Not all are pleased with IMF loan

By Robert Hodgson

November 4 2008

The leader of the main opposition party Fidesz last week slammed the government for turning to the IMF to bolster the shaky economy. Viktor Orban said the move compromises Hungary’s sovereignty and reduce its room for financial manoeuvre. “It is shameful and painful that Hungary has to give up a part of its sovereign decisions because it has plunged into a crisis,” he said.

Orbán was not the only dissenting voice. “May God save Hungary from drawing the EUR 20 billion loan that is to be jointly provided by the IMF, the EU and the World Bank,” said property tycoon Sándor Demján, one of Hungary’s richest citizens and head of a national employers and entrepreneurs lobby group. “What Hungary really needs is to start structural reforms of its bloated public administration, pension, education and taxation systems and put an end to overspending. We must start saving; we cannot build a welfare state on loans,” he told the left-wing daily Népszabadság last Wednesday. He added that, under the circumstances, the issue of tax cuts can be set aside for six months.

Also less than ecstatic about the IMF bailout proposal was István Éger, head of the Hungarian Chamber of Physicians. Fearing that underpaid public health workers will be at the sharp end of the cutbacks that the IMF is demanding as a condition for the loan, he turned to President László Sólyom and Hungarian Academy of Sciences chairman József Pálinkás, asking for an independent study into whether such drastic cutbacks are necessary. The planned cancellation of the “thirteenth-month” bonus salary payment and other compulsory honorariums would create labour shortages that endanger patient care, Éger said last Wednesday.

Only last September, Éger had called for the government to raise doctors’ salaries to at least 70% of the EU average by 2013. Doctors’ wages vary from hospital to hospital, for example at Budapest Szent János Hospital, the average basic gross wage was HUF 331,000 (EUR 1,284) a month in March this year, while at the Szent Imre Hospital it is a mere HUF 237,000 (EUR 919). “The liberal economics mindset that created this crisis has suffered a global defeat, while at the same time the leaders of this country are preparing to accept terms dictated by the same mindset,” Éger added.

Last Friday, Finance Minister János Veres said the government will put a bill before Parliament within two weeks which, if passed, would allow the authorities to draw down on the IMF loan and channel money into the banking sector if required.

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The financial crisis and the opposition

By Vision Consulting

November 6 2008

Opposition needs to appear to be constructive rather than contrary as tough decisions loom

The most important issues in Hungarian politics at the moment are still management of the crisis, the HUF 375 billion (EUR 1.44 billion) spending cut announced by the government and the USD 25 billion (EUR 19.51 billion) loan granted by the International Monetary Fund, the World Bank and the European Union. The position of Prime Minister Ferenc Gyurcsány as “crisis manager” is likely to strengthen in the short-term. The opposition is still trying to find its feet in this new scenario.

MDF: stand on our own

At the national summit the Hungarian Democratic Forum (MDF) proposed a spending cut of approximately HUF 1 trillion (EUR 3.85 billion), considerably more than the government. The Forum’s criticism of the IMF agreement is related to this. According to its party leaders, the crisis should be managed from the state’s “own resources” through a spending cut, and the loan amount should on no account be spent on day-to-day matters . The latter is rational, but the government itself is not planning to spend the USD 25 billion, so the MDF’s tough approach does not really pose a challenge to the Hungarian Socialist Party (MSZP) minority government.

In reality it is a question of the considerably weakened MDF trying to become the favoured party among influential economic figures by taking a stance in favour of a larger spending cut. Despite its rhetorical attacks the Forum is in fact closer to the MSZP than the other parliamentary parties in terms of the budget.

SZDSZ: in line, & in the shadows

The Alliance of Free Democrats (SZDSZ) since leaving the coalition has not managed to adopt a new position as a decisive opposition party, nor as a political force capable of bringing down the prime minister and setting up a government of experts.

It has given in to pressure and is negotiating with the MSZP on significant policies, and has lost political weight. The “crisis-managing” prime minister has adopted the liberals’ proposal of a law putting a ceiling on spending and is reducing the deficit. The SZDSZ is incapable of triumphing in these questions, and has faded into the background beside Gyurcsány’s words and actions.

The liberals’ ultimate condition for rejoining the coalition is a tax-reform timetable, and that has not been fulfilled. The prime minister has made vague promises on this issue, but in the current situation his hands are tied.

The tax reform fund proposed by the SZDSZ is the guarantee for starting to reduce taxes, but not now: the money potentially saved in 2009 would be collected in this fund, which in the second half of 2009 at the earliest could be used as a basis for reducing taxes, and it is not yet known how much money can be collected. Overall we can say that the SZDSZ’s tough-sounding rhetoric is designed to obscure the fact that they have moved closer to the government.

Fidesz: Hungary shamed

Fidesz’s situation is also difficult: the consistency of the party’s communications has lessened, despite the fact that for a long time this has been one of its main strengths. Aside from the fundamental contradiction that Fidesz wishes to introduce immediate radical tax reductions without cutting spending, the party also took a unique stance in connection with the role of the IMF.

The party first stressed that negotiations should have been launched with the EU, and not the IMF. Next deputy chairman Mihály Varga expressed disappointment at the EU’s unresponsiveness: “It makes me question whether it’s worth being a member of the European Union.” With this statement he indirectly justified the government’s decision to turn to the IMF: if the EU is not willing to help, then the government has to look elsewhere. The government finally signed a joint loan guarantee agreement with the World Bank, the International Monetary Fund and the European Union.

Next Fidesz used its last remaining argument that Hungary has been shamed as the only EU country to have need to seek such assistance. Raising the question of responsibility is undoubtedly important. However at the time of crisis management, seeking a solution can compete with the issue of responsibility, and in the former respect the prime minister had the advantage.

A different game now

Just as swift crisis management has offered the prime minister a chance to strengthen his position, the prolonged real economy crisis could offer Fidesz a similar political opportunity. The next year of the Gyurcsány government could be spent in an ever-deepening crisis. That will make the MSZP’s already problematic situation extremely difficult. At this stage, however, we know little about whether the crisis will change voters’ expectations of political figures in the long-term, and whether, for example, Fidesz will be forced to adopt a less-confrontational style of politics. If that is the case then the outcome of the next elections will also depend on Fidesz’s ability to adapt.

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