Tag Archives: U.S. Embassy Budapest

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.

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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

Viktor Orbán’s new neighbor: Ghaith Pharaon, fugitive from justice

During the summer Viktor Orbán’s son-in-law, István Tiborcz, was searching for new business opportunities. By that time, OLAF, the European Union’s Anti-Fraud Office, was looking into his “super company,” which had received almost all of the contracts for the EU-financed modernization of city lighting in Hungary. The first son-in-law had to find greener pastures, preferably far away from public procurements. The choice, it seems, was real estate. Investigative journalists discovered that Tiborcz was doing lucrative deals with the assistance of a wealthy Turkish businessman. One of their first real estate ventures was the purchase of the building of the defunct Postabank, which soon enough they sold, through an intermediary, to Ghaith Pharaon, a Saudi businessman of dubious repute.

The available English-language information on Ghaith Pharaon is extensive, mostly because of his association with the Bank of Credit and Commerce International (BCCI) back in the 1990s. Secretly acting on behalf of BCCI, Pharaon acquired control of two American banks in violation of federal banking laws. When the fraud was discovered, BCCI was forced to sell the banks, which soon after were shut down by regulators when it was determined they were insolvent. Pharaon was charged with wire fraud and conspiracy to commit racketeering. He has been wanted by the FBI since 1991 for his role in the BCCI fraud and remains a fugitive. In addition, Pharaon was accused in a 2002 French parliamentary report of having financial dealings with hawala, an Islamic financial network which is also used by terrorist organizations. Earlier I wrote in more detail about Pharaon’s business activities in Hungary.

Trouble seems to follow István Tiborcz. Or perhaps it is more accurate to say that he has a penchant for dealing with questionable characters.

It seems that in the last four or five months Pharaon has been busy. He is currently the owner of nine extremely valuable pieces of property in Hungary. His latest purchase is a mansion right across from the house owned by Viktor Orbán and his family. I suspect that the mansion was a state property that earlier was used as a kindergarten. Orbán himself liked the building so much that during his first administration he planned to refurbish it and use it as the official residence of the speaker of the house. The place has been abandoned for almost 20 years and, judging from the photos, it needs extensive repairs. During the summer the property’s listing price was 410 million forints or $1.45 million.

The mansion Pharaon bought

The mansion Ghaith Pharaon bought

Once it became public knowledge that Pharaon is now Orbán’s neighbor, interest in his past spiked even though it has been a well-known fact in Hungary, at least since June 2016, that Pharaon is on the FBI’s wanted list. But the opposition parties finally started asking questions about Pharaon’s close business ties not only with the prime minister’s son-in-law but also with the Hungarian government and MOL, the Hungarian oil company.

Pharaon is not a simple foreign investor wanting to make some money in Hungary. He is in possession of a valid visa issued to him by the Hungarian government. At the time they issued the visa, Hungarian authorities were aware of the fact that Pharaon was being sought not only by the FBI but apparently also by Interpol because of his relations with terrorists, including at one time with Osama bin Laden. Péter Juhász of Együtt got hold of a letter from Sándor Pintér, minister of interior, strangely enough written in Hungarian, to the Saudi ambassador in Budapest confirming their knowledge. Pintér wanted to have the Saudi government’s opinion in the case. The answer had to be reassuring because Pharaon received a visa without any trouble. But why would it not have been reassuring since, according to information that can be found in Stratfor Intelligence Files made public by WikiLeaks, “Ghaith Pharaon is not a genuine businessman … he is nothing more than a front man who does dirty things on behalf of Saudi Arabia.”

All the talk about Pharaon being on the FBI’s most wanted list eventually prompted Hungarian journalists to approach the U.S. Embassy in Budapest, requesting information about Pharaon’s current status. Eric Watnik, counselor for public affairs, who is in charge of the press and information office at the embassy, gave the following information on Pharaon. On November 15, 1991 the District of Columbia court issued an arrest warrant signed by Alan Kay, magistrate judge. “This arrest warrant is still valid,” he added. Since then the charges against Pharaon have multiplied (conspiracy, wire fraud, racketeering conspiracy, aiding and abetting) and by now, if arrested and charged, he could face at least 30 years in jail. In addition, according to Watnik, Interpol issued a Red Notice (A355/8-1992) which, according to Interpol’s website, seeks “the location and arrest of wanted persons with a view to extradition or similar lawful action.” Although the Red Notice has since disappeared from the Interpol website, Watnik noted that Hungary has an extradition treaty with the United States and thus, had it been asked, would have been obliged to agree to the extradition of Pharaon.

Once this letter from Pintér to the Saudi ambassador became public, both Jobbik and MSZP wanted to know more about the case. Jobbik’s Márton Gyöngyösi couldn’t get an answer from Viktor Orbán himself, but Tamás Harangozó of MSZP lucked out. He wanted to know whether the prime minister had ever had a personal meeting with Pharaon. Harangozó said he wanted to have a serious answer because Orbán, instead of giving substantive responses, often cracks jokes or makes ironic remarks. Orbán admitted that he had met “Professor Pharaon” at a banquet, which surely cannot pose a national security risk. Harangozó hit back: in that case, Orbán and the government itself is the national security risk. Eventually, Orbán claimed that “the whole Pharaon affair is an American secret service game.” If the FBI is truly seeking his extradition, how is it possible that Pharaon has remained free for the last 24 years?

