Hungary May Seek Bankruptcy to Dump Its Sovereign Debts
Land, Thomas, Contemporary Review
VIKTOR Orban, the ultra-conservative, populist Hungarian prime minister, astonished the world's financial markets on re-assuming power in May 2010 by declaring that his post-Communist predecessors had cooked the books and brought the national economy to the edge of collapse. Such a development would have done huge damage to the debt-ridden European Union (EU)--of which Hungary was a nascent member--that might have been averted only through massive new cash injections similar to those received by Greece. But Orban had in fact inherited the books from a politically neutral, caretaker administration that had been in power for a year before the April 2010 landslide elections. Its figures had stood up to the scrutiny of the country's creditors. These included the International Monetary Fund (IMF) which had granted 20bn euros in emergency credit to Hungary. Much of that money was still available to the National Bank of Hungary, intended to ensure long-term financial stability by meeting the maturing current liabilities and attracting new loans as the existing debts matured. Orban's claim was therefore rightfully dismissed by the markets as an inept negotiating ploy for more easy cash. His Fidesz administration has thus earned the contempt of its Western partners as well as the world mass communication media. But in less than two years in power, Orban and his economy minister Gyorgy Matolcsy have managed to create a genuine sovereign debt crisis that will either bring them down or endanger the vulnerable economies of the nearby Eastern and Southern member states of the EU.
The free fall of Hungary's national economy has been caused by a controversial legislative programme enacted in feverish haste. Using its stunning parliamentary majority, the Fidesz administration has muscled through a new constitution and a raft of supporting laws and regulations in the absence of cross-party support or any semblance of national consensus (see Thomas Land, 'Rewriting History: New Hungarian Constitution Shirks Responsibility for the Holocaust', Contemporary Review, September 2011, page 330). The new rules, enforced rigidly and in some cases with retrospective effect, disable the traditional checks and balances of democratic administration, undermine human as well as property rights, curb the freedom of the mass communication media and introduce gender and religious discrimination. Their global effect is the creation of conditions essential for the indefinite survival of single-party rule similar in many ways to the retired, Soviet-inspired power structure that ruled here in the bygone youth of Orban and Matolcsy. As the cynical cadres of the administrative class in the bad old days spouted communism in which they did not believe, so their modern counterparts today spout democracy in which they also do not believe. Such a culture feeds unspeakable corruption and intolerable arrogance of power. But while the old regime managed to keep its relations sweet with the Western banks, the wildly unpredictable and sometimes self-contradictory economic policies of the Orban-Matolcsy duo have managed to frighten away business. The principal global credit rating agencies have responded by downgrading Hungary's sovereign bonds to junk status, sending the value of the national currency spiralling downwards and consequently inflating the national debt to unprecedented levels. The interest yields fetched by Hungary's 10-year bonds have recently approached 10 per cent, well in excess of sustainable levels. Malev, the Hungarian national airline, has just announced its bankruptcy. The insolvency of BKV, the mass transit monopoly of the capital of Budapest, is widely expected within weeks. How will the country service the next major batch of its sovereign debts when they become payable in the spring?
Professor Ivan Szelenyi of Yale University perceives a carefully constructed master-plan behind the apparently irrational blundering of Hungary's financial management, deliberately aimed at national bankruptcy. …