Pension reform in Hungary? The disappearance of stolen goods

There are times when Hungarian journalists are not on the ball. I especially remember two such occasions. One was the so-called Tocsik-affair, an illegal party financing scheme way back in 1997-98, that contributed greatly to the electoral victory of Fidesz. The story was discovered by a lesser known Hungarian paper but it became “news” only about two months later. Until then no one seemed to have even noticed it.

A similar oversight occurred in connection with Viktor Orbán’s notorious 2008 speech in Kötcse. It was a very important speech because in it Orbán clearly stated that he was thinking of establishing what would amount to a one-party system where the opposition is so weak that it is powerless. At the time I found only one sentence about this fateful announcement, which no one seemed to have noticed. People read it and didn’t comprehend its import until almost two years later when the speech was published in its entirety in a short-lived right-wing literary magazine. Then the panic hit, but by then it was far too late.

And here is another, perhaps less momentous example. On July 16, after many delays, the government passed amendments to the law on the system of pensions. Only one Hungarian publication, Világgazdaság, bothered to inquire from the Ministry of Human Resources about the details. Two weeks later the answer came: “The essence of the amendments to the law on pensions is that the existing system will not change.”  So, the reforms that had been promised and deemed necessary because of the dreadful state of financing the current system are not going to be implemented. Why not? Allegedly, because the government discovered that with the changes in the law regarding early retirement and eligibility requirements for “disability retirement” (rokkantnyugdíj) the fund is in good shape. Even with the ever worsening demographic situation.

Here I’m going to concentrate on only one aspect of the government’s decision to leave the current system untouched. But I think it speaks volumes about this government’s untrustworthiness.

At the end of November when György Matolcsy, minister of national economy, announced the “nationalization” of  savings that over three million people had invested in private pension funds, he promised that the savings would simply be transferred to the state-run pension system. Each employee would retain the hitherto saved amount in an individual account. Moreover, in the event of  the pensioner’s death, that money could be inherited.

Gabriella Selmeczi, defender of the pensioners
MTI / László Beliczay

Soon enough, Viktor Orbán named Gabriella Selmeczi commissioner in defense of pensions. She elaborated on the scheme. Any employee at any time will be able to ascertain the exact amount he has in his account and will be able to estimate the size of his pension at the time of retirement.

In February 2011 Viktor Orbán joined these two and promised that this new system of individual accounts will be ready to be implemented by the end of 2011. All these promises were necessary to entice more and more people to switch their accounts from private funds to the common state-run system.

These promises were most likely brazen lies. I suspect that the government never had any intention of introducing a new system of individual accounts because the nationalized private pension funds never made it into the system. A part of that enormous amount of money (three trillion forints) was spent on current expenses while another part was lost in the stock market. So there was nothing to add to the individual accounts.

Naturally, the end of 2011 came and went and there was no new law. In January 2012 Gabriella Selmeczi admitted that “there is still a debate concerning different concepts but by the middle of the year a decision will be made.” Even in April, when the second Kálmán Széll Plan was released, the government promised “the introduction of individual accounts in the pension plan.”

Oh, yes, the Kálmán Széll Plan 2.00, as it is called in the Hungarian media. This document was supposed to prove to the European Commission that the Orbán government is planning to put its financial house in order. On the basis of its promises Ecofin, the council of EU finance ministers, approved the continuation of EU subsidies to Hungary, the so-called cohesion funds. But what if within months one of its pledges is already violated? What will the EU think of an unreformed system of pensions that in the near future might be unmanageable financially? Because even the Hungarian government is aware of the seriousness of the situation as the Kálmán Széll Plan 2.00 states: “The aging of the population is accompanied by increased expenses and if no appropriate measures are taken it influences the growth of the sovereign debt in the long run.” It seems that Orbán is ready to worry about all this later because at the moment the nationalized savings of three million people are gone and there are no other funds to put into these people’s nonexistent accounts.

Meanwhile, Gabriella Selmeczi, who was supposed “to defend” the people’s pensions, no longer occupies the post of commissioner. In fact, the post no longer exists. She was appointed to oversee the transfer of stolen money into the bottomless pit of the Hungarian government’s budget. The money is gone and so is any kind of compensation for those who were robbed.

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29 comments

  1. London Calling!

    This is a shocking state of affairs – Government robbery – specially for the people who ‘opted out’ – but were later forced back in. Some of the funds were substantial too.

