Serious questions about Orbán’s action plan–Part II – Hungarian Spectrum

by Kevin | Last Updated: April 9, 2020


Among the critical reactions to the Orbán government’s announced plans to save the country from the impact of the coronavirus pandemic are some recurring complaints. One is that the prime minister, who is the only one who counts, moved far too late on almost all fronts. When at last he made an announcement, it was merely to promise that more information would come later. Thus, information arrived in dribs and drabs, and the pieces often didn’t fit. Confusion reigned.

I suspect that the Hungarian prime minister, like so many others, underestimated the severity of the COVID-19 outbreak and its economic impact on the country. Moreover, once it arrived in Hungary, he tried to downplay its spread. It is notable that Hungary is testing fewer people per one million population than most countries in the region. At last count, Slovenia had tested 15,303 per million; Austria, 14,022; the Czech Republic, 9,977; Slovakia, 3,914; Croatia, 3,332; and Hungary, 2,880. Lagging behind Hungary in testing are Poland, at 2,843; Romania, 2,693; and Serbia, 1,413. Therefore, the number of diagnosed cases is still relatively low in Hungary.

Note the missing tiles and the elevator that doesn’t work / Source: Zsúrpubi

As we can see from examples around the world, in countries where the government postponed the painful decision to shut down economic and social activities, the loss of life was substantial. And when the government was reluctant to move quickly on the economic front by providing cash for households and smaller enterprises so they can survive for a few months, they put the entire economic edifice at risk. If no such assistance comes and demand dries up, rebuilding the economy will be more difficult and will take a much longer time. So far, the Orbán government has been concentrating on the economic survival of larger companies and on job creation, which in Péter Ákos Bod’s opinion is not the role of the government.

Viktor Orbán seems to believe that, once the pandemic is over, the world will return to where it was in February. Tourists will be pouring into Hungary, and large ships will be floating on the Danube just as before. The incredible number of hotels, built with the encouragement of the Orbán government, will again be full of people. In reality, not only will many tourists stay at home, but towns that normally see a large number of visitors may hesitate to receive them all, at least for a while. These towns are, of course, being especially cautious in the throes of the pandemic. For the Easter weekend, the mayors of favorite tourist sites took the lead and said that they intended to close their towns to tourists. They were told they could not do this without permission from the government. Orbán obliged.

In the past I often wondered about the health of Hungarian public finances. Although I knew that an incredible amount of money arrived from Brussels, bolstering the local economy, I still had my suspicion that the books might not be in such great shape as the government would like us to believe. And now that we learn that the government’s actual contribution to dealing with the crisis is only 3% of the GDP, I can’t help thinking that perhaps the alleged abundance of funds Orbán so often boasts about doesn’t really exist. Most of the money the government is ready to part with was already included in the budget under a different name and designation. That’s why some critics, like Zoltán Bodnár, the former deputy chairman of the central bank, called Orbán’s proposals “the greatest sham in Hungarian history.” The only real help came from the Hungarian National Bank, which made enormous amounts of money available. Unfortunately, the government, most likely because of Viktor Orbán’s strange notions about a “work-based economy,” will not use it for what is really needed, an economic safety net and the creation of demand.

Péter Ákos Bod and other economists suggest stopping some of the planned giga-investments financed by the European Union and diverting the money to reviving the economy. Experts also call on Orbán, who seems to be stuck in his belief that Hungary must keep its deficit under 3%, to accept the blessing of the European Union to ignore the deficit cap that until now was considered to be sacrosanct. Orbán has always been ready to accept a handout from the EU and will undoubtedly tap into some of its emergency programs (though see below). Whether he will agree with Christine Lagarde, president of the European Central Bank, who just today urged European politicians to work together and agree to float 500 billion euros worth of “corona bonds,” is another matter.

Viktor Zsiday, an investment analyst and the portfolio manager of the successful Citadella Fund, began his interview with 444 by saying that, in the present economic situation, insisting on a work-based society is a serious economic mistake. He is satisfied with the steps taken by the central bank, which would allow the government to spend as much money as possible. But, unfortunately, Viktor Orbán is reluctant to give up his economic ideas, although they may be doing harm. In most other countries, says Zsiday, out of 100 companies the government tries to save 98, but if in Hungary, because of the reluctance to spend money, only 80 companies are saved, the consequences can be dire, such as permanently low GDP, high unemployment, and low incomes. The Orbán government originally planned a 1% deficit, which they now reluctantly changed to 2.7%, which according to Zsiday is still unrealistic. Every country will have high deficits, most likely between 5% and 10%, which under the circumstances he finds acceptable.

Meanwhile, the officials in charge of the economy cannot agree on even the most basic economic projections and actions. According to Finance Minister Mihály Varga, the government expects a recession of 3%, but György Matolcsy, chairman of the central bank, at the beginning of the week, was talking about 2-3% economic growth in 2020. Varga, in an interview with Bloomberg, said that the Hungarian government is ready to take advantage of the fund the European Union set up to resolve the coronavirus crisis, whereas Viktor Orbán and several Fidesz politicians claim that this money doesn’t exist.

Independent analysts paint a darker picture than government officials. Economists at Kopint-Tárki, an economic research company, predict at least a 5% recession but say it could be even higher if the situation is not handled better and if the crisis goes on much longer. They predict worse outcomes for Hungary than for other countries in the region because it is an economy with very close economic ties to the outside world and because the government package being contemplated at the moment is so paltry and slow to roll out. GKI, another economic research group, just released the news that in its nearly 30-year history, the consumer confidence index has never fallen as much in a month as it did between March and April 2020.

Given all of the pessimistic predictions, Viktor Orbán may well change course. His political radar is very sensitive, and when he realizes that his popularity is suffering because of his anemic response to the crisis, he may become a big spender to save the country, the Hungarian people, and, above all, himself.

April 9, 2020


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