Hungary vs. IMF: definitely not a David and Goliath fight

There’s something inexplicable to the West about Hungarian right-wing politicians’ attitude towards them: they always seem to be wary of the West, especially the US (which has predominantly right-wing governments, policies and general attitude). Extremist parties tend to take this even further: Jobbik goes as far as to propose suppressing western corporations in favor of closer ties with Russia. This isn’t too surprising considering the fact that allegations of Russian sponsorship of Jobbik emerge every once in a while. However that’s just part of the symptom: Hungarians are generally vary of any foreign power. If one’s literate enough in the history of Hungary, he can see why: ever since the Treaty of Trianon Hungary felt like it’s been abused and exploited by the foreign powers: the Paris treaty of 1947 has seen the ceding of 3 additional villages to the newly reestablished Czechoslovakia. Later on Stalin has given consent to forceful deportation of native Hungarians first within Czechoslovakia, then their expulsion to Hungary. It was also the Soviet-ruled Russia that has crushed Hungary’s 1956 attempt at a “major communist reform” while America just sat back and washed its hands of it. It goes without saying that this “cowardly” step of the Yanks didn’t go unnoticed in Hungary either. Fast forward to the 2000s now. Hungary has become a member of the EU and even though it can (and does) delegate its own MEPs via elections, many Hungarians don’t understand the “eurobureaucracy” at all: they think that they don’t have a say in EU matters no matter the results of the MEP elections.

The other challenge Hungarian populace faces is its complete financial illiteracy: they were lured into the Ponzi schemes of the 1990s just as easily as into the banks’ risky CHF and EUR-based mortgage schemes of the 2000s. Just as in private life, these people have failed to realize the inherent dangers in increased government spending as well. And let’s be honest: they didn’t care either. The only financial issues they were concerned with were the (inherently) false promises of tax cuts, boosts of social welfare and generally any promise that would’ve involved the government giving them more money. This is what they were taught ever since the Kádár regime: just “behave” and we’ll keep your mouth shut with money. What they weren’t taught is that money doesn’t grow on trees and that all the subsidies were paid for by enormous (public) debts. The only man who’s arranged for paying off a significant portion of this debt is Lajos Bokros who’s been despised for the cuts (which has been dubbed the “Bokros package”) ever since.

Because of these two factors mentioned above an average Hungarian doesn’t seem to be able to understand why is ANY (financial) backing from IMF necessary. Therefore it doesn’t understand the reason Orbán goes out of his way to comply with their terms either. Even the somewhat more thoughtful see only that Hungary has to “kiss up” to an international organization backed by the West (namely EU and US) and that Orbán (not necessarily Hungary) has to do everything they say or else. The international outlashes against Hungary don’t help matters either. Sure, there are quite a few Hungarians who are aware of the dangerous situation Hungary (especially its budget) is and there are also some others who propose drastic budget cuts, big reforms in always all the government sectors and generally a smaller state (Lajos Bokros being their most prominent supporter), but their numbers are small and Orbán doesn’t listen to them either. The Fidesz instead seems to be toying with the idea of inflating themselves out of the debt, which MIGHT sound fine, but has a huge risk associated with it: hyperinflation. Since Hungary has already gotten a gigantic taste of what it feels like (and managed to set a world record in it which hasn’t been broken ever since) perhaps the combined efforts of IMF and EU are in fact an attempt to save them from their own doom.

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One Response to Hungary vs. IMF: definitely not a David and Goliath fight

  1. Smithborough says:

    Unfortunately far too many people in Hungary believe that international markets are a big conspiracy controlled by sinister but intelligent forces (usually banks or Jews or both). I would suggest that the reality is that markets are more like a mob controlled not by intelligence but by whatever the dominant mass emotion is, exiliaration if going up and panic if going down. Unfortunately the conspiracy theory view, a market loss of confidence tends to be viewed as an attack on the country by sinister forces led by the IMF (or whoever the current bete noire is). Under the conspiracy mindset telling the IMF to get lost is therefore a defence of the country. If, however, the market is the panicking mob that I suggest it is, then this sort of action tends to panic the mob more and the situation can rapidly spiral out of control (as nearly happened in early January).