    How will the blind faithful come to terms with their atomised pension funds?

    Surely even their loyalty will be stretched to breaking point?

    When the pensions become payable there will be enormous stress on government finances after Fidesz has long gone.

    So it will be their children who will be paying – and their childrens’ children – and their childrens’ children’s children.

    Btw – give us the cohesion funds back please.

    Regards

    Charlie

  2. You’re really on a roll nowadays, Eva, fantastic post.

    Do you have any insight into why most Hungarians just hear about this and simply shrug? Had Gyurcsany or Bajnai dared to pull such a stunt, hundreds of thousands would have taken to the streets and shut down the city; if it’s Orban, however, 99% of Hungarians simply shrug. Perhaps they’re resigned to the current mediocrity. I don’t know. Do you have any thoughts about why the overwhelming majority of Hungarians are quite simply apathetic toward stunts like this under the current government?

  3. David :
    You’re really on a roll nowadays, Eva, fantastic post.
    Do you have any insight into why most Hungarians just hear about this and simply shrug? Had Gyurcsany or Bajnai dared to pull such a stunt, hundreds of thousands would have taken to the streets and shut down the city; if it’s Orban, however, 99% of Hungarians simply shrug. Perhaps they’re resigned to the current mediocrity. I don’t know. Do you have any thoughts about why the overwhelming majority of Hungarians are quite simply apathetic toward stunts like this under the current government?

    Well, the simple trick that Orban has effected is to project his government as taking on the evils of foreign conspiracies and
    defending brave, honourable Hungarians against all and sundry.
    Why do the people believe this? Well, they want to; and, mother
    church is there to say that Orban is working day and night for
    his beloved country and all religious Christians must pray for him.
    And the final nail in the coffin is this: oppose Orban and you betray Hungary and the ‘better nature’ of all Hungarians.

    Try fighting that!

    The last time a population believed like this, it caused a disastrous world war. Luckily, Hungary is too small to cause
    anything more, perhaps, than a little regional confrontation
    with Romania…

  4. David :…why the overwhelming majority of Hungarians are quite simply apathetic toward stunts like this under the current government?

    Well, my wife was determined not to let the government transfer her pensions to the state. And as someone very financially aware, and keeping up with the news, it was still very hard for her to work out what was going on.

    Remember, that Hungarians had to act if they deliberately wanted to opt out of the pensions transfer. Information was vague and often given at the last minute. Remember also that the government-sponsored media was framing this as the usual act of Hungarian defiance against the nasty foreign banks and financiers who wanted to keep hold of Hungarian pensions.

    So in that regard, the average Hungarian probably has no idea of what’s happened.

  5. It was 10 years ago in 2002 when Gabriella Selmeczi, defender of the pensioners was arrested in the Budaors TESCO for shoplifting. She was stealing groceries. No kidding.

    What do you expect? Porn editor guarding your children from indecency, shoplifter guarding your pensions … The goat is guarding the cabbage, as they say on Planet Hungary.

    Only the FIDESZ.

  6. David :

    You’re really on a roll nowadays, Eva, fantastic post.

    Do you have any insight into why most Hungarians just hear about this and simply shrug? Had Gyurcsany or Bajnai dared to pull such a stunt, hundreds of thousands would have taken to the streets and shut down the city; if it’s Orban, however, 99% of Hungarians simply shrug. Perhaps they’re resigned to the current mediocrity. I don’t know. Do you have any thoughts about why the overwhelming majority of Hungarians are quite simply apathetic toward stunts like this under the current government?

    First, thank you for the compliment! Second, I think that the key here is fear. During Gyurcsány and Bajnai people knew that nothing would happen to them if they criticized the government. With these guys the situation is different. They are ruthless. The people who in any way depend on the government’s good will are afraid to say anything.

    Do you remember when the Ferihegy Airport was renamed Ferenc Liszt Airport? A group of experts suggested a slight change in the name for one reason or other. One among them was a government employee. He immediately lost his job. Or, the latest. Ferenc Krémer, a well known liberal sociologist, criticized Orbán’s regime quite often in the last two years. He was an associate professor at the Police Academy. No longer. He was just fired. Several liberal philosophers lost their jobs at the Institute of Philosophy at the Academy of Sciences. A teacher who represents MSZP on the local council in a smallish town was just fired for no good reason from the high school where he taught. I’m sure that there are thousands of cases like these.

