How the Hungarian Government Decided to Go to the IMF

You may have sensed that the announcement on last Thursday that the Hungarian government wants to resume talks with the IMF was a shock to the system. I can say with certainty that it was a shock to my system. With the conspiratorial circles of international finance no longer eligible for the role, who would become the punching bag of government rhetoric? And what is to happen with the Socialists under this new state of affairs? Was it not the very essence of the contrast between good (the Fidesz government) and evil (the previously serving socialist government) that the latter sold out the country to the IMF while the former would do everything in their power to keep away this three-letter enemy of the state?It’s been five days already but, believe it or not, everything seems to be moving on in the same jolly manner as it always has in Hungary. It is not at all unlike the moment in 1984 when the speaker reveals in mid-sentence during Hate Week that Oceania is now allied with Eastasia to combat Eurasia, instead of fighting Eurasia in alliance with Eastasia. It took the people only a second or two to adjust the placards. From now on, we have always been at war with Eastasia. Most Hungarians just shrug their shoulders – they have long stopped attending Hate Week anyway.

Very soon, the Ministry of Truth is going to report that the following never happened in Hungary: The acting Hungarian government absolutely never did lead the country to the brink of insolvency. They did not nationalize the retirement savings of 3 million people to the tune of 3,000 billion Hungarian forints in 2010, and they did not drive the forint to a historic low in 2011. They also did not brag about their dilettantism profusely, arrogantly and dim-wittedly in lengthy speeches about the end of the world order as envisioned by the IMF and the unexpected miracle that is the Hungarian economy.

It is true that the Hungarian government did in fact dump 4,000 million HUF altogether into the economy during the 1.5 years of their rule. I still believe this, most especially because the number was confirmed by György Matolcsy, brilliant Minister of National Economy since we have always been at war with Eastasia. That’s 13 billion euros, 17.6 billion USD for the big blank nothing that got the Hungarian government running back to the IMF. Finally, however, based on reporting by the online news portal/weekly, we know how the decision came about, and how it came to become the most glorified decision of the Hungarian government.

According to sources close to the government, it was on Tuesday of last week that Matolcsy notified Orbán that speculation regarding the forint and shares of the Hungarian bank OTP makes it necessary to turn to the IMF for assistance. This in itself probably would not have been enough for Orbán to give in, but on Tuesday afternoon that a very small circle at the highest level of government also received notice by Standard and Poor’s that, at 2PM on Thursday, they were going to announce their downgrade of the Hungarian state’s investment status.

According to the source familiar with the decision-making on the issue, at first Orbán said that reestablishing a working relationship with the IMF would be contrary, in a fundamental way, to his policies (c.f. what he says to his very own party less than a day later). But because it was presented to him as an absolutely necessity, he approved the decision. The only condition placed on his agreement was that Matolcsy rolls out the announcement to the public, and that he initiates the contact with the IMF.

It looks like nobody besides Orbán and Matolcsy knew about the deal between Orbán and Matolcsy until Wednesday evening. In the meanwhile, Orbán presided over a lengthy meeting of his party’s leading officers Tuesday evening, and over a cabinet meeting Wednesday afternoon. During the former, he left the room several times to make phone inquiries about the status of a bond auction by the Government Debt Management Agency. On this day, already worried that market financing of the Hungarian debt might be drying up, the government did sell its bonds at an auction – for the first time in weeks, and at a considerably higher yield than what would allow them to keep financing the debt from the market. In retrospect, it is possible that the edict to sell at any rate may have come from Orbán. Orbán used news of the bond sale to assure other Fidesz leaders that the Hungarian economy was not in such bad shape after all.

It was only on Wednesday in the evening that Orbán clued in the very highest echelons of the party leadership that the announcement to resume contact with the IMF would be made on the next day (this was still only a very small circle, which did not include all of his cabinet members). “And Matolcsy is still minister?” was the reaction of László Kövér, President of the Hungarian parliament (who, just a day ago, told reporters that Hungary is being persecuted for its idiosyncratic economic policies because there is a fear she might set an example by refusing to obey the dictates of the IMF). “Why should it be differently,” Orbán responded. “We are not talking about an immense change. There could be at most only a slight modification in economic policy on account of the IMF.”

