Home > Uncategorized > Hungarian-IMF/EU negotiations: News blackout? Not really

Hungarian-IMF/EU negotiations: News blackout? Not really

July 19, 2012

On Monday, July 17, Thanos Arvanitis, head of the IMF delegation, and Barbara Kauffman, head of the EU Commission’s delegation, accompanied by Iryna Ivashchenko, the IMF’s Budapest representative, paid a visit to Mihály Varga, the minister without portfolio in charge of the long-awaited negotiations for a stand-by loan for the financially hard-pressed Hungary.

It is worth taking a quick look at the road that led to this event. The decision to turn to the IMF was made on November 16, 2011, and in December the government announced that negotiations most likely would start “around January 10, 2012.”  In February we were told that “negotiations will start in March and end in April.” In May government officials in charge of the negotiations talked about a June date for the beginning of the talks and optimistically predicted that by July there would be an agreement. By the end of June the date changed again. This time Mihály Varga talked about October as a concluding date. Today there are analysts who think that there might not be an agreement at all, or if there is it will be next year.

A skeleton IMF-EU delegation has already arrived in Budapest, but it is unlikely that we will learn much about their work because no information will be given to the media during the talks. We know because the IMF made it clear on June 12 that negotiations will be about extending a stand-by loan and not the precautionary loan that the Hungarian government hoped to get. The difference between the two is that a precautionary loan comes with no supervision whatsoever whereas in the case of a stand-by loan officials of the IMF check the country’s balance sheet every three months. Last December there were preliminary talks between the Hungarian government and the IMF-EU, but they broke down over this issue. The Hungarian negotiating team refused to accept a stand-by loan while the IMF was not ready to give Budapest anything else. So, that much is clear. If there is money there will be supervision.

The reporters stood in the scorching heat outside of Mihály Varga’s office watching the arrival and departure of the three-person delegation. They noticed that it was a short visit. Less than an hour. They also reported that one of the National Economic Ministry’s undersecretaries, Gyula Pleschinger, was present. His boss, György Matolcsy, made sure that he wouldn’t have to talk with the members of the delegation. Off he went on his summer vacation. His boss, Viktor Orbán, did the same. And it cannot be a coincidence that Antal Rogán, leader of the Fidesz parliamentary delegation, also began his summer holiday on Monday although he was involved in negotiations with Iryna Ivashchenko over the last eight months.

The well-informed Ildikó Csuhaj of Népszabadság managed to find out that the Hungarians, at least for the time being, are refusing any change in the flat tax or the newly introduced transaction tax. She also learned that Viktor Orbán doesn’t want to talk to the IMF-EU delegation until “the home stretch.”  And even then his signature will not appear on the final contract. I don’t know what the customary procedure is, but knowing Viktor Orbán I don’t like the sound of this alleged refusal of the prime minister to pen his name to the document.

Thanos Arvanitis and Iryna Ivaschenko arriving at the meeting
Népszabadság–Kurucz Árpád

After the delegates’ visit to Varga, they immediately headed toward the building of the Hungarian National Bank  where they will be talking not only with the bank chairman, András Simor, but also with bank officials specializing in various aspects of the country’s financial situation. They will also visit the National Economic Ministry to talk to the top echelon of officials. In addition, they plan to talk to economists who act as advisers to Viktor Orbán. And there will be a meeting with Mayor István Tarlós of Budapest.

It seems that the delegation chiefs also had time to talk to financial experts of the opposition parties: Tamás Katona, formerly undersecretary of the Ministry of Finance and a member of MSZP, Péter Róna, an American trained economist and adviser to LMP, and István Varga, representing Jobbik. All three men are members of the supervisory board of the Hungarian National Bank. The board consists of seven members headed by Zsigmond Járai, finance minister in the first Orbán government  and chairman of the central bank between 2001 and 2007.

Járai used to be a loyal friend of Viktor Orbán and Fidesz, but in the last few months he has expressed his dissatisfaction with the Orbán government’s economic policies. Therefore, it is somewhat strange that Járai felt compelled to write a letter to Iryna Ivashchenko explaining that these particular members of the board in no way represent the position of the Board. Whatever “they uttered during the negotiations must be considered their private opinion.” Róna immediately responded. “It is true that we don’t represent the Board, but Mr. Járai is wrong that our opinions are only private opinions. They are minority opinions within the Board.”