The case was even discussed in the parliamentary committee on national security where Szilárd Németh, the committee’s Fidesz deputy chairman, expressed his belief that Viktor Orbán’s neighbor may be only the namesake of the real Ghaith Pharaon. Of course, a simple fingerprint comparison could put an end to any doubt but, according the U.S. Embassy, the Hungarian authorities refuse to cooperate. In fact, the Hungarian government is actively shielding Pharaon from “harassment.” When Jobbik wanted to place a public announcement in which Pharaon’s name was mentioned, MTI OS (Országos Sajtószolgálat) refused to publish it because “they need to protect the privacy rights of public figures.” Why is Pharaon a public figure? The only thing that comes to my mind is the phrase “public enemy.”

October 29, 2016

Hungarian prosecutors found the lone culprit in the corruption scandal

Between October 17  and November 13, 2014 I wrote four posts on the corruption scandal that beset U.S.-Hungarian relations and contributed to the loss of popularity of Fidesz and the Orbán government a year ago.

It all started with an article that appeared in Napi Gazdaság, precursor of today’s Magyar Idők, then owned by the Századvég Economic Research Group headed by the economist-businessman Péter Heim. The article accused several American companies of tax evasion and fraud and indicated that an investigation into these companies by the National Tax and Customs Office (NAV) was underway. It turned out later that the information, wherever it came from, was wrong. If anything, the opposite was true. American companies found widespread VAT fraud in the food processing industry, where the VAT is exceedingly high (27%). They were the ones who complained in vain at NAV and other government agencies. The Hungarian government did nothing. The complaints of American businessmen eventually reached the U.S. government, which decided to invoke Proclamation 7750, an executive order signed by George W. Bush in 2004 that gives the State Department power to ban corrupt individuals and their families from entering the United States. The U.S. normally keeps such action quiet, but as a result of either Napi Gazdaság‘s or the Hungarian government’s misjudgment of the situation, the decision was made to reveal that six Hungarian citizens had been banned.

Soon enough it became known that Ildikó Vida, head of NAV, was on the list. We also learned that an unnamed businessman, who in total panic ran to ATV to tell his sad story, was among the six. Vida admitted that some of her high-ranking colleagues at NAV were also on the list. Another man whose name was often heard in connection with the infamous list was Péter Heim, owner of Századvég Economic Research. This suspicion found some support when, a month after the the scandal broke, Heim sold his shares in Századvég. My opinion at the time was that, in addition to Vida and the unnamed businessman, two officials of NAV (both women) and Péter Heim were most likely on the list.

The Hungarian government insisted that they could not investigate the cases of these people because the U.S. government refused to release the names of those on the list. Of course, as we learned from some cabinet members, the upper echelon of the Fidesz team knew full well who had been banned.

It turns out that, after all, an investigation of the case began immediately after the scandal broke. And now, after a whole year, the prosecutor’s office of the capital district announced their findings. They didn’t reveal the suspect’s name but gave enough information about him that in no time everybody knew that the man is Viktor Tábor, a successful businessman, the sole proprietor of Advanced Network Technologies (ANT) whose yearly revenue is over a billion forints. ANT has an excellent reputation with a well-known and well-respected clientele. Tábor is being indicted for committing bribery while pretending to have influence over a certain person. And who is this person? Péter Heim, head of Századvég.

According to the story of the prosecutor’s office, Bunge, an American company that produces cooking oil under the name Vénusz, hired a lobbyist to convince the Hungarian government to lower the VAT on cooking oil and other basic foodstuffs from 27% to 5%. The lobbyist turned to Viktor Tábor, whom he knew had many friends in government circles. Tábor informed the lobbyist within a few days that he had approached Péter Heim, head of Századvég. Heim, he said, would be able to help if Bunge deposited two billion forints into the bank account of the Századvég Foundation. (A former employee of Századvég, the well-respected professor of economics Tamás Mellár, described Századvég as a “money laundering operation.”) However, after an investigation that the prosecutor’s office called very thorough, it was determined that Péter Heim didn’t know Tábor and therefore had no role to play in the corruption scandal. The only suspect is thus Viktor Tábor.

Péter Heim of Századvég

Péter Heim of Századvég

444.hu and other media outlets expressed doubts about the accuracy of the prosecutor’s office’s version of the story. They called attention to the fact that Napi Gazdaság, owned by Századvég, was the newspaper that tried to divert attention away any Hungarian involvement in the case by accusing the American companies of wrongdoing. They also found it suspicious that Heim sold his shares in the company within a month after the outbreak of the scandal. And third, they noted that Tábor said he was asked to deposit the money into the Századvég Foundation bank account, not into his own.