    And it is spreading to the Hungarian community in Romania. Nice prospect.

  7. Mutt Damon :
    It was 10 years ago in 2002 when Gabriella Selmeczi, defender of the pensioners was arrested in the Budaors TESCO for shoplifting. She was stealing groceries. No kidding.
    What do you expect? Porn editor guarding your children from indecency, shoplifter guarding your pensions … The goat is guarding the cabbage, as they say on Planet Hungary.
    Only the FIDESZ.

    Sorry, Mutt, you got it all wrong:
    Gabriella was just rearranging the vegetables so that the kids could see her porno mag while mother was shopping.

  8. Eva S. Balogh :

    David :
    You’re really on a roll nowadays, Eva, fantastic post.
    Do you have any insight into why most Hungarians just hear about this and simply shrug? Had Gyurcsany or Bajnai dared to pull such a stunt, hundreds of thousands would have taken to the streets and shut down the city; if it’s Orban, however, 99% of Hungarians simply shrug. Perhaps they’re resigned to the current mediocrity. I don’t know. Do you have any thoughts about why the overwhelming majority of Hungarians are quite simply apathetic toward stunts like this under the current government?

    First, thank you for the compliment! Second, I think that the key here is fear. During Gyurcsány and Bajnai people knew that nothing would happen to them if they criticized the government. With these guys the situation is different. They are ruthless. The people who in any way depend on the government’s good will are afraid to say anything.
    Do you remember when the Ferihegy Airport was renamed Ferenc Liszt Airport? A group of experts suggested a slight change in the name for one reason or other. One among them was a government employee. He immediately lost his job. Or, the latest. Ferenc Krémer, a well known liberal sociologist, criticized Orbán’s regime quite often in the last two years. He was an associate professor at the Police Academy. No longer. He was just fired. Several liberal philosophers lost their jobs at the Institute of Philosophy at the Academy of Sciences. A teacher who represents MSZP on the local council in a smallish town was just fired for no good reason from the high school where he taught. I’m sure that there are thousands of cases like these.
    And it is spreading to the Hungarian community in Romania. Nice prospect.

    FEAR is spot on.

    Mind-boggling to this transplanted Hungarian-Canadian why they
    would stand for this…Did someone say ‘sheep’?

    What’s troubling is why this should be tolerated by the EU. Or even the U.N. Shouldn’t both these organizations try to maintain some sort of minimal standards? I know the U.N. hasn’t. After all, wasn’t Libya not long ago the leading member of a human rights council?

  9. Eva S. Balogh :

    <P I’m sure that there are thousands of cases like these.

    One of the more illuminating cases I’m aware of is from a manager I know, who works for a well-known company in Budapest. Previously, this company used to advertise on Klubradio. You’d often hear “this program is sponsored by X”. But no more. The manager is far from being a Fidesz supporter, but the company has concluded that it could lose more business than it could gain if people associated them with a supposedly anti-government radio station.

  10. David :
    You’re really on a roll nowadays, Eva, fantastic post.
    Do you have any insight into why most Hungarians just hear about this and simply shrug? Had Gyurcsany or Bajnai dared to pull such a stunt, hundreds of thousands would have taken to the streets and shut down the city; if it’s Orban, however, 99% of Hungarians simply shrug. Perhaps they’re resigned to the current mediocrity. I don’t know. Do you have any thoughts about why the overwhelming majority of Hungarians are quite simply apathetic toward stunts like this under the current government?

    Learned helplessness.

    “While the concept is strongly tied to animal psychology and behavior, it can also apply to many situations involving human beings. When people feel that they have no control over their situation, they may also begin to behave in a helpless manner. This inaction can lead people to overlook opportunities for relief or change.”
    http://psychology.about.com/od/lindex/f/earned-helplessness.htm

  11. Mutt Damon :

    An :
    Learned helplessness

    Ummmm, how about lazy?

    Some are lazy, some are scared…. but the scariest of all is the case of those people who were actively protesting but starting to give up because it does not seem to lead anywhere… This is the state of learned helplessness, when you think that no matter how hard you try, you cannot change anything. Some people do feel this way, just look at the number of demonstrations and demonstrators at the beginning of Orban’s government and now…. these are dying down, fewer and fewer people go. A lot of the people are scared but there are also the ones who just simply give up. Or look for alternative solutions, like leaving the country.

