(Source Gregor Mayer dpa) - Hungarian Prime Minister Viktor Orban likes to imagine himself a high stakes player at the poker table with the world’s most powerful. In fact, he is dancing dangerously close to the edge.
If the International Monetary Fund does not soon approve additional funding, the central European country faces insolvency, as international investors have lost all confidence in an economic recovery taking off in crisis-hit Hungary.
Ratings agencies have downgraded its sovereign debt to junk status, warning buyers they are taking on a high-risk investment. Signals from controversial economic policy makers in Budapest are seen as ambiguous at a time of a global crisis and extremely nervous markets.
Following a landslide victory in 2010, in which Orban’s conservative Fidesz party and its KDNP Christian Democrat allies swept two-thirds of the seats, the new prime minister has been reluctant to heed the signs of the times.
The global economic crisis, coupled with Hungary’s high level of national debt, bequeathed by the previous government, may have left him little financial leeway, according to analysts.
Yet instead of engaging in talks with the IMF and European Union in November, Orban opted to push controversial constitutional amendments through parliament, despite explicit warnings from the IMF and the EU.
Those moves mean the central bank’s independence would be undermined. They also place restrictions on the economic policies of future Hungarian governments.
The subsequent rapid fall in the value of the forint, along with the high cost of government borrowing, are now forcing a change of heart on Orban’s part.
The prime minister is sending Tamas Fellegi to Washington on Wednesday to negotiate with IMF head Christine Lagarde. The talks will be an “informal sounding out,” as they are officially referred to.
Fellegi will then travel to Brussels for talks with EU leaders. This week could be decisive for Hungary on the financial front, as the world’s economic powers probe whether Budapest is ready for a change of course.
Orban recently indicated this could be the case. “It is not a matter of prestige whether we stick to our former viewpoint or change it,” he told the official MTI news agency on Sunday.
Lagarde had earlier made her expectations clear in a CNN interview. Re-establishing central bank independence is seen as a precondition for launching talks on a new loan.
The IMF was “obviously very concerned” that Hungary’s legislation on its central bank was in compliance with EU legislation, Lagarde said.
On the prospects for the talks, Lagarde said: “We are not complacent. We don’t compromise. But equally, we never leave the table.”
The IMF head made clear that the door to substantive talks remained open, but that there had to be a shift in Budapest’s position.
However, a U-turn could present a huge loss of face for Orban, a leader who tolerates no dissent at home.
The Hungarian leader rules with an iron fist, ignoring the usual democratic rules, according to political scientist Zoltan Lakner of Budapest’s Corvinus University.
“There is no plan, only phantasmagoria, no coherence, only improvisation, no cooperation, only diktat,” Lakner says.
Orban came to power propagating the battle for Hungarian economic independence amid a West in decline. But he now finds himself in the position of a supplicant to the West’s financial institutions.
International analysts assume that Hungary needs new loans of 20 billion euros (25 billion dollars), and foresee long, drawn-out negotiations on the terms.
According to the Hungarian business website, fn.hu, which claims to have seen details of an IMF document on its non-negotiable demands from Hungary, Orban will have to make considerable concessions.
Central bank independence is by no means the only issue. Budapest will have to cut its expenditures, including for social security payments, and avoid “economic ad hoc measures,” according to the website.
This would mean a major shift in current government policy, with Hungary’s economic sovereignty restricted.
“If the IMF comes, I go,” Orban is reported to have told his immediate circle in November, when it was becoming apparent that he would have to back down. But sources close to the government believe he has come to terms with having to submit to IMF strictures.
Nevertheless, the outspoken prime minister’s room for political manoeuvre is increasingly restricted. He is unlikely to experience the rapid demise suffered by his football friend Silvio Berlusconi in Italy – but slow demolition by degrees looms.
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Source Gregor Mayer dpa