Doubts about the veracity of this official story were further heightened by a telephone interview conducted by Antónia Mészáros of ATV with Péter Heim. 444.hu‘s headline read: “Nobody spoke less convincingly about the expulsion case than that.” Heim kept repeating in answer to every question that “he doesn’t pay any attention to such matters.” He knows that he is innocent, and since he didn’t want to travel to the United States, he never inquired from the American Embassy whether he is on the list. He doesn’t know anything about the ban or any corruption cases. Although he is still the CEO of Századvég, he is not involved in the day-to-day running of the business. He has no idea whether lobbyists approach Századvég or not, and he has no idea why his name popped into Tábor’s head in connection with Bunge’s efforts to reduce the VAT on its products.

The most interesting development in the case is an interview with the so-called lobbyist hired by Bunge. His name is Tamás Torba, and he is an economist who has in the past written articles on economic matters for Magyar Nemzet. So, it was not surprising that Torba approached the paper for an interview in connection with the case.

First, Torba was not employed as a lobbyist. He has been a business partner of Bunge ever since 2012. His job was to try to use communication tools against the widespread fraud in the industry. In early 2013 the Orbán government kept signing “strategic partnership” contracts with different companies, and the idea came up within Bunge’s management that perhaps it might not be a bad idea to see whether such a partnership agreement might help their disadvantaged position vis-à-vis those who cheat on VAT and are therefore able to sell their products cheaper. It was at that time that Torba turned to Tábor, an acquaintance of his. Tábor didn’t think that the government wanted to sign a partnership agreement with Bunge, but perhaps they would be able to achieve a reduction in VAT. The price was 2 billion forints. Bunge immediately distanced itself from such an illegal practice. Instead, Bunge developed its own strategy that involved getting together with all the domestic producers of basic foodstuffs to attack the problem. Torba became the spokesman of this organization.

Torba also talked to important people in NAV about the problem at the request of the American Embassy in Budapest. The diplomats were trying to penetrate the wall of silence in NAV, and they hoped that perhaps Torba could do something. The message Torba delivered was that the U.S. would lend all possible help, including financial and technical, to combat VAT fraud. However, if NAV continues stonewalling, they are ready to use sanctions against those persons they consider culpable.

The prosecutors have made it clear that Ildikó Vida is not a suspect. As they put it, “she is not involved in this case,” which of course doesn’t preclude the possibility that she is involved in some other case. But then, why is she on that infamous list, the reporters asked. The only answer the prosecutor in charge of the case could give was that perhaps the “Americans supposed that no investigation was taking place” and that was the reason Ildikó Vida’s name appeared on the list “when in fact behind the scenes an investigation had been going on ever since the winter of 2013.”

I have my grave doubts about the prosecution’s version of events. I can’t believe that the United States on such flimsy evidence would invoke Proclamation 7750 against these six people. I have the feeling that this will not be the end of the story.

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Further readings from Hungarian Spectrum:

(1) “Ten Hungarian businessmen and government officials can never enter the United States”

(2) “American-Hungarian relations are crumbling”

(3) “No end to the saga of the Hungarian corruption scandal”

(4) “The tax chief Ilidkó Vida versus the Hungarian government: Who is lying? Most likely both”

Corruption at the highest level? It looks that way

Eleni Kounalakis’s book on her tenure as U.S. ambassador in Budapest has prompted quite an uproar in Hungary. I have already spent three posts on her book. Here I simply want to call attention to the couple of sentences that caused the opposition to cry foul.

Kounalakis, discussing the Orbán government’s preferential treatment of Hungarian companies, relates the following story:

Minister of National Development Lászlóné Németh told me that every week she sat down with Orbán, looked over the list of public works projects, and decided which ones to prioritize and which bids to accept. “If a Hungarian company’s bid is competitive with one from an Austrian or German company, then yes, they will win,” she explained. “Why should German companies be building Hungarian roads? And if Közgép is the only Hungarian company that can do it, why shouldn’t they continue to win the bids?”

As Kounalakis rightly points out, Hungary’s EU membership requires it to treat all EU-based companies the same as its own. “Rather than creating a transparent and predictable business environment that would allow Hungarian companies to rise up through open competition, Prime Minister Orbán appeared to be closing competition to all but a few companies, whose success he sanctioned.” (p. 253)

Mrs. László Németh and Viktor Orbán after her swearing in ceremony as minister for national development

Mrs. László Németh and Viktor Orbán after her swearing-in ceremony

This information was a political flashpoint. Leaders of the Demokratikus Koalíció were incensed, and Együtt threatened to sue Viktor Orbán himself. On May 17th, Orbán was asked by a reporter whether it was true that every week he sat down with the minister of national development to discuss the fate of certain large projects. Orbán didn’t deny it. In fact, he claimed that this was the legal and proper way of handling such matters. As Népszabadság concluded, “even today it is the government that decides which projects should win.”