According to Népszabadság, these three men approached the Budapest office of the IMF and expressed their concern over the extension of the transaction tax to the financial transactions of the Hungarian National Bank. As Róna said, “there is no economist in the whole wide world who wouldn’t think that this tax would be a violation of the separation of monetary and fiscal instruments.”

And what did Mihály Varga say after his meeting with the delegation chiefs? When asked what will happen if there is no agreement between the Hungarian government and the IMF-EU delegation concerning even the key numbers in the budget, he said: “According to the classic model there are three possibilities. Either we will get up from the negotiating table and say that if we cannot agree on even these numbers then let’s take a break and sit down again later. The second possibility is that the Hungarian government believes in the delegation’s numbers, but at the moment I don’t consider this option probable. The third variation is that after all it will be we who manage to convince them, especially after the GDP numbers of the second quarter are available, and then we can continue with the negotiations.”

If what I hear from leading economists is accurate, I doubt that the Hungarians will be able to convince the members of the delegations about the viability of the 2012 and the 2013 budgets because the numbers simply don’t add up. Thus, if Varga is right about the “classic model,” I suspect that the first option is a likely outcome, although it may not be the government negotiators who will take a break but the IMF-EU delegation who will let the Orbán government contemplate the universe for a while.

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  1. petofi
    July 19, 2012 at 8:08 pm | #1

    I’ve just been reading “Index” reports on Orban’s last minute changes to the Hungarian delegation. Ridiculous. Intentionally insulting. Message? ‘We didn’t really prepare and we want to signal Hungarians that you are fools that we can lead by the nose.’ Just emphasize the idea that Orban’s government holds these discussions in little regard, Orban, Matolcsy, and Antal have all left Budapest. There are also reports that whatever the final agreement, Orban will not be the one signing it!

    Has the modern world ever witnessed such sheer childish nonsense as this?

  2. Turkmenbasi
    July 20, 2012 at 1:32 am | #2

    Éva: Katona, Róna and Varga are not members of the board of directors, but members of the supervisory board of the central bank.

    http://www.mnb.hu/A_jegybank/mnbhu_mnb_szervei/az-mnb-ellenorzese

  3. July 20, 2012 at 4:55 am | #3

    Turkmenbasi :

    Éva: Katona, Róna and Varga are not members of the board of directors, but members of the supervisory board of the central bank.

    http://www.mnb.hu/A_jegybank/mnbhu_mnb_szervei/az-mnb-ellenorzese

    Sorry, wrong translation. I know that they are members of the “felügyelő bizottság.” Thank you for calling attention to it. I fixed it.

  4. Odin’s Lost Eye
    July 20, 2012 at 7:46 am | #4

    One of the problems that he Viktator has is that he wants a ‘loan’ without any ‘strings attached’. That is he wants money without any supervision on how it is to be used. He also does not want any form of auditing and like all “Capo de Mafiosi” they are all ‘Men of Honour’ so why the need for Auditors.
    The IMF has (I think) only four ‘Products’. These are laid down in its founding charter and are in ‘Tablets of Stone’. That is they cannot be changed.
    These products are : -
    1. Consultations. The U.K. has just asked the IMF for economic advice. This can be done for one of several reasons like sorting out disputes inside the financial sections of the government or when a government knows it must do something unpopular if it can get the IMF agreement and back up, this will absolve the government of the political consequences. I.E. the IMF catch ‘the flak’.

    2. The ‘Precautionary Loan’ which comes with no supervision whatsoever. This is what Hungary wants. However such loans are only made to those who do not really need them and where the country’s economic record and financial prudence are beyond reproach. At this point I will ask Mr Kovach would he put his hand into his pocket and lent the present Hungarian Government his own money under those condition. If he answers ‘yes’ I will leave others to draw their own conclusions.