  12. I agree with Eva. Fear is what keeping people voicing their opinion. In a few times it was suggested on this blog to post our real name, but we do not do it. Why? Fear. I have family members in Hungary, and I do not want them to be harassed by Fidesz and Jobbik. Do not forget about the recent blood money offered to those who identify the protesters against a nazi criminal. Orban allows his dirty business to be carried out by others, while surrounding himself with incompetent people who dance as he whistles.

  13. Relevant article, Thanks Eva. As you might suspect I do stand for a centralized and state run retirement system. Mr. Orban’s move however had nothing to do with that concept, Dear Someone: fear you said? No,. I understand very well what you meant. Perhaps when one is younger but even then it questionable given the alternative. Warsaw 1943? What did FDR say about fear by the way?

    Peter Litvanyi
    Longmont CO
    litvanyi@q.com

    My brother’s name and e-mail is /I just volunteered Sgt. Litvanyi as Lt. Litvanyi/:

    Litvanyi Karoly
    Tokol HU
    litvanyi@invitel.hu

  14. yes, look at what happened to those who demonstrated against the n@zi old man!
    However, these private pensions acct holders at least have papers to prove their right to the money . If they choose to be quiet about it , perhaps they deserve what is coming..

    I recently learnt that more than 60% of my home country pension funds were being loaned to the govt without being properly managed
    . Even the officers at the counter advice the people to withdraw some fr their acct and invest on their own instead of leaving it to the govt for spending spree!

  15. An :

    Mutt Damon :

    An :
    Learned helplessness

    Ummmm, how about lazy?

    Some are lazy, some are scared…. but the scariest of all is the case of those people who were actively protesting but starting to give up because it does not seem to lead anywhere… This is the state of learned helplessness, when you think that no matter how hard you try, you cannot change anything.

    I would say this is a population that is used to being controlled by the government and they’ve learned that all that is good comes from that government and when they protested against GF things didn’t go well and nothing changes… because they operate in a system that seems to have few checks on it’s power and is rarely is responsive or certainly feels any obligation to the electorate. GF handed it political head on a platter to OV and there was nothing OV could do but wait. So learned helplessness…. except the citizens of this country never really learned or have had a real chance to help themselves…

  16. London Calling!

    Enuff – where are you?

    Are you sure that your pension fund is not just simply investing in Government bonds? (One of the safer forms of pension investment?)

    Yes 60% is an interesting investment strategy – but considered safe in the investment world!

    If you can share – I’d like to know where you are blogging from? All my assumptions are made for a stable country!

    Regards

    Charlie

  17. …and as a ‘codicil’!

    It’s okay to have a worthless piece of paper indicating how much you had in your fund – but there is no investment growth and the government (of a fair) country will have to pay the pensions from taxation funding. That is – money in – money out.

    An incredible burden for the future young – who of course will leave – or are leaving. There will be no one left to tax.

    It will be impossible to pay those latent pensions.

    (So start a new ‘defined contribution’ pension fund – 15% of salary depending on age – in another currency; in another country if you can. The ‘defined benefit’ state pension will be non-existent – or worthless.)

    An incredibly impoverished country is on the horizon. Pensions can NEVER be retrieved once lost.

    Regards

    Charlie

  18. Speaking of more theft, my wife and I were talking about what used to be our cities out door theatre located on a prime piece of property in the middle of the city. The city sold it to an interest in Budapest.. that interest made it impossible for the local amateur group to perform there… so without funding they were shutdown for a year. The Budapest interest brought in poor talent and uninteresting shows from Budapest (at a very high price…) which were rejected by the local population and so this summer, our dear Roszakert stands un-used. Fortunately, the local amateur group somehow came up with a 40,000,000HUF EU grant and wisely used that money to setup an arrangement with the local village museum so now they are back in operation. But the whole deal just smells and one has to wonder if there are other similar cases since Fidesz took over and if anyone has investigated.

  19. Kudos to Hungarian Spectrum.
    The revolutionary spirit of October 1956 is still alive.
    Indifference is the enemy of freedom.
    Nobody can remain indifferent in the light of the Orban crimes.
    It is shocking that a majority of Hungarians will tolerate or even support this sick guy.
    We are lucky to have this treasure called Hungarian Spectrum.