Well, this sounded pretty bad. And so Fidesz issued a statement accusing Ferenc Gyurcsány’s government of corruption, adding that DK should be the last party to say anything about the current government’s misdeeds. Soon enough several government officials also decided to comment on the case, trying to save face. Mrs. Németh naturally claimed that Eleni Kounalakis misunderstood her. She and the prime minister didn’t discuss who should win. Rather, these conversations were about priorities, about ranking projects according to their importance.

The “Kounalakis affair” was even a topic at the Wednesday cabinet meeting. Defense is usually not enough for the Orbán government. Viktor Orbán and his cabinet members believe that the best defense is a good offense, and therefore János Lázár accused the former ambassador of publishing the book for the purpose of “earning a little extra money.” At that point I almost fell off my chair laughing. Lázár doesn’t seem to have the foggiest idea about AKT Development and the immense wealth of the Tsakopoulos family.

DK plans to get in touch with Eleni Kounalakis and will also turn to the European Commission’s European Anti-Fraud Office (OLAF). DK’s argument goes something along the following lines. Before the book was released the State Department went through the book carefully and didn’t object to the inclusion of such sensitive information as Viktor Orbán’s personal decisions about projects financed by the European Union. That this piece of information remained in the book is not surprising given the U.S. government’s concern over corruption in Hungary.

We don’t know whether Mrs. Németh and Eleni Kounalakis were alone when this conversation took place, but given the diplomatic protocol the former ambassador describes in detail in her book it is unlikely. Therefore, this indiscretion of Mrs. Németh is most likely known by others from the U.S. Embassy staff. Moreover, after every such meeting copious notes are taken, which are immediately sent to Washington. The only question is whether the State Department wants to get involved in this case. I somehow doubt it. And even if they did, it would still be almost impossible to prove what everybody suspects–that it is Viktor Orbán himself who determines the fate of bids for practically all government projects. Let’s put it this way: if you’re close to the prime minister, you win a disproportionate number of bids. Just witness the success of Orbán’s son-in-law and Lőrinc Mészáros, the mayor of Felcsút, who is sometimes described as the prime minister’s front man.

AMBASSADOR ELENI KOUNALAKIS ON HER YEARS IN HUNGARY, PART III

My two posts on Eleni Kounalakis’s book about her years in Budapest as U.S. ambassador elicited a great many comments. In fact, the debate continues among the active commenters to Hungarian Spectrum. Some were very harsh on the United States for not taking a stronger stance against the growing manifestations of Prime Minister Viktor Orbán’s antidemocratic measures. Others correctly pointed out that no country has the right to tell another one what to do and what not to do. The blame, these people argued, lies with the Hungarian electorate that handed Fidesz a super-majority, which enabled Viktor Orbán to enact about 700 laws in the course of four years. Most of these laws chipped away at the democratic achievements of Hungarian lawmakers between 1990 and 2010.

Indeed, as many of you so often remind your fellow commenters, it is only the Hungarian people who can get rid of Viktor Orbán and his mafia state. The United States has no leverage over Hungary. The European Union’s clout is limited. Admittedly, Brussels could have been more forceful when it came to the generous subsidies that ended up in the pockets of Viktor Orbán’s oligarchs. In fact, in large measure it was the European Union that kept Viktor Orbán in power over the past five years.

I think the American Embassy staff did their best to gently nudge Hungarian government officials toward democratic solutions. I have the feeling that other embassies did even less than that. The problem, as I see it, was that the Americans did not fully understand the nature of Viktor Orbán’s regime, so they put an awful lot of energy into a cause that was hopeless from the very beginning.

Eleni Kounalakis at her swearing in ceremony as U.S. ambassador to Hungary with Majority Leader Nancy Pelosi and her father Angelo

Eleni Kounalakis at her swearing-in ceremony as U.S. Ambassador to Hungary with Majority Leader Nancy Pelosi, her father Angelo, and Secretary of State Hillary Clinton

Eleni Kounalakis, after her first disastrous encounter with Orbán, came up with a plan. She would “extend an olive branch to the touchy opposition leader, a message that I wanted to try to work with him in spite of our rough start.” (p. 44) Such a strategy is usually successful, but what Kounalakis didn’t seem to know is that, for Viktor Orbán, an olive branch means weakness.

Kounalakis writes about the extensive preparation she received before her departure to Budapest, but her “handlers” neglected to prepare her with a “course on Viktor Orbán.” It is hard to imagine, however, that Jeffrey Levine, her deputy-chief-of-mission for the first six months, didn’t fill her in. But most likely she was charmed by Viktor Orbán, who, according to people who have met him, is a very charismatic person. Kounalakis herself tells us that “whenever I briefed visitors about to meet Orbán, I always noted that they would be surprised by how much they liked him. Usually, having heard so many negative reports about him, they didn’t believe me, but my prediction always came true…. [He usually] charmed his guests with clever observations and funny, self-deprecating comments.” (p. 164) Obviously, this tactic worked for a while with Kounalakis as well.