    3. The ‘Stand-by Loan’ which comes with IMF officials who check the country’s books of account and balance sheet every three months. This is what Hungary is being offered. The Viktator et al know that a lot of ‘creativity’ has gone into those books which the IMF auditors will find it for sure.

    4. The ‘Full Loan’ where the country concerned cannot get the ‘Special Drawing Rights’. In this scenario the IMF are watching everything and there is no chance of funds being ‘diverted’. In these circumstances the Viktator and his chums have no chance of ‘being ‘creative’, of filling their pockets or investing in grandiose schemes.

    The last two ‘products’ are not what Hungarian Government wants, They want the money and a ‘free hand to make it ‘Vanish’.

  5. LwiiH
    July 20, 2012 at 10:11 am | #5

    Odin’s Lost Eye :
    One of the problems that he Viktator has is that he wants a ‘loan’ without any ‘strings attached’.

    Indeed, the EU punted the strings over to the IMF which seemed to be the only way that talks were ever going to get started. If the analysts are saying 2013… I say the IMF isn’t going to waste that much of their time… these talks fail but the IMF being pro’s… you’re not going to hear much.

    As for supervision, no one with a junk bond rating is going to get money without supervision.

  6. petofi
    July 20, 2012 at 10:28 am | #6

    Odin’s Lost Eye :
    One of the problems that he Viktator has is that he wants a ‘loan’ without any ‘strings attached’. That is he wants money without any supervision on how it is to be used. He also does not want any form of auditing and like all “Capo de Mafiosi” they are all ‘Men of Honour’ so why the need for Auditors.
    The IMF has (I think) only four ‘Products’. These are laid down in its founding charter and are in ‘Tablets of Stone’. That is they cannot be changed.
    These products are : -
    1.Consultations. The U.K. has just asked the IMF for economic advice. This can be done for one of several reasons like sorting out disputes inside the financial sections of the government or when a government knows it must do something unpopular if it can get the IMF agreement and back up, this will absolve the government of the political consequences. I.E. the IMF catch ‘the flak’.
    2.The ‘Precautionary Loan’ which comes with no supervision whatsoever. This is what Hungary wants. However such loans are only made to those who do not really need them and where the country’s economic record and financial prudence are beyond reproach. At this point I will ask Mr Kovach would he put his hand into his pocket and lent the present Hungarian Government his own money under those condition. If he answers ‘yes’ I will leave others to draw their own conclusions.
    3.The ‘Stand-by Loan’ which comes with IMF officials who check the country’s books of account and balance sheet every three months. This is what Hungary is being offered. The Viktator et al know that a lot of ‘creativity’ has gone into those books which the IMF auditors will find it for sure.
    4.The ‘Full Loan’ where the country concerned cannot get the ‘Special Drawing Rights’. In this scenario the IMF are watching everything and there is no chance of funds being ‘diverted’. In these circumstances the Viktator and his chums have no chance of ‘being ‘creative’, of filling their pockets or investing in grandiose schemes.
    The last two ‘products’ are not what Hungarian Government wants, They want the money and a ‘free hand to make it ‘Vanish’.

    I really don’t understand why the DK or the LMP don’t yell at the top of their voices that ,
    “YES! YES!! HUNGARY MUST ACCEPT THESE LOANS ASAP AS EACH DAY IS COSTING THE COUNTRY MILLIONS. AND WHAT IS THE PROBLEM? WE HAVE NOTHING TO HIDE.”

    Of course, Fidesz and their one-time partners-in-crime, MSZP, want no such thing as each
    euro spent will be carefully audited and all the Kozgep shenanigans (not to mention like companies) would be outed.

    But for heaven’s sake, shouldn’t these facts be made clear–shouted from the rooftops–time and again, to the Hungarian populace until they understand what disastrous criminality Fidesz is involved in?

    WHY IS THIS NOT BEING DONE?

  7. petofi
    July 20, 2012 at 10:31 am | #7

    addendum to above:

    What useful purpose does non-supervision serve for Hungary outside of the totally bogus
    ‘szabadsagharc’?

    Hungarians must awake to the ways in which their emotions are being
    manipulated for the pecuniary interests of the Fidesz gang.

