010.

GM used the same template to gain ownership – the founders were replaced by the twenty-year old son, Ádám Matolcsy, (in December 2006) and Mrs. Matolcsy (in January 2008), who paid only the HUF 150,000 nominal value for the partnership worth close to 15 million at the time. The only difference was that the founders took 16.5 million in dividends before “selling” to the Matolcsys.

Property “migration”

Mrs. Matolcsy et al also bought real estate from the TA foundation which was then run by GM as a director. Under this scheme the foundation bought at least three properties and sold them all in a few years to a family member or interest although the dealings involved a conflict of interest and were certainly illegal, probably criminal.

All properties were in an apartment block built in 1989 close to MOM Park shopping center in Budapest’s District XII:

  • A 52-m2 flat sold to MG’s 17-year-old son Ádám Matolcsy in 2003 (sole owner in 2004), who could hardly have paid for it with his own money.
  • A 65-m2 flat sold to Növekedéskutató in 2003, when the firm’s majority owner was Mrs. Matolcsy.
  • A 106-m2 retail-unit in the same building to Eurotourism Bt, after Mrs Matolcsy became the 90% owner.

 Altogether, according to the articles, GM “had 96 million forints at his disposal at the end of 2002 … the source of this sum dated from the successful years 1998 to 2002. .” As one can imagine, this was times over the total income from his foundation director and ministerial remuneration.

The articles set out other examples from the following years indicating that GM continued to cart out public money, e.g.: “the TA’s revenue between 2005 and 2010 was 180.9 million forints, which came from the party foundation run by GM until 2007, the PMA. The TA – in close cooperation with Matolcsy’s Növekedéskutató – helped Fidesz with its preparations for the election. … and, at least in part, functioned as one of the party’s background institutions … counter to TA’s charter, which prescribes political independence…the state-founded Tulajdon Alapítvány (TA) and the privately owned Növekedéskutató (later MGFI) … operated out of the same registered offices, and even shared telephone and fax numbers.” What a gall!

The Fidesz return to power in 2010 immediately brought to TA “an outstandingly good year – revenue reached 66 million… not a single word about the foundation’s clients, supporters or sources of income… Between 2011 and 2014 the TA board of trustees paid grants totaling 75.5 million forints (there is no data for 2010), but it remained unclear to whom” for studies like those carried out by the Matolcsy companies.

The articles also point out to money flowing in from other sources, e.g. support for the jovokep.hu web site, GM books, etc. Press also reported other petty tricks like claiming inflated car expenses, “renting” an expensive flat owned by a big bank CEO, appointing his confidantes, including his lover to lavishly paid positions, qualifications notwithstanding, e.g. Marianna Harczi was a metallurgical engineer. The participants in all these schemes are the same small circle of individuals, many of them related to each other, not the way a transparent public sector works.

The GM, or I can say Fidesz, schemes invariably involve a state-funded institution – a ministry, a party foundation, a second, closely held, state-owned foundation, a privately owned firm and front companies, all operated by a close circle of confidantes.

One can safely assume what is GM up to as president of the MNB [Hungarian National Bank] setting up the now infamous Pallas Athena [Athéné in Hungarian] – he’s at it again.

This time round there were billions of public forints destined to “lose their public funds nature” after their transfer from MNB to the “independent foundations” where he and his subordinates were trustees. Billions have already been loaned or transferred to GM’s relations, cousins and confidantes masquerading as business partners. After all “why should something that went so well on a small scale not work on a large scale, too?”

Reading through clearly shows that everything GM was involved in reeked of corruption, not to mention the superficial, useless or simply nonsensical of it. A depressing reading anyway.

April 30, 2017

Maximilian R. P. Gebhardt: The Emperor Has No Clothes

Maximilian R. P. Gebhardt is a former US diplomat and Economic Officer for the Department of State, now working as a consultant to private clients. From 2013 to 2015 he served as the economic officer at US Embassy Budapest responsible for covering trade and investment as well as tracking corruption.