In addition to Viktor Orbán’s alleged charms, I think there were two people in the cabinet who were largely responsible for the relatively benign attitude of foreign countries toward Orbán’s regime. I have in mind János Martonyi and Tibor Navracsics. It is hard to imagine that these two intelligent men could embrace the tenets and practices of the Orbán government. And yet one cannot say that they didn’t know who Viktor Orbán was. They had worked closely with him ever since 1998 when Martonyi became foreign minister and Navracsics was in the prime minister’s office.

In 2010 Martonyi’s second stint as foreign minister was never in question, although he was about to be put in an even more humiliating position than he had endured the first time around. During his first term as foreign minister his job was to explain away Orbán’s gaffes. By his second term he became totally irrelevant. And yet he still managed to convince foreign diplomats of the good intentions of the Hungarian government even though it should have been crystal clear to everybody, including Eleni Kounalakis, that Martonyi simply didn’t matter.

Navracsics is equally guilty of serving a corrupt and undemocratic government. Being a legal scholar as well as a political scientist, he must have known that Orbán’s policies were a deadly blow to Hungarian democracy. Yet he used his gentlemanly manners and considerable intellect to mislead his well-meaning negotiating partners.

These smooth operators, these enablers of Orbán are perhaps more guilty than Orbán himself. Orbán has a vision, however warped, but Martonyi and Navracsics, who should have known better, willingly and ably served a regime rotten to the core. Kounalakis, who speaks so highly of these two men, should have understood that they were the ones who were largely responsible for her misplaced trust in the Orbán government.

Eleni Kounalakis was in her post for almost two years before she realized that she had been taken. In the summer of 2011, that is after a year and a half as ambassador, she was still ready to resign if Hillary Clinton, during a short visit to Budapest, delivered a strong speech criticizing the Orbán administration’s domestic policies. The speech was written in the State Department without her input. She was horrified that Clinton would deliver “a lecture on the Hungarian political reform process. And she would do all this before she met with him privately.” (p. 180) But six months later, when the cardinal laws related to the judiciary were passed without addressing any of the concerns the Americans had raised, she suddenly understood that she had been badly misled by her Hungarian friends in the different ministries.

It’s over, I thought, shoulders slumping. My efforts to help the Hungarian government government prove its commitment to democratic principles, to encourage lawmakers to listen to all their constituents, had failed. I was disappointed and angry that I’d been misled. (p. 193)

It now became clear to her that she had been dealing with a bunch of liars, including her favorite Martonyi and Navracsics. Yet she made one final attempt, writing an article titled “A Second Look” in which she asked “lawmakers to reconsider some of the most controversial of the cardinal laws, including those related to the judiciary, religious organizations, and the media.” Hillary Clinton also tried to plead, to no avail, with Viktor Orbán in a private letter that was leaked. I myself received a copy of it and published it on December 30, 2011. On January 1 the new constitution, unaltered, became the law of the land.

That was the straw that broke the camel’s back. Eleni Kounakalis refused to attend the celebration to mark the great day held in the Opera House. An official of the State Department suggested that she might take a quick trip to Vienna, but she decided that if she “wasn’t going to attend the celebration, [she] wasn’t going to be coy about it…. This was without a doubt the lowest point of [her] ambassadorship.” (p. 194)

I do realize that this had to be a bitter pill to swallow. At the same time I wonder whether perhaps she relied too heavily on government informants and neglected to talk with some of the more important figures in the opposition and some of the Hungarian scholars who had great reservations about Viktor Orbán and his policies. But I have the feeling that she wouldn’t have believed them, given her faith in the Orbán government at that stage. She writes that “in all fairness, I should note that for weeks anti-Orbán pundits had been declaring that in handing [Orbán] a supermajority the Hungarian people had signed a death warrant for Hungarian democracy. While these pundits included well-respected and well-informed Hungarian American scholars, they were almost all people who had a personal history with Orbán.” (p.85) Perhaps Eleni Kounalakis could have saved herself a lot of grief if she had listened to these “pundits” in Hungary and in the United States.

Ambassador Eleni Kounalakis on her years in Hungary, Part II

As I indicated yesterday, Eleni Kounalakis’s book on her stay in Budapest as ambassador of the United States is rich enough to spend more than one or even two short posts.

Before her departure to Hungary, the State Department explained to her that the International Security Assistance Force in Afghanistan was one of President Obama’s top foreign policy priorities. At the time of our story, Hungary had 400 men and women serving in Afghanistan. Kounalakis’s task was to make sure that those troops, unlike some other international forces, don’t leave Afghanistan. That meant courting Csaba Hende.

Of the twenty-one chapters, four deal in one way or another with the Hungarian military. Her first chapter describes a boar hunt near the Ukrainian border to which she was invited by the Hungarian military brass after she told them that she knows how to handle a gun. It turned out that the military attaché of the embassy was very keen on her joining the guys because such an outing would strengthen the good relationship between the military establishments of the two countries. It was the same military attaché who urged her to take part in swimming across Lake Balaton, an affair also organized by the military. It seems that she was ready to do almost anything to ensure that the Hungarian troops would stay in Afghanistan.

