1 Response to Good news from Hungary about the economy

  1. Smithborough says:

    While the news is good, I am of the opinion that a lot of the problems with the near collapse of the forint were of the government’s own making. A lot of the tough talking rhetoric about the IMF simply panicked foreign investors. The nationalisation of the private pillar of the pension funds already made them jumpy and the conforntational talk amplified this.

    The partial recovery in the forint has been in part as a result of the government backtracking from the confrontational strategy. It has also been as a result of the markets temporary boost in overall confidence due to a belief that Greece would be bailed out.

    The problem with this is that things in Greece don’t look good, so the markets could quite easily end up in a state of mass panic again. I don’t know if Orban is sincere about trying to deal with the IMF. If not and if this is a gamble I think it is quite a reckless one.

    So far as I can see the pension fund nationalisation was a short term gamble to plug the gap in the state finances, done in the belief that the international markets would recover quickly from the crisis and that the Hungarian economy would also bounce back. If the international situation had improved drastically in the last year it probably would have been looked at as a stroke of brilliance. Unfortunately the international situation has worsened and the gamble has not paid off.

    When it comes to dealing with the IMF I fear that this might be a similar short term effort to postpone decisions in the hope that economic conditions improve so that there is money there to pay the bills later. In particular I am concerned that the government thinks that it can borrow money on the bond markets and thereby not need an IMF loan. I’m doubtful about this as I think that the recent successes in the bond markets are as much to do with the short term belief in January that Greece was out of the woods (learly it isn’t).

    The moral of the story, if there is one, is that it is unwise to become dependant on borrowing to fund your state expenditure. The main bright spot for Hungary is that, unlike Greece, it is not part of the Euro. If it had been just think of what the situation would be like now….

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