♦ ♦ ♦

I served in Hungary from 2013 to 2015 doing counter-corruption, although a fair amount of my job was watching trade and investment, along with tracking sectoral changes. I’m proud to have contributed quite a bit to our 2014 and 2015 Investment Climate Statements. It is worth saying that I am more an analyst than an economist, and the data set that I generated is currently being looked at by folks far more experienced than I. My background is ultimately in international relations with a nice six-year stint at the State Department as a Foreign Service Officer where I was trained, though mostly I picked everything up on the job – the Foreign Service way.

Late last week, I was in discussions with a few old contacts from back when I was in Hungary. The discussion seemed pretty routine: the government was seeking to land the Olympics which would mean massive construction contracts, Hungary still showed positive growth signs and Moody’s had upgraded them out of junk status, and the national debt continued to shrink. The usual story of Hungary’s reliable but ultimately unimpressive 2-3% GDP growth. The on-the-ground picture was pretty much as I had left it as well. The rising cost of living was a constant gripe, wages were flat. Generally the complete opposite of the official inflation data that included utility price cuts.

And then Momentum succeeded in forcing a referendum, and the immediate reaction on the heels of that was for the head of the Central Bank to make a not-so-veiled claim that the United States attempted to remove FIDESZ and was behind Quaestor and all the failures of Q1 2015. I admit, it was a pretty funny story. I built the case for those visa bans, and I can say with certainty that there was no plan for a coup. They were at best a shot across the bow.

But it raised an interesting question: “What are you hiding that has you so worried?”

Back in late 2014, when I was tracking agricultural VAT fraud, we got a tip from Ferenc Biró at Ernst and Young that he had tracked some limited food oil VAT fraud for a client of theirs by looking at discrepancies in the trade data. Hungary might cook the books a bit, but it does not live in a vacuum, and Hungary is certainly trade dependent, with exports and imports combining to well over 150% of GDP. Fortunately, trade is classic double-entry bookkeeping. An export logged by one country has a corresponding import recorded on the other side. As the Hungarian Tax and Customs Authority both logs the official trade data and collects taxes like VAT, it stands to reason that anyone cheating on VAT wouldn’t want NAV to know, so there would be no record of the transaction.

I  slogged through bulk Global Trade Atlas data for a dozen countries so that I could prove a point. In the end, I did find anomalies in food oil, oilseed, and some other agricultural commodities in trade with Slovakia, Ukraine, Serbia, and Croatia. It was fun, it told us we were right to worry, but ultimately it was an internal exercise in confirming what we had already confirmed with multiple sources regarding agricultural VAT fraud.

Fast forward, and I asked myself that same question – what about now? The food oil market, after all was said and done, was supposedly cleaned up. Mission accomplished, America won. I pulled out a few million data points from UNCOMTRADE data and asked the question again: “Are there gaps in the data?”

I should first say for American readers that VAT is a type of tax that is not unlike sales tax, except it is assessed on the “value added” at each transaction along the value chain. In Hungary, VAT is 27%, the highest in the world, so there is quite an incentive to cheat. When you export from one country to another, the tax authority in the exporting country refunds the VAT to the exporter, allowing trade to happen at the actual price of the good, rather than the inflated price with VAT. In trade, there are two kinds of VAT fraud you typically catch: import-based and export-based. Import-based VAT fraud rests on a simple principle. When a good is imported into country A, you are liable to country A’s tax authority for VAT on that import. Export-based is a bit more complex. You claim you exported a good to the tax authority, pocket the VAT refund, and then sell the good domestically at or below market price, pocketing the VAT. Food oil and agricultural VAT fraud was typically of the export variety, drawing lots of criminal participants since they realized you could keep claiming exports in a loop, pocketing refund after refund. For a time, that kind of VAT fraud really tied up the oilseed market – why sell off your oilseed when you can use it to keep pulling off VAT fraud ad infinitum?

I did a few initial case studies – automotive, aviation, agriculture, electronics, and petroleum products. In the case of aviation, automotive, and electronics, I found some anomalous reported exports to Hungary that were not reported as imports. In the case of agriculture and petroleum, I found export-based issues with Hungarian exports that had no corresponding imports recorded.

The total impact of this was huge, about $3.37 billion in errors in 2015 alone, which was large enough to impact GDP.

I’m still looking at the data, and several other economists are as well, so these findings are certainly not conclusive, but as my favorite nerdy webcomic XKCD once said, “Correlation doesn’t imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing ‘look over there.’”

February 28, 2017