Kounalakis describes Csaba Hende, the new minister of defense, as “a smart, affable man” who was rumored “to be out of his depth in the military realm.” (p. 119) Most people would be less charitable and would describe Hende as a bungling country bumpkin. In fact, in the chapters in which Hende figures there are many examples of his utter unsuitability to be a cabinet minister. In December 2010 the American ambassador was still outraged at one of Hende’s inappropriate remarks, yet in a relatively short period of time she described him as a close friend. That friendship is especially curious since it is clear from the text that Hende doesn’t speak a word of English and that their conversations were conducted through an interpreter.

Kounalakis misunderstood Hende’s role in the government. She assumed that he had some say about whether the Hungarian troops stay or leave Afghanistan. She believed that it was her excellent diplomatic skills and her friendship with Hende that resulted in the Hungarian government’s decision to remain part of the international force. We know, and I think Kounalakis should also have known, that no decision is made in Orbán’s Hungary, even about the smallest matter, without the prime minister’s personal approval. What Hende thought was, in the final analysis, irrelevant, so courting him was probably a waste of time.

At their very first meeting Hende indicated to Kounalakis that Camp Pannonia, where some of the Hungarians served, near the town of Pol-e Khumri, had become a very dangerous place. He was worried about his soldiers’ safety. “Something must be done.” (p. 121) The ambassador almost dropped her coffee cup because she was not expecting a change of policy on Afghanistan after the election. Kounalakis took Hende’s words at face value, but if you read her description of comments made later, the Orbán team most likely even before the election decided to threaten troop withdrawal in order to receive more financial help and military equipment.

A few days later the military attaché came with the surprising news that “Minister Hende had invited me to join him on a three-day trip to visit Hungarian troops in Sarajevo and Kosovo.” She decided to accept the invitation because such a trip “would give [her] the opportunity to advance another U.S. foreign policy objective,” this time in the Balkans. (pp. 122-123) During the flight back from Kosovo Hende brought up the topic of the Hungarian troops in Afghanistan again. This time, according to Kounalakis, he was more forceful. He told her that if someone is killed, “the blood will be on [his] hands,” a concern that Kounalakis understood since she felt “the gravity of the dilemma.” The U.S. military attaché in Budapest was less sympathetic. Yes, he told the ambassador, it is a dangerous place. It is a war zone, and it is important that the Hungarians remain there.

Eleni Kounalakis at a joint training seesion of Hungarian troops and the Ohio National Guard, April 2011

Eleni Kounalakis at a  joint training session of Hungarian troops and the Ohio National Guard

A few months later Hende invited her to go with him to Afghanistan. Another opportunity for Hende to extract more money and equipment from the Americans. Kounalakis describes a rather uncomfortable encounter between General David Petraeus and Hende in which the Hungarian minister again explained his worries about his soldiers at Camp Pannonia. It is unsafe, and it prevents them from doing their assigned task, reconstruction work. During the discussion he repeated that “at a minimum, the Hungarians soldiers needed more equipment, especially more secure transport vehicles.” Hende was asked to make a list of equipment his troops needed, and he received a promise that the requests would be “seriously considered.” (pp. 134-135)

It was during this trip that Kounalakis herself was finally convinced that the Hungarian troops needed more equipment. Although earlier there were serious disagreements between Hende and the American ambassador, one morning after a nearby bombing by coalition forces,

It was clear that something had changed. The tension between Csaba and me had diffused, and everyone felt it. I think he finally understood that it would be hard for him to walk away from his country’s commitments, and I think he saw that I finally understood that his troops were exposed at Camp Pannonia and needed more equipment to protect themselves.

The corner that we turned was significant, not just for our countries’ cooperation in Afghanistan but for everything we would accomplish together for the next three years. Despite–or perhaps because of–our confrontation, mutual respect and understanding had been forged between us. Not more than a few weeks later, a large shipment of new transport vehicles was delivered to Camp Pannonia. Within a short period of time, the reconstruction team received all of the equipment they needed. (p. 141-142)

Considering that only a few days before the following conversation took place between Kounalakis and Hende, this change of heart was truly remarkable. Kounalakis kept talking about the importance of reconstruction work in a developing country when

[Hende] responded, very smugly, “You know, Madam Ambassador, we Hungarians have a saying for what your country is trying to do here: it’s like taking a fish stew and trying to turn it into an aquarium.”

It was the final straw. It was an outrageous, disrespectful thing to say about the United States and all of our troops and officers who were serving in this dangerous place. I looked him in the eye, and I raised my voice.

“The cost to my country, in lives and treasure, is enormous. Success or failure will impact the future of my country, our security and yours, and determine the future for our nations’ children, yours and mine included. You can be as critical as you want, but you cannot discount our effort out of hand that way, as if nothing is at stake!”