Miraculously, regardless of how amateurish the roll-out of the decision was, by the time it reached the public, practically everyone fell in line with the official message. “The IMF is going to try to grow the Hungarian economy in exchange for the co-operation initiated by the Hungarian government” – wrote for example the independent news portal on Friday, in an article on what to expect from the IMF’s bargaining. Probably none of their readers believed a word of it, but I’ll be damned if it does not sound like the IMF was feeling left out of Hungary’s success so much that they anxiously wanted to be a part of her success story.

By Friday, the Hungarian government also made clear that it does not expect to come to an agreement with the IMF until January or February the earliest. By this time, one of the programs that surely would be controversial with the IMF delegation would already expire: no longer could loans in foreign currency be repaid in full at discounted rates, with the losses charged to the lending institutions. Eight banks and the Austrian government initiated procedures questioning the legality of the program at the European Commission. They are likely to win their suit, making the program not only highly ineffective, but also very costly – to the Hungarian people, most of whom did not have enough savings to take advantage of the program anyway.

This is all part of the Hungarian government’s latest idea to escape responsibility for their own illegal laws and measures: according to a constitutional amendment, these penalties will be paid for by a new tax levied on the Hungarian population (or on anyone so designated by the lawmakers).

Besides the losses of the banks, the list of payments for the “independent economic decisions” of the Hungarian government is already quite lengthy. In the summer, the European Court ordered the Hungarian state to refund company taxes to the tune of 270 billion HUF. Another few hundred billion HUFs are likely to be due back from taxes imposed on telecommunication companies once their suit makes its way through the European court system. Even the EU is demanding 100 billion HUFs from funds incorrectly administered by the Hungarian state (funds which were illegally awarded to Malév, the Hungarian airline – this item the previous government’s wrong-doing).

The Hungarian government has yet to pass it into law that their new constitution replaces the one currently in effect. All kinds of interesting clauses are being attached to this crucial legal document. Among them is the provision (article 28 of the amendment) that, when financial compensation is awarded by the courts over the Hungarian government’s actions – if funds are not available for the payment of the fines in the country’s budget, and while the public debt is more than 50% of the GDP (i.e. for the next decade, at the very least) – a special tax would be imposed on the population for the payment of the award in question. The same document also answer my initial question about the Socialists. It does provide a very novel means to tell them apart in their evilness from the currently ruling government, but this is a topic for another blog post.

Yesterday, the Handelsblatt chose Viktor Orbán as the day's Pinocchio.

This entry was posted in György Matolcsy, Hungarian government, Hungary, IMF, János Lázár, László Kövér, Viktor Orbán. Bookmark the permalink.

2 Responses to How the Hungarian Government Decided to Go to the IMF

  1. I’m beginning to think that the best outcome, for Hungary at least, would be for the IMF to refuse to help the country. Only with a shock to the system following an economic melt down would there be a chance of Hungarians taking collective responsibility for their country’s problems.

  2. EBE says:

    I think they need the IMF “insurance” as they are well aware that the EU willrule unfavorably against Hungary’s scheme on the fixed foreign currency value mortgage repayment. The people who were able to take advantage of this “best investment” in Hungary are mainly those who actually would have the means to “suck it up”. Supposedly these are the people who actually also have the educational background to fully understand the risks when they bet against the forint. Many of them are sitting in the parliament as MPs. Back to my though, Hungary will need the IMF security to repay the banks for the illegally confiscated profit that Orban and Matolcsy took away from them. Just as they used the IMF money for buying MOL stocks (that already lost a lot from its value by now), they will use the IMF money to cover up their incompetence. At the end I must say, they will be the ones who are laughing. They will pull an other one over the IMF. “Fool me once, shame on you; fool me twice, shame on me.”

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