  20. Eva, Is there any official data available on the “return on the investment”? I mean is there numbers ti be found like on 2011 July we had x amount and now we have x amount so the earning is ,,, We all know that Fidesz were “protecting” the pensioners from the imperialist scam of stock market investment….

  21. Some1 :

    Eva, Is there any official data available on the “return on the investment”? I mean is there numbers ti be found like on 2011 July we had x amount and now we have x amount so the earning is ,,, We all know that Fidesz were “protecting” the pensioners from the imperialist scam of stock market investment….

    I remember that some funds did better than others but all in all the returns were pretty low mostly because the funds were obliged to invest a large portion of the money into government bonds.

  22. @Charlie,

    Right now am holidaying in Balaton, I live in HU 365 days , while am originally fr Asia.

    I believe my country’s pension fund is one of largest funds at USD 130 billion. It is worrying when the govt. borrow fr our monies to build unsustainable mega projects without plans on how to recover the funds. Like HU, most projects go to close friends of govt . ministers.

    But back to this post, I am just baffle, as usual, at the lack of reactions from the acct holder. or at least i havent read any news that these ‘victims’ have taken any actions against the forced take over of private savings.

  23. enufff :
    @Charlie,
    Right now am holidaying in Balaton, I live in HU 365 days , while am originally fr Asia.
    I believe my country’s pension fund is one of largest funds at USD 130 billion. It is worrying when the govt. borrow fr our monies to build unsustainable mega projects without plans on how to recover the funds. Like HU, most projects go to close friends of govt . ministers.
    But back to this post, I am just baffle, as usual, at the lack of reactions from the acct holder. or at least i havent read any news that these ‘victims’ have taken any actions against the forced take over of private savings.

    Absolutley. Orban and his buddies took the money, as they always know better. They could not get anyone to back up their disillusioned ideas, so Orban out his paws on other’s people money. He treats the whole country and its citizens as a king from the 16th Century. He has no concept of the real world, while his buddies are standing by with get rich quick opportunities.

    Is Ms. Selmeczi also will “retire” with similar benefits and bonuses for her whole life as Schmitt did?

  24. In the matter of the vanished pension contributions some 500 folk have brought it to the ECHR. The problem is these cases are now Sub-judice and as such it cannot be commented or acted upon by any of the parts of the E.U.

    We know however from the ‘Red Star’ case where an award was made against the Hungarian Government to the plaintive. A senior member of the Hungarian has said that Hungary will not pay that award, and the ECHR can ‘get knotted’.

    What will happen next in that case I have no idea, but I cannot see the ECHR tolerating that!

  25. My feeling is that LwiiH and An (as usual) have it right. It makes things very easy to just label it as a reaction to “fear”, but, from my observations and discussions with Hungarians the answer is much more complex. Most people’s reaction seems to be what do you expect, shit happens – especially in Hungary. Basically, Orbán can (and does) get away with anything.

  26. OT (a little bit). I noticed this morning during Kalman Olga’s program that Hungary is going to indebt themselves with government bonds from Turkey and Azerbaijan. Although the bonds in EURO seems to be better than expect in July.

    http://www.realdeal.hu/20120806/foreign-investors-buy-hungarian-forint-gov%E2%80%99t-securities-worth-eur-1-billion-in-july/

    However, it seems that this government did not learn anything from this foreign mortgage problem, and by indebt themselves with these two currencies the Turkish Lira and the Azerbaijan Manat.

    http://www.portfolio.hu/en/economy/hungary_in_talks_with_turkey_azerbaijan_to_issue_sovereign_lc_bonds_sources.24643.html

    I do not know much about them, but some friends assured my that they are considered yo-yo currencies.

  27. Off Topic (a little bit). It seems that the Hungarian government did not learn from the foreign currency mortgage problem, and they are about to in-debt themselves with government bonds from Turkey (Lira) and Azerbaijan (Manat). As per Olga Kalman of this morning.

    I do not know too much about these currencies, but from Friends I noticed that its considered Mickey Mouse money.

    However, recently (July) the bonds did it better than expected.

    http://www.portfolio.hu/en/economy/hungary_in_talks_with_turkey_azerbaijan_to_issue_sovereign_lc_bonds_sources.24643.html

    http://www.realdeal.hu/20120806/foreign-investors-buy-hungarian-forint-gov%E2%80%99t-securities-worth-eur-1-billion-in-july/

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