  8. July 20, 2012 at 11:30 am | #8

    Odin etc,.: ” At this point I will ask Mr Kovach would he put his hand into his pocket and lent the present Hungarian Government his own money under those condition. If he answers ‘yes’ I will leave others to draw their own conclusions.”

    Countries that got the treatment from the IMF are: Armenia, Belarus, Bosnia & Herzegovina, Costa Rica, El Salvador, Georgia, Guatemala, Hungary, Iceland, Latvia, Mongolia, Pakistan, Romania, Serbia, and Ukraine.”

    I would sooner give the Precautionary Loan to Hungary, than to some of the other recepients past and current.

  9. Odin’s Lost Eye
    July 20, 2012 at 11:53 am | #9

    Ah Mr Kovach there is an old saying which is “A fool and his money are soon parted”

  10. July 20, 2012 at 12:01 pm | #10

    The IMF is not a “parent” but a membership organization:
    “Subscriptions (quota share). A member’s quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF. A member must pay its subscription in full upon joining the Fund: up to 25 percent must be paid in SDRs or widely accepted currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling), while the rest is paid in the member’s own currency.

    Voting power (voting share). The quota largely determines a member’s voting power in IMF decisions. Each IMF member’s votes are comprised of basic votes plus one additional vote for each SDR 100,000 of quota. The 2008 reform fixed the number of basic votes at 5.502 percent of total votes. The current number of basic votes represents close to a tripling of the number prior to the effectiveness of the 2008 reform.

    Access to financing. The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. For example, under Stand-By and Extended Arrangements, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively. However, access may be higher in exceptional circumstances.”

    As an example Hungary has 11.121 votes which is 0.44 % of total approximately the same as Israel.

    http://www.imf.org/external/np/sec/memdir/members.aspx

  11. July 20, 2012 at 12:03 pm | #11

    Odin etc.,:”Ah Mr Kovach there is an old saying which is “A fool and his money are soon parted”

    It is not any different than buying Hungarian government bonds. Just look up who are buying those…according to you all “fools”

  12. wolfi
    July 20, 2012 at 1:09 pm | #12

    So, Louis, do you know the rate of interest that Hungary has to pay on those bonds ?

    Germany pays around zero interest (!), sometimes less than zero …

  13. July 20, 2012 at 1:29 pm | #13

    Yeah, Odin’s fools get 7.5 – 9.5% (unadjusted) How fools they are…..

  14. Sackhoes Contributor
    July 20, 2012 at 2:39 pm | #14

    Petofi Writes: “But for heaven’s sake, shouldn’t these facts be made clear–shouted from the rooftops–time and again, to the Hungarian populace until they understand what disastrous criminality Fidesz is involved in? WHY IS THIS NOT BEING DONE?”

    Good question. Unfortunately the answer, I think, is that the Hungarian electorate is too dumb to really understand the issues. (To be sure, to a varying degree this is true in most countries)

    I wonder what the Fidesz stalwarts, who mounted the impressive “Peaqce March”, carrying transparencies protesting against the IMF, swearing never to submit to “the foreign banks”, think now that the IMF has finally showed up, invited by Orban and Matolcsy? I can tall you what they think: it’s great, because Orban said so. Never mind accountability for one’s words and actions. That’s too deep for them.

  15. petofi
    July 20, 2012 at 3:15 pm | #15

    Sackhoes Contributor :
    Petofi Writes: “But for heaven’s sake, shouldn’t these facts be made clear–shouted from the rooftops–time and again, to the Hungarian populace until they understand what disastrous criminality Fidesz is involved in? WHY IS THIS NOT BEING DONE?”
    Good question. Unfortunately the answer, I think, is that the Hungarian electorate is too dumb to really understand the issues. (To be sure, to a varying degree this is true in most countries)
    I wonder what the Fidesz stalwarts, who mounted the impressive “Peaqce March”, carrying transparencies protesting against the IMF, swearing never to submit to “the foreign banks”, think now that the IMF has finally showed up, invited by Orban and Matolcsy? I can tall you what they think: it’s great, because Orban said so. Never mind accountability for one’s words and actions. That’s too deep for them.