The minister’s young interpreter looked mortified, but Csaba himself had staked his ground and refused to back down. Not wanting to give further vent to my anger, I stood up and left the room. (p. 138)

Kounalakis visited Afghanistan once more, this time at the invitation of Admiral James Stavridis, the supreme allied commander of NATO. Once there she proposed to the admiral that “maybe we could persuade [the Hungarians] to take another rotation.” Stavridis was doubtful, but Kounalakis was pretty certain that they would agree, adding that “the only thing is, they probably won’t have the money to fund such an effort.” Once back in Budapest she approached Hende, and “the Hungarians responded with incredible speed and surprising flexibility.” (pp. 269-270) Indeed, why not? Kounalakis is certain that it was her excellent personal relationship with the Hungarian minister of defense that was responsible for this happy turn of events from the American point of view.

On May 10, 2013, John Kerry, secretary of state, wrote a letter to Kounalakis praising her for her exceptional service as ambassador of the United States to Hungary. The very first item on the list of her accomplishments was her “efforts [that] convinced the Hungarian government to maintain its Provincial Reconstruction Team in Afghanistan until its mission was completed.” (p. 185)

Ambassador Eleni Kounalakis on her years in Hungary, Part I

I just received Eleni Kounalakis’s Madam Ambassador: Three Years of Diplomacy, Dinner Parties, and Democracy in Budapest (New York: The New Press), recounting her years in Budapest as U.S. Ambassador. I must say that I was pleasantly surprised by the book, which luckily, despite its subtitle, has little to do with dinner parties. Instead, we have an account of the turbulent first three years of the Orbán administration (January 2010-July 2013), told from the perspective of someone who desperately tried to develop a friendly relationship with the Hungarian officials with whom she had to deal.

As far as I know, no former U.S. ambassador to Hungary has written a book about his or her stay in Budapest since John F. Montgomery’s Hungary: The Unwilling Satellite (1947), which is by and large an apologia for the pro-German policies of Admiral Horthy and his governments. So, it is not an everyday affair that a book is published about U.S. -Hungarian relations that allows us to glimpse behind the scenes.

madam ambassadorKounalakis was a political appointee, as most U.S. ambassadors to Budapest are, and therefore upon her arrival she was pretty green, especially since originally she was supposed to be sent to Singapore and the State Department initially prepared her for that post. From sentences dropped here and there, I came to the conclusion that she had very little knowledge of the recent history of the country. What I mean by “recent” is the last 10-12 years of Hungarian politics, because otherwise she should have known that her stay in Budapest was going to be anything but dull, as she anticipated. From her book we also learn that the officials of the U.S. Embassy seemed to have forgotten the years of the first Orbán government (1998-2000) and occasionally showed signs of political naivete when it came to assessing the policies of the prime minister.

I will write more about this book later because the author discusses many aspects of U.S.-Hungarian relations during her tenure. Here I would like to concentrate on Eleni Kounalakis’s attitude toward the Orbán government and her personal relations with Viktor Orbán.

My impression is that while she had uneasy feelings about the direction in which Hungary was headed under the premiership of Viktor Orbán, she desperately tried to convince herself that she would be able to have good relations with the members of the Hungarian government. Orbán himself might be a difficult man, but he “had managed to attract some of conservative Hungary’s best and brightest to work in his government.” She “reasoned that if he was ever tempted to throw a grenade into the U.S.-Hungarian relationship … his own ministers might be motivated enough to hold him back.” (p. 105) Anyone who’s familiar with the servile ministers around Orbán knows that Kounalakis was sadly mistaken in her assessment.

She was especially impressed with Foreign Minister János Martonyi and Justice Minister Tibor Navracsics and describes both of them in glowing terms. Navracsics was “a star of Hungarian politics,” “a brilliant transatlanticist.” For some strange reason she believes that Navracsics was “a politician in his own right, with his own following” and that it was Orbán’s good fortune that he joined his cabinet. In fact, as we know, Navracsics served Orbán well. He could explain in a most reasonable manner how Orbán’s undemocratic policies were not undemocratic at all. A case in point  is a conversation between Attorney General Eric Holder and Navracsics that resulted in Holder’s not bringing up the question of the Hungarian media law because Navracsics “eloquently explained the government’s position.” (p. 163) János Martonyi was equally useful in persuading the Americans that all would be well with the new constitution. In fact, when some small changes were made to the constitution in the summer of 2012 the U.S. officials in Budapest “were very proud that our intervention had resulted in many tangible improvements.” (p. 197)

Other ministers with whom Kounalakis had close relations were Interior Minister Sándor Pintér and Defense Minister Csaba Hende. There are two chapters in which Csaba Hende is the main character, one titled “Travels with Csaba” and the other “Afghanistan Revisited.” But more about them later.