    I’m not convinced that the average Hungarian understanding of capitalism has moved on much from the communist way of thinking. This has negative effects in just about every area of the economic life of the country and is a major contributor to the current economic mess. International markets seem to be viewed as conspiracies under the control of a small number of individuals while business is unfortunately often more focused on a short term rip off rather than a long term idea of attracting customers by good service. Honesty is drastically penalised by overregulation and overtaxation then people wonder why only the dishonest have any money.

    I’m interested in your view of what the options are to get out of the current economic mess, as I don’t see a whole lot of possibilities myself. I cannot see how the government can finance the budget without going to the IMF and so far they have not handled that well by recklessly panicking markets which are already in a panic over the Eurozone situation. To use a bad analogy, if you’re standing in the square and a madman runs in with a gun it is probably better not to shout at him telling him that he cannot hit you from that distance.

    • CKtravel says:

      Yeah, of course. Since they don’t know anything about the way free market works, they rather believe in conspiracy theories instead. This is also the reason Orbán (and his subordinates) were able to convince them that all the grief of the country’s caused by the “attacks from unscrupulous speculators” (which has been accentuated by comments from Jobbik as well). Unfortunately I had to omit this from the article or else it would’ve ended up twice as big (or even more).

      I’m also pretty sure that people’s attitude towards capitalism hasn’t changed since Socialist times in Hungary at all. Unfortunately the way things worked during the Kádár regime has lured people into this false sense of security over the financial affairs of the state. Kádár has convinced the people that everything’s gonna be fine as long as he’s in power and in fact everything WAS fine from ordinary people’s point of view: families made enough money to be able to afford not only a single car, but even two; they were able to get goods that nobody else from the Eastern bloc could (e.g. Coca-Cola); they could go on a vacation at least once a year and hell many were able to buy even a cottage in the countryside (or preferably near Balaton). In 1989 it turned out that all of this luxury and wealth has been paid for using humongous public debt. But the people have refused to acknowledge this. Also the bribery system (and tax evasion and all the rest) is also the legacy of the Kádár system: it was all-prevalent during Kádár times (or even earlier) and since these methods have worked after 1989 just as well, people kept doing it. This was also a protection mechanism against the unthinkably high taxes which was meant to be used for the reduction of the public debt (but was in fact pilfered and used to support a VERY ineffective bureaucracy). The companies’ behavior also seems to stem from the same root: during socialist times the companies were state-owned and hence nobody had in his personal interest to act the best they could (or else what? He’s gotten fired? In an economy where full employment is compulsory?) and this attitude has seems to have stuck. Even though the majority of firms are now owned by individuals, everyone seems to have the same thinking: bosses don’t listen for suggestions for an improvement and employees don’t suggest anything (instead they sabotage things at times).

      The options to get out of this mess: well, a smaller state’s inevitable: local governments have to be merged/reduced, state bureaucracy has to be reduced and generally the state has to reduce its expenses via reducing itself. This could reduce state expenses by many millions. But this would also mean that people would have to be fired from their comfy state jobs. And pension age would have to be raised too, since the natality rate’s on the decline. But these two probably won’t be enough in the short term so some tax raises would have to be performed too. These could later be abolished when the public debt shrinks to a reasonable rate, but that’d be years. But the majority of the measures would have to be aimed at sustainable growth: new investors would have to be invited, investment funding programs would have to be started and education would have to be COMPLETELY reformed: no universities/colleges should push only for theoretical knowledge alone, but they should equip students with practical knowledge as well. This latter alone would give us a huuuge advantage in the long term: it’s always the independent thinkers (and tinkerers :P) that move the world ahead.

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