    “….finally showed up…”
    Remember what our fearless, freedom-fighting Viktator has said in the past? “…I’ve been sitting here waiting for the IMF for six months.” So when the IMF gets here what does the Felcsutian do? He takes a powder; he leaves city but not before telling all and sundry that HE will not be the one to sign any final agreement. For good measure, he sends sad-sack Matolcsy, and quick-quip Antal away, too. I wonder if anyone at Kossuth radio asked him if he might not think it necessary to be on hand to monitor the negotiations…

  16. petofi
    July 20, 2012 at 3:33 pm | #16

    Louis Kovach :
    Odin etc,.: ” At this point I will ask Mr Kovach would he put his hand into his pocket and lent the present Hungarian Government his own money under those condition. If he answers ‘yes’ I will leave others to draw their own conclusions.”
    Countries that got the treatment from the IMF are: Armenia, Belarus, Bosnia & Herzegovina, Costa Rica, El Salvador, Georgia, Guatemala, Hungary, Iceland, Latvia, Mongolia, Pakistan, Romania, Serbia, and Ukraine.”
    I would sooner give the Precautionary Loan to Hungary, than to some of the other recepients past and current.

    Hey, Louie, you know what Hungary is going to get?

    What comes out of a mules ass!

  17. petofi
    July 20, 2012 at 3:39 pm | #17

    Sackhoes Contributor :
    Petofi Writes: “But for heaven’s sake, shouldn’t these facts be made clear–shouted from the rooftops–time and again, to the Hungarian populace until they understand what disastrous criminality Fidesz is involved in? WHY IS THIS NOT BEING DONE?”
    Good question. Unfortunately the answer, I think, is that the Hungarian electorate is too dumb to really understand the issues. (To be sure, to a varying degree this is true in most countries)
    I wonder what the Fidesz stalwarts, who mounted the impressive “Peaqce March”, carrying transparencies protesting against the IMF, swearing never to submit to “the foreign banks”, think now that the IMF has finally showed up, invited by Orban and Matolcsy? I can tall you what they think: it’s great, because Orban said so. Never mind accountability for one’s words and actions. That’s too deep for them.

    Yes, they’re dumb, but not that dumb.
    Sadly, I don’t think the opposition is making the case here. The television stations should be flooded with adds asking the people if the “szabadsag hard” is worth the millions the country is losing. This should be hammered home time again. The question should also be put:
    “What does the Orban government fear from oversight?”

  18. July 20, 2012 at 3:49 pm | #18

    Petrovics: “Hey, Louie, you know what Hungary is going to get?

    What comes out of a mules ass!”

    At least then you will be warm and comfy.

  19. Petofi1
    July 20, 2012 at 5:54 pm | #19

    Louis Kovach :
    Petrovics: “Hey, Louie, you know what Hungary is going to get?
    What comes out of a mules ass!”
    At least then you will be warm and comfy.

    But Louie, I’m not the one standing behind the mule holding the Frelcsutian’s hand–you are!

  20. July 21, 2012 at 9:18 pm | #20

    The IMF is not doing so well with its integrity and competence either. The recently resigned chief economist for the Europen activity stated in his resignation:

    “After twenty years of service, I am ashamed to have had any association with the Fund at all…

    This is not solely because of the incompetence that was partly chronicled by the OIA [Office of Internal Audit and Inspection, though he may be referring to this document by a different watchdog body] report into the global crisis and the TSR [Triennial Surveillance Review] report on surveillance ahead of the Euro Area crisis. More so, it is because the substantive difficulties in these crises, as with others, were identified well in advance but were suppressed here…

    Further, the proximate factors which produced these failings of IMF surveillance – analytical risk aversion, bilateral priority, and European bias – are, if anything, becoming more deeply entrenched, notwithstanding initiatives which purport to address them.”

    Maybe they will get along with Orban just fine.

  21. July 22, 2012 at 7:01 pm | #21

    Louis Kovach: “The IMF is not doing so well with its integrity and competence either.
    Maybe they will get along with Orban just fine.”
    OMG Kovach. Are you really saying what I think you are saying? So if the IMF is supposedly incompetent and lost its integrity than they are just like Orban? I like your comment this time.

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