Kounalakis arrived in Budapest in January 2010, practically in the middle of the election campaign. She wanted to meet Orbán, especially since the Americans on the spot heard rumors that Orbán “regretted not working with the United States in a more collaborative way during his first stint as prime minister.” (p. 41) But the meeting was a disaster, due both to Kounalakis’s inexperience and to Orbán’s way of dealing with people with whom he disagreed. The second meeting, however, a few months later, went well, and one senses that the American ambassador was impressed with the “clean-cut, sharply dressed, confident young staffers, busily moving around with efficiency and purpose.” (p. 82)

This kind of ambivalence is evident throughout her book. But she was not alone in failing to grasp the true nature of Viktor Orbán and the people working for him. For example, although the staff of the embassy realized that “the new prime minister and his supermajority in Parliament added a certain level of unpredictability,” they believed that “Orbán would be careful because of the historic importance of Hungary’s first EU presidency.” The Americans were wrong. Hungary took over the presidency on January 1, 2011, and “on January 2, all hell broke loose.” (pp. 156-157) The media law was passed.

Perhaps the best example of  how Eleni Kounalakis, despite her protestation to the contrary, misjudged Viktor Orbán is her description of Viktor Orbán’s performance in Strasbourg before the European Parliament. It is worth quoting the whole passage:

Orbán went to Strasbourg on January 19 [2011] to speak to the European Parliament on general EU matters, but he ended up confronting a hostile gathering. Socialist parliamentarians appeared with duct tape over their mouths to protest the new media restrictions, and “Danny the Red”–Daniel Marc Cohn-Bendit, a German Green Party member–lashed out at Orbán from the floor, comparing him to Venezuelan strongman Hugo Chávez. Orbán calmly rebutted the criticism and promised to abide by the European Commission’s forthcoming legal opinion on the new media law–as long as the same standards applied to all EU members. With his cool responses to the circus that the Socialists created, Orbán was able to frame the debate of the Hungarian media law along partisan political lines. When I went to see Péter Szijjártó, the prime minister’s senior adviser, a few days after Orbán’s EU speech, he gleefully reported that “we are getting calls from conservative politicians from all over Europe, congratulating us for standing up to these liberals. The response from our friends is overwhelming.” (p. 159)

Just to balance this description of Orbán’s appearance in Strasbourg, I will quote from my post titled “The Hungarian Prime Minister in Strasbourg: A Day Later”:

It is one thing to read written reports of an event and something else to see it on video. It also helps to read other people’s reactions a day after. I did both this morning and I must say that today I consider Viktor Orbán’s performance in the European Parliament a disaster.
….
At the beginning of this post I talked about the two Viktor Orbáns. The one that tries to impress the world outside of Hungary and the other not-so-nice domestic Viktor Orbán. A Jekyll and Hyde story that could be played by Orbán while in opposition. The question was how long he could play the same game when in power. The answer is: the game is over. He showed his true self when he answered his critics in Strasbourg. He talked very loudly and his voice by that time had become hoarse. He tried occasionally to be light-hearted but his levities fell flat. For example, when he claimed that he feels quite at home because he receives criticism in similar tones in Hungary. He paused for a second, hoping for an applause that didn’t come.

What did she intend to convey about Viktor Orbán in an exchange with Condoleezza Rice? “So,”[Rice] asked, “you are saying he’s a bully but not a brute?” A bully is certainly better than a brute. What does that mean from the point of view of the U.S. government? Not so dangerous?

There is a fairly long description of a conversation between President Bill Clinton and Kounalakis in his office in New York. Clinton wanted to know what she thought of Viktor Orbán. Here is the whole conversation:

Mr. President, some people say he’s crazy. I don’t think that’s right. I see him as a very smart, very rational man. But he doesn’t seem to me to have the same concept, the same definitions as we do of democracy, freedom, and even free markets. I think he sees himself as the only one who can protect the Hungarian people from what he believes are corrupting outside influences…. But when it comes to the larger issues we’ve been talking about, like energy security for Europe and the Eastern Partnership–and Afghanistan–we are still very much on the same page as the Hungarians. They are as much a reliable partner on international issues now as they have ever been. (p. 259)

Eleni Kounalakis’s confidence was tested when, not long after this conversation, “Hungary faced a decision that pitted its economic interests against its diplomatic ones. The choice would, for the first time, shake our faith in the country’s reliability as a partner and cast a pall over our relations.” (p. 259) She was talking about the release of Ramil Safarov, an Azeri who was serving a life sentence in Budapest for the ax murder of an Armenian.

Kounalakis’s final meeting with Viktor Orbán, when she was about to leave her post, was freewheeling. Out of the blue Orbán began talking about Milan Kundera’s book The Unbearable Lightness of Being. Kounalakis took the opportunity to say that for Kundera “freedom meant the ability to live free from oppression–especially free from oppression by your own government. That’s what democracy is all about.” Orbán’s “eyes narrowed and he waved his hand abruptly as if to beat away the comment. ‘All this talk about democracy is bullshit!'” The departing U.S. ambassador couldn’t quite believe what she heard. “He probably didn’t mean to say that democracy was bullshit, but that he rejected, and resented, my raising the subject with him again.” (pp. 281-82) I wonder what Kounalakis thinks now after hearing the Hungarian prime minister talk about “illiberal democracy” and even the superiority of autocracy over democracy.