Tag Archives: Saudi Arabia

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.

Hungarian move toward the Arab world and a possible assault on the United States

It was only yesterday that I learned from Péter Szijjártó that the “Eastern Opening” also means Hungary’s move toward Africa. Very soon I think they will have to change the name “Eastern Opening” to “Opening to any country outside of the European Union.” Admittedly, it is cumbersome but apt.

You may recall that a few months ago one Hungarian delegation after another made pilgrimages to affluent Middle Eastern countries, targeting Saudi Arabia in particular. They made at least twenty official and semi-official trips to Riyad in the last year and a half, but, as Hetek, the publication of Faith Church, reported, until now with no great results. Prince Abdulaziz, son of King Abdullah, spent a few days last week in Budapest since he is the sponsor of an event called “Saudi Arabian Days” that showcased the culture and history of the Saudi Kingdom. Abdulaziz met Foreign Minister János Martonyi, who was especially eager to establish student exchange programs between the two countries.  From here the next step was to entice the Arab country to invest money in Hungary’s poverty stricken higher education.

Corvinus University was the first to offer the Saudis an opportunity to be generous. The university’s senate decided to establish a Center of Islamic Studies and an M.A. program to go with it. Apparently the suggestion was welcomed by the faculty because the university is so strapped for funds that “it will be a miracle if [they] survive the summer.”  The university also bestowed an honorary doctorate on Khalid bin Mohammed Al-Anqari, Saudi minister in charge of higher education.

The dean of Corvinus, László Csicsmann, is convinced that if Corvinus establishes an Islamic Center “one could speedily agree on a few million dollars of assistance to the university.” He used the expression “strike while the iron is hot.” After all, the minister received an honorary doctorate only recently, the university delegation just returned from Riyad, and here is the occasion of the Saudi Arabian Days in Budapest.

I suspect that Csicsmann is too optimistic about Corvinus’s chances of receiving a few million dollars with no strings attached.  How much say would the Saudi government have in setting up the Islamic Center and how much influence they would demand when it comes to the curriculum?  The dean was unable to give a clear answer, and why should he?After all, Saudi assistance cannot be taken for granted; discussions of the matter haven’t even begun.

According to the students, the new president, Zsolt Rostoványi, is very interested in developing close contacts with Arab countries. Since he took office there have been many conferences and the number of honorary doctorates to Arab officials has multiplied in the hope of some Saudi money coming to the university’s aid.

Corvinus is desperate in the wake of severe budgetary cuts. You may recall that about two years ago there were rumors that Corvinus might not survive a future reorganization of Hungarian higher education planned by the Orbán government. In the end, it seems, Viktor Orbán didn’t dare close or amalgamate into another institution one of the best universities in the country. But he doesn’t like the institution, which he considers to be a stronghold of liberal, “orthodox”  economics. Slowly starving it to death is a perhaps less obvious strategy.

As Hungary seeks alliances with countries in the “East,” it’s burning its bridges with those in the West. Viktor Orbán’s ill-fated words about the German tanks didn’t remain unanswered by the German foreign minister, Guido Westerwelle, who considers Orbán’s statement “a regrettable derailment that [Germany] rejects.” The Hungarian Foreign Ministry is desperately trying to explain away Orbán’s remarks, but this time their job seems especially difficult. Undersecretary Gergely Prőhle, who is usually quite skillful at defending the government’s position, did a poor job today during an interview with György Bolgár on Klubrádió. He is normally diplomatic and can even be semi-convincing; today he was irritated and aggressive.

fight easyway1234.blogspotcom

easyway1234.blogspot.com

But if the troubles with Germany weren’t enough, it seems that the Orbán government is taking on another “enemy,” the United States. On Friday Magyar Nemzet launched a frontal attack in a lead editorial. Magyar Nemzet has taken a consistently anti-American stance, but I’ve never seen such antagonistic writing as the piece by Gábor László Zord.

There is no question that Viktor Orbán is not exactly crazy about the United States. He has been snubbed too many times by successive American presidents ever since September 11, 2001. What did the young Hungarian prime minister do, or rather didn’t do, in 2001? He remained silent while the anti-Semitic István Csurka delivered a speech in parliament in which he stated that the U.S. deserved what it got on 9/11. Later, when there were attempts to make Orbán mend his way and at least belatedly express his sympathy with the United States, he neglected to do so. Subsequently, he tried to get an invitation to the White House but without success. I remember that János Martonyi was certain that Orbán would have an opportunity to make a state visit to Washington sometime in the fall of 2010. As we know, the doors of the White House seem to be closed to him. So it’s no wonder that Orbán carries a grudge against the United States and is irritated by what he considered “lectures” on democracy from Hillary Clinton and others. It seem that Magyar Nemzet’s reporters have a free hand to publish violently anti-American articles.

I don’t know what has happened in U.S.-Hungarian relations lately, but this latest attack on the United States is unprecedented. The reporter latches onto some of the problems currently facing the Obama administration to announce that “the United States doesn’t have the moral authority to tell the Hungarian government anything about democracy. If anyone is guilty of undemocratic acts it is the United States.” He offers a laundry list of sins, from the “murdered millions in pointless wars” to “doing business with representatives of dictatorship.” He is convinced that “if international law would work properly, masses of American officials and soldiers would be dragged to the Hague where they would receive the hospitality of the International Court of Justice.” But, says the reporter, sadly there is no justice in the world. “The truth lies with the powerful.” So, what can we do?

One thing Hungary can do, the reporter writes: “Keep up the list of their sins and always be ready to come back with our own answers. Don’t worry, we have a lot we can be proud of and they’d better huddle in some corner quietly.”

The Orbán government currently has enough problems with the country’s most important ally, Germany. I wouldn’t advise them to pick a new fight, this time with the United States.