Hungary’s “alternative suggestions” to the IMF and the European Union
It’s time to return to the IMF/EU negotiations. Yes, I know that it’s becoming boring. Very soon we will celebrate the first anniversary of Hungary’s panicky request to the International Monetary Fund and the European Union for a loan. After the initial alarm, however, Prime Minister Viktor Orbán seemed to have changed his mind and began a game that has consisted of delaying tactics while keeping up the appearance of serious Hungarian resolve. At one point Orbán accused the IMF/EU team of dragging their heels, adding that the Hungarians are already sitting at the negotiating table and are waiting for the reluctant lenders to join them at last.
According to information received from unofficial channels within Fidesz, there is a split between those who consider a loan an absolute necessity and those who think that Hungary will be able to survive until next March when András Simor, chairman of the Hungarian National Bank, will conclude his five-year term. Simor was nominated to his post by Ferenc Gyurcsány and thus, by definition, Viktor Orbán finds him objectionable. I think that this would be the case even if Simor were more willing to cooperate with the government on monetary policy. But in March Orbán will at last have the opportunity to put his own man at the helm of the central bank, which might mean free access to the reserves of the Hungarian National Bank. At least this is what most analysts suspect is Orbán’s game plan.
I think we can safely conclude that Orbán is not in favor of starting negotiations with the IMF and has done everything in his power to slow the process. Although Mihály Varga, the man in charge of the negotiations, apparently considers negotiations a must in light of Hungary’s financial situation, I fear that it is Viktor Orbán who is the final arbiter in all matters, including the economy. It is hard to know on whom Orbán relies besides György Matolcsy because most of the economic advisers to Fidesz over the past ten years or so reject the policies of György Matolcsy as economic madness. They have either disappeared completely–like Zsigmond Járai, former central bank chairman, appointed to the post during the first Orbán administration, or have actually joined the ranks of those economists who voice their opposition to the “unorthodox policies” of György Matolcsy. If I had to guess, Orbán might still talk to László Csaba, a professor of economics at the University of Central Europe in Budapest, because he is the only Hungarian economist I know of who thinks that Hungary might not need the loan at all.
We know that the IMF/EU delegation members left a letter behind in July when they visited Budapest. In the letter they made a few suggestions as possible preliminaries to serious negotiations. The Hungarian government was in no hurry to respond. It was this Wednesday that at last the Hungarian government sent its answer to Washington and Brussels. What can we call this letter? It’s hard to say. Normally the country that needs financial help writes a “letter of intent” to the IMF, but such a letter already spells out very specific obligations the government is ready to undertake. In 2008, for example, when Hungary was close to bankruptcy, two weeks after the letter of intent was received by the IMF/EU the loan was granted. According to analysts, the letter that was just sent is not really a “letter of intent.” Rather it is another inquiry about the terms of the loan which most likely will not lead to serious negotiations in the near future.
We don’t know what it is in this letter and, according to Antal Rogán, we will not know about its content until the beginning of October. We know only that the final vote on the 2013 budget proposal was postponed, although a week or so ago Viktor Orbán insisted that the budget would be passed–unaltered–even before the beginning of possible negotiations with the IMF/EU. If that had happened, I’m almost 100% sure that there would have been no possibility of negotiations. The budget includes the much opposed transaction tax on the Hungarian National Bank in addition to a 300 billion forint stimulus package called the “defense action of jobs.” One critical problem with the stimulus package is that no funds can be found for it anywhere in the budget, save for some vague talk about the more effective collection of taxes. Surely, with a budget where the numbers simply don’t add up Hungary couldn’t start any negotiations about a loan.
According to financial analysts the 2013 budget as it now stands has a shortfall of 500-600 billion forints. Three hundred billion forints of that is earmarked for the stimulus package on which the government seems to insist, although a couple of days ago Varga said that it “could be refined,” whatever that means. Perhaps making it a bit more modest in size. The next day Varga expressed his opinion that the negotiations could start in October. We remember all too well, however, how often government officials announced that the negotiations were just around the corner and then nothing happened.
Since the Orbán government does not want to increase the financial burden on the population, analysts are almost certain that the “alternative suggestions” contained in the letter are temporary measures that would increase taxes on business. That move, however, would further reduce the investment rate that is already very low and is becoming lower with each passing day.
László Kövér, another strong man in Fidesz, also announced that the IMF cannot demand political conditions. Well, perhaps the IMF can’t, but the European Union certainly can. Népszabadság‘s reporter in Brussels gained the impression that “political guarantees” are expected. Kövér, who spent yesterday in Strasbourg at a meeting of the presidents of national parliaments, found out that if Hungary wants money it will have to fulfill certain political expectations. He was told in no uncertain terms that, although each country has to solve it own economic problems, if that country needs the assistance of the European Union there are certain rules the country must obey. Kövér was also informed that the Orbán government must satisfy the concerns of the Venice Commission of the Council of Europe about Hungarian law and must follow the generally accepted norms of the EU.
All in all, I don’t expect a speedy agreement between Hungary and the IMF/EU. I suspect that the letter the Orbán government sent will not satisfy the European Union’s political demands. And as long as Hungary doesn’t play by the rules it won’t receive any money, as Kövér was told. The European Union is edging toward closer integration and Hungary’s war of independence for greater sovereignty is not welcome in Brussels. And the EU politicians are less and less inclined to tolerate the rogue states within the confines of the Union: Hungary in the last two years and Romania